UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04986
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Franklin Investors Securities Trust
------------------------------------
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
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(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area Code: (650) 312-2000
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Date of fiscal year end: 10/31
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Date of reporting period: 4/30/10
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ITEM 1. REPORTS TO STOCKHOLDERS.
APRIL 30, 2010
SEMIANNUAL REPORT
AND SHAREHOLDER LETTER
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Limited Maturity U.S. Government Securities Fund
Franklin Real Return Fund
SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com
(GRAPHIC)
FRANKLIN
INVESTORS SECURITIES TRUST
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ....................................................... 1
SEMIANNUAL REPORT
Economic and Market Overview ............................................. 3
Franklin Balanced Fund ................................................... 5
Franklin Convertible Securities Fund ..................................... 14
Franklin Equity Income Fund .............................................. 24
Franklin Limited Maturity U.S. Government Securities Fund ................ 32
Franklin Real Return Fund ................................................ 40
Financial Highlights and Statements of Investments ....................... 48
Financial Statements ..................................................... 88
Notes to Financial Statements ............................................ 97
Shareholder Information .................................................. 118
Shareholder Letter
Dear Shareholder:
During the six-month period ended April 30, 2010, the U.S. economy showed signs
of an increasingly broad-based expansion while interest rates remained near
all-time lows and inflation was muted. Although corporate and global economic
data underscored some weak spots amid short-term improvements, most U.S.
companies beat consensus earnings estimates during fourth quarter 2009 and first
quarter 2010, aided by government incentives and a wave of restructuring and
cost-cutting initiatives. U.S. equity markets enjoyed an unusually strong
nine-month rally until first quarter 2010, when volatility returned as investors
began to heed signs of overvaluation. In addition, concerns about some European
countries' creditworthiness contributed to significant market uncertainty.
Investors also questioned the global recovery's sustainability as some
government stimulus measures began to wind down. During the reporting period,
U.S. Treasury yields rose and fell in response to wavering investor sentiment.
The yield curve reached historically steep levels during the first quarter of
2010 and flattened only slightly by period-end.
We think it is important to put short-term market developments in perspective.
Keep in mind we have navigated through past periods of high market volatility by
remaining committed to our long-term perspective and disciplined investment
philosophy. Although conditions remain challenging, our experience gives us
reason to be optimistic about the potential for future market stabilization and
economic recovery.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
Franklin Investors Securities Trust's semiannual report goes into greater detail
about prevailing conditions during the period under review. In addition, you
will find performance data, financial information and discussions from the
portfolio managers. Please remember that all securities markets fluctuate, as do
mutual fund share prices.
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, and find helpful
financial planning tools. We hope you will take advantage of these online
services.
Although market conditions are constantly changing, we remain committed to our
disciplined strategy as we manage the Funds, keeping in mind the trust you have
placed in us. As always, we recommend investors consult their financial advisors
and review their portfolios to design a long-term strategy and portfolio
allocation that meet their individual needs, goals and risk tolerance. We firmly
believe that most people benefit from professional advice, and that advice is
invaluable as investors navigate changing market environments.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30, 2010. 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.
2 | Not part of the semiannual report
Semiannual Report
Economic and Market Overview
The U.S. economy showed signs of broad-based improvement during the six-month
reporting period. Domestic manufacturing and exports posted gains, consumer
spending and confidence rebounded from recessionary lows, and the services
sector expanded for the first time in more than two years. However, challenges
remained as mixed economic reports, elevated debt concerns surrounding the U.S.
budget deficit and lack of job prospects for the unemployed hindered the
economy's advance. Fourth quarter 2009 and first quarter 2010 corporate profit
growth largely surpassed consensus estimates, which allowed businesses to begin
restocking inventories that were depleted during the recession. Prices for new
and previously occupied homes rose in most regions due to lower interest rates,
a first-time homebuyer tax credit program, and prices dipping to levels that
lured bargain hunters. Unfortunately, the housing sector overall remained weak
as the pace of home sales and housing starts failed to gain traction.
The U.S. economy expanded at its fastest pace in six years during 2009's fourth
quarter, led by large inventory adjustments, government spending, a revival of
business investment and rising exports. U.S. economic output as measured by
gross domestic product (GDP) grew at an annualized rate of 5.6% in the fourth
quarter, followed by an estimated annualized 3.0% advance in 2010's first
quarter.(1) As renewed signs of a demand-led recovery emerged, oil prices rose
from $77 per barrel at the end of October 2009 to $86 at period-end. The April
2010 inflation rate was an annualized 2.2%.(2) Core inflation, which excludes
food and energy costs, rose at a 0.9% annualized rate(2) and was below the
Federal Reserve Board's (Fed's) informal target range of 1.5% to 2.0%.
Given few inflationary pressures and uncertainty surrounding the economic
recovery, the Federal Open Market Committee (FOMC) announced it intended to hold
the federal funds target rate in the 0% to 0.25% range "for an extended period"
as it laid the groundwork for an eventual tightening of monetary policy. As the
economy improved, the Fed began withdrawing more of the extraordinary support
policies it had provided in response to the 2008 financial crisis. Late in the
reporting period, the labor market improved somewhat as the economy began to add
jobs, and the unemployment rate dropped from a 26-year high of 10.1% in October
2009 to 9.9% in April.(2)
(1.) Source: Bureau of Economic Analysis.
(2.) Source: Bureau of Labor Statistics.
Semiannual Report | 3
As investor confidence improved amid encouraging economic data, equity markets
generally rallied, though the advance was uneven. On April 12, 2010, the Dow
Jones Industrial Average (the Dow) closed above 11,000, a level it had not
reached in nearly 19 months. The rally was driven in part by investor optimism
about corporate profits, a recovering economy and the announcement of a debt
relief plan for the ailing Greek government. This achievement was largely
symbolic, however, and volatile trading activity soon resumed. The market
plunged after independent credit rating agency Standard & Poor's(R) slashed its
credit ratings for Spain, Greece and Portugal but rebounded after the FOMC
announced it would keep interest rates stable and many companies released upbeat
earnings reports.
For the six months under review, the blue chip stocks of the Dow delivered a
+14.87% total return, while the broader Standard & Poor's 500 Index (S&P 500(R))
posted a total return of +15.66% and the technology-heavy NASDAQ Composite Index
returned +20.91%.(3) All major industry groups posted gains for the period, with
the strongest returns from the cyclical consumer discretionary, industrials and
materials sectors.
Wary investors favored short-term Treasuries, and the Treasury yield curve
reached historically steep levels during the period. The spread between two-and
10-year Treasury yields increased from 251 basis points (100 basis points equal
one percentage point) at the beginning of the period to 272 basis points at
period-end. The two-year Treasury bill yield rose from 0.90% to 0.97% over the
six-month period, while the 10-year Treasury note yield rose from 3.41% to
3.69%.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30,
2010. 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.
(3.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
Dow is price weighted based on the average market price of 30 blue chip
stocks that are generally industry leaders. The S&P 500 is a market
capitalization-weighted index of 500 stocks designed to measure total U.S.
equity market performance. The NASDAQ Composite Index is a broad-based,
market capitalization-weighted index designed to measure all NASDAQ
domestic and international based common type stocks listed on The NASDAQ
Stock Market.
4 | Semiannual Report
Franklin Balanced Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Balanced Fund seeks income and
capital appreciation by investing in a combination of stocks, convertible
securities and fixed income securities. The Fund will normally invest at least
25% of its total assets in equity securities and at least 25% of its total
assets in fixed income securities, including money market securities.
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin Balanced Fund covers the period ended April
30, 2010.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Balanced Fund - Class A delivered a
cumulative total return of +11.80%. The Fund underperformed its equity
benchmark, the Standard & Poor's 500 Index (S&P 500), which generated a +15.66%
total return for the same period.(1) However, it outperformed its fixed income
benchmark, the Barclays Capital (BC) U.S. Aggregate Index, which posted a +2.54%
total return.(2) You can find the Fund's long-term performance data in the
Performance Summary beginning on page 9.
INVESTMENT STRATEGY
We seek income by investing in a combination of corporate, agency and government
bonds issued in the U.S. and other countries, as well as dividend-paying common
stocks and convertible securities. We seek capital appreciation by investing in
equity securities and convertible securities of companies from a variety of
industries. We will generally invest in investment-grade fixed income
securities, but may invest up to 10% of our total assets in nonconvertible bonds
rated below investment grade. We apply a bottom-up approach to investing in
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The S&P 500 is a market capitalization-weighted index of
500 stocks designed to measure total U.S. equity market performance.
(2.) Source: (C) 2010 Morningstar. The BC U.S. Aggregate Index is a
market-capitalization weighted index representing the U.S.
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 non-convertible, must have at least one year to final
maturity and must be rated investment grade (Baa3/BBB-/BBB- or higher) by
using the middle rating of Moody's, Standard & Poor's and Fitch,
respectively. The indexes are unmanaged and include reinvested
distributions. 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 52.
Semiannual Report | 5
PORTFOLIO BREAKDOWN
Franklin Balanced Fund
Based on Total Net Assets as of 4/30/10
(BAR CHART)
Common Stocks 40.9%
Corporate Bonds 30.1%
Equity-Linked Securities 6.6%
Convertible Bonds 5.3%
Convertible Preferred Stocks 4.8%
Municipal Bonds 1.3%
Mortgage-Backed Securities 0.2%
Preferred Stocks 0.1%
Asset-Backed Securities & Commercial Mortgage-Backed Securities 0.1%
Short-Term Investments & Other Net Assets 10.6%
DIVIDEND DISTRIBUTIONS*
Franklin Balanced Fund
11/1/09-4/30/10
DIVIDEND PER SHARE
-------------------------------------------------------
MONTH CLASS A CLASS C CLASS R ADVISOR CLASS
- ----- ----------- ----------- ----------- -------------
November 3.00 cents 2.44 cents 2.85 cents 3.19 cents
December 3.00 cents 2.45 cents 2.84 cents 3.23 cents
January 3.00 cents 2.45 cents 2.84 cents 3.23 cents
February 3.00 cents 2.45 cents 2.84 cents 3.23 cents
March 3.00 cents 2.48 cents 2.85 cents 3.24 cents
April 3.00 cents 2.48 cents 2.85 cents 3.24 cents
----------- ----------- ----------- ------------
TOTAL 18.00 CENTS 14.75 CENTS 17.07 CENTS 19.36 CENTS
* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
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.
MANAGER'S DISCUSSION
During the period under review, the Fund's equity exposure was a significant
driver of returns led by strong performance from many of our holdings in the
consumer discretionary, industrials and financials sectors. Within consumer
discretionary, Comcast and CBS performed well on an absolute basis, driven in
part by the expected recovery in television advertising. Industrials holdings
General Electric, United Technologies and General Dynamics helped performance
largely due to their exposure to domestic economic recovery as well as emerging
market growth. The Fund had a number of positive performers in the financials
sector, such as convertible bond positions in iStar Financial and Forest City
Enterprises, which increased in value largely due to the recovery in real estate
financing markets. Among major banks, our convertible preferred investments in
Citigroup(3) and Bank of America provided strong returns, along with our common
stock position in Wells Fargo.
(3.) This holding was sold by period-end.
6 | Semiannual Report
The Fund's equity investments in telecommunications companies such as AT&T and
Verizon were weaker performers as investors focused on businesses more leveraged
to the recovering economy. Consistent with our strategy, we continued to view
the dividend yields and total return opportunity offered by the
telecommunication services sector as attractive despite a slowdown in growth for
the wireless telecommunications industry.
The Fund's fixed income weighting remained focused on investment-grade corporate
bonds as well as select opportunities in high yield corporate bonds. During the
period, continued credit spread contraction benefited Fund holdings by driving
the total return of investment-grade corporate bonds ahead of the broader fixed
income market benchmark. For example, the BC U.S. Aggregate Index's
investment-grade corporate bond component returned +4.82%, while U.S. Treasuries
returned +0.89%.
The fund benefited from strong gains among several banking and finance
companies, REITs, energy holdings and consumer non-cyclical companies. Within
the banking industry, bonds issued by Bank of America, Wells Fargo and JPMorgan
Chase & Co. all benefited results. A bond issued by iStar Financial, a
specialized real estate lending company, increased in value after the commercial
real estate market began to function in a more normal manner.
In the energy sector, the Fund benefited from a diversified cross section of
holdings including securities from Petroplus Finance, a leading independent
refiner in Europe and the U.K., Weatherford International, a leading provider of
oilfield services and equipment, and Chesapeake Energy, a leading domestic
onshore producer of oil and gas.
Select individual corporate bond holdings underperformed, including The Goldman
Sachs Group, Icahn Enterprises(3) and Boston Scientific.
At period-end the Fund had several equity call and put options, which we used to
manage our positions and adhere to specific buy-and-sell targets. None of the
derivatives in the Fund provided leverage or speculative exposure to a specific
investment.
TOP 5 EQUITY HOLDINGS
Franklin Balanced Fund
4/30/10
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Merck & Co. Inc. 2.1%
HEALTH CARE
ConocoPhillips 1.9%
ENERGY
Verizon Communications Inc. 1.8%
TELECOMMUNICATION SERVICES
Bank of America Corp. 1.7%
FINANCIALS
AT&T Inc. 1.7%
TELECOMMUNICATION SERVICES
TOP 5 BOND HOLDINGS
Franklin Balanced Fund
4/30/10
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
MGM Mirage 2.1%
CONSUMER DISCRETIONARY
California State GO 1.3%
MUNICIPAL BONDS
Bank of America Corp. 1.1%
FINANCIALS
Cemex SAB de C.V. 1.1%
MATERIALS
iStar Financial Inc. 1.0%
FINANCIALS
Semiannual Report | 7
Thank you for your continued participation in Franklin Balanced Fund. We look
forward to serving your future investment needs.
(PHOTO OF EDWARD D. PERKS)
/s/ Edward D. Perks
Edward D. Perks, CFA
(PHOTO OF ALAN E. MUSCHOTT)
/s/ Alan E. Muschott
Alan E. Muschott, CFA
(PHOTO OF SHAWN LYONS)
/s/ Shawn Lyons
Shawn Lyons, CFA
Portfolio Management Team
Franklin Balanced Fund
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
8 | Semiannual Report
Performance Summary as of 4/30/10
FRANKLIN BALANCED FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FBLAX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.82 $9.37 $8.55
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1800
CLASS C (SYMBOL: FBMCX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.82 $9.31 $8.49
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1475
CLASS R (SYMBOL: N/A) CHANGE 4/30/10 10/31/09
- --------------------- ------ ------- --------
Net Asset Value (NAV) +$0.82 $9.38 $8.56
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1707
ADVISOR CLASS (SYMBOL: N/A) CHANGE 4/30/10 10/31/09
- --------------------------- ------ ------- --------
Net Asset Value (NAV) +$0.82 $9.38 $8.56
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1936
Semiannual Report | 9
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (7/3/06)
- ------- ------- ------- ------ ------------------
Cumulative Total Return(2) +11.80% +37.31% -3.27% +11.85%
Average Annual Total Return(3) +5.39% +29.49% -3.04% +1.39%
Value of $10,000 Investment(4) $10,539 $12,949 $9,117 $10,542
Avg. Ann. Total Return (3/31/10)(5) +39.29% -2.69% +0.84%
Distribution Rate(6) 3.62%
30-Day Standardized Yield(7) 2.63%
Total Annual Operating Expenses(8)
Without Waiver 1.31%
With Waiver 1.02%
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (7/3/06)
- ------- ------- ------- ------ ------------------
Cumulative Total Return(2) +11.48% +36.47% -5.23% +8.97%
Average Annual Total Return(3) +10.48% +35.47% -1.78% +2.27%
Value of $10,000 Investment(4) $11,048 $13,547 $9,477 $10,897
Avg. Ann. Total Return (3/31/10)(5) +45.81% -1.40% +1.75%
Distribution Rate(6) 3.20%
30-Day Standardized Yield(7) 2.09%
Total Annual Operating Expenses(8)
Without Waiver 2.01%
With Waiver 1.72%
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (7/3/06)
- ------- ------- ------- ------ ------------------
Cumulative Total Return(2) +11.67% +36.99% -3.72% +11.17%
Average Annual Total Return(3) +11.67% +36.99% -1.25% +2.81%
Value of $10,000 Investment(4) $11,167 $13,699 $9,628 $11,117
Avg. Ann. Total Return (3/31/10)(5) +47.65% -0.85% +2.31%
Distribution Rate(6) 3.65%
30-Day Standardized Yield(7) 2.59%
Total Annual Operating Expenses(8)
Without Waiver 1.53%
With Waiver 1.24%
10 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE(1) (CONTINUED)
ADVISOR CLASS 6-MONTH 1-YEAR 3-YEAR INCEPTION (7/3/06)
- ------------- ------- ------- ------ ------------------
Cumulative Total Return(2) +11.95% +37.62% -2.38% +13.12%
Average Annual Total Return(3) +11.95% +37.62% -0.80% +3.28%
Value of $10,000 Investment(4) $11,195 $13,762 $9,762 $11,312
Avg. Ann. Total Return (3/31/10)(5) +48.17% -0.45% +2.75%
Distribution Rate(6) 4.14%
30-Day Standardized Yield(7) 3.09%
Total Annual Operating Expenses(8)
Without Waiver 1.03%
With Waiver 0.74%
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.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
ASSUME CERTAIN EXPENSES SO THAT COMMON EXPENSES (EXCLUDING RULE 12B-1 FEES AND
ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.71%
(OTHER THAN CERTAIN NONROUTINE EXPENSES), UNTIL 2/28/11.
ENDNOTES
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
PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE
PRICE MAY DECLINE. WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET
CLASSES OVER THE LONG TERM, THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE
SHORT TERM AS A RESULT OF FACTORS AFFECTING INDIVIDUAL COMPANIES, INDUSTRIES OR
THE SECURITIES MARKET AS A WHOLE. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have a higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yields for
the period would have been 2.49%, 1.96%, 2.46%, and 2.95% for Classes A, C,
R and Advisor, respectively.
(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. Six-month return has not been
annualized.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(6.) Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Classes C, R and
Advisor) per share on 4/30/10.
(7.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(8.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
Semiannual Report | 11
Your Fund's Expenses
FRANKLIN BALANCED FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
12 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09- 4/30/10
----------------- -------------- ------------------------
CLASS A
Actual $1,000 $1,118.00 $5.30
Hypothetical (5% return before expenses) $1,000 $1,019.79 $5.06
CLASS C
Actual $1,000 $1,114.80 $8.97
Hypothetical (5% return before expenses) $1,000 $1,016.31 $8.55
CLASS R
Actual $1,000 $1,116.70 $6.35
Hypothetical (5% return before expenses) $1,000 $1,018.79 $6.06
ADVISOR CLASS
Actual $1,000 $1,119.50 $3.73
Hypothetical (5% return before expenses) $1,000 $1,021.27 $3.56
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 1.01%; C: 1.71%; R:
1.21%; and Advisor: 0.71%), multiplied by the average account value over
the period, multiplied by 181/365 to reflect the one-half year period.
Semiannual Report | 13
Franklin Convertible Securities Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Convertible Securities Fund
seeks to maximize total return consistent with reasonable risk by seeking to
optimize capital appreciation and high current income under varying market
conditions and investing at least 80% of its net assets in convertible
securities.
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PORTFOLIO BREAKDOWN
Franklin Convertible Securities Fund
Based on Total Net Assets as of 4/30/10
(PIE CHART)
Convertible Bonds 74.6%
Convertible Preferred Stocks 22.7%
Short-Term Investments & Other Net Assets 2.7%
This semiannual report for Franklin Convertible Securities Fund covers the
period ended April 30, 2010.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Convertible Securities Fund - Class A
delivered a +17.40% cumulative total return. The Fund underperformed its
benchmark, the BofA Merrill Lynch (BofAML) All Total Return Alternatives U.S.
Convertibles Index, which had a +22.26% total return for the same period.(1) You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 19.
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BofAML All Total Return Alternatives U.S.
Convertibles Index consists of domestic securities of all quality grades
that are convertible into U.S. 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. The index is unmanaged and includes
reinvestment of any income or distributions. 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 62.
14 | Semiannual Report
INVESTMENT STRATEGY
We follow a strategy of maintaining a balance in the portfolio between the
equity and debt characteristics of convertible securities with an emphasis on
the equity features. Convertible securities are attractive for two reasons: the
opportunity to participate in common stocks' potential growth with relatively
reduced volatility, and the potential for current income with potential downside
protection from bonds. Typically we sell securities whose equity sensitivity
becomes too high and no longer offers appropriate downside protection. Likewise,
as securities become too bond-like -- reducing their ability to appreciate with
increases in the underlying common stock -- we attempt to redeploy those assets
into more balanced convertible securities and maintain the potential for the
Fund's upside participation. Our experienced team of analysts searches for
investment opportunities among all economic sectors and considers a company's
long-term earnings, asset value and cash flow potential, to create a broadly
diversified portfolio.
MANAGER'S DISCUSSION
Nearly every sector the Fund invested in rose in value, as did the majority of
the portfolio's individual securities, supporting overall performance during the
six months under review. In an environment of improving economic data and
rebounding consumer spending, the Fund's economically sensitive (or cyclical)
sectors such as consumer discretionary, information technology, financials and
industrials fared particularly well. Notable consumer discretionary investments
included specialty retail and automobile industry holdings, as sales accelerated
during the period. Automobile manufacturer Ford Motor, a new Fund position in
Coinstar, an operator of supermarket coin-counting and DVD rental machines, and
discount footwear purveyor DSW, led returns. The Fund's media industry holding
Live Nation Entertainment, the world's largest ticket seller and promoter of
live entertainment, and which recently purchased Ticketmaster in a bid to expand
its services, was another strong contributor from the consumer discretionary
sector.
Strong earnings from technology-related firms offered evidence that businesses
around the world were beginning to invest in new computers, software and server
systems after delaying such upgrades during the recession. The Fund's large
allocation to the information technology sector appeared to benefit from this
trend. Companies that manufacture semiconductors and related equipment were
among the top recipients of increased business investment during the period,
allowing the Fund's positions in Microchip Technology, Micron Technology and
Intel to increase in value. Many manufacturers of computers and peripherals rose
in value, such as Fund holdings EMC and NetApp, which design and make
data-storage devices and related software.
Semiannual Report | 15
TOP 10 HOLDINGS
Franklin Convertible Securities Fund
4/30/10
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
WESCO International Inc. 2.8%
INDUSTRIALS
Alliance Data Systems Corp. 2.6%
INFORMATION TECHNOLOGY
Citigroup Inc. 2.5%
FINANCIALS
Ford Motor Co. Capital Trust II 2.4%
CONSUMER DISCRETIONARY
Intel Corp. 2.3%
INFORMATION TECHNOLOGY
Microchip Technology Inc. 2.3%
INFORMATION TECHNOLOGY
Carnival Corp. 2.2%
CONSUMER DISCRETIONARY
MGM Mirage 2.2%
CONSUMER DISCRETIONARY
VeriFone Holdings Inc. 2.2%
INFORMATION TECHNOLOGY
Coinstar Inc. 2.1%
CONSUMER DISCRETIONARY
In the financials sector, real estate investment trusts iStar Financial and
Simon Property Group (sold by period-end) rebounded from depressed levels.
Within the diversified financial services industry, banking and financial
services conglomerate Citigroup was a strong contributor to returns. Other
strong performers during the period included, in the health care sector,
biotechnology company BioMarin Pharmaceutical and generic pharmaceutical
manufacturer Mylan. Additionally, electrical products distributor WESCO
International was a strong performer for the Fund.
Despite the Fund's positive overall results, there were some detractors from
performance, particularly among companies typically considered non-cyclical. Our
only holding in the out-of-favor consumer staples sector, agricultural
conglomerate Archer Daniels Midland, lost value. The Fund's utilities holdings
produced positive but somewhat lackluster returns in light of the market's
strength during the six months under review. A key detractor was the Fund's
position in independent power producer and marketer NRG Energy, which we sold.
Our telecommunications- and energy-related holdings also produced tepid returns.
In other sectors, biotechnology company Gilead Sciences in health care, and a
Liberty Media security convertible into Motorola in information technology, lost
value during the period.
16 | Semiannual Report
Thank you for your continued participation in Franklin Convertible Securities
Fund. We look forward to serving your future investment needs.
(PHOTO OF ALAN E. MUSCHOTT)
/s/ Alan E. Muschott
Alan E. Muschott, CFA
(PHOTO OF MATTHEW QUINLAN)
/s/ Matthew Quinlan
Matthew Quinlan, CFA
(PHOTO OF J. BLAIR SCHMICKER)
/s/ J. Blair Schmicker
J. Blair Schmicker, CFA
Portfolio Management Team
Franklin Convertible Securities Fund
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
Semiannual Report | 17
J. BLAIR SCHMICKER assumed portfolio manager responsibilities for Franklin
Convertible Securities Fund in February 2010. He specializes in equity research
analysis of the utilities and industrials sectors. His primary research coverage
includes the integrated utility, capital goods, alternative energy and
construction industries.
Prior to joining Franklin Templeton Investments in 2007, Mr. Schmicker worked as
an associate at Aetos Capital and as an analyst at Credit Suisse.
Mr. Schmicker received an M.B.A. from The Wharton School, and a B.A. in
economics and mathematics from Dartmouth College. Mr. Schmicker is a Chartered
Financial Analyst (CFA) Charterholder and a member of the CFA Institute.
18 | Semiannual Report
Performance Summary as of 4/30/10
FRANKLIN CONVERTIBLE SECURITIES FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FISCX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$1.81 $14.09 $12.28
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.3043
CLASS C (SYMBOL: FROTX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$1.78 $13.94 $12.16
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.2567
ADVISOR CLASS (SYMBOL: FCSZX) CHANGE 4/30/10 10/31/09
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) +$1.81 $14.10 $12.29
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.3200
Semiannual Report | 19
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +17.40% +43.69% +33.22% +76.00%
Average Annual Total Return(2) +10.64% +35.40% +4.66% +5.19%
Value of $10,000 Investment(3) $11,064 $13,540 $12,559 $16,590
Avg. Ann. Total Return (3/31/10)(4) +44.54% +3.45% +4.69%
Distribution Rate(5) 4.01%
30-Day Standardized Yield(6) 2.29%
Total Annual Operating Expenses(7) 0.98%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +16.90% +42.76% +28.37% +63.42%
Average Annual Total Return(2) +15.90% +41.76% +5.12% +5.03%
Value of $10,000 Investment(3) $11,590 $14,176 $12,837 $16,342
Avg. Ann. Total Return (3/31/10)(4) +51.27% +3.90% +4.53%
Distribution Rate(5) 3.68%
30-Day Standardized Yield(6) 1.69%
Total Annual Operating Expenses(7) 1.73%
ADVISOR CLASS(8) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- ------- -------
Cumulative Total Return(1) +17.53% +44.12% +33.99% +77.02%
Average Annual Total Return(2) +17.53% +44.12% +6.03% +5.88%
Value of $10,000 Investment(3) $11,753 $14,412 $13,399 $17,702
Avg. Ann. Total Return (3/31/10)(4) +53.71% +4.78% +5.37%
Distribution Rate(5) 4.46%
30-Day Standardized Yield(6) 2.67%
Total Annual Operating Expenses(7) 0.73%
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.
20 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
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'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(5.) Distribution rate is based on the sum of the respective class's last four
quarterly dividends and the maximum offering price (NAV for Classes C and
Advisor) per share on 4/30/10.
(6.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 5/14/08, 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 +2.15% and +1.09%.
Semiannual Report | 21
Your Fund's Expenses
FRANKLIN CONVERTIBLE SECURITIES FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
22 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09- 4/30/10
----------------- -------------- ------------------------
CLASS A
Actual $1,000 $1,174.00 $4.91
Hypothetical (5% return before expenses) $1,000 $1,020.28 $4.56
CLASS C
Actual $1,000 $1,169.00 $8.93
Hypothetical (5% return before expenses) $1,000 $1,016.56 $8.30
ADVISOR CLASS
Actual $1,000 $1,175.30 $3.56
Hypothetical (5% return before expenses) $1,000 $1,021.52 $3.31
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.91%; C: 1.66%; and Advisor: 0.66%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Semiannual Report | 23
Franklin Equity Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Equity Income Fund seeks to
maximize total return, emphasizing high current income and long-term capital
appreciation, consistent with reasonable risk, by investing at least 80% of its
net assets in equity securities including securities convertible into common
stocks.
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin Equity Income Fund covers the period ended
April 30, 2010.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Equity Income Fund - Class A delivered
a +13.94% cumulative total return. The Fund underperformed its benchmark, the
Standard & Poor's 500 Index (S&P 500), which had a +15.66% total return.(1) The
Fund's results were comparable to that of its peers in the Lipper Equity Income
Funds Classification Average, which returned +13.89% for the same period.(2) You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 27.
INVESTMENT STRATEGY
We emphasize dividends in selecting stocks for the Fund because we believe that
over time dividend income can contribute significantly to total return. We
target companies we believe are financially strong but undervalued by the
market. To identify such companies, we use a current relative yield analysis
that focuses on a company's dividend yield (calculated by dividing a stock's
annual per-share dividends by its per-share market price). Our experienced team
of analysts searches for investment opportunities among all economic sectors,
and considers a company's long-term earnings, asset value and cash flow
potential, to create a broadly diversified portfolio.
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The S&P 500 is a market capitalization-weighted index of
500 stocks designed to measure total U.S. equity market performance.
(2.) Source: Lipper Inc. The Lipper Equity Income Funds Classification Average
is calculated by averaging the total returns of all funds within the Lipper
Equity Income Funds classification in the Lipper Open-End underlying funds
universe. Lipper Equity Income Funds are defined as funds that seek
relatively high current income and growth of income through investing 60%
or more of their portfolios in equities. For the six-month period ended
4/30/10, there were 302 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 and
other factors had been considered.
The indexes are unmanaged and include reinvested dividends. 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 70.
24 | Semiannual Report
DIVIDEND DISTRIBUTIONS*
Franklin Equity Income Fund
11/1/09-4/30/10
DIVIDEND PER SHARE
---------------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C CLASS R ADVISOR CLASS
- ----- ----------- ----------- ----------- ----------- -------------
November 3.50 cents 2.64 cents 2.64 cents 3.20 cents 3.78 cents
December 3.50 cents 2.49 cents 2.51 cents 3.15 cents 3.82 cents
January 3.50 cents 2.49 cents 2.51 cents 3.15 cents 3.82 cents
February 3.50 cents 2.49 cents 2.51 cents 3.15 cents 3.82 cents
March 3.50 cents 2.51 cents 2.51 cents 3.15 cents 3.82 cents
April 3.50 cents 2.51 cents 2.51 cents 3.15 cents 3.82 cents
----------- ----------- ----------- ----------- -----------
TOTAL 21.00 CENTS 15.13 CENTS 15.19 CENTS 18.95 CENTS 22.88 CENTS
* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
MANAGER'S DISCUSSION
Fund performance was aided by positive and broad-based returns across equity
markets, and more specifically by investors' preference for cyclical stocks, as
U.S. and global economies exhibited signs of recovery and renewed growth. In
this environment, every sector the Fund invested in produced positive results,
with some of the highest returns generated by our holdings in the economically
sensitive industrials, consumer discretionary, information technology and
financials sectors. Industrial conglomerates 3M and General Electric were
standout performers within the industrials sector, as was heavy machinery
manufacturer Caterpillar. Consumers increased their discretionary spending
during the period, which aided the Fund's positions in retailers such as The
Home Depot and Best Buy. As corporate earnings improved, businesses generally
began to engage in a long-awaited equipment upgrade cycle that had been delayed
by the recession. This shift in business sentiment had a positive impact on a
wide range of technology-related Fund holdings. These included computer and
office equipment makers such as International Business Machines and Xerox,
microchip manufacturers Intel and Microchip Technology, and software giant
Microsoft, whose latest version of the Windows operating system was well
received in the marketplace. The Fund's investments in the financials sector
were supported foremost by supplemental insurance specialist Aflac and a rebound
in the share prices of banks such as Bank of America, Citigroup and Wells Fargo
& Co.
Despite the Fund's solid results this reporting period, some typically
noncyclical sectors represented in the Fund's portfolio -- including consumer
staples, utilities and health care -- lagged the overall market's advance,
producing comparatively weaker returns as they generally fell out of favor with
investors. Individual detractors from performance, however, were few and far
PORTFOLIO BREAKDOWN
Franklin Equity Income Fund
Based on Total Net Assets as of 4/30/10
(BAR CHART)
Financials 15.4%
Information Technology 13.9%
Industrials 13.7%
Health Care 12.7%
Energy 10.7%
Consumer Discretionary 10.6%
Utilities 5.9%
Consumer Staples 5.8%
Telecommunication Services 5.0%
Materials 2.5%
Short-Term Investments & Other Net Assets 3.8%
Semiannual Report | 25
TOP 10 HOLDINGS
Franklin Equity Income Fund
4/30/10
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Wells Fargo & Co. 3.6%
FINANCIALS
JPMorgan Chase & Co. 3.4%
FINANCIALS
Merck & Co. 2.9%
HEALTH CARE
Microsoft Corp. 2.8%
INFORMATION TECHNOLOGY
Intel Corp. 2.4%
INFORMATION TECHNOLOGY
Johnson & Johnson 2.4%
HEALTH CARE
Chevron Corp. 2.4%
ENERGY
Microchip Technology Inc. 2.4%
INFORMATION TECHNOLOGY
3M Co. 2.3%
INDUSTRIALS
International Business Machines Corp. 2.2%
INFORMATION TECHNOLOGY
between. Five securities that performed poorly or lost value for the six-month
period were multi-utility Sempra Energy; Finnish communications equipment
manufacturer Nokia; Swiss prescription drug maker Roche Holding, which recently
acquired Genentech as its own pharmaceuticals subsidiary; oil and gas
conglomerate Exxon Mobil; and Netherlands-based multinational Unilever, which
produces a wide range of food and personal care products.
Thank you for your continued participation in Franklin Equity Income Fund. We
look forward to serving your future investment needs.
(PHOTO OF ALAN E. MUSCHOTT)
/s/ Alan E. Muschott
Alan E. Muschott, CFA
(PHOTO OF EDWARD D. PERKS)
/s/ Edward D. Perks
Edward D. Perks, CFA
(PHOTO OF FRANK M. FELICELLI)
/s/ Frank M. Felicelli
Frank M. Felicelli, CFA
Portfolio Management Team
Franklin Equity Income Fund
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
26 | Semiannual Report
Performance Summary as of 4/30/10
FRANKLIN EQUITY INCOME FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FISEX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$1.74 $15.80 $14.06
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.2100
CLASS B (SYMBOL: FBEIX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$1.73 $15.71 $13.98
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1513
CLASS C (SYMBOL: FRETX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$1.73 $15.73 $14.00
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1519
CLASS R (SYMBOL: FREIX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$1.74 $15.81 $14.07
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1895
ADVISOR CLASS (SYMBOL: N/A) CHANGE 4/30/10 10/31/09
- --------------------------- ------ ------- --------
Net Asset Value (NAV) +$1.74 $15.81 $14.07
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.2288
Semiannual Report | 27
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +13.94% +38.06% +2.54% +35.46%
Average Annual Total Return(2) +7.37% +30.12% -0.68% +2.47%
Value of $10,000 Investment(3) $10,737 $13,012 $ 9,665 $12,770
Avg. Ann. Total Return (3/31/10)(4) +36.74% -1.31% +2.38%
Distribution Rate(5) 2.51%
30-Day Standardized Yield(6) 2.18%
Total Annual Operating Expenses(7) 1.06%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +13.50% +37.02% -1.25% +27.72%
Average Annual Total Return(2) +9.50% +33.02% -0.57% +2.48%
Value of $10,000 Investment(3) $10,950 $13,302 $ 9,718 $12,772
Avg. Ann. Total Return (3/31/10)(4) +39.97% -1.19% +2.37%
Distribution Rate(5) 1.92%
30-Day Standardized Yield(6) 1.56%
Total Annual Operating Expenses(7) 1.81%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------- -------
Cumulative Total Return(1) +13.49% +37.08% -1.18% +25.76%
Average Annual Total Return(2) +12.49% +36.08% -0.24% +2.32%
Value of $10,000 Investment(3) $11,249 $13,608 $ 9,882 $12,576
Avg. Ann. Total Return (3/31/10)(4) +42.92% -0.87% +2.22%
Distribution Rate(5) 1.91%
30-Day Standardized Yield(6) 1.56%
Total Annual Operating Expenses(7) 1.81%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (8/1/02)
- ------- ------- ------- ------- ------------------
Cumulative Total Return(1) +13.78% +37.81% +1.22% +33.92%
Average Annual Total Return(2) +13.78% +37.81% +0.24% +3.84%
Value of $10,000 Investment(3) $11,378 $13,781 $10,122 $13,392
Avg. Ann. Total Return (3/31/10)(4) +44.66% -0.39% +3.63%
Distribution Rate(5) 2.39%
30-Day Standardized Yield(6) 2.06%
Total Annual Operating Expenses(7) 1.31%
ADVISOR CLASS(8) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- ------- -------
Cumulative Total Return(1) +14.07% +38.47% +3.09% +36.19%
Average Annual Total Return(2) +14.07% +38.47% +0.61% +3.14%
Value of $10,000 Investment(3) $11,407 $13,847 $10,309 $13,619
Avg. Ann. Total Return (3/31/10)(4) +45.46% -0.03% +3.04%
Distribution Rate(5) 2.90%
30-Day Standardized Yield(6) 2.55%
Total Annual Operating Expenses(7) 0.81%
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.
28 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG
TERM, THEY TEND TO FLUCTUATE DRAMATICALLY OVER THE SHORT TERM AS A RESULT OF
FACTORS AFFECTING INDIVIDUAL COMPANIES, INDUSTRIES OR THE SECURITIES MARKET AS A
WHOLE. THE FUND MAY INVEST UP TO 25% OF ITS NET ASSETS IN FOREIGN SECURITIES
INCLUDING EMERGING MARKETS, WHICH MAY INVOLVE SPECIAL RISKS, INCLUDING CURRENCY
FLUCTUATIONS AND ECONOMIC AS WELL AS POLITICAL UNCERTAINTY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(5.) Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Classes B, C, R and
Advisor) per share on 4/30/10.
(6.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 5/14/08, 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 -13.35% and -7.05%.
Semiannual Report | 29
Your Fund's Expenses
FRANKLIN EQUITY INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
30 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09- 4/30/10
----------------- -------------- ------------------------
CLASS A
Actual $1,000 $1,139.40 $5.25
Hypothetical (5% return before expenses) $1,000 $1,019.89 $4.96
CLASS B
Actual $1,000 $1,135.00 $9.11
Hypothetical (5% return before expenses) $1,000 $1,016.27 $8.60
CLASS C
Actual $1,000 $1,134.90 $9.21
Hypothetical (5% return before expenses) $1,000 $1,016.17 $8.70
CLASS R
Actual $1,000 $1,137.80 $6.57
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
ADVISOR CLASS
Actual $1,000 $1,140.70 $3.93
Hypothetical (5% return before expenses) $1,000 $1,021.12 $3.71
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.99%; B: 1.72%; C: 1.74%; R: 1.24%; and
Advisor: 0.74%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
Semiannual Report | 31
Franklin Limited Maturity U.S. Government Securities Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Limited Maturity U.S. Government
Securities Fund seeks to provide investors with as high a level of current
income as is consistent with prudent investing, while seeking to preserve
shareholders' capital, by investing at least 80% of its net assets in securities
with a dollar-weighted average maturity of less than 10 years and issued or
guaranteed by the U.S. government, its agencies or instrumentalities.(1) Some of
the Fund's investments may include securities issued by U.S.
government-sponsored entities such as Fannie Mae and Freddie Mac.(2)
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PORTFOLIO BREAKDOWN
Franklin Limited Maturity U.S. Government Securities Fund
Based on Total Net Assets as of 4/30/10
(PIE CHART)
U.S. Government & Agency Securities ............ 69.1%
Mortgage-Backed Securities ..................... 27.1%
Short-Term Investments & Other Net Assets ...... 3.8%
This semiannual report for Franklin Limited Maturity U.S. Government Securities
Fund covers the period ended April 30, 2010.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Limited Maturity U.S. Government
Securities Fund - Class A delivered a +0.97% cumulative total return. The Fund
(1.) In determining a security's maturity for the purposes of calculating the
Fund's average maturity, an estimate of the average time for its principal
to be paid may be used. This can be substantially shorter than its stated
final maturity.
(2.) Although U.S. government-sponsored entities may be chartered or sponsored
by acts of Congress, their securities are neither insured nor guaranteed by
the U.S. government. Please refer to the Fund's prospectus for a detailed
discussion regarding various levels of credit support. The Fund's yield and
share price are not guaranteed and will vary with market conditions.
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 75.
32 | Semiannual Report
DIVIDEND DISTRIBUTIONS*
Franklin Limited Maturity U.S. Government Securities Fund
11/1/09-4/30/10
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A ADVISOR CLASS
- ----- ----------- ------------------
November 2.39 cents 2.48 cents
December 2.39 cents 2.48 cents
January 2.39 cents 2.48 cents
February 2.39 cents 2.48 cents
March 2.39 cents 2.47 cents
April 2.19 cents 2.27 cents
----------- -----------
TOTAL 14.14 CENTS 14.66 CENTS
* Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on
the date you purchased your shares and any account activity. All Fund
distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
underperformed the +1.06% total return of its benchmark, the Barclays Capital
(BC) U.S. Treasury Index: 1-5 Year Component.(3) You can find the Fund's
long-term performance data in the Performance Summary beginning on page 36.
INVESTMENT STRATEGY
We currently maintain the portfolio's average dollar-weighted maturity between
one and five years. The Fund's average dollar-weighted maturity will vary with
market conditions and the outlook for interest rates. We invest primarily in
short- to intermediate-term securities guaranteed by the U.S. government, its
agencies and instrumentalities. Some of the Fund's investments may include
securities issued by U.S. government-sponsored entities, such as Fannie Mae
(FNMA) and Freddie Mac (FHLMC).(2) The Fund's portfolio emphasizes
mortgage-backed bonds and agency debentures, while also diversifying across
components of the U.S. Treasury sector. We analyze securities using proprietary
and nonproprietary research to help identify attractive investment
opportunities.
(3.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BC U.S. Treasury Index: 1-5 Year Component is the 1-5
year component of the BC U.S. Treasury Index. The index is unmanaged and
includes reinvested interest. One cannot invest directly in an index, and
an index is not representative of the Fund's portfolio.
Semiannual Report | 33
MANAGER'S DISCUSSION
During the reporting period, economic data continued to provide the market with
optimism. A U.S. economic recovery appeared to be well under way, as continued
positive employment market and manufacturing sector data drove growth. Ongoing
signs of a possible bottoming and rebound in the housing market helped drive a
more positive market outlook. Inflation remained relatively contained and
employment and capacity utilization data continued to support lower inflation
over the near term.
As measured by BC Indexes, most fixed income sectors posted positive returns
during the period, including the FHLMC Index (+1.97%), the FNMA Index (+1.98%),
the Ginnie Mae (GNMA) Index (+2.32%), the U.S. Hybrid Adjustable-Rate Mortgage
(ARM) Index (+1.45%) and the U.S. Agency Index (+1.54%).(4) The Fund, which
typically looks for attractive valuations within lower interest rate risk
government bond markets, benefited from these trends.
Following its investment strategy, the Fund invested in government-related
securities, such as U.S. Treasuries, agency debentures, agency mortgage
pass-through securities, both fixed and adjustable rate, and cash investments.
The Fund's non-Treasury sectors outperformed comparable nominal U.S. Treasuries.
Although we continued to emphasize agency debentures due to their return
potential and income advantage over Treasuries, we reduced our exposure to this
sector as they became more fairly valued, in our view. We increased our
allocation to U.S. Treasuries as we found opportunities we considered
attractive.
(4.) Source: (C) 2010 Morningstar. The BC FHLMC Index is the FHLMC component of
the BC Fixed Rate Mortgage-Backed Securities (MBS) Index and includes the
mortgage-backed pass-through securities of the FHLMC. The BC FNMA Index is
the FNMA component of the BC Fixed Rate MBS Index and includes the
mortgage-backed pass-through securities of the FNMA. The BC GNMA Index is
the GNMA component of the BC Fixed Rate MBS Index and includes the
mortgage-backed pass-through securities of the GNMA. The BC U.S. Hybrid ARM
Index is the hybrid ARM component of the BC U.S. MBS Index and covers
agency pass-through securities that pay a fixed interest rate for a period
of time (usually 3, 5, 7 or 10 years) before switching to a floating coupon
rate, thereby combining the features of fixed- and adjustable-rate
mortgages. Hybrid ARM securities are index eligible for their fixed-rate
term and are removed from the index one year prior to their floating coupon
date. The BC U.S. Agency Index is the U.S. Agency component of the BC U.S.
Government/Credit Index and includes publicly issued debt of U.S.
government agencies, quasi-federal corporations, and corporate or foreign
debt guaranteed by the U.S. government.
34 | Semiannual Report
Thank you for your continued participation in Franklin Limited Maturity U.S.
Government Securities Fund. We look forward to serving your future investment
needs.
(PHOTO OF KENT BURNS)
/s/ Kent Burns
Kent Burns, CFA
(PHOTO OF PAUL VARUNOK)
/s/ Paul Varunok
Paul Varunok
Portfolio Management Team
Franklin Limited Maturity
U.S. Government Securities Fund
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
Semiannual Report | 35
Performance Summary as of 4/30/10
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRGVX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$0.04 $10.44 $10.48
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1414
ADVISOR CLASS (SYMBOL: FSUAX) CHANGE 4/30/10 10/31/09
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) -$0.04 $10.43 $10.47
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1466
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------ -------
Cumulative Total Return(1) +0.97% +2.72% +24.08% +56.75%
Average Annual Total Return(2) -1.29% +0.42% +3.94% +4.36%
Avg. Ann. Total Return (3/31/10)(3) +0.28% +3.99% +4.33%
Distribution Rate(4) 2.46%
30-Day Standardized Yield(5) 1.25%
Total Annual Operating Expenses(6) 0.84%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------ ------ -------
Cumulative Total Return(1) +1.02% +2.82% +24.72% +58.35%
Average Annual Total Return(2) +1.02% +2.82% +4.52% +4.70%
Avg. Ann. Total Return (3/31/10)(3) +2.69% +4.57% +4.69%
Distribution Rate(4) 2.61%
30-Day Standardized Yield(5) 1.38%
Total Annual Operating Expenses(6) 0.74%
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.
36 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
INTEREST RATE MOVEMENTS, UNSCHEDULED MORTGAGE PREPAYMENTS AND OTHER RISK FACTORS
WILL AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND PRICES, AND THUS A FUND'S
SHARE PRICE, GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES.
THEREFORE, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES,
THE FUND'S SHARE PRICE MAY DECLINE. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Advisor Class) per
share on 4/30/10.
(5.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(6.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
Semiannual Report | 37
Your Fund's Expenses
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
38 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09-4/30/10
- ------- ----------------- -------------- ------------------------
Actual $1,000 $1,009.70 $4.04
Hypothetical (5% return before expenses) $1,000 $1,020.78 $4.06
ADVISOR CLASS
Actual $1,000 $1,010.20 $3.54
Hypothetical (5% return before expenses) $1,000 $1,021.27 $3.56
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.81% and Advisor: 0.71%), multiplied by the
average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
Semiannual Report | 39
Franklin Real Return Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Real Return Fund seeks to
achieve total return that exceeds the rate of inflation over an economic cycle.
The Fund will generally invest a substantial portion of its assets in
inflation-protected securities. Managers also have the flexibility to invest in
other sectors of the market to increase real return (total return less
inflation) potential and offer greater diversification.
We are pleased to bring you Franklin Real Return Fund's semiannual report for
the period ended April 30, 2010.
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 PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST
RECENT MONTH-END PERFORMANCE.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Real Return Fund - Class A delivered a
+3.40% cumulative total return. The Fund performed comparably to its benchmark,
the Barclays Capital (BC) U.S. TIPS Index, which posted a +3.49% total
return.(1) The Fund outperformed the Consumer Price Index (CPI) for Urban
Consumers (All Items) NSA (non-seasonally adjusted), which rose 2.2% for the
same period.(2) You can find more of the Fund's performance data in the
Performance Summary beginning on page 43.
INVESTMENT STRATEGY
We seek 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. We will allocate the Fund's assets among securities in
various market sectors based on our assessment of changing economic, global
market,
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BC U.S. TIPS Index covers the universe of
inflation-protected notes issued by the U.S. Treasury that have at least
one year to final maturity and includes reinvested interest.
(2.) Source: (C) 2010 Morningstar. The CPI, calculated by the U.S. Bureau of
Labor Statistics, is a measure of the average change in prices of all goods
and services purchased for consumption by urban householders. User fees and
sales and excise taxes paid by the consumer are included. Income taxes and
investment items are not included. CPI for urban consumers includes
expenditure by urban wage earners and clerical workers, professional,
managerial, and technical workers, the self-employed, short-term workers,
the unemployed, retirees and others not in the labor force. This represents
about 80% of the total U.S. population. Also known as Cost-of-Living Index.
The indexes are unmanaged. 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 82.
40 | Semiannual Report
DIVIDEND DISTRIBUTIONS*
Franklin Real Return Fund
11/1/09-4/30/10
DIVIDEND PER SHARE
----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS
- ----- ----------- ---------- -------------
November** -- -- --
December 3.44 cents 3.44 cents 6.20 cents
January** -- -- --
February 1.28 cents 0.72 cents 1.69 cents
March 3.89 cents 3.53 cents 4.14 cents
April 1.76 cents 1.43 cents 1.98 cents
TOTAL 10.37 CENTS 9.12 CENTS 14.01 CENTS
* 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 negative inflation adjustments for TIPS,
which are the Fund's primary investments.
industry and issuer conditions. When making our investment decisions, we will
evaluate such criteria as country risk, business cycles, yield curves, and
values between and within markets.
MANAGER'S DISCUSSION
During the period under review, we invested the Fund's assets in the allowable
sectors. At period-end, 64.5% of the Fund's total net assets were invested in
U.S. Treasury Inflation Protected Securities. For diversification, we also
allocated some of the Fund's assets to natural resources, real estate investment
trusts, short-term non-U.S. dollar securities and high yield sectors. We
employed a non-U.S. dollar strategy to help manage against dollar weakness
versus certain currencies.
The global economic recovery that began in early 2009 continued into the first
quarter of 2010. Inflationary trends were mixed. Core inflation was weak due to
slack in labor and housing markets, but emerging economies showed strength and
put upward pressure on commodity and energy prices. Our diversified mix of
inflation-sensitive assets performed well over the period. Each sector in the
Fund contributed positively toward absolute return.
PORTFOLIO BREAKDOWN
Franklin Real Return Fund
Based on Total Net Assets as of 4/30/10
(BAR CHART)
U.S. Treasury Inflation Protected Securities 64.5%
Foreign Government Debt Securities 14.7%
Exchange Traded Funds 4.8%
Natural Resources - Common Stocks* 4.7%
Corporate Bonds** 4.5%
Diversified Financials - Preferred Stocks 0.0%***
Short-Term Investments & Other Net Assets 6.8%
* In the SOI, the natural resources sector comprises energy and materials.
** Includes Senior Floating Rate Interests.
*** Rounds to 0.0%.
Semiannual Report | 41
Thank you for your continued participation in Franklin Real Return Fund. We look
forward to serving your future investment needs.
(PHOTO OF T. ANTHONY COFFEY)
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
(PHOTO OF KENT BURNS)
/s/ Kent Burns
Kent Burns, CFA
Portfolio Management Team
Franklin Real Return Fund
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
42 | Semiannual Report
Performance Summary as of 4/30/10
FRANKLIN REAL RETURN FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRRAX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.26 $11.00 $10.74
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1037
CLASS C (SYMBOL: FRRCX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.25 $10.94 $10.69
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.0912
ADVISOR CLASS (SYMBOL: FARRX) CHANGE 4/30/10 10/31/09
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) +$0.24 $11.02 $10.78
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.1401
Semiannual Report | 43
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (11/17/04)
- ------- ------- ------- ------ --------------------
Cumulative Total Return(2) +3.40% +10.39% +30.66% +32.30%
Average Annual Total Return(3) -1.02% +5.66% +4.59% +4.44%
Avg. Ann. Total Return (3/31/10)(4) +5.64% +4.54% +4.30%
Distribution Rate(5) 1.84%
30-Day Standardized Yield(6) 0.60%
Total Annual Operating Expenses(7)
Without Waiver 1.09%
With Waiver 0.90%
CLASS C 6-MONTH 1-YEAR INCEPTION (11/3/08)
- ------- ------- ------ --------------------
Cumulative Total Return(2) +3.20% +9.88% +15.44%
Average Annual Total Return(3) +2.20% +8.88% +10.13%
Avg. Ann. Total Return (3/31/10)(4) +8.83% +9.93%
Distribution Rate(5) 1.57%
30-Day Standardized Yield(6) 0.22%
Total Annual Operating Expenses(7)
Without Waiver 1.49%
With Waiver 1.30%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR INCEPTION (11/17/04)
- ------------- ------- ------- ------ --------------------
Cumulative Total Return(2) +3.55% +10.63% +32.28% +34.13%
Average Annual Total Return(3) +3.55% +10.63% +5.75% +5.54%
Avg. Ann. Total Return (3/31/10)(4) +10.63% +5.73% +5.41%
Distribution Rate(5) 2.16%
30-Day Standardized Yield(6) 0.86%
Total Annual Operating Expenses(7)
Without Waiver 0.84%
With Waiver 0.65%
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.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
ASSUME CERTAIN EXPENSES SO THAT COMMON EXPENSES (EXCLUDING RULE 12B-1 FEES AND
ACQUIRED FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED 0.65%
(OTHER THAN CERTAIN NONROUTINE EXPENSES) UNTIL 2/28/11.
44 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
INTEREST RATE MOVEMENTS 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. WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET
CLASSES OVER THE LONG TERM, THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE
SHORT TERM. THESE PRICE MOVEMENTS MAY RESULT FROM FACTORS AFFECTING INDIVIDUAL
COMPANIES, INDUSTRIES OR THE SECURITIES MARKET AS A WHOLE. THE RISKS OF FOREIGN
SECURITIES INCLUDE CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the manager and administrator had not waived fees, the Fund's total
return would have been lower, and yields for the period would have been
0.39%, 0.02% and 0.66% for Classes A, C and Advisor, respectively.
(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. Six-month return has not been
annualized.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(5.) Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (NAV for Class C and Advisor)
per share on 4/30/10.
(6.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
Semiannual Report | 45
Your Fund's Expenses
FRANKLIN REAL RETURN FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
46 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09- 4/30/10
----------------- -------------- ------------------------
CLASS A
Actual $1,000 $1,034.00 $4.54
Hypothetical (5% return before expenses) $1,000 $1,020.33 $4.51
CLASS C
Actual $1,000 $1,032.00 $6.55
Hypothetical (5% return before expenses) $1,000 $1,018.35 $6.51
ADVISOR CLASS
Actual $1,000 $1,035.50 $3.28
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 0.90%; C: 1.30%; and
Advisor: 0.65%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
Semiannual Report | 47
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN BALANCED FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ---------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006(a)
- ------- ---------------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.55 $ 7.00 $ 11.36 $ 10.65 $ 10.00
-------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ................... 0.16 0.35 0.39 0.36 0.10
Net realized and unrealized gains
(losses) ................................ 0.84 1.59 (4.09) 0.68 0.62
-------- ------- ------- ------- -------
Total from investment operations .............. 1.00 1.94 (3.70) 1.04 0.72
-------- ------- ------- ------- -------
Less distributions from:
Net investment income ...................... (0.18) (0.39) (0.42) (0.33) (0.07)
Net realized gains ......................... -- -- (0.24) -- --
-------- ------- ------- ------- -------
Total distributions ........................... (0.18) (0.39) (0.66) (0.33) (0.07)
-------- ------- ------- ------- -------
Redemption fees(d) ............................ -- -- --(e) --(e) --(e)
-------- ------- ------- ------- -------
Net asset value, end of period ................ $ 9.37 $ 8.55 $ 7.00 $ 11.36 $ 10.65
======== ======= ======= ======= =======
Total return(f) ............................... 11.80% 29.03% (34.20)% 9.91% 7.20%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by
affiliates ................................. 1.19% 1.26% 1.34% 1.58% 2.02%
Expenses net of waiver and payments by
affiliates ................................. 1.01% 0.99% 1.01% 1.04% 1.06%
Net investment income ......................... 3.57% 4.69% 3.99% 3.26% 2.84%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $120,709 $88,376 $39,061 $35,180 $17,258
Portfolio turnover rate ....................... 20.66% 73.57% 51.48% 77.53% 13.10%
(a) For the period July 3, 2006 (commencement of operations) to October 31,
2006.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
48 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCED FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ---------------------------------------
CLASS C (UNAUDITED) 2009 2008 2007 2006(a)
- ------- ---------------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.49 $ 6.96 $ 11.30 $10.62 $10.00
------- ------- ------- ------ ------
Income from investment operations(b):
Net investment income(c) ................... 0.13 0.29 0.33 0.30 0.07
Net realized and unrealized gains
(losses) ................................ 0.84 1.59 (4.08) 0.68 0.62
------- ------- ------- ------ ------
Total from investment operations .............. 0.97 1.88 (3.75) 0.98 0.69
------- ------- ------- ------ ------
Less distributions from:
Net investment income ...................... (0.15) (0.35) (0.35) (0.30) (0.07)
Net realized gains ......................... -- -- (0.24) -- --
------- ------- ------- ------ ------
Total distributions ........................... (0.15) (0.35) (0.59) (0.30) (0.07)
------- ------- ------- ------ ------
Redemption fees(d) ............................ -- -- --(e) --(e) --(e)
------- ------- ------- ------ ------
Net asset value, end of period ................ $ 9.31 $ 8.49 $ 6.96 $11.30 $10.62
======= ======= ======= ====== ======
Total return(f) ............................... 11.48% 28.08% (34.69)% 9.33% 6.90%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by
affiliates ................................. 1.89% 1.96% 2.00% 2.25% 2.65%
Expenses net of waiver and payments by
affiliates ................................. 1.71% 1.69% 1.67% 1.71% 1.69%
Net investment income ......................... 2.87% 3.99% 3.33% 2.59% 2.21%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $34,074 $19,423 $ 7,136 $6,542 $ 242
Portfolio turnover rate ....................... 20.66% 73.57% 51.48% 77.53% 13.10%
(a) For the period July 3, 2006 (commencement of operations) to October 31,
2006.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 49
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCED FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 --------------------------------------
CLASS R (UNAUDITED) 2009 2008 2007 2006(a)
- ------- ---------------- ------ ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.56 $ 7.00 $ 11.36 $ 10.64 $ 10.00
------ ------ ------- ------- -------
Income from investment operations(b):
Net investment income(c) ................... 0.15 0.32 0.37 0.34 0.09
Net realized and unrealized gains
(losses) ................................ 0.84 1.62 (4.09) 0.69 0.62
------ ------ ------- ------- -------
Total from investment operations .............. 0.99 1.94 (3.72) 1.03 0.71
------ ------ ------- ------- -------
Less distributions from:
Net investment income ...................... (0.17) (0.38) (0.40) (0.31) (0.07)
Net realized gains ......................... -- -- (0.24) -- --
------ ------ ------- ------- -------
Total distributions ........................... (0.17) (0.38) (0.64) (0.31) (0.07)
------ ------ ------- ------- -------
Redemption fees(d) ............................ -- -- --(e) --(e) --(e)
------ ------ ------- ------- -------
Net asset value, end of period ................ $ 9.38 $ 8.56 $ 7.00 $ 11.36 $ 10.64
====== ====== ======= ======= =======
Total return(f) ............................... 11.67% 28.73% (34.26)% 9.83% 7.10%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by
affiliates ................................. 1.39% 1.48% 1.54% 1.75% 2.17%
Expenses net of waiver and payments by
affiliates ................................. 1.21% 1.21% 1.21% 1.21% 1.21%
Net investment income ......................... 3.37% 4.47% 3.79% 3.09% 2.69%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 200 $ 175 $ 12 $ 15 $ 11
Portfolio turnover rate ....................... 20.66% 73.57% 51.48% 77.53% 13.10%
(a) For the period July 3, 2006 (commencement of operations) to October 31,
2006.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
50 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCED FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 --------------------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007 2006(a)
- ------------- ---------------- ------ ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 8.56 $ 7.01 $ 11.38 $10.66 $10.00
------ ------ ------- ------ ------
Income from investment operations(b):
Net investment income(c) ................... 0.17 0.37 0.42 0.40 0.11
Net realized and unrealized gains
(losses) ................................ 0.84 1.59 (4.10) 0.69 0.62
------ ------ ------- ------ ------
Total from investment operations .............. 1.01 1.96 (3.68) 1.09 0.73
------ ------ ------- ------ ------
Less distributions from:
Net investment income ...................... (0.19) (0.41) (0.45) (0.37) (0.07)
Net realized gains ......................... -- -- (0.24) -- --
------ ------ ------- ------ ------
Total distributions ........................... (0.19) (0.41) (0.69) (0.37) (0.07)
------ ------ ------- ------ ------
Redemption fees(d) ............................ -- -- --(e) --(e) --(e)
------ ------ ------- ------ ------
Net asset value, end of period ................ $ 9.38 $ 8.56 $ 7.01 $11.38 $10.66
====== ====== ======= ====== ======
Total return(f) ............................... 11.95% 29.32% (34.01)% 10.34% 7.30%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by
affiliates ................................. 0.89% 0.98% 1.04% 1.25% 1.67%
Expenses net of waiver and payments by
affiliates ................................. 0.71% 0.71% 0.71% 0.71% 0.71%
Net investment income ......................... 3.87% 4.97% 4.29% 3.59% 3.19%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $2,855 $1,861 $ 1,072 $1,180 $ 239
Portfolio turnover rate ....................... 20.66% 73.57% 51.48% 77.53% 13.10%
(a) For the period July 3, 2006 (commencement of operations) to October 31,
2006.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 51
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
FRANKLIN BALANCED FUND COUNTRY SHARES VALUE
---------------------- -------------- ------------ ------------
COMMON STOCKS 40.9%
CONSUMER DISCRETIONARY 2.5%
(a) CBS Corp., B ................................................ United States 100,000 $ 1,621,000
Limited Brands Inc. ......................................... United States 85,000 2,278,000
------------
3,899,000
------------
CONSUMER STAPLES 3.7%
(a) Colgate-Palmolive Co. ....................................... United States 12,500 1,051,250
(a) CVS Caremark Corp. .......................................... United States 30,000 1,107,900
Diageo PLC, ADR ............................................. United Kingdom 20,000 1,362,800
PepsiCo Inc. ................................................ United States 20,000 1,304,400
Philip Morris International Inc. ............................ United States 20,000 981,600
------------
5,807,950
------------
ENERGY 7.0%
BP PLC, ADR ................................................. United Kingdom 40,000 2,086,000
ConocoPhillips .............................................. United States 50,000 2,959,500
Devon Energy Corp. .......................................... United States 10,000 673,300
Diamond Offshore Drilling Inc. .............................. United States 10,000 791,000
Exxon Mobil Corp. ........................................... United States 28,000 1,899,800
Halliburton Co. ............................................. United States 30,000 919,500
Petroplus Holdings AG ....................................... Switzerland 31,250 562,456
Valero Energy Corp. ......................................... United States 20,000 415,800
(a, b) Weatherford International Ltd. .............................. United States 40,000 724,400
------------
11,031,756
------------
FINANCIALS 2.2%
JPMorgan Chase & Co. ........................................ United States 40,000 1,703,200
Wells Fargo & Co. ........................................... United States 54,000 1,787,940
------------
3,491,140
------------
HEALTH CARE 4.3%
Abbott Laboratories ......................................... United States 20,000 1,023,200
Johnson & Johnson ........................................... United States 30,000 1,929,000
Merck & Co. Inc. ............................................ United States 93,651 3,281,532
(a, b) Tenet Healthcare Corp. ...................................... United States 100,000 625,000
------------
6,858,732
------------
INDUSTRIALS 3.7%
General Dynamics Corp. ...................................... United States 30,000 2,290,800
General Electric Co. ........................................ United States 40,000 754,400
Pitney Bowes Inc. ........................................... United States 50,000 1,270,000
United Technologies Corp. ................................... United States 20,000 1,499,000
------------
5,814,200
------------
INFORMATION TECHNOLOGY 7.5%
(a, b) Agilent Technologies Inc. ................................... United States 50,000 1,813,000
(b) Cisco Systems Inc. .......................................... United States 30,000 807,600
Intel Corp. ................................................. United States 60,000 1,369,800
International Business Machines Corp. ....................... United States 5,000 645,000
Lender Processing Services Inc. ............................. United States 30,000 1,132,500
52 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN BALANCED FUND COUNTRY SHARES VALUE
---------------------- -------------- ------------ ------------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
Maxim Integrated Products Inc. .............................. United States 20,000 $ 388,400
Microsoft Corp. ............................................. United States 70,000 2,137,800
QUALCOMM Inc. ............................................... United States 11,800 457,132
Texas Instruments Inc. ...................................... United States 60,000 1,560,600
Xerox Corp. ................................................. United States 140,000 1,526,000
------------
11,837,832
------------
MATERIALS 0.3%
(a) Celanese Corp., A ........................................... United States 15,000 479,850
------------
TELECOMMUNICATION SERVICES 3.5%
AT&T Inc. ................................................... United States 100,000 2,606,000
Verizon Communications Inc. ................................. United States 100,000 2,889,000
------------
5,495,000
------------
UTILITIES 6.2%
Duke Energy Corp. ........................................... United States 40,000 671,200
PG&E Corp. .................................................. United States 40,000 1,752,000
PPL Corp. ................................................... United States 65,000 1,609,400
Progress Energy Inc. ........................................ United States 40,000 1,596,800
The Southern Co. ............................................ United States 60,000 2,073,600
Xcel Energy Inc. ............................................ United States 100,000 2,175,000
------------
9,878,000
------------
TOTAL COMMON STOCKS (COST $59,525,272) ...................... 64,593,460
------------
CONVERTIBLE PREFERRED STOCKS 4.8%
FINANCIALS 2.8%
Bank of America Corp., 7.25%, cvt. pfd., L .................. United States 2,800 2,749,572
Hartford Financial Services Group Inc., 7.25%, cvt. pfd. .... United States 60,000 1,591,800
------------
4,341,372
------------
HEALTH CARE 1.1%
Tenet Healthcare Corp., 7.00%, cvt. pfd. .................... United States 1,600 1,805,280
------------
MATERIALS 0.9%
Freeport-McMoRan Copper & Gold Inc., 6.75%, cvt. pfd. ....... United States 13,500 1,398,559
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $6,631,686) ......... 7,545,211
------------
PREFERRED STOCKS 0.1%
FINANCIALS 0.1%
(b) Fannie Mae, 7.625%, pfd., R ................................. United States 20,000 26,000
(b) Fannie Mae, 8.25%, pfd. ..................................... United States 25,000 36,500
(b) Freddie Mac, 8.375%, pfd., Z ................................ United States 30,200 48,622
------------
TOTAL PREFERRED STOCKS (COST $1,880,000) .................... 111,122
------------
(c) EQUITY-LINKED SECURITIES 6.6%
CONSUMER DISCRETIONARY 1.6%
(d) JPMorgan Chase & Co. into Comcast Corp., 8.00%, 144A ........ United States 125,000 2,463,475
------------
Semiannual Report | 53
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN BALANCED FUND COUNTRY SHARES VALUE
---------------------- -------------- ------------ ------------
(c) EQUITY-LINKED SECURITIES (CONTINUED)
ENERGY 2.4%
Credit Suisse into Weatherford International Ltd., 11.00% ... United States 75,000 $ 1,409,715
(d) The Goldman Sachs Group Inc. into Devon Energy Corp.,
10.55%, 144A ............................................. United States 20,000 1,199,238
(d) The Goldman Sachs Group Inc. into XTO Energy Inc.,
9.00%, 144A .............................................. United States 25,000 1,180,598
------------
3,789,551
------------
FINANCIALS 0.8%
(d) The Goldman Sachs Group Inc. into Citigroup Inc.,
10.00%, 144A ............................................. United States 310,000 1,324,735
------------
INFORMATION TECHNOLOGY 0.6%
(d) The Goldman Sachs Group Inc. into Intel Corp., 10.00%,
144A ..................................................... United States 50,000 966,850
------------
UTILITIES 1.2%
(d) Barclays Capital into Calpine Corp., 8.00%, 144A ............ United States 150,000 1,891,995
------------
TOTAL EQUITY-LINKED SECURITIES (COST $9,319,375) ............ 10,436,606
------------
PRINCIPAL
AMOUNT(e)
------------
CONVERTIBLE BONDS 5.3%
CONSUMER DISCRETIONARY 2.5%
(d) Liberty Global Inc., cvt., senior sub. note, 144A,
4.50%, 11/15/16 .......................................... United States $ 500,000 618,750
(d) MGM Mirage, cvt., senior note, 144A, 4.25%, 4/15/15 ......... United States 3,000,000 3,281,250
------------
3,900,000
------------
FINANCIALS 1.3%
(d) Forest City Enterprises Inc., cvt., senior note, 144A,
5.00%, 10/15/16 .......................................... United States 1,000,000 1,335,000
(f) iStar Financial Inc., cvt., senior note, FRN, 0.791%,
10/01/12 ................................................. United States 1,000,000 790,000
------------
2,125,000
------------
INFORMATION TECHNOLOGY 0.4%
(d) Sybase Inc., cvt., senior note, 144A, 3.50%, 8/15/29 ........ United States 600,000 687,228
------------
MATERIALS 1.1%
(d) Cemex SAB de CV., cvt., sub. note, 144A, 4.875%, 3/15/15 .... Mexico 1,500,000 1,727,100
------------
TOTAL CONVERTIBLE BONDS (COST $7,064,053) ................... 8,439,328
------------
CORPORATE BONDS 30.1%
CONSUMER DISCRETIONARY 2.2%
(d) CCO Holdings LLC, senior note, 144A, 8.125%, 4/30/20 ........ United States 600,000 616,500
DISH DBS Corp., senior note, 7.875%, 9/01/19 ................ United States 1,000,000 1,055,000
Ford Motor Credit Co. LLC, senior note, 7.00%, 4/15/15 ...... United States 900,000 916,194
News America Inc., senior note, 6.90%, 8/15/39 .............. United States 300,000 336,447
Yum! Brands Inc., senior note, 5.30%, 9/15/19 ............... United States 500,000 522,672
------------
3,446,813
------------
CONSUMER STAPLES 2.0%
Altria Group Inc., senior note, 9.70%, 11/10/18 ............. United States 1,000,000 1,259,513
(d) Anheuser-Busch InBev NV, senior note, 144A, 7.20%,
1/15/14 .................................................. United States 750,000 864,046
Kraft Foods Inc., senior note, 5.375%, 2/10/20 .............. United States 1,000,000 1,039,183
------------
3,162,742
------------
54 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN BALANCED FUND COUNTRY AMOUNT(e) VALUE
---------------------- -------------- ------------ ------------
CORPORATE BONDS (CONTINUED)
ENERGY 5.8%
Anadarko Petroleum Corp., senior note, 6.95%, 6/15/19 .......... United States $ 500,000 $ 579,953
(d) Antero Resources Finance, senior note, 144A, 9.375%,
12/01/17 .................................................... United States 500,000 520,000
Chesapeake Energy Corp., senior note, 7.25%, 12/15/18 .......... United States 1,000,000 1,005,000
(d) Consol Energy Inc., senior note, 144A, 8.25%, 4/01/20 .......... United States 400,000 428,000
El Paso Corp., senior note, 7.25%, 4/01/18 ..................... United States 500,000 522,204
(d) Linn Energy Corp., senior note, 144A, 8.625%, 4/15/20 .......... United States 1,300,000 1,355,250
Newfield Exploration Co., senior sub. bond, 6.875%, 2/01/20 .... United States 1,000,000 1,015,000
(d) Petroplus Finance Ltd., senior note, 144A, 7.00%, 5/01/17 ...... Switzerland 1,250,000 1,143,750
Plains All American Pipeline LP, senior note, 5.75%, 1/15/20 ... United States 750,000 783,649
Valero Energy Corp., senior note, 10.50%, 3/15/39 .............. United States 500,000 679,430
Weatherford International Ltd., senior note, 9.625%, 3/01/19 ... United States 850,000 1,101,041
------------
9,133,277
------------
FINANCIALS 14.2%
American Express Co., senior note, 7.00%, 3/19/18 .............. United States 700,000 801,621
Bank of America Corp.,
4.50%, 4/01/15 .............................................. United States 1,000,000 1,010,261
(g) pfd., sub. bond, M, 8.125%, Perpetual ....................... United States 725,000 734,062
Barclays Bank PLC, senior note, 5.125%, 1/08/20 ................ United Kingdom 1,000,000 1,005,484
(d, g) BNP Paribas, 144A, 7.195%, Perpetual ........................... France 300,000 285,000
Capital One Capital V, pfd., junior sub. note, 10.25%,
8/15/39 ..................................................... United States 500,000 603,125
Citigroup Inc., senior note, 8.125%, 7/15/39 ................... United States 500,000 597,727
(d) Commonwealth Bank of Australia, senior note, 144A,
3.75%, 10/15/14 ............................................. Australia 1,000,000 1,022,853
(d) Digital Realty Trust LP, 144A, 5.875%, 2/01/20 ................. United States 800,000 805,124
Duke Realty LP, senior note,
6.50%, 1/15/18 .............................................. United States 585,000 614,080
7.375%, 2/15/15 ............................................. United States 600,000 667,466
The Goldman Sachs Group Inc.,
senior note, 7.50%, 2/15/19 ................................. United States 700,000 778,483
senior bond, 5.375%, 3/15/20 ................................ United States 500,000 486,581
HCP Inc., senior note, 6.70%, 1/30/18 .......................... United States 1,000,000 1,046,497
Healthcare Realty Trust Inc., senior note, 6.50%, 1/17/17 ...... United States 500,000 524,287
(d) International Lease Finance Corp., senior note, 144A,
8.625%, 9/15/15 ............................................. United States 700,000 693,000
iStar Financial Inc., senior note, 8.625%, 6/01/13 ............. United States 900,000 783,000
(g) JPMorgan Chase & Co., junior sub. note, 1, 7.90%,
Perpetual ................................................... United States 1,440,000 1,517,397
Lazard Group, senior note, 6.85%, 6/15/17 ...................... United States 300,000 305,433
(d) LBI Escrow Corp., senior secured note, 144A, 8.00%,
11/01/17 .................................................... United States 500,000 519,375
Morgan Stanley, senior note, 5.50%, 1/26/20 .................... United States 1,000,000 978,443
Nomura Holdings Inc., senior note, 6.70%, 3/04/20 .............. Japan 1,000,000 1,073,122
PNC Funding Corp.,
senior note, 5.125%, 2/08/20 ................................ United States 500,000 510,054
sub. note, 5.625%, 2/01/17 .................................. United States 700,000 727,578
(d) Pricoa Global Funding I, 144A, 5.45%, 6/11/14 .................. United States 1,000,000 1,079,546
Royal Bank of Scotland Group PLC, senior note, 6.40%,
10/21/19 .................................................... United Kingdom 600,000 616,244
(f) The Travelers Cos. Inc., junior sub. bond, FRN, 6.25%,
3/15/67 ..................................................... United States 500,000 493,970
(g) Wachovia Capital Trust III, junior sub. bond, 5.80%,
Perpetual ................................................... United States 500,000 437,500
(g) Wells Fargo Capital XIII, pfd., 7.70%, Perpetual ............... United States 300,000 313,500
Semiannual Report | 55
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN BALANCED FUND COUNTRY AMOUNT(e) VALUE
---------------------- -------------- ------------ ------------
CORPORATE BONDS (CONTINUED)
FINANCIALS (CONTINUED)
(g) Wells Fargo Capital XV, pfd., 9.75%, Perpetual ................. United States $ 700,000 $ 787,500
Willis North America Inc., senior note, 7.00%, 9/29/19 ......... United States 500,000 529,587
------------
22,347,900
------------
HEALTH CARE 2.7%
Boston Scientific Corp., senior note, 6.00%, 1/15/20 ........... United States 600,000 594,045
CareFusion Corp., senior note, 6.375%, 8/01/19 ................. United States 750,000 839,328
Coventry Health Care Inc., senior note, 6.30%, 8/15/14 ......... United States 400,000 421,892
HCA Inc.,
senior note, 6.375%, 1/15/15 ................................ United States 255,000 249,581
(d) senior secured note, 144A, 7.875%, 2/15/20 .................. United States 1,000,000 1,078,750
(d) Talecris Biotherapeutics Holdings Corp., senior note,
144A, 7.75%, 11/15/16 ....................................... United States 200,000 203,000
(d) Vanguard Health Holding Co. II LLC, senior bond, 144A,
8.00%, 2/01/18 .............................................. United States 900,000 895,500
------------
4,282,096
------------
MATERIALS 0.7%
(d) Anglo American Capital PLC, senior note, 144A, 9.375%,
4/08/14 ..................................................... United Kingdom 500,000 607,160
Weyerhaeuser Co., senior note, 7.375%, 10/01/19 ................ United States 400,000 437,457
------------
1,044,617
------------
TELECOMMUNICATION SERVICES 0.7%
Cellco Partnership/Verizon Wireless, senior note, 8.50%,
11/15/18 .................................................... United States 700,000 887,030
Embarq Corp., senior note, 7.082%, 6/01/16 ..................... United States 250,000 276,078
------------
1,163,108
------------
UTILITIES 1.8%
Arizona Public Service Co., senior note, 8.75%, 3/01/19 ........ United States 500,000 614,844
CMS Energy Corp., senior note, 8.75%, 6/15/19 .................. United States 500,000 574,770
Dominion Resources Inc., senior note, 8.875%, 1/15/19 .......... United States 500,000 643,965
(d) Enogex LLC, senior note, 144A, 6.25%, 3/15/20 .................. United States 1,000,000 1,030,621
------------
2,864,200
------------
TOTAL CORPORATE BONDS (COST $43,538,346) ....................... 47,444,753
------------
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (COST $89,232) 0.1%
FINANCIALS 0.1%
(f) Accredited Mortgage Loan Trust, 2005-3, A1, FRN,
0.503%, 9/25/35 ............................................. United States 89,176 82,410
------------
MORTGAGE-BACKED SECURITIES 0.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 0.2%
FNMA 30 Year, 6.00%, 8/01/36 ................................... United States 193,279 206,370
FNMA 30 Year, 6.50%, 4/01/36 ................................... United States 129,808 140,687
------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $319,354) ............... 347,057
------------
56 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN BALANCED FUND COUNTRY AMOUNT(e) VALUE
---------------------- -------------- ------------ ------------
MUNICIPAL BONDS (COST $2,002,350) 1.3%
California State GO, 7.95%, 3/01/36 ............................. United States $ 2,000,000 $ 2,127,180
------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $130,369,668) .......................................... 141,127,127
------------
SHORT TERM INVESTMENTS 12.3%
U.S. GOVERNMENT AND AGENCY SECURITIES (COST $11,898,736) 7.5%
(h) U.S. Treasury Bill, 5/27/10 ..................................... United States 11,900,000 11,899,012
------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS
(COST $142,268,404) .......................................... 153,026,139
------------
SHARES
------------
MONEY MARKET FUNDS (COST $7,500,985) 4.8%
(i) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ..... United States 7,500,985 7,500,985
------------
TOTAL INVESTMENTS (COST $149,769,389) 101.7% .................... 160,527,124
OPTIONS WRITTEN (0.2)% .......................................... (284,888)
OTHER ASSETS, LESS LIABILITIES (1.5)% ........................... (2,403,211)
------------
NET ASSETS 100.0% ............................................... $157,839,025
============
CONTRACTS
------------
(j) OPTIONS WRITTEN (0.2)%
CALL OPTIONS (0.1)%
CONSUMER DISCRETIONARY (0.1)%
CBS Corp., B, May $16 Calls, 5/22/10 ............................ United States 1,000 (85,000)
------------
CONSUMER STAPLES (0.0)%(k)
Colgate-Palmolive Co., May $90 Calls, 5/22/10 ................... United States 125 (938)
CVS Caremark Corp., May $38 Calls, 5/22/10 ...................... United States 300 (19,200)
------------
(20,138)
------------
ENERGY (0.0)%(k)
Weatherford International Ltd., May $19 Calls, 5/22/10 .......... United States 400 (16,800)
------------
HEALTH CARE (0.0)%(k)
Tenet Healthcare Corp., May $7 Calls, 5/22/10 ................... United States 500 (5,000)
------------
INFORMATION TECHNOLOGY (0.0)%(k)
Agilent Technologies Inc., May $37 Calls, 5/22/10 ............... United States 250 (17,500)
------------
MATERIALS (0.0)%(k)
Celanese Corp., A, May $35 Calls, 5/22/10 ....................... United States 75 (3,375)
------------
PUT OPTIONS (0.1)%
CONSUMER DISCRETIONARY (0.0)%(k)
CBS Corp., B, May $13 Puts, 5/22/10 ............................. United States 250 (1,250)
------------
CONSUMER STAPLES (0.0)%(k)
CVS Caremark Corp., May $33 Puts, 5/22/10 ....................... United States 150 (1,950)
------------
Semiannual Report | 57
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN BALANCED FUND COUNTRY CONTRACTS VALUE
---------------------- -------------- ------------ ------------
(j) OPTIONS WRITTEN (CONTINUED)
ENERGY (0.0)%(k)
Valero Energy Corp., May $18 Puts, 5/22/10 ..................... United States 300 $ (2,400)
Weatherford International Ltd., May $18 Puts, 5/22/10 .......... United States 400 (28,400)
-----------
(30,800)
-----------
INDUSTRIALS (0.0)%(k)
FedEx Corp.,
May $90 Puts, 5/22/10 ....................................... United States 100 (24,400)
Jun. $85 Puts, 6/19/10 ...................................... United States 100 (23,100)
-----------
(47,500)
-----------
INFORMATION TECHNOLOGY (0.0)%(k)
QUALCOMM Inc., May $40 Puts, 5/22/10 ........................... United States 100 (16,300)
Schlumberger Ltd., May $60 Puts, 5/22/10 ....................... United States 200 (4,000)
-----------
(20,300)
-----------
MATERIALS (0.0)%(k)
Celanese Corp., A, May $30 Puts, 5/22/10 ....................... United States 75 (3,375)
Freeport-McMoRan Copper & Gold Inc., B, May $75 Puts,
5/22/10 ..................................................... United States 100 (26,500)
Nucor Corp., May $42 Puts, 5/22/10 ............................. United States 200 (5,400)
-----------
(35,275)
-----------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $209,475) ............. $ (284,888)
-----------
See Abbreviations on page 117.
(a) A portion or all of the security is held in connection with written option
contracts open at period end.
(b) Non-income producing.
(c) See Note 1(e) regarding equity-linked securities.
(d) Security 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 April 30, 2010,
the aggregate value of these securities was $29,823,694, representing
18.90% of net assets.
(e) The principal amount is stated in U.S. dollars unless otherwise indicated.
(f) The coupon rate shown represents the rate at period end.
(g) Perpetual security with no stated maturity date.
(h) The security is traded on a discount basis with no stated coupon rate.
(i) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(j) See Note 1(d) regarding written options.
(k) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
58 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CONVERTIBLE SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ----------------------------------------------------------
(UNAUDITED) 2009 2008 2007 2006 2005
---------------- -------- -------- -------- -------- --------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 12.28 $ 9.48 $ 17.14 $ 17.19 $ 16.46 $ 15.16
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............ 0.16 0.35 0.42 0.38 0.43 0.42
Net realized and unrealized gains
(losses) ......................... 1.95 3.04 (6.75) 1.36 1.52 1.49
-------- -------- -------- -------- -------- --------
Total from investment operations ....... 2.11 3.39 (6.33) 1.74 1.95 1.91
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ............... (0.30) (0.59) (0.75) (0.58) (0.60) (0.61)
Net realized gains .................. -- -- (0.58) (1.21) (0.62) --
-------- -------- -------- -------- -------- --------
Total distributions .................... (0.30) (0.59) (1.33) (1.79) (1.22) (0.61)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ..................... -- -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ......... $ 14.09 $ 12.28 $ 9.48 $ 17.14 $ 17.19 $ 16.46
======== ======== ======== ======== ======== ========
Total return(e) ........................ 17.40% 37.35% (39.36)% 10.66% 12.45% 12.76%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ............................ 0.91% 0.96% 0.89% 0.87% 0.86% 0.88%
Net investment income .................. 2.48% 3.35% 2.92% 2.25% 2.59% 2.63%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $649,897 $542,741 $396,201 $844,603 $718,018 $551,120
Portfolio turnover rate ................ 15.80% 47.18% 37.58% 17.59% 31.37% 35.30%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 59
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CONVERTIBLE SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ----------------------------------------------------------
(UNAUDITED) 2009 2008 2007 2006 2005
---------------- -------- -------- -------- -------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 12.16 $ 9.39 $ 16.98 $ 17.04 $ 16.32 $ 15.05
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............ 0.11 0.27 0.31 0.25 0.30 0.30
Net realized and unrealized gains
(losses) ......................... 1.93 3.01 (6.68) 1.36 1.52 1.46
-------- -------- -------- -------- -------- --------
Total from investment operations ....... 2.04 3.28 (6.37) 1.61 1.82 1.76
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ............... (0.26) (0.51) (0.64) (0.46) (0.48) (0.49)
Net realized gains .................. -- -- (0.58) (1.21) (0.62) --
-------- -------- -------- -------- -------- --------
Total distributions .................... (0.26) (0.51) (1.22) (1.67) (1.10) (0.49)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ..................... -- -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ......... $ 13.94 $ 12.16 $ 9.39 $ 16.98 $ 17.04 $ 16.32
======== ======== ======== ======== ======== ========
Total return(e) ........................ 16.90% 36.36% (39.80)% 9.94% 11.53% 11.92%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ............................ 1.66% 1.71% 1.63% 1.61% 1.61% 1.63%
Net investment income .................. 1.73% 2.60% 2.18% 1.51% 1.83% 1.88%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $219,102 $192,297 $138,148 $306,353 $271,216 $219,970
Portfolio turnover rate ................ 15.80% 47.18% 37.58% 17.59% 31.37% 35.30%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
60 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CONVERTIBLE SECURITIES FUND
YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2010 -----------------
(UNAUDITED) 2009 2008(A)
---------------- ------- -------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ..... $ 12.29 $ 9.48 $ 15.65
------- ------- -------
Income from investment operations(b):
Net investment income(c) .............. 0.18 0.39 0.24
Net realized and unrealized gains
(losses) ........................... 1.95 3.03 (5.88)
------- ------- -------
Total from investment operations ......... 2.13 3.42 (5.64)
------- ------- -------
Less distributions from net investment
income ................................ (0.32) (0.61) (0.53)
------- ------- -------
Redemption fees(d) -- -- --(e)
------- ------- -------
Net asset value, end of period ........... $ 14.10 $ 12.29 $ 9.48
======= ======= =======
Total return(f) .......................... 17.53% 37.81% (36.93)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses(h) .............................. 0.66% 0.71% 0.64%
Net investment income .................... 2.73% 3.60% 3.17%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ........ $40,748 $32,003 $ 318
Portfolio turnover rate .................. 15.80% 47.18% 37.58%
(a) For the period May 15, 2008 (effective date) to October 31, 2008.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 61
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
FRANKLIN CONVERTIBLE SECURITIES FUND SHARES VALUE
------------------------------------ ----------- ------------
CONVERTIBLE PREFERRED STOCKS 22.7%
CONSUMER DISCRETIONARY 4.8%
(a) Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. ................ 450,000 $ 22,005,000
(a) General Motors Corp., 1.50%, cvt. pfd., D ........................ 776,200 6,783,988
(a) General Motors Corp., 6.25%, cvt. pfd., C ........................ 235,000 2,055,662
Retail Ventures Inc. into DSW Inc., 6.625%, cvt. pfd. ............ 250,000 12,395,000
------------
43,239,650
------------
CONSUMER STAPLES 1.7%
Archer Daniels Midland Co., 6.25%, cvt. pfd. ..................... 400,000 15,840,000
------------
ENERGY 3.3%
Chesapeake Energy Corp., 5.00%, cvt. pfd. ........................ 90,000 7,717,500
(b) Chesapeake Energy Corp., 5.00%, cvt. pfd., 144A .................. 110,000 9,432,500
El Paso Corp., 4.99%, cvt. pfd. .................................. 12,000 12,603,000
------------
29,753,000
------------
FINANCIALS 7.4%
Affiliated Managers Group Inc., 5.10%, cvt. pfd. ................. 350,000 16,450,000
Citigroup Inc., 7.50%, cvt. pfd. ................................. 170,000 22,409,400
(a) Fannie Mae, 5.375%, cvt. pfd. .................................... 140 563,500
Hartford Financial Services Group Inc., 7.25%, cvt. pfd. ......... 580,000 15,387,400
Wells Fargo & Co., 7.50%, cvt. pfd., A ........................... 12,900 12,719,400
------------
67,529,700
------------
HEALTH CARE 1.9%
Tenet Healthcare Corp., 7.00%, cvt. pfd. ......................... 15,000 16,924,500
------------
MATERIALS 1.7%
Freeport-McMoRan Copper & Gold Inc., 6.75%, cvt. pfd. ............ 150,000 15,539,542
------------
UTILITIES 1.9%
Great Plains Energy Inc., 12.00%, cvt. pfd. ...................... 263,200 17,292,240
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $225,325,389) ........... 206,118,632
------------
PRINCIPAL
AMOUNT(c)
-----------
CONVERTIBLE BONDS 74.6%
CONSUMER DISCRETIONARY 12.7%
Best Buy Co. Inc., cvt., sub. deb., 2.25%, 1/15/22 ............... $16,000,000 18,260,000
BorgWarner Inc., cvt., senior note, 3.50%, 4/15/12 ............... 6,750,000 9,660,939
Carnival Corp., cvt., senior deb., 2.00%, 4/15/21 ................ 18,000,000 20,385,000
Coinstar Inc., cvt., senior note, 4.00%, 9/01/14 ................. 14,500,000 19,194,375
(b) Eastman Kodak Co., cvt., senior note, 144A, 7.00%, 4/01/17 ....... 4,715,000 5,454,312
Liberty Media Corp., cvt., senior deb., B, 3.25%, 3/15/31 ........ 10,000,000 6,512,500
(b) Live Nation Inc., cvt., senior note, 144A, 2.875%, 7/15/27 ....... 17,865,000 16,547,456
(b) MGM Mirage, cvt., senior note, 144A, 4.25%, 4/15/15 .............. 18,000,000 19,687,500
------------
115,702,082
------------
ENERGY 1.0%
Helix Energy Solutions Group, cvt., senior note, 3.25%,
12/15/25 ...................................................... 10,000,000 9,212,500
------------
62 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN CONVERTIBLE SECURITIES FUND AMOUNT(c) VALUE
------------------------------------ ----------- ------------
CONVERTIBLE BONDS (CONTINUED)
FINANCIALS 3.7%
CapitalSource Inc., cvt., senior sub. note, 4.00%, 7/15/34 ....... $11,500,000 $ 11,155,000
(d) iStar Financial Inc., cvt., senior note, FRN, 0.791%, 10/01/12 ... 23,000,000 18,170,000
Leucadia National Corp., cvt., senior sub. note, 3.75%, 4/15/14 .. 3,600,000 4,545,000
------------
33,870,000
------------
HEALTH CARE 18.4%
ALZA Corp., cvt., sub. deb., zero cpn., 7/28/20 .................. 15,000,000 13,931,250
American Medical Systems Holdings Ltd., cvt., senior sub. note,
3.25%, 7/01/36 ................................................ 2,048,000 2,196,480
4.00%, 9/15/41 ................................................ 12,952,000 14,862,420
(b) Amgen Inc., cvt., senior note, 144A, 0.375%, 2/01/13 ............. 15,000,000 15,168,750
Biomarin Pharmaceutical Inc., cvt., senior note, 1.875%, 4/23/17 . 10,300,000 13,158,250
Cephalon Inc., cvt., senior sub. note, 2.50%, 5/01/14 ............ 10,000,000 11,237,500
Gilead Sciences Inc., cvt., senior note, 0.625%, 5/01/13 ......... 15,000,000 17,700,000
Lifepoint Hospitals Inc., cvt., 3.25%, 8/15/25 ................... 15,000,000 14,906,250
(b) Medtronic Inc., cvt., senior note, 144A, 1.50%, 4/15/11 .......... 17,000,000 17,255,000
Mylan Inc., cvt., senior note, 3.75%, 9/15/15 .................... 10,500,000 18,716,250
Onyx Pharmaceuticals Inc., cvt., senior note, 4.00%, 8/15/16 ..... 15,000,000 16,012,500
PDL BioPharma Inc., cvt., sub. note, 2.75%, 8/16/23 .............. 10,550,000 12,027,000
------------
167,171,650
------------
INDUSTRIALS 7.8%
AMR Corp., cvt., senior note, 6.25%, 10/15/14 .................... 10,000,000 10,530,500
Ingersoll Rand Co., cvt., senior note, 4.50%, 4/15/12 ............ 9,000,000 19,035,000
(b) L-3 Communications Corp., cvt., 144A, 3.00%, 8/01/35 ............. 15,000,000 15,806,250
WESCO International Inc., cvt., senior deb., 6.00%, 9/15/29 ...... 15,200,000 25,118,000
------------
70,489,750
------------
INFORMATION TECHNOLOGY 22.4%
Alliance Data Systems Corp., cvt., senior note,
1.75%, 8/01/13 ................................................ 17,000,000 18,785,000
(b) 144A, 4.75%, 5/15/14 .......................................... 3,000,000 5,141,250
(e, f) BearingPoint Inc., cvt., sub. note, 144A, 2.50%, 12/15/24 ........ 14,000,000 --
(b) Concur Technologies Inc., cvt., senior note, 144A, 2.50%, 4/15/15 17,000,000 17,404,260
EMC Corp., cvt., senior note, 1.75%, 12/01/13 .................... 10,000,000 13,075,000
Intel Corp., cvt.,
(b) junior sub. bond, 144A, 2.95%, 12/15/35 .......................... 19,000,000 19,332,500
sub. deb., 2.95%, 12/15/35 ....................................... 2,000,000 2,035,000
Liberty Media Corp. into Motorola Inc., cvt., senior deb., 3.50%,
1/15/31 ....................................................... 8,000,000 3,886,728
(b) Microchip Technology Inc., cvt., junior sub. note, 144A, 2.125%,
12/15/37 ...................................................... 20,000,000 20,664,300
Micron Technology Inc., cvt., senior sub. note, 1.875%, 6/01/14 .. 20,000,000 18,600,000
NetApp Inc., cvt., senior note, 1.75%, 6/01/13 ................... 15,000,000 18,712,500
PMC-Sierra Inc., cvt.,
(b) 144A, 2.25%, 10/15/25 ......................................... 3,500,000 4,182,500
sub. note, 2.25%, 10/15/25 .................................... 9,500,000 11,352,500
(b) Sybase Inc., cvt., senior note, 144A, 3.50%, 8/15/29 ............. 15,500,000 17,753,390
(b) VeriFone Holdings Inc., cvt., senior note, 144A, 1.375%,
6/15/12 ....................................................... 21,000,000 19,608,750
(b) VeriSign Inc., cvt., junior sub. bond, 144A, 3.25%, 8/15/37 ...... 14,000,000 13,265,000
------------
203,798,678
------------
Semiannual Report | 63
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN CONVERTIBLE SECURITIES FUND AMOUNT(c) VALUE
------------------------------------ ----------- ------------
CONVERTIBLE BONDS (CONTINUED)
MATERIALS 4.9%
ArcelorMittal, cvt., senior note, 5.00%, 5/15/14 (Luxembourg) .... $10,000,000 $ 14,612,500
(b) Cemex SAB de CV., cvt., sub. note, 144A, 4.875%, 3/15/15
(Mexico) ...................................................... 13,500,000 15,543,900
(b) Kaiser Aluminum Corp., cvt., senior note, 144A, 4.50%, 4/01/15 ... 4,000,000 4,241,600
Newmont Mining Corp., cvt., senior note, 3.00%, 2/15/12 .......... 7,500,000 10,031,250
------------
44,429,250
------------
TELECOMMUNICATION SERVICES 1.7%
(b) NII Holdings Inc., cvt., 144A, 2.75%, 8/15/25 .................... 15,000,000 15,468,750
------------
UTILITIES 2.0%
CMS Energy Corp., cvt., senior note, 5.50%, 6/15/29 .............. 15,000,000 18,600,000
------------
TOTAL CONVERTIBLE BONDS (COST $632,388,673) ...................... 678,742,660
------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST
$857,714,062) ................................................. 884,861,292
------------
SHARES
-----------
SHORT TERM INVESTMENTS (COST $16,543,375) 1.8%
MONEY MARKET FUNDS 1.8%
(g) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ...... 16,543,375 16,543,375
------------
TOTAL INVESTMENTS (COST $874,257,437) 99.1% ...................... 901,404,667
OTHER ASSETS, LESS LIABILITIES 0.9% .............................. 8,342,725
------------
NET ASSETS 100.0% ................................................ $909,747,392
============
See Abbreviations on page 117
(a) Non-income producing.
(b) Security 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 April 30, 2010,
the aggregate value of these securities was $251,957,968, representing
27.7% of net assets.
(c) The principal amount is stated in U.S. dollars unless otherwise indicated.
(d) The coupon rate shown represents the rate at period end.
(e) See Note 9 regarding restricted securities.
(f) See Note 8 regarding defaulted securities.
(g) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
The accompanying notes are an integral part of these financial statements.
64 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN EQUITY INCOME FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ----------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 14.06 $ 12.88 $ 22.41 $ 22.67 $ 20.47 $ 19.58
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............ 0.19 0.39 0.48 0.46 0.48 0.50
Net realized and unrealized gains
(losses) ......................... 1.76 1.29 (8.57) 1.16 2.70 0.85
-------- -------- -------- -------- -------- --------
Total from investment operations ....... 1.95 1.68 (8.09) 1.62 3.18 1.35
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ............... (0.21) (0.50) (0.48) (0.45) (0.51) (0.46)
Net realized gains .................. -- -- (0.96) (1.43) (0.47) --
-------- -------- -------- -------- -------- --------
Total distributions .................... (0.21) (0.50) (1.44) (1.88) (0.98) (0.46)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ..................... -- -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ......... $ 15.80 $ 14.06 $ 12.88 $ 22.41 $ 22.67 $ 20.47
======== ======== ======== ======== ======== ========
Total return(e) ........................ 13.94% 13.77% (38.01)% 7.40% 16.04% 6.92%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ............................ 0.99% 1.04% 0.95% 0.92% 0.91% 0.93%
Net investment income .................. 2.56% 3.19% 2.66% 2.03% 2.26% 2.43%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $701,231 $540,127 $465,027 $855,227 $735,432 $651,766
Portfolio turnover rate ................ 4.92% 43.75% 31.32% 27.66% 29.34% 38.05%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 65
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN EQUITY INCOME FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -----------------------------------------------------
CLASS B (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 13.98 $ 12.82 $ 22.30 $ 22.57 $ 20.38 $ 19.49
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ............ 0.14 0.30 0.34 0.29 0.32 0.35
Net realized and unrealized gains
(losses) ......................... 1.74 1.27 (8.52) 1.15 2.70 0.85
------- ------- ------- ------- ------- -------
Total from investment operations ....... 1.88 1.57 (8.18) 1.44 3.02 1.20
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income ............... (0.15) (0.41) (0.34) (0.28) (0.36) (0.31)
Net realized gains .................. -- -- (0.96) (1.43) (0.47) --
------- ------- ------- ------- ------- -------
Total distributions .................... (0.15) (0.41) (1.30) (1.71) (0.83) (0.31)
------- ------- ------- ------- ------- -------
Redemption fees(c) ..................... -- -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- ------- -------
Net asset value, end of period ......... $ 15.71 $ 13.98 $ 12.82 $ 22.30 $ 22.57 $ 20.38
======= ======= ======= ======= ======= =======
Total return(e) ........................ 13.50% 12.87% (38.47)% 6.59% 15.20% 6.17%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ............................ 1.72% 1.79% 1.70% 1.67% 1.65% 1.68%
Net investment income .................. 1.83% 2.44% 1.91% 1.28% 1.52% 1.68%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $15,321 $16,737 $20,559 $46,627 $51,979 $54,880
Portfolio turnover rate ................ 4.92% 43.75% 31.32% 27.66% 29.34% 38.05%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
66 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN EQUITY INCOME FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 --------------------------------------------------------
CLASS C (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $ 14.00 $ 12.83 $ 22.31 $ 22.58 $ 20.39 $ 19.50
-------- ------- ------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ............ 0.14 0.30 0.34 0.29 0.32 0.34
Net realized and unrealized gains
(losses) ......................... 1.74 1.28 (8.52) 1.15 2.70 0.86
-------- ------- ------- -------- -------- --------
Total from investment operations ....... 1.88 1.58 (8.18) 1.44 3.02 1.20
-------- ------- ------- -------- -------- --------
Less distributions from:
Net investment income ............... (0.15) (0.41) (0.34) (0.28) (0.36) (0.31)
Net realized gains .................. -- -- (0.96) (1.43) (0.47) --
-------- ------- ------- -------- -------- --------
Total distributions .................... (0.15) (0.41) (1.30) (1.71) (0.83) (0.31)
-------- ------- ------- -------- -------- --------
Redemption fees(c) ..................... -- -- --(d) --(d) --(d) --(d)
-------- ------- ------- -------- -------- --------
Net asset value, end of period ......... $ 15.73 $ 14.00 $ 12.83 $ 22.31 $ 22.58 $ 20.39
======== ======= ======= ======== ======== ========
Total return(e) ........................ 13.49% 12.94% (38.46)% 6.60% 15.19% 6.16%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ............................ 1.74% 1.79% 1.70% 1.66% 1.65% 1.68%
Net investment income .................. 1.81% 2.44% 1.91% 1.29% 1.52% 1.68%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $100,707 $86,152 $78,394 $166,481 $172,366 $174,674
Portfolio turnover rate ................ 4.92% 43.75% 31.32% 27.66% 29.34% 38.05%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 67
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN EQUITY INCOME FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ----------------------------------------------------
CLASS R (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ------ ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ... $14.07 $12.89 $ 22.43 $ 22.68 $ 20.48 $ 19.59
------ ------ ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ............ 0.18 0.36 0.44 0.41 0.43 0.45
Net realized and unrealized gains
(losses) ......................... 1.75 1.29 (8.59) 1.16 2.70 0.85
------ ------ ------- ------- ------- -------
Total from investment operations ....... 1.93 1.65 (8.15) 1.57 3.13 1.30
------ ------ ------- ------- ------- -------
Less distributions from:
Net investment income ............... (0.19) (0.47) (0.43) (0.39) (0.46) (0.41)
Net realized gains .................. -- -- (0.96) (1.43) (0.47) --
------ ------ ------- ------- ------- -------
Total distributions .................... (0.19) (0.47) (1.39) (1.82) (0.93) (0.41)
------ ------ ------- ------- ------- -------
Redemption fees(c) ..................... -- -- --(d) --(d) --(d) --(d)
------ ------ ------- ------- ------- -------
Net asset value, end of period ......... $15.81 $14.07 $ 12.89 $ 22.43 $ 22.68 $ 20.48
====== ====== ======= ======= ======= =======
Total return(e) ........................ 13.78% 13.49% (38.18)% 7.11% 15.69% 6.71%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ............................ 1.24% 1.29% 1.20% 1.17% 1.16% 1.18%
Net investment income .................. 2.31% 2.94% 2.41% 1.78% 2.01% 2.18%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...... $4,196 $4,218 $ 4,690 $13,532 $18,908 $20,612
Portfolio turnover rate ................ 4.92% 43.75% 31.32% 27.66% 29.34% 38.05%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
68 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN EQUITY INCOME FUND
YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2010 ----------------
ADVISOR CLASS (UNAUDITED) 2009 2008(a)
- ------------- ---------------- ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period.......... $14.07 $12.88 $ 19.59
------ ------ -------
Income from investment operations(b):
Net investment income(c)................... 0.20 0.42 0.23
Net realized and unrealized gains
(losses)................................ 1.77 1.30 (6.75)
------ ------ -------
Total from investment operations.............. 1.97 1.72 (6.52)
------ ------ -------
Less distributions from net investment
income..................................... (0.23) (0.53) (0.19)
------ ------ -------
Redemption fees(d) -- -- --(e)
------ ------ -------
Net asset value, end of period................ $15.81 $14.07 $ 12.88
====== ====== =======
Total return(f)............................... 14.07% 14.12% (33.43)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses(h)................................... 0.74% 0.79% 0.70%
Net investment income......................... 2.81% 3.44% 2.91%
SUPPLEMENTAL DATA
Net assets, end of period (000's)............. $3,721 $2,142 $ 679
Portfolio turnover rate....................... 4.92% 43.75% 31.32%
(a) For the period May 15, 2008 (effective date) to October 31, 2008.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 69
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
FRANKLIN EQUITY INCOME FUND COUNTRY SHARES VALUE
--------------------------- -------------- ----------- ------------
COMMON STOCKS 75.6%
CONSUMER DISCRETIONARY 6.4%
Best Buy Co. Inc. .................................... United States 298,700 $ 13,620,720
Comcast Corp., A ..................................... United States 600,960 11,862,950
The Home Depot Inc. .................................. United States 414,000 14,593,500
Limited Brands Inc. .................................. United States 471,000 12,622,800
------------
52,699,970
------------
CONSUMER STAPLES 5.8%
The Coca-Cola Co. .................................... United States 329,800 17,627,810
Diageo PLC, ADR ...................................... United Kingdom 227,200 15,481,408
Unilever NV, N.Y. shs. ............................... Netherlands 488,700 14,788,062
------------
47,897,280
------------
ENERGY 9.7%
Chevron Corp. ........................................ United States 240,500 19,586,320
ConocoPhillips ....................................... United States 279,300 16,531,767
Exxon Mobil Corp. .................................... United States 218,634 14,834,317
Halliburton Co. ...................................... United States 450,000 13,792,500
Spectra Energy Corp. ................................. United States 654,000 15,264,360
------------
80,009,264
------------
FINANCIALS 7.2%
Aflac Inc. ........................................... United States 306,200 15,603,952
JPMorgan Chase & Co. ................................. United States 344,650 14,675,197
Marsh & McLennan Cos. Inc. ........................... United States 497,700 12,054,294
Wells Fargo & Co. .................................... United States 528,200 17,488,702
------------
59,822,145
------------
HEALTH CARE 9.6%
Abbott Laboratories .................................. United States 275,000 14,069,000
Johnson & Johnson .................................... United States 307,000 19,740,100
Merck & Co. Inc. ..................................... United States 688,495 24,124,865
Pfizer Inc. .......................................... United States 684,500 11,444,840
Roche Holding AG ..................................... Switzerland 63,100 9,968,247
------------
79,347,052
------------
INDUSTRIALS 13.7%
3M Co. ............................................... United States 213,100 18,895,577
Caterpillar Inc. ..................................... United States 264,200 17,989,378
General Dynamics Corp. ............................... United States 215,000 16,417,400
General Electric Co. ................................. United States 596,600 11,251,876
J.B. Hunt Transport Services Inc. .................... United States 282,800 10,424,008
Pitney Bowes Inc. .................................... United States 334,500 8,496,300
Republic Services Inc. ............................... United States 514,100 15,952,523
United Parcel Service Inc., B ........................ United States 201,600 13,938,624
------------
113,365,686
------------
INFORMATION TECHNOLOGY 13.9%
Intel Corp. .......................................... United States 870,500 19,873,515
International Business Machines Corp. ................ United States 139,900 18,047,100
Microchip Technology Inc. ............................ United States 670,000 19,570,700
70 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN EQUITY INCOME FUND COUNTRY SHARES VALUE
--------------------------- -------------- ----------- ------------
COMMON STOCKS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
Microsoft Corp. ...................................... United States 750,000 $ 22,905,000
Nokia Corp., ADR ..................................... Finland 530,800 6,454,528
Paychex Inc. ......................................... United States 443,900 13,583,340
Xerox Corp. .......................................... United States 1,277,200 13,921,480
------------
114,355,663
------------
TELECOMMUNICATION SERVICES 5.0%
AT&T Inc. ............................................ United States 612,910 15,972,434
Verizon Communications Inc. .......................... United States 432,300 12,489,147
Vodafone Group PLC ................................... United Kingdom 5,741,900 12,769,788
------------
41,231,369
------------
UTILITIES 4.3%
PG&E Corp. ........................................... United States 261,000 11,431,800
Sempra Energy ........................................ United States 200,000 9,836,000
The Southern Co. ..................................... United States 404,000 13,962,240
------------
35,230,040
------------
TOTAL COMMON STOCKS (COST $561,483,437) .............. 623,958,469
------------
CONVERTIBLE PREFERRED STOCKS 11.7%
CONSUMER DISCRETIONARY 1.2%
Autoliv Inc., 8.00%, cvt. pfd. ....................... Sweden 134,000 9,834,394
------------
FINANCIALS 6.4%
Bank of America Corp., 7.25%, cvt. pfd., L ........... United States 18,000 17,675,820
Citigroup Inc., 7.50%, cvt. pfd. ..................... United States 110,000 14,500,200
Hartford Financial Services Group Inc., 7.25%, cvt.
pfd. .............................................. United States 310,000 8,224,300
Wells Fargo & Co., 7.50%, cvt. pfd., A ............... United States 12,500 12,325,000
------------
52,725,320
------------
HEALTH CARE 0.9%
Tenet Healthcare Corp., 7.00%, cvt. pfd. ............. United States 6,600 7,446,780
------------
MATERIALS 1.6%
Freeport-McMoRan Copper & Gold Inc., 6.75%, cvt.
pfd. .............................................. United States 128,000 13,260,410
------------
UTILITIES 1.6%
Great Plains Energy Inc., 12.00%, cvt. pfd. .......... United States 200,000 13,140,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$74,300,009) ...................................... 96,406,904
------------
(a) EQUITY-LINKED SECURITIES (COST $9,166,950) 1.0%
ENERGY 1.0%
Credit Suisse into Weatherford International Ltd.,
11.00% ............................................ United States 450,000 8,458,290
------------
PREFERRED STOCKS (COST $15,634,990) 0.1%
FINANCIALS 0.1%
(b) Fannie Mae, 8.25%, pfd. .............................. United States 625,000 912,500
------------
Semiannual Report | 71
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN EQUITY INCOME FUND COUNTRY AMOUNT(c) VALUE
--------------------------- -------------- ----------- ------------
CONVERTIBLE BONDS 6.1%
CONSUMER DISCRETIONARY 3.0%
Carnival Corp., cvt., senior deb., 2.00%, 4/15/21 .... United States $ 6,344,000 $ 7,184,580
(d) MGM Mirage, cvt., senior note, 144A, 4.25%,
4/15/15 .......................................... United States 16,000,000 17,500,000
------------
24,684,580
------------
HEALTH CARE 2.2%
Mylan Inc., cvt., senior note, 3.75%, 9/15/15 ........ United States 10,000,000 17,825,000
------------
MATERIALS 0.9%
ArcelorMittal, cvt., senior note, 5.00%, 5/15/14 ..... Luxembourg 5,250,000 7,671,563
------------
TOTAL CONVERTIBLE BONDS (COST $36,875,152) ........... 50,181,143
------------
CORPORATE BONDS (COST $11,819,620) 1.7%
FINANCIALS 1.7%
(e) JPMorgan Chase & Co., junior sub. note, 1, 7.90%,
Perpetual ............................................ United States 13,000,000 13,698,724
------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $709,280,158) ............................... 793,616,030
------------
SHARES
-----------
SHORT TERM INVESTMENTS (COST $27,987,070) 3.4%
MONEY MARKET FUNDS 3.4%
(f) Institutional Fiduciary Trust Money Market Portfolio,
0.00% ............................................. United States 27,987,070 27,987,070
------------
TOTAL INVESTMENTS (COST $737,267,228) 99.6% .......... 821,603,100
OTHER ASSETS, LESS LIABILITIES 0.4% .................. 3,573,221
------------
NET ASSETS 100.0% .................................... $825,176,321
============
See Abbreviations on page 117.
(a) See Note 1(e) regarding equity-linked securities.
(b) Non-income producing.
(c) The principal amount is stated in U.S. dollars unless otherwise indicated.
(d) Security 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. This security has been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At April 30, 2010,
the value of this security was $17,500,000, representing 2.12% of net
assets.
(e) Perpetual security with no stated maturity date.
(f) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
The accompanying notes are an integral part of these financial statements.
72 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -----------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.48 $ 10.05 $ 10.00 $ 9.90 $ 9.91 $ 10.26
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ................... 0.09 0.28 0.37 0.38 0.34 0.30
Net realized and unrealized gains
(losses) ................................ 0.01 0.50 0.09 0.11 0.01 (0.32)
-------- -------- -------- -------- -------- --------
Total from investment operations .............. 0.10 0.78 0.46 0.49 0.35 (0.02)
-------- -------- -------- -------- -------- --------
Less distributions from net investment
income ..................................... (0.14) (0.35) (0.41) (0.39) (0.36) (0.33)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ............................ -- -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 10.44 $ 10.48 $ 10.05 $ 10.00 $ 9.90 $ 9.91
======== ======== ======== ======== ======== ========
Total return(e) ............................... 0.97% 7.79% 4.67% 5.05% 3.63% (0.16)%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ...................................... 0.81% 0.82%(g) 0.86%(g) 0.88%(g) 0.83% 0.81%(g)
Net investment income ......................... 1.83% 2.72% 3.64% 3.79% 3.43% 2.96%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $353,799 $357,691 $298,468 $189,122 $211,245 $268,197
Portfolio turnover rate ....................... 21.42% 54.81% 61.57% 25.29% 45.79% 62.33%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 73
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -----------------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.47 $ 10.04 $ 9.99 $ 9.89 $ 9.90 $ 10.24
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ................... 0.10 0.29 0.38 0.39 0.35 0.31
Net realized and unrealized gains
(losses) ................................ 0.01 0.50 0.09 0.11 0.01 (0.31)
Total from investment operations .............. 0.11 0.79 0.47 0.50 0.36 --
------- ------- ------- ------- ------- -------
Less distributions from net investment
income ..................................... (0.15) (0.36) (0.42) (0.40) (0.37) (0.34)
------- ------- ------- ------- ------- -------
Redemption fees(c) ............................ -- -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $ 10.43 $ 10.47 $ 10.04 $ 9.99 $ 9.89 $ 9.90
======= ======= ======= ======= ======= =======
Total return(e) ............................... 1.02% 7.90% 4.78% 5.16% 3.74% 0.04%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ...................................... 0.71% 0.72%(g) 0.76%(g) 0.78%(g) 0.73% 0.71%(g)
Net investment income ......................... 1.93% 2.82% 3.74% 3.89% 3.53% 3.06%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $76,603 $55,156 $27,734 $22,143 $22,293 $26,725
Portfolio turnover rate ....................... 21.42% 54.81% 61.57% 25.29% 45.79% 62.33%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Based on average daily shares outstanding.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
74 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES 27.1%
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 3.3%
FHLMC, 2.60%, 9/01/33 ................................................ $ 136,260 $ 141,980
FHLMC, 2.605%, 12/01/33 .............................................. 812,719 845,611
FHLMC, 2.733%, 12/01/34 .............................................. 642,125 667,943
FHLMC, 2.785%, 8/01/34 ............................................... 816,164 849,695
FHLMC, 3.42%, 10/01/35 ............................................... 5,068,647 5,249,960
FHLMC, 4.964%, 7/01/35 ............................................... 4,324,773 4,515,601
FHLMC, 5.73%, 7/01/36 ................................................ 1,784,271 1,886,255
--------------
14,157,045
--------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 5.9%
FHLMC Gold 15 Year, 5.00%, 6/01/23 ................................... 4,197,398 4,442,922
FHLMC Gold 15 Year, 5.00%, 10/01/17 - 7/01/23 ........................ 4,193,831 4,441,138
FHLMC Gold 15 Year, 6.00%, 10/01/21 .................................. 1,887,899 2,037,934
FHLMC Gold 15 Year, 6.00%, 10/01/23 .................................. 12,282,819 13,237,156
FHLMC Gold 15 Year, 7.00%, 12/01/10 - 8/01/13 ........................ 48,781 51,313
FHLMC Gold 30 Year, 8.50%, 12/01/22 - 7/01/31 ........................ 1,123,760 1,283,114
FHLMC Gold 30 Year, 9.50%, 3/01/21 ................................... 20,960 22,429
--------------
25,516,006
--------------
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 11.0%
FNMA, 1.898%, 4/01/34 ................................................ 258,707 266,059
FNMA, 1.953%, 6/01/34 ................................................ 892,900 914,903
FNMA, 1.964%, 11/01/32 ............................................... 2,467,190 2,520,924
FNMA, 2.037%, 1/01/35 ................................................ 8,866,741 9,032,158
FNMA, 2.05%, 8/01/34 ................................................. 2,957,149 3,044,734
FNMA, 2.055%, 3/01/33 ................................................ 1,299,972 1,326,005
FNMA, 2.105%, 11/01/34 ............................................... 93,907 95,453
FNMA, 2.207%, 7/01/34 ................................................ 1,713,913 1,760,253
FNMA, 2.261%, 4/01/33 ................................................ 369,749 378,915
FNMA, 2.415%, 3/01/34 ................................................ 141,098 145,896
FNMA, 2.429%, 3/01/35 ................................................ 1,730,560 1,786,908
FNMA, 2.514%, 2/01/35 ................................................ 1,836,545 1,913,337
FNMA, 2.55%, 12/01/34 ................................................ 462,969 483,696
FNMA, 2.59%, 1/01/33 ................................................. 10,465 10,920
FNMA, 2.622%, 8/01/34 ................................................ 993,552 1,029,452
FNMA, 2.75%, 10/01/33 ................................................ 287,671 301,269
FNMA, 2.76%, 4/01/33 ................................................. 1,141,875 1,175,377
FNMA, 2.773%, 1/01/33 ................................................ 161,124 167,439
FNMA, 2.895%, 4/01/35 ................................................ 125,854 126,702
FNMA, 2.928%, 2/01/34 ................................................ 1,289,713 1,337,626
FNMA, 3.036%, 9/01/34 ................................................ 545,609 557,168
FNMA, 3.087%, 1/01/35 ................................................ 255,934 267,154
FNMA, 3.216%, 6/01/33 ................................................ 246,701 252,865
FNMA, 3.223%, 5/01/34 ................................................ 761,491 794,448
FNMA, 3.80%, 12/01/33 ................................................ 525,665 543,043
FNMA, 4.104%, 8/01/33 ................................................ 557,574 577,414
FNMA, 4.303%, 9/01/33 ................................................ 2,618,084 2,728,706
FNMA, 5.537%, 2/01/36 ................................................ 10,835,023 11,372,812
FNMA, 5.809%, 11/01/11 ............................................... 2,384,086 2,510,235
--------------
47,421,871
--------------
Semiannual Report | 75
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 5.9%
FNMA 15 Year, 4.50%, 12/01/18 - 2/01/19 .............................. $ 405,247 $ 427,842
FNMA 15 Year, 5.00%, 2/01/18 - 5/01/18 ............................... 2,062,131 2,201,235
FNMA 15 Year, 5.00%, 6/01/23 ......................................... 5,848,834 6,183,062
FNMA 15 Year, 5.50%, 3/01/16 - 2/01/21 ............................... 4,702,944 5,048,197
FNMA 15 Year, 6.00%, 4/01/16 - 5/01/17 ............................... 1,786,840 1,929,064
FNMA 15 Year, 6.50%, 5/01/11 - 10/01/16 .............................. 179,817 192,162
FNMA 15 Year, 7.00%, 7/01/12 - 7/01/14 ............................... 129,649 137,237
FNMA 15 Year, 7.50%, 12/01/14 - 1/01/15 .............................. 87,122 95,253
FNMA 30 Year, 5.00%, 3/01/38 ......................................... 7,168,247 7,432,352
FNMA 30 Year, 6.50%, 8/01/38 ......................................... 1,158,411 1,253,444
FNMA 30 Year, 9.00%, 1/01/17 - 12/01/20 .............................. 101,397 111,523
FNMA 30 Year, 9.50%, 7/01/16 - 6/01/22 ............................... 197,784 220,876
--------------
25,232,247
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 1.0%
GNMA I SF 15 Year, 6.50%, 10/15/13 - 7/15/14 ......................... 314,201 339,161
GNMA I SF 15 Year, 7.50%, 10/15/14 - 12/15/14 ........................ 85,599 92,677
GNMA I SF 30 Year, 5.00%, 3/15/39 .................................... 1,862,270 1,946,538
GNMA I SF 30 Year, 5.50%, 4/15/33 - 5/15/33 .......................... 681,885 729,851
GNMA I SF 30 Year, 6.00%, 3/15/33 .................................... 157,287 170,922
GNMA I SF 30 Year, 7.50%, 11/15/16 ................................... 36,409 39,687
GNMA I SF 30 Year, 8.00%, 11/15/16 ................................... 48,510 53,669
GNMA I SF 30 Year, 8.50%, 1/15/17 .................................... 22,748 24,851
GNMA I SF 30 Year, 9.00%, 6/15/16 - 9/15/17 .......................... 302,236 334,083
GNMA II SF 30 Year, 7.50%, 10/20/29 - 10/20/31 ....................... 401,706 452,880
GNMA II SF 30 Year, 9.00%, 8/20/16 - 11/20/16 ........................ 53,463 58,288
GNMA II SF 30 Year, 9.50%, 6/20/16 ................................... 56,771 62,709
--------------
4,305,316
--------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $112,977,224) ................. 116,632,485
--------------
U.S. GOVERNMENT AND AGENCY SECURITIES 69.1%
FHLB, 5.75%, 5/15/12 ................................................. 2,000,000 2,186,004
FHLMC,
2.125%, 3/23/12 ................................................... 8,000,000 8,166,544
5.125%, 7/15/12 ................................................... 14,000,000 15,200,010
5.50%, 8/20/12 .................................................... 8,000,000 8,751,432
4.125%, 12/21/12 .................................................. 4,000,000 4,261,328
4.50%, 1/15/13 .................................................... 8,300,000 8,946,421
3.50%, 5/29/13 .................................................... 4,200,000 4,425,141
3.75%, 6/28/13 .................................................... 7,000,000 7,441,007
4.50%, 7/15/13 .................................................... 3,500,000 3,795,214
4.50%, 1/15/14 .................................................... 7,000,000 7,596,813
senior note, 4.75%, 3/05/12 ....................................... 10,000,000 10,670,510
senior note, 2.50%, 4/23/14 ....................................... 3,000,000 3,035,928
FNMA,
1.00%, 4/04/12 .................................................... 6,700,000 6,693,065
1.875%, 4/20/12 ................................................... 1,500,000 1,523,110
1.25%, 6/22/12 .................................................... 4,000,000 4,004,916
4.75%, 11/19/12 ................................................... 4,000,000 4,328,176
76 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------------- ---------------- --------------
U.S. GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
FNMA, (continued)
4.375%, 3/15/13 ................................................... $ 4,000,000 $ 4,312,964
1.75%, 5/07/13 .................................................... 3,200,000 3,206,090
4.625%, 10/15/13 .................................................. 5,000,000 5,460,685
2.75%, 3/13/14 .................................................... 20,000,000 20,444,540
3.00%, 9/16/14 .................................................... 3,000,000 3,079,689
senior note, 4.625%, 10/15/14 ..................................... 6,000,000 6,562,326
General Electric Capital Corp., senior note, FDIC Guaranteed, 3.00%,
12/09/11 .......................................................... 8,200,000 8,478,587
U.S. Treasury Note,
5.125%, 6/30/11 ................................................... 18,000,000 18,965,394
4.875%, 7/31/11 ................................................... 18,000,000 18,972,432
1.00%, 12/31/11 ................................................... 9,000,000 9,031,293
1.375%, 2/15/12 ................................................... 5,000,000 5,046,485
1.375%, 5/15/12 ................................................... 10,000,000 10,082,030
1.75%, 8/15/12 .................................................... 12,000,000 12,179,064
3.125%, 4/30/13 ................................................... 6,000,000 6,291,564
2.75%, 10/31/13 ................................................... 14,000,000 14,470,316
1.75%, 3/31/14 .................................................... 14,000,000 13,884,066
2.25%, 5/31/14 .................................................... 5,000,000 5,041,405
2.625%, 7/31/14 ................................................... 4,000,000 4,081,876
2.375%, 8/31/14 ................................................... 19,000,000 19,181,089
4.25%, 11/15/14 ................................................... 3,500,000 3,813,635
(b) Index Linked, 2.00%, 1/15/14 ......................................... 3,636,284 3,896,792
--------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $290,441,108) .......... 297,507,941
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $403,418,332) ...... 414,140,426
--------------
SHARES
----------------
SHORT TERM INVESTMENTS 3.3%
MONEY MARKET FUNDS (COST $8,587,308) 2.0%
(c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% .......... 8,587,308 8,587,308
--------------
PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENTS (COST $5,558,198) 1.3%
(d) Joint Repurchase Agreement, 0.174%, 5/03/10 (Maturity Value
$5,558,278) ....................................................... $ 5,558,198 5,558,198
Banc of America Securities LLC (Maturity Value $858,754)
Barclays Capital Inc. (Maturity Value $858,754)
BNP Paribas Securities Corp. (Maturity Value $899,717)
Credit Suisse Securities (USA) LLC (Maturity Value $817,845)
Deutsche Bank Securities Inc. (Maturity Value $896,439)
HSBC Securities (USA) Inc. (Maturity Value $408,923)
Morgan Stanley & Co. Inc. (Maturity Value $408,923)
UBS Securities LLC (Maturity Value $408,923)
Collateralized by U.S. Government Agency Securities, 0.18% -
5.875%, 5/04/10 - 8/13/14;
(e) U.S. Government Agency Discount Notes, 12/14/10; (e) U.S.
Treasury Bills, 5/06/10 - 3/10/11; and U.S. Treasury Notes,
0.875% - 4.375%, 7/31/10 - 4/30/14
--------------
TOTAL INVESTMENTS (COST $417,563,838) 99.5% .............................. 428,285,932
OTHER ASSETS, LESS LIABILITIES 0.5% ...................................... 2,116,530
--------------
NET ASSETS 100.0% ........................................................ $ 430,402,462
--------------
Semiannual Report | 77
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND
See Abbreviations on page 117.
(a) The coupon rate shown represents the rate at period end.
(b) Principal amount of security is adjusted for inflation. See Note 1(h).
(c) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(d) See Note 1(c) regarding joint repurchase agreement.
(e) The security is traded on a discount basis with no stated coupon rate.
The accompanying notes are an integral part of these financial statements.
78 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN REAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ---------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005(a)
- ------- ---------------- -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.74 $ 9.55 $ 10.64 $ 10.10 $ 9.94 $ 10.00
-------- -------- -------- ------- ------- -------
Income from investment operations(b):
Net investment income (loss) ............... 0.08(c) --(d) 0.48(c) 0.29(c) 0.38(c) 0.31(c)
Net realized and unrealized gains
(losses) ................................ 0.28 1.20 (0.95) 0.58 0.22 0.04
-------- -------- -------- ------- ------- -------
Total from investment operations .............. 0.36 1.20 (0.47) 0.87 0.60 0.35
-------- -------- -------- ------- ------- -------
Less distributions from:
Net investment income ...................... (0.10) (0.01) (0.59) (0.33) (0.44) (0.40)
Net realized gains ......................... -- -- (0.03) -- -- --
Tax return of capital ...................... -- -- -- -- -- (0.01)
-------- -------- -------- ------- ------- -------
Total distributions ........................... (0.10) (0.01) (0.62) (0.33) (0.44) (0.41)
-------- -------- -------- ------- ------- -------
Redemption fees(e) ............................ -- -- --(d) --(d) --(d) --(d)
-------- -------- -------- ------- ------- -------
Net asset value, end of period ................ $ 11.00 $ 10.74 $ 9.55 $ 10.64 $ 10.10 $ 9.94
======== ======== ======== ======= ======= =======
Total return(f) ............................... 3.40% 12.59% (4.93)% 8.75% 6.16% 3.53%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by
affiliates ................................. 1.07% 1.09% 1.08% 1.11% 1.12% 1.63%
Expenses net of waiver and payments by
affiliates and expense reduction ........... 0.90% 0.90%(h) 0.90%(h) 0.90%(h) 0.90%(h) 0.90%(h)
Net investment income ......................... 1.40% 0.03% 4.48% 2.80% 3.75% 3.29%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $392,637 $342,873 $285,467 $46,682 $31,452 $23,753
Portfolio turnover rate ....................... 15.43% 10.73% 28.06% 23.60% 3.53% 8.86%
(a) For the period November 17, 2004 (commencement of operations) to October
31, 2005.
(b) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period and may fluctuate
between classes due to the timing of sales and repurchases of the Fund
shares in relation to income earned, adjustments to interest income for the
inflation-indexed bonds, and/or fluctuating market value of the investments
of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 79
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2010 OCTOBER 31,
CLASS C (UNAUDITED) 2009(a)
- ------- ---------------- -----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.69 $ 9.57
------- -------
Income from investment operations(b):
Net investment income ...................... 0.06(c) 0.10
Net realized and unrealized gains
(losses) ................................ 0.28 1.03
------- -------
Total from investment operations .............. 0.34 1.13
------- -------
Less distributions from net investment
income ..................................... (0.09) (0.01)
------- -------
Net asset value, end of period ................ $ 10.94 $ 10.69
======= =======
Total return(d) ............................... 3.20% 11.86%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses before waiver and payments by
affiliates ................................. 1.47% 1.49%
Expenses net of waiver and payments by
affiliates and expense reduction ........... 1.30% 1.30%(f)
Net investment income (loss) .................. 1.00% (0.37)%(g)
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $50,161 $24,151
Portfolio turnover rate ....................... 15.43% 10.73%
(a) For the period November 3, 2008 (effective date) to October 31, 2009.
(b) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period and may fluctuate
between classes due to the timing of sales and repurchases of the Fund
shares in relation to income earned, adjustments to interest income for the
inflation-indexed bonds, and/or fluctuating market value of the investments
of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Ratio is calculated based on the Fund level net investment income, as
reflected on the Statement of Operations, and adjusted for class specific
expenses. The amount may not correlate with the per share amount due to the
timing of income earned and/or fluctuating market value of the investments
of the Fund in relation to the timing of sales and repurchases of Fund
shares.
The accompanying notes are an integral part of these financial statements.
80 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN REAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -------------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007 2006 2005(a)
- ------------- ---------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.78 $ 9.57 $ 10.65 $ 10.11 $ 9.95 $10.00
------- ------- ------- ------- ------- ------
Income from investment operations(b):
Net investment income ...................... 0.09(c) 0.05 0.52(c) 0.31(c) 0.40(c) 0.36(c)
Net realized and unrealized gains
(losses) ................................ 0.29 1.17 (0.96) 0.59 0.23 0.02
------- ------- ------- ------- ------- ------
Total from investment operations .............. 0.38 1.22 (0.44) 0.90 0.63 0.38
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income ...................... (0.14) (0.01) (0.61) (0.36) (0.47) (0.42)
Net realized gains ......................... -- -- (0.03) -- -- --
Tax return of capital ...................... -- -- -- -- -- (0.01)
------- ------- ------- ------- ------- ------
Total distributions ........................... (0.14) (0.01) (0.64) (0.36) (0.47) (0.43)
------- ------- ------- ------- ------- ------
Redemption fees(d) ............................ -- -- --(e) --(e) --(e) --(e)
------- ------- ------- ------- ------- ------
Net asset value, end of period ................ $ 11.02 $ 10.78 $ 9.57 $ 10.65 $ 10.11 $ 9.95
======= ======= ======= ======= ======= ======
Total return(f) ............................... 3.55% 12.80% (4.63)% 9.01% 6.41% 3.81%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by
affiliates ................................. 0.82% 0.84% 0.83% 0.86% 0.87% 1.38%
Expenses net of waiver and payments by
affiliates and expense reduction ........... 0.65% 0.65%(h) 0.65%(h) 0.65%(h) 0.65%(h) 0.65%(h)
Net investment income ......................... 1.65% 0.28% 4.73% 3.05% 4.00% 3.54%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $38,019 $24,256 $14,681 $20,068 $17,892 $ 496
Portfolio turnover rate ....................... 15.43% 10.73% 28.06% 23.60% 3.53% 8.86%
(a) For the period November 17, 2004 (commencement of operations) to October
31, 2005.
(b) The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period and may fluctuate
between classes due to the timing of sales and repurchases of the Fund
shares in relation to income earned, adjustments to interest income for the
inflation-indexed bonds, and/or fluctuating market value of the investments
of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 81
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
FRANKLIN REAL RETURN FUND COUNTRY SHARES VALUE
------------------------- -------------- ------------------- ------------
COMMON STOCKS 4.7%
ENERGY 3.5%
Anadarko Petroleum Corp. ................................ United States 16,500 $ 1,025,640
Chevron Corp. ........................................... United States 13,600 1,107,584
Devon Energy Corp. ...................................... United States 33,600 2,262,288
Exxon Mobil Corp. ....................................... United States 6,800 461,380
Marathon Oil Corp. ...................................... United States 27,900 896,985
(a) Nabors Industries Ltd. .................................. Bermuda 21,300 459,441
Noble Corp. ............................................. United States 16,400 647,636
Noble Energy Inc. ....................................... United States 14,500 1,107,800
Occidental Petroleum Corp. .............................. United States 10,500 930,930
Peabody Energy Corp. .................................... United States 23,800 1,111,936
Schlumberger Ltd. ....................................... United States 17,100 1,221,282
Smith International Inc. ................................ United States 11,700 558,792
(a) Southwestern Energy Co. ................................. United States 34,600 1,372,928
(a) Transocean Ltd. ......................................... United States 11,519 834,551
Valero Energy Corp. ..................................... United States 16,100 334,719
(a) Weatherford International Ltd. .......................... United States 49,400 894,634
XTO Energy Inc. ......................................... United States 27,300 1,297,296
------------
16,525,822
------------
MATERIALS 1.2%
Alcoa Inc. .............................................. United States 58,500 786,240
Barrick Gold Corp. ...................................... Canada 51,200 2,229,760
Freeport-McMoRan Copper & Gold Inc., B .................. United States 21,373 1,614,303
Nucor Corp. ............................................. United States 10,800 489,456
United States Steel Corp. ............................... United States 12,100 661,386
------------
5,781,145
------------
MEDIA 0.0%(b)
(a) Dex One Corp. ........................................... United States 4,347 131,758
------------
TOTAL COMMON STOCKS (COST $21,013,660) 22,438,725
------------
PREFERRED STOCKS (COST $37,985) 0.0%(b)
DIVERSIFIED FINANCIALS 0.0%(b)
(c) GMAC Inc., 7.00%, pfd., 144A ............................ United States 107 90,880
------------
UNITS
-------------------
MUTUAL FUNDS (COST $20,021,354) 4.8%
SPDR Dow Jones REIT ETF ................................. United States 400,000 22,980,000
PRINCIPAL AMOUNT(d)
-------------------
(e, f) SENIOR FLOATING RATE INTERESTS (COST $394,942) 0.1%
MATERIALS 0.1%
Novelis Corp., U.S. Term Loan, 2.28% - 2.30%, 7/07/14 ... United States 394,942 383,218
------------
82 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN REAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(d) VALUE
------------------------- -------------- ------------------- ------------
CORPORATE BONDS 4.4%
AUTOMOBILES & COMPONENTS 0.2%
Ford Motor Credit Co. LLC, senior note,
9.875%, 8/10/11 ...................................... United States 200,000 $ 211,711
7.00%, 4/15/15 ....................................... United States 400,000 407,197
8.125%, 1/15/20 ...................................... United States 200,000 212,254
------------
831,162
------------
CAPITAL GOODS 0.4%
Case New Holland Inc., senior note, 7.125%, 3/01/14 ..... United States 500,000 513,750
(c) RBS Global & Rexnord Corp., senior note, 144A, 8.50%,
5/01/18 .............................................. United States 700,000 702,625
(c) RSC Equipment Rental Inc., senior secured note, 144A,
10.00%, 7/15/17 ...................................... United States 500,000 548,750
------------
1,765,125
------------
COMMERCIAL & PROFESSIONAL SERVICES 0.0%(b)
(c) Casella Waste Systems Inc., senior secured note, 144A,
11.00%, 7/15/14 ...................................... United States 100,000 109,000
------------
CONSUMER DURABLES & APPAREL 0.1%
Jarden Corp., senior sub. note, 7.50%, 5/01/17 .......... United States 500,000 513,750
------------
CONSUMER SERVICES 0.5%
(c) Host Hotels & Resorts LP, senior note, 144A, 9.00%,
5/15/17 .............................................. United States 500,000 547,500
MGM MIRAGE,
senior note, 6.625%, 7/15/15 ......................... United States 600,000 520,500
(c) senior secured note, 144A, 9.00%, 3/15/20 ............ United States 200,000 211,000
Royal Caribbean Cruises Ltd., senior deb., 7.25%,
3/15/18 .............................................. United States 500,000 503,750
Starwood Hotels & Resorts Worldwide Inc., senior note,
6.75%, 5/15/18 ....................................... United States 500,000 517,500
------------
2,300,250
------------
DIVERSIFIED FINANCIALS 0.2%
GMAC Inc., senior note, 6.875%, 9/15/11 ................. United States 506,000 517,385
(c) LBI Escrow Corp., senior secured note, 144A, 8.00%,
11/01/17 ............................................. United States 200,000 207,750
------------
725,135
------------
ENERGY 0.6%
Chesapeake Energy Corp., senior note,
6.625%, 1/15/16 ...................................... United States 750,000 742,500
6.25%, 1/15/18 ....................................... United States 50,000 48,500
(c) Consol Energy Inc., senior note, 144A,
8.00%, 4/01/17 ....................................... United States 100,000 106,125
8.25%, 4/01/20 ....................................... United States 100,000 107,000
El Paso Corp., senior note, 12.00%, 12/12/13 ............ United States 400,000 478,027
Mariner Energy Inc., senior note, 11.75%, 6/30/16 ....... United States 200,000 257,000
(c) Petroplus Finance Ltd., senior note, 144A, 6.75%,
5/01/14 .............................................. Switzerland 300,000 286,500
Tesoro Corp., senior note, 6.25%, 11/01/12 .............. United States 800,000 810,000
------------
2,835,652
------------
FOOD & STAPLES RETAILING 0.1%
Rite Aid Corp., senior secured note, 9.75%, 6/12/16 ..... United States 500,000 553,125
------------
Semiannual Report | 83
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN REAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(d) VALUE
------------------------- -------------- ------------------- ------------
CORPORATE BONDS (CONTINUED)
FOOD, BEVERAGE & TOBACCO 0.2%
(c) BAT International Finance PLC, 144A, 8.125%, 11/15/13 ... United Kingdom 400,000 $ 471,750
(c) JBS USA LLC, senior note, 144A, 11.625%, 5/01/14 ........ United States 500,000 578,750
------------
1,050,500
------------
HEALTH CARE EQUIPMENT & SERVICES 0.4%
DaVita Inc., senior sub. note, 7.25%, 3/15/15 ........... United States 500,000 512,500
(c) Fresenius US Finance II, senior note, 144A, 9.00%,
7/15/15 .............................................. Germany 200,000 226,000
HCA Inc., senior secured note, 9.125%, 11/15/14 ......... United States 800,000 853,000
US Oncology Inc., senior secured note, 9.125%, 8/15/17 .. United States 400,000 420,000
------------
2,011,500
------------
MATERIALS 0.3%
Ball Corp., senior note, 7.375%, 9/01/19 ................ United States 100,000 105,750
CF Industries Holdings Inc., senior note, 6.875%,
5/01/18 .............................................. United States 300,000 313,875
Nalco Co., senior sub. note, 8.875%, 11/15/13 ........... United States 400,000 414,000
NewPage Corp., senior secured note, 11.375%, 12/31/14 ... United States 500,000 516,250
Solo Cup Co., senior secured note, 10.50%, 11/01/13 ..... United States 200,000 214,000
------------
1,563,875
------------
MEDIA 0.4%
(c) CCO Holdings LLC, senior note, 144A, 8.125%, 4/30/20 .... United States 400,000 411,000
(c) Lamar Media Corp., senior sub. note, 144A, 7.875%,
4/15/18 .............................................. United States 300,000 308,250
Liberty Media Corp., senior note, 5.70%, 5/15/13 ........ United States 600,000 606,000
(c) Univision Communications Inc., senior secured note,
144A, 12.00%, 7/01/14 ................................ United States 500,000 555,000
------------
1,880,250
------------
REAL ESTATE 0.0%(b)
FelCor Lodging LP, senior secured note, 10.00%,
10/01/14 ............................................. United States 200,000 210,000
------------
SOFTWARE & SERVICES 0.1%
SunGard Data Systems Inc., senior secured note, 4.875%,
1/15/14 .............................................. United States 600,000 573,750
------------
TECHNOLOGY HARDWARE & EQUIPMENT 0.1%
(c, e) Sanmina-SCI Corp., senior note, 144A, FRN,
3.007%, 6/15/14 ...................................... United States 400,000 384,000
------------
TELECOMMUNICATION SERVICES 0.2%
(c) New Communications Holdings, senior note, 144A,
8.25%, 4/15/17 ....................................... United States 100,000 103,500
8.50%, 4/15/20 ....................................... United States 100,000 103,500
8.75%, 4/15/22 ....................................... United States 200,000 207,000
(c) Wind Acquisition Finance SA, senior note, 144A,
12.00%, 12/01/15 ..................................... Italy 500,000 536,250
------------
950,250
------------
TRANSPORTATION 0.1%
(c) Delta Air Lines Inc., senior secured note, 144A,
9.50%, 9/15/14 ....................................... United States 300,000 321,750
------------
UTILITIES 0.5%
Ameren Corp., senior note, 8.875%, 5/15/14 .............. United States 500,000 584,489
CMS Energy Corp., senior note, 8.75%, 6/15/19 ........... United States 300,000 344,862
Dynegy Holdings Inc., senior note, 8.375%, 5/01/16 ...... United States 500,000 442,500
(c) Intergen NV, senior secured note, 144A, 9.00%, 6/30/17 .. Netherlands 500,000 525,000
84 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN REAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(d) VALUE
------------------------- -------------- ------------------- ------------
CORPORATE BONDS (CONTINUED)
UTILITIES (CONTINUED)
NRG Energy Inc., senior note, 7.25%, 2/01/14 ............ United States 700,000 $ 711,375
------------
2,608,226
------------
TOTAL CORPORATE BONDS (COST $19,421,170) ................ 21,187,300
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 14.7%
Government of Hungary,
3.50%, 7/18/16 ....................................... Hungary 60,000 EUR 76,844
4.375%, 7/04/17 ...................................... Hungary 150,000 EUR 199,245
5.75%, 6/11/18 ....................................... Hungary 435,000 EUR 619,975
senior note, 3.875%, 2/24/20 ............................ Hungary 180,000 EUR 226,290
Government of Malaysia,
3.756%, 4/28/11 ...................................... Malaysia 10,290,000 MYR 3,268,069
3.833%, 9/28/11 ...................................... Malaysia 33,960,000 MYR 10,828,448
3.702%, 2/25/13 ...................................... Malaysia 1,840,000 MYR 587,454
3.461%, 7/31/13 ...................................... Malaysia 150,000 MYR 47,481
3.814%, 2/15/17 ...................................... Malaysia 6,100,000 MYR 1,912,781
Government of Norway, 6.00%, 5/16/11 .................... Norway 68,600,000 NOK 12,071,414
Government of Poland, 4.25%, 5/24/11 .................... Poland 21,500,000 PLN 7,311,473
Government of Sweden, 5.25%, 3/15/11 .................... Sweden 44,235,000 SEK 6,349,507
Korea Treasury Bond,
0400-1206, 4.00%, 6/10/12 ............................ South Korea 2,120,000,000 KRW 1,933,956
0550-1106, 5.50%, 6/10/11 ............................ South Korea 5,150,000,000 KRW 4,784,773
Nota Do Tesouro Nacional,
9.762%, 1/01/12 ...................................... Brazil 5,770(g) BRL 3,208,810
(h) Index Linked, 6.00%, 5/15/15 ............................ Brazil 4,600(g) BRL 4,934,971
(h) Index Linked, 6.00%, 5/15/45 ............................ Brazil 1,680(g) BRL 1,837,773
Queensland Treasury Corp., 11, 6.00%, 6/14/11 ........... Australia 11,510,000 AUD 10,766,046
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $67,711,892) ................................... 70,965,310
------------
U.S. GOVERNMENT AND AGENCY SECURITIES 64.5%
(i) U.S. Treasury Bond, Index Linked,
2.375%, 1/15/25 ...................................... United States 3,104,542 3,387,589
3.875%, 4/15/29 ...................................... United States 395,526 525,246
(i) U.S. Treasury Note, Index Linked,
3.50%, 1/15/11 ....................................... United States 21,170,174 21,861,508
2.375%, 4/15/11 ...................................... United States 57,655,407 59,461,635
2.00%, 4/15/12 ....................................... United States 43,685,059 45,954,628
3.00%, 7/15/12 ....................................... United States 9,643,568 10,444,438
2.00%, 1/15/14 ....................................... United States 42,462,419 45,504,469
1.25%, 4/15/14 ....................................... United States 48,133,998 50,281,207
2.00%, 7/15/14 ....................................... United States 1,149,830 1,237,235
1.625%, 1/15/15 ...................................... United States 44,268,358 46,786,121
2.00%, 1/15/16 ....................................... United States 22,932,196 24,748,862
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $302,520,503) .................................. 310,192,938
------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $431,121,506) .................................. 448,238,371
------------
Semiannual Report | 85
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN REAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(d) VALUE
------------------------- -------------- ------------------- ------------
SHORT TERM INVESTMENTS 5.8%
FOREIGN GOVERNMENT AND AGENCY SECURITIES 0.3%
(j) Malaysia Treasury Bills,
10/15/10 - 1/06/11 ................................... Malaysia 4,725,000 MYR $ 1,459,850
1810, 11/02/10 ....................................... Malaysia 565,000 MYR 174,871
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $1,628,252) 1,634,721
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $432,749,758) 449,873,092
------------
REPURCHASE AGREEMENTS (COST $26,368,852) 5.5%
(k) Joint Repurchase Agreement, 0.174%, 5/03/10 ............. United States 26,368,852 26,368,852
(Maturity Value $26,369,234)
Banc of America Securities LLC (Maturity Value
$4,074,047)
Barclays Capital Inc. (Maturity Value $4,074,047)
BNP Paribas Securities Corp. (Maturity Value
$4,268,386)
Credit Suisse Securities (USA) LLC (Maturity Value
$3,879,969)
Deutsche Bank Securities Inc. (Maturity Value $4,252,830)
HSBC Securities (USA) Inc. (Maturity Value $1,939,985)
Morgan Stanley & Co. Inc. (Maturity Value $1,939,985)
UBS Securities LLC (Maturity Value $1,939,985)
Collateralized by U.S. Government Agency Securities,
0.18% - 5.875%, 5/04/10 - 8/13/14; (j) U.S. Government
Agency Discount Notes, 12/14/10; (j) U.S. Treasury
Bills, 5/06/10 - 3/10/11; and U.S. Treasury Notes,
0.875% - 4.375%, 7/31/10 - 4/30/14
------------
TOTAL INVESTMENTS (COST $459,118,610) 99.0% ............. 476,241,944
OTHER ASSETS, LESS LIABILITIES 1.0% ..................... 4,574,350
------------
NET ASSETS 100.0% ....................................... $480,816,294
============
See Abbreviations on page 117.
(a) Non-income producing.
(b) Rounds to less than 0.1% of net assets.
(c) Security 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 April 30, 2010,
the aggregate value of these securities was $7,648,880, representing 1.59%
of net assets.
(d) The principal amount is stated in U.S. dollars unless otherwise indicated.
(e) The coupon rate shown represents the rate at period end.
(f) See Note 1(f) regarding senior floating rate interests.
(g) Principal amount is stated in 1,000 Brazilian Real Units.
(h) Redemption price at maturity is adjusted for inflation. See Note 1(h).
(i) Principal amount of security is adjusted for inflation. See Note 1(h).
(j) The security is traded on a discount basis with no stated coupon rate.
(k) See Note 1(c) regarding joint repurchase agreement.
86 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN REAL RETURN FUND
At April 30, 2010, the fund had the following forward exchange contracts
outstanding. See Note 1(d).
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT DATE APPRECIATION DEPRECIATION
- -------- ------------ ---- ------------- ---------- ---------- ------------ ------------
Indian Rupee ... DBAB Buy 110,401,000 $2,260,000 6/18/10 $221,609 $ --
Chilean Peso ... JPHQ Buy 870,254,700 1,590,000 8/18/10 85,876 --
Chilean Peso ... JPHQ Buy 289,219,000 523,000 8/19/10 33,951 --
Chinese Yuan ... HSBC Buy 806,753 122,536 10/25/10 -- (3,090)
Chinese Yuan ... HSBC Buy 1,371,580 207,746 10/26/10 -- (4,660)
Chinese Yuan ... HSBC Buy 820,480 124,024 10/27/10 -- (2,530)
Chinese Yuan ... HSBC Buy 42,000,000 6,330,068 2/09/11 -- (79,835)
Chilean Peso ... DBAB Buy 2,927,500,000 5,576,190 4/04/11 25,055 --
-------- --------
Unrealized appreciation (depreciation) 366,491 (90,115)
-------- --------
Net unrealized appreciation (depreciation) $276,376
========
See Abbreviations on page 117.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 87
Franklin Investors Securities Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 2010 (unaudited)
FRANKLIN FRANKLIN CONVERTIBLE FRANKLIN EQUITY
BALANCED FUND SECURITIES FUND INCOME FUND
------------- -------------------- ---------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ..................... $142,268,404 $857,714,062 $ 709,280,158
Cost - Sweep Money Fund (Note 7) ................ 7,500,985 16,543,375 27,987,070
------------ ------------ -------------
Total cost of investments ....................... $149,769,389 $874,257,437 $ 737,267,228
============ ============ =============
Value - Unaffiliated issuers .................... $153,026,139 $884,861,292 $ 793,616,030
Value - Sweep Money Fund (Note 7) ............... 7,500,985 16,543,375 27,987,070
------------ ------------ -------------
Total value of investments ...................... 160,527,124 901,404,667 821,603,100
Receivables:
Investment securities sold ...................... 817,733 12,683,588 --
Capital shares sold ............................. 1,500,269 3,794,403 4,570,928
Dividends and interest .......................... 1,012,591 4,162,676 1,948,930
Other assets ....................................... 1,855 5,176 289
------------ ------------ -------------
Total assets ................................. 163,859,572 922,050,510 828,123,247
------------ ------------ -------------
Liabilities:
Payables:
Investment securities purchased ................. 5,108,057 8,850,037 --
Capital shares redeemed ......................... 378,342 2,564,220 2,034,896
Affiliates ...................................... 130,740 703,144 627,187
Unaffiliated transfer agent fees ................ 4,384 102,839 190,955
Loss contingency (Note 13) ......................... 92,496 -- --
Options written, at value (premiums received
$209,475, $-- and $--, respectively) ............ 284,888 -- --
Accrued expenses and other liabilities ............. 21,640 82,878 93,888
------------ ------------ -------------
Total liabilities ............................ 6,020,547 12,303,118 2,946,926
------------ ------------ -------------
Net assets, at value ...................... $157,839,025 $909,747,392 $ 825,176,321
============ ============ =============
Net assets consist of:
Paid-in capital .................................... $152,468,498 $957,491,523 $ 900,751,301
Distributions in excess of net investment income ... (396,190) (52,013,866) (2,734,036)
Net unrealized appreciation (depreciation) ......... 10,590,170 27,147,230 84,340,251
Accumulated net realized gain (loss) ............... (4,823,453) (22,877,495) (157,181,195)
------------ ------------ -------------
Net assets, at value ...................... $157,839,025 $909,747,392 $ 825,176,321
============ ============ =============
The accompanying notes are an integral part of these financial statements.
88 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2010 (unaudited)
FRANKLIN FRANKLIN CONVERTIBLE FRANKLIN EQUITY
BALANCED FUND SECURITIES FUND INCOME FUND
------------- -------------------- ---------------
CLASS A:
Net assets, at value ............................... $120,709,315 $649,896,763 $701,230,961
------------ ------------ ------------
Shares outstanding ................................. 12,887,994 46,125,208 44,380,770
------------ ------------ ------------
Net asset value per share(a) ....................... $ 9.37 $ 14.09 $ 15.80
------------ ------------ ------------
Maximum offering price per share (net asset value
per share / 94.25%) ............................. $ 9.94 $ 14.95 $ 16.76
------------ ------------ ------------
CLASS B:
Net assets, at value ............................... -- -- $ 15,321,045
------------ ------------ ------------
Shares outstanding ................................. -- -- 974,958
------------ ------------ ------------
Net asset value and maximum offering price per
share(a) ........................................ -- -- $ 15.71
------------ ------------ ------------
CLASS C:
Net assets, at value ............................... $ 34,074,439 $219,102,320 $100,707,395
------------ ------------ ------------
Shares outstanding ................................. 3,661,875 15,720,897 6,403,432
------------ ------------ ------------
Net asset value and maximum offering price per
share(a) ........................................ $ 9.31 $ 13.94 $ 15.73
------------ ------------ ------------
CLASS R:
Net assets, at value ............................... $ 199,847 -- $ 4,196,249
------------ ------------ ------------
Shares outstanding ................................. 21,295 -- 265,471
------------ ------------ ------------
Net asset value and maximum offering price per
share ........................................... $ 9.38 -- $ 15.81
------------ ------------ ------------
ADVISOR CLASS:
Net assets, at value ............................... $ 2,855,424 $ 40,748,309 $ 3,720,671
------------ ------------ ------------
Shares outstanding ................................. 304,401 2,890,432 235,338
------------ ------------ ------------
Net asset value and maximum offering price per
share ........................................... $ 9.38 $ 14.10 $ 15.81
------------ ------------ ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 89
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2010 (unaudited)
FRANKLIN
LIMITED MATURITY
U.S. GOVERNMENT FRANKLIN REAL
SECURITIES FUND RETURN FUND
---------------- -------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ..................... $403,418,332 $432,749,758
Cost - Sweep Money Fund (Note 7) ................ 8,587,308 --
Cost - Repurchase agreements .................... 5,558,198 26,368,852
------------ ------------
Total cost of investments ....................... $417,563,838 $459,118,610
------------ ------------
Value - Unaffiliated issuers .................... $414,140,426 $449,873,092
Value - Sweep Money Fund (Note 7) ............... 8,587,308 --
Value - Repurchase agreements ................... 5,558,198 26,368,852
------------ ------------
Total value of investments ...................... 428,285,932 476,241,944
Cash ............................................... 93,750 396
Foreign currency, at value (cost $-- and $4,208,
respectively) ................................... -- 4,283
Receivables:
Investment securities sold ...................... 268,312 4,128,952
Capital shares sold ............................. 1,828,675 2,760,190
Dividends and interest .......................... 2,594,378 3,279,815
Unrealized appreciation on forward exchange
contracts ....................................... -- 366,491
Other assets ....................................... 1,625 918
------------ ------------
Total assets ................................. 433,072,672 486,782,989
------------ ------------
Liabilities:
Payables:
Investment securities purchased ................. -- 4,185,756
Capital shares redeemed ......................... 2,115,469 1,162,399
Affiliates ...................................... 248,276 292,609
Unaffiliated transfer agent fees ................ 45,489 57,291
Distributions to shareholders ................... 228,876 97,169
Unrealized depreciation on forward exchange
contracts ....................................... -- 90,115
Accrued expenses and other liabilities ............. 32,100 81,356
------------ ------------
Total liabilities ............................ 2,670,210 5,966,695
------------ ------------
Net assets, at value ...................... $430,402,462 $480,816,294
============ ============
Net assets consist of:
Paid-in capital .................................... $430,982,095 $471,373,359
Distributions in excess of net investment income ... (3,281,875) (5,136,069)
Net unrealized appreciation (depreciation) ......... 10,722,094 17,397,348
Accumulated net realized gain (loss) ............... (8,019,852) (2,818,344)
------------ ------------
Net assets, at value ....................... $430,402,462 $480,816,294
============ ============
The accompanying notes are an integral part of these financial statements.
90 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2010 (unaudited)
FRANKLIN
LIMITED MATURITY
U.S. GOVERNMENT FRANKLIN REAL
SECURITIES FUND RETURN FUND
---------------- -------------
CLASS A:
Net assets, at value ............................... $353,799,043 $392,636,528
------------ ------------
Shares outstanding ................................. 33,889,735 35,695,093
------------ ------------
Net asset value per share(a) ....................... $ 10.44 $ 11.00
------------ ------------
Maximum offering price per share (net asset value
per share / 97.75% and 95.75%, respectively) .... $ 10.68 $ 11.49
------------ ------------
CLASS C:
Net assets, at value ............................... -- $ 50,161,212
------------ ------------
Shares outstanding ................................. -- 4,583,530
------------ ------------
Net asset value and maximum offering price per
share(a) ........................................ -- $ 10.94
------------ ------------
ADVISOR CLASS:
Net assets, at value ............................... $ 76,603,419 $ 38,018,554
------------ ------------
Shares outstanding ................................. 7,343,689 3,449,479
------------ ------------
Net asset value and maximum offering price per share $ 10.43 $ 11.02
------------ ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 91
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended April 30, 2010 (unaudited)
FRANKLIN FRANKLIN CONVERTIBLE FRANKLIN EQUITY
BALANCED FUND SECURITIES FUND INCOME FUND
------------- -------------------- ---------------
Investment income:
Dividends .......................................... $ 1,314,727 $ 5,432,384 $11,907,957
Interest ........................................... 1,697,948 8,659,903 1,065,335
----------- ------------ -----------
Total investment income ...................... 3,012,675 14,092,287 12,973,292
----------- ------------ -----------
Expenses:
Management fees (Note 3a) .......................... 323,648 2,004,946 1,773,641
Administrative fees (Note 3b) ...................... 131,346 -- --
Distribution fees: (Note 3c)
Class A ......................................... 163,478 730,264 766,277
Class B ......................................... -- -- 80,033
Class C ......................................... 126,637 1,028,219 467,357
Class R ......................................... 448 -- 10,477
Transfer agent fees (Note 3e) ......................... 64,523 549,520 743,879
Custodian fees (Note 4) ............................... 782 4,514 5,181
Reports to shareholders ............................... 8,100 71,076 96,071
Registration and filing fees .......................... 29,697 37,202 41,488
Professional fees ..................................... 17,777 19,817 16,658
Trustees' fees and expenses ........................... 1,481 11,747 11,404
Other ................................................. 10,975 34,457 14,159
----------- ------------ -----------
Total expenses ............................... 878,892 4,491,762 4,026,625
Expense reductions (Note 4) .................. -- (3) (8)
Expenses waived/paid by affiliates (Note 3f) . (122,051) -- --
----------- ------------ -----------
Net expenses .............................. 756,841 4,491,759 4,026,617
----------- ------------ -----------
Net investment income .................. 2,255,834 9,600,528 8,946,675
----------- ------------ -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ..................................... 3,701,163 27,581,945 7,589,472
Written options (Note 6) ........................ 345,613 -- --
Foreign currency transactions ................... (834) -- (58,309)
----------- ------------ -----------
Net realized gain (loss) ............... 4,045,942 27,581,945 7,531,163
----------- ------------ -----------
Net change in unrealized appreciation (depreciation)
on:
Investments ..................................... 8,134,535 94,837,939 76,989,636
Translation of other assets and liabilities
denominated in foreign currencies ............ (168) -- (11,658)
----------- ------------ -----------
Net change in unrealized appreciation
(depreciation) ...................... 8,134,367 94,837,939 76,977,978
----------- ------------ -----------
Net realized and unrealized gain (loss) ............... 12,180,309 122,419,884 84,509,141
----------- ------------ -----------
Net increase (decrease) in net assets resulting from
operations ......................................... $14,436,143 $132,020,412 $93,455,816
=========== ============ ===========
The accompanying notes are an integral part of these financial statements.
92 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the six months ended April 30, 2010 (unaudited)
FRANKLIN
LIMITED MATURITY
U.S. GOVERNMENT FRANKLIN REAL
SECURITIES FUND RETURN FUND
---------------- -------------
Investment income:
Dividends .......................................... $ -- $ 232,733
Interest ........................................... 5,603,092 3,638,624
Inflation principal adjustments .................... 19,360 1,111,258
---------- -----------
Total investment income ...................... 5,622,452 4,982,615
---------- -----------
Expenses:
Management fees (Note 3a) .......................... 1,090,184 918,307
Administrative fees (Note 3b) ...................... -- 432,144
Distribution fees: (Note 3c)
Class A ......................................... 178,238 457,619
Class C ......................................... -- 118,585
Transfer agent fees (Note 3e) ...................... 320,209 285,065
Custodian fees (Note 4) ............................ 2,868 25,822
Reports to shareholders ............................ 28,569 39,941
Registration and filing fees ....................... 36,751 42,193
Professional fees .................................. 17,533 20,411
Trustees' fees and expenses ........................ 6,871 6,462
Other .............................................. 8,459 10,949
---------- -----------
Total expenses ............................... 1,689,682 2,357,498
Expenses waived/paid by affiliates (Note 3f) . -- (376,784)
---------- -----------
Net expenses .............................. 1,689,682 1,980,714
---------- -----------
Net investment income .................. 3,932,770 3,001,901
---------- -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ..................................... 1,071,470 (547,001)
Foreign currency transactions ................... -- 893,156
---------- -----------
Net realized gain (loss) ............... 1,071,470 346,155
---------- -----------
Net change in unrealized appreciation (depreciation)
on:
Investments ..................................... (820,230) 12,044,111
Translation of other assets and liabilities
denominated in foreign currencies ............ -- (771,892)
---------- -----------
Net change in unrealized appreciation
(depreciation) ...................... (820,230) 11,272,219
---------- -----------
Net realized and unrealized gain (loss) ............... 251,240 11,618,374
---------- -----------
Net increase (decrease) in net assets resulting from
operations ......................................... $4,184,010 $14,620,275
========== ===========
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 93
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN CONVERTIBLE SECURITIES
FRANKLIN BALANCED FUND FUND
----------------------------------- -----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
APRIL 30, 2010 YEAR ENDED APRIL 30, 2010 YEAR ENDED
(UNAUDITED) OCTOBER 31, 2009 (UNAUDITED) OCTOBER 31, 2009
---------------- ---------------- ---------------- ----------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 2,255,834 $ 3,411,510 $ 9,600,528 $ 19,489,389
Net realized gain (loss) from investments,
written options and foreign currency
transactions ................................. 4,045,942 (4,768,029) 27,581,945 (44,659,839)
Net change in unrealized appreciation
(depreciation) on investments and translation
of other assets and liabilities denominated in
foreign currencies ........................... 8,134,367 21,959,649 94,837,939 224,420,871
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations .............. 14,436,143 20,603,130 132,020,412 199,250,421
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ...................................... (2,093,158) (3,159,541) (13,549,378) (24,773,314)
Class C ...................................... (418,468) (575,245) (4,033,438) (7,791,341)
Class R ...................................... (3,349) (2,675) -- --
Advisor Class ................................ (50,907) (70,588) (851,471) (850,548)
------------ ------------ ------------ ------------
Total distributions to shareholders ................ (2,565,882) (3,808,049) (18,434,287) (33,415,203)
------------ ------------ ------------ ------------
Capital share transactions: (Note 2)
Class A ...................................... 22,920,076 35,441,027 26,469,156 26,928,762
Class C ...................................... 12,418,330 9,663,374 (1,296,570) 11,366,862
Class R ...................................... 9,894 145,105 -- --
Advisor Class ................................ 784,569 510,440 3,948,238 28,243,035
------------ ------------ ------------ ------------
Total capital share transactions ................... 36,132,869 45,759,946 29,120,824 66,538,659
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ...... 48,003,130 62,555,027 142,706,949 232,373,877
Net assets:
Beginning of period ............................. 109,835,895 47,280,868 767,040,443 534,666,566
------------ ------------ ------------ ------------
End of period ................................... $157,839,025 $109,835,895 $909,747,392 $767,040,443
============ ============ ============ ============
Distributions in excess of net investment income
included in net assets:
End of period ................................... $ (396,190) $ (86,142) $(52,013,866) $(43,180,107)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
94 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN LIMITED MATURITY
FRANKLIN EQUITY INCOME FUND U.S. GOVERNMENT SECURITIES FUND
----------------------------------- -----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
APRIL 30, 2010 YEAR ENDED APRIL 30, 2010 YEAR ENDED
(UNAUDITED) OCTOBER 31, 2009 (UNAUDITED) OCTOBER 31, 2009
---------------- ---------------- ---------------- ----------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 8,946,675 $ 17,203,401 $ 3,932,770 $ 10,695,802
Net realized gain (loss) from investments and
foreign currency transactions ................ 7,531,163 (118,117,906) 1,071,470 6,262,556
Net change in unrealized appreciation
(depreciation) on investments and translation
of other assets and liabilities denominated in
foreign currencies ........................... 76,977,978 176,437,271 (820,230) 10,768,433
------------ ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations .............. 93,455,816 75,522,766 4,184,010 27,726,791
------------ ------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ...................................... (8,618,992) (18,567,026) (4,850,940) (11,582,957)
Class B ...................................... (167,027) (607,816) -- --
Class C ...................................... (952,742) (2,560,510) -- --
Class R ...................................... (53,211) (163,458) -- --
Advisor Class ................................ (46,215) (60,658) (983,940) (1,398,307)
------------ ------------- ------------ ------------
Total distributions to shareholders ................ (9,838,187) (21,959,468) (5,834,880) (12,981,264)
------------ ------------- ------------ ------------
Capital share transactions: (Note 2)
Class A ...................................... 90,956,513 30,323,752 (2,560,172) 45,902,675
Class B ...................................... (3,338,304) (4,934,336) -- --
Class C ...................................... 3,814,844 647,234 -- --
Class R ...................................... (504,412) (839,999) -- --
Advisor Class ................................ 1,254,134 1,266,491 21,766,870 25,997,252
------------ ------------- ------------ ------------
Total capital share transactions ................... 92,182,775 26,463,142 19,206,698 71,899,927
------------ ------------- ------------ ------------
Net increase (decrease) in net assets ..... 175,800,404 80,026,440 17,555,828 86,645,454
Net assets:
Beginning of period ................................ 649,375,917 569,349,477 412,846,634 326,201,180
------------ ------------- ------------ ------------
End of period ...................................... $825,176,321 $ 649,375,917 $430,402,462 $412,846,634
============ ============= ============ ============
Distributions in excess of net investment income
included in net assets:
End of period ................................... $ (2,734,036) $ (1,842,524) $ (3,281,875) $ (1,379,765)
============ ============= ============ ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 95
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN REAL RETURN FUND
-----------------------------------
SIX MONTHS ENDED
APRIL 30, 2010 YEAR ENDED
(UNAUDITED) OCTOBER 31, 2009
---------------- ----------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 3,001,901 $ 116,907
Net realized gain (loss) from investments and
foreign currency transactions ................ 346,155 (3,117,688)
Net change in unrealized appreciation
(depreciation) on investments and translation
of other assets and liabilities denominated in
foreign currencies ........................... 11,272,219 42,023,573
------------ ------------
Net increase (decrease) in net assets
resulting from operations .............. 14,620,275 39,022,792
------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ...................................... (3,571,373) (326,766)
Class C ...................................... (342,321) (399)
Advisor Class ................................ (405,681) (19,887)
------------ ------------
Total distributions to shareholders ................ (4,319,375) (347,052)
------------ ------------
Capital share transactions: (Note 2)
Class A ...................................... 40,940,481 21,713,620
Class C ...................................... 25,203,406 23,252,923
Advisor Class ................................ 13,091,912 7,489,492
------------ ------------
Total capital share transactions ................... 79,235,799 52,456,035
------------ ------------
Net increase (decrease) in net assets ..... 89,536,699 91,131,775
Net assets:
Beginning of period ............................. 391,279,595 300,147,820
------------ ------------
End of period ................................... $480,816,294 $391,279,595
============ ============
Distributions in excess of net investment income
included in net assets:
End of period ................................... $ (5,136,069) $ (3,818,595)
============ ============
The accompanying notes are an integral part of these financial statements.
96 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Investors Securities Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as an open-end investment company,
consisting of nine separate funds, five of which are included in this report
(Funds). The financial statements of the remaining funds in the Trust are
presented separately. The classes of shares offered within each of the Funds are
indicated below. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
CLASS A, CLASS B,
CLASS A, CLASS C, CLASS A, CLASS C CLASS C, CLASS R
CLASS R & ADVISOR CLASS & ADVISOR CLASS & ADVISOR CLASS CLASS A & ADVISOR CLASS
- ----------------------- -------------------- ---------------- ----------------------------------
Franklin Balanced Franklin Convertible Franklin Equity Franklin Limited Maturity
Fund Securities Fund Income Fund U.S. Government Securities Fund
Franklin Real Return
Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Equity and other securities listed on a securities 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. Over-the-counter securities and listed
securities for which there is no reported sale 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. Investments
in open-end mutual funds are valued at the closing net asset value.
Corporate debt securities, government securities, municipal securities, mortgage
backed securities, asset-backed securities, collateralized debt obligations and
other debt securities generally trade in the over-the-counter market rather than
on a securities exchange. The Funds may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Funds' pricing services may use valuation models or matrix pricing which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers, or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, option adjusted spread models, prepayment projections, interest
rate spreads and yield curves, to determine current value. Debt securities
denominated in a foreign currency are converted into their U.S. dollar
equivalent at the foreign exchange rate in effect at the close of the NYSE on
the date that the values of the foreign debt securities are determined.
Semiannual Report | 97
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Funds may utilize independent pricing services, quotations from
loan dealers and other financial institutions, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Funds' pricing services use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond characteristics such as dealer quotes,
issuer type, coupon, maturity, weighted average maturity, interest rate spreads
and yield curves, cash flow and credit risk/quality analysis, to determine
current value.
Foreign equity securities are valued as of the close of trading on the foreign
stock exchange on which the security is primarily traded, or the NYSE, whichever
is earlier. If no sale is reported at that time, the foreign equity security
will be valued within the range of the most recent quoted bid and ask prices.
The value is then converted into its U.S. dollar equivalent at the foreign
exchange rate in effect at the close of the NYSE on the day that the value of
the security is determined.
The Funds have procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, matrix pricing, discounts from market prices of similar securities,
or discounts applied due to the nature and duration of restrictions on the
disposition of the securities. Due to the inherent uncertainty of valuations of
such securities, the fair values may differ significantly from the values that
would have been used had a ready market for such investments existed.
Occasionally, events occur between the time at which trading in a security is
completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a portfolio security
held by the fund. The investment manager 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 Depository 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. If such an event occurs, the securities
may be valued using fair value procedures, which may include the use of
independent pricing services. All security valuation procedures are approved by
the Funds' Board of Trustees.
98 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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
Funds' Board of Trustees.
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 on the
Statement 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 funds may 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 agreement is accounted for as a loan by
the fund to the seller, collateralized by securities which are delivered to the
fund's custodian. The market value, including accrued interest, of the initial
collateralization is required to be at least 102% of 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%. The joint repurchase agreement held by
the Funds at period end had been entered into on April 30, 2010. The joint
repurchase agreement is valued at cost which approximates market value.
D. DERIVATIVE FINANCIAL INSTRUMENTS
Certain funds may invest in derivative financial instruments (derivatives) 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 may contain various
risks
Semiannual Report | 99
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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 the potential for market movements which may expose the
fund to gains or losses in excess of the amounts shown on the Statement of
Assets and Liabilities.
Derivatives are marked to market daily based upon quotations from market makers
or the fund's independent pricing services and the fund's net benefit or
obligation under the contract, as measured by the fair market value of the
contract, is included in net assets. Realized gain and loss and unrealized
appreciation and depreciation on these contracts for the period are included in
the Statement of Operations.
Certain funds generally enter into forward exchange contracts in order 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 for a specific exchange rate on a future date. Pursuant to the terms of
the forward exchange contracts, cash or securities may be required to be
deposited as collateral.
Certain funds generally purchase or write option contracts in order to manage 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 a particular
security, currency or index, or notional amount of a swap (swaption), at a
specified price. Options purchased are recorded as an asset while options
written are recorded as a liability. Upon exercise of an option, the acquisition
cost or sales proceeds of the security is adjusted by any premium paid or
received. Upon expiration of an option, any premium paid or received is recorded
as a realized loss or gain. Upon closing an option other than through expiration
or exercise, the difference between the premium and the cost to close the
position is recorded as a realized gain or loss.
See Note 10 regarding other derivative information.
E. EQUITY-LINKED SECURITIES
The Franklin Balanced Fund and the Franklin Equity Income Fund may 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 Statement 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 fund.
100 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. SENIOR FLOATING RATE INTERESTS
Senior secured corporate loans 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 fund invests are generally readily
marketable, but may be subject to some restrictions on resale.
G. INCOME TAXES
It is each Fund's policy to qualify as a regulated investment company under the
Internal Revenue Code and to distribute to shareholders substantially all of its
taxable income and net realized gains. As a result, no provision for federal
income taxes is required. The Funds file U.S. income tax returns as well as tax
returns in certain other jurisdictions. As of April 30, 2010, and for all open
tax years, the Funds have determined that no provision for income tax is
required in the Funds' financial statements. Open tax years are those that
remain subject to examination by such taxing authorities, which in the case of
the U.S. is three years after the filing of a fund's tax return.
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. Dividend income is recorded on the ex-dividend date. Distributions to
shareholders are recorded on the ex-dividend date and are determined according
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States of America. 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, not
including 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.
Semiannual Report | 101
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
Inflation-indexed bonds provide an inflation hedge through periodic increases or
decreases in the security's interest accruals and principal redemption value, by
amounts corresponding to the current rate of inflation. Any such adjustments,
including adjustments to principal redemption value, are recorded as interest
income.
I. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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.
2. SHARES OF BENEFICIAL INTEREST
At April 30, 2010, there were an unlimited number of shares authorized (without
par value). Transactions in the Funds' shares were as follows:
FRANKLIN FRANKLIN CONVERTIBLE
BALANCED FUND SECURITIES FUND
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
CLASS A SHARES:
Six Months ended April 30, 2010
Shares sold .................... 4,364,265 $ 39,276,667 8,005,566 $ 106,903,328
Shares issued in reinvestment of
distributions ............... 179,789 1,622,400 852,416 11,246,000
Shares redeemed ................ (1,997,598) (17,978,991) (6,913,873) (91,680,172)
---------- ------------ ----------- -------------
Net increase (decrease) ........ 2,546,456 $ 22,920,076 1,944,109 $ 26,469,156
========== ============ =========== =============
Year ended October 31, 2009
Shares sold .................... 8,467,809 $ 61,287,119 17,583,217 $ 181,565,209
Shares issued in reinvestment of
distributions ............... 311,481 2,260,134 1,846,448 18,643,164
Shares redeemed ................ (4,019,994) (28,106,226) (17,039,252) (173,279,611)
---------- ------------ ----------- -------------
Net increase (decrease) ........ 4,759,296 $ 35,441,027 2,390,413 $ 26,928,762
========== ============ =========== =============
102 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN FRANKLIN CONVERTIBLE
BALANCED FUND SECURITIES FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS C SHARES:
Six Months ended April 30, 2010
Shares sold .................... 1,715,344 $ 15,468,726 1,403,058 $ 18,505,290
Shares issued in reinvestment of
distributions ............... 33,831 303,833 221,316 2,892,043
Shares redeemed ................ (375,654) (3,354,229) (1,723,528) (22,693,903)
---------- ------------ --------- ------------
Net increase (decrease) ........ 1,373,521 $ 12,418,330 (99,154) $ (1,296,570)
========== ============ ========= ============
Year ended October 31, 2009
Shares sold .................... 2,691,789 $ 19,419,328 5,260,858 $ 52,363,537
Shares issued in reinvestment of
distributions ............... 58,829 420,240 537,461 5,357,000
Shares redeemed ................ (1,487,839) (10,176,194) (4,695,077) (46,353,675)
---------- ------------ --------- ------------
Net increase (decrease) ........ 1,262,779 $ 9,663,374 1,103,242 $ 11,366,862
========== ============ ========= ============
CLASS R SHARES:
Six Months ended April 30, 2010
Shares sold .................... 10,537 $ 94,628
Shares issued in reinvestment of
distributions ............... 351 3,178
Shares redeemed ................ (10,053) (87,912)
---------- ------------
Net increase (decrease) ........ 835 $ 9,894
========== ============
Year ended October 31, 2009
Shares sold .................... 19,278 $ 148,614
Shares issued in reinvestment of
distributions ............... 297 2,297
Shares redeemed ................ (814) (5,806)
---------- ------------
Net increase (decrease) ........ 18,761 $ 145,105
========== ============
ADVISOR CLASS SHARES:
Six Months ended April 30, 2010
Shares sold .................... 98,324 $ 889,098 720,933 $ 9,680,769
Shares issued in reinvestment of
distributions ............... 3,434 31,070 20,854 275,296
Shares redeemed ................ (14,831) (135,599) (455,178) (6,007,827)
---------- ------------ --------- ------------
Net increase (decrease) ........ 86,927 $ 784,569 286,609 $ 3,948,238
========== ============ ========= ============
Year ended October 31, 2009
Shares sold .................... 87,053 $ 704,641 3,528,088 $ 37,631,625
Shares issued in reinvestment of
distributions ............... 7,666 54,704 56,438 555,049
Shares redeemed ................ (30,174) (248,905) (1,014,194) (9,943,639)
---------- ------------ --------- ------------
Net increase (decrease) ........ 64,545 $ 510,440 2,570,332 $ 28,243,035
========== ============ ========= ============
Semiannual Report | 103
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN
FRANKLIN EQUITY LIMITED MATURITY U.S.
INCOME FUND GOVERNMENT SECURITIES FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES:
Six Months ended April 30, 2010
Shares sold .................... 10,598,928 $ 160,923,840 7,611,391 $ 79,629,678
Shares issued in reinvestment of
distributions ............... 533,446 8,112,956 390,862 4,089,747
Shares redeemed ................ (5,162,278) (78,080,283) (8,252,938) (86,279,597)
----------- ------------- ----------- -------------
Net increase (decrease) ........ 5,970,096 $ 90,956,513 (250,685) $ (2,560,172)
=========== ============= =========== =============
Year ended October 31, 2009
Shares sold .................... 13,462,309 $ 165,022,874 21,695,160 $ 225,395,902
Shares issued in reinvestment of
distributions ............... 1,421,743 17,183,064 895,516 9,326,291
Shares redeemed ................ (12,578,113) (151,882,186) (18,149,011) (188,819,518)
----------- ------------- ----------- -------------
Net increase (decrease) ........ 2,305,939 $ 30,323,752 4,441,665 $ 45,902,675
=========== ============= =========== =============
CLASS B SHARES:
Six Months ended April 30, 2010
Shares sold .................... 46,602 $ 697,931
Shares issued in reinvestment of
distributions ............... 9,653 145,753
Shares redeemed ................ (278,209) (4,181,988)
----------- -------------
Net increase (decrease) ........ (221,954) $ (3,338,304)
=========== =============
Year ended October 31, 2009
Shares sold .................... 191,147 $ 2,226,668
Shares issued in reinvestment of
distributions ............... 43,858 522,954
Shares redeemed ................ (641,852) (7,683,958)
----------- -------------
Net increase (decrease) ........ (406,847) $ (4,934,336)
=========== =============
CLASS C SHARES:
Six Months ended April 30, 2010
Shares sold .................... 1,200,870 $ 18,124,133
Shares issued in reinvestment of
distributions ............... 57,373 868,173
Shares redeemed ................ (1,010,103) (15,177,462)
----------- -------------
Net increase (decrease) ........ 248,140 $ 3,814,844
=========== =============
Year ended October 31, 2009
Shares sold .................... 2,328,317 $ 28,070,055
Shares issued in reinvestment of
distributions ............... 187,622 2,252,834
Shares redeemed ................ (2,472,658) (29,675,655)
----------- -------------
Net increase (decrease) ........ 43,281 $ 647,234
=========== =============
104 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN EQUITY FRANKLIN LIMITED MATURITY U.S.
INCOME FUND GOVERNMENT SECURITIES FUND
---------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------
CLASS R SHARES:
Six Months ended April 30, 2010
Shares sold .................... 38,421 $ 580,246
Shares issued in reinvestment of
distributions ............... 3,499 53,128
Shares redeemed ................ (76,324) (1,137,786)
-------- -----------
Net increase (decrease) ........ (34,404) $ (504,412)
======== ===========
Year ended October 31, 2009
Shares sold .................... 57,455 $ 696,015
Shares issued in reinvestment of
distributions ............... 13,581 163,252
Shares redeemed ................ (135,139) (1,699,266)
-------- -----------
Net increase (decrease) ........ (64,103) $ (839,999)
======== ===========
ADVISOR CLASS SHARES:
Six Months ended April 30, 2010
Shares sold .................... 101,628 $ 1,533,420 3,579,877 $ 37,456,986
Shares issued in reinvestment of
distributions ............... 2,249 34,272 35,242 368,366
Shares redeemed ................ (20,760) (313,558) (1,539,931) (16,058,482)
-------- ----------- ---------- ------------
Net increase (decrease) ........ 83,117 $ 1,254,134 2,075,188 $ 21,766,870
======== =========== ========== ============
Year ended October 31, 2009
Shares sold .................... 141,466 $ 1,771,572 4,176,435 $ 43,380,798
Shares issued in reinvestment of
distributions ............... 4,525 54,765 62,522 650,799
Shares redeemed ................ (46,488) (559,846) (1,732,654) (18,034,345)
-------- ----------- ---------- ------------
Net increase (decrease) ........ 99,503 $ 1,266,491 2,506,303 $ 25,997,252
======== =========== ========== ============
FRANKLIN REAL RETURN FUND
---------------------------
SHARES AMOUNT
----------- -------------
CLASS A SHARES:
Six Months ended April 30, 2010
Shares sold .................... 8,562,953 $ 93,286,581
Shares issued in reinvestment of
distributions ............... 290,928 3,168,364
Shares redeemed ................ (5,093,773) (55,514,464)
----------- -------------
Net increase (decrease) ........ 3,760,108 $ 40,940,481
=========== =============
Year ended October 31, 2009
Shares sold .................... 17,469,435 $ 176,345,404
Shares issued in reinvestment of
distributions ............... 28,335 276,272
Shares redeemed ................ (15,459,555) (154,908,056)
----------- -------------
Net increase (decrease) ........ 2,038,215 $ 21,713,620
=========== =============
Semiannual Report | 105
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN
REAL RETURN FUND
-----------------------
SHARES AMOUNT
--------- -----------
CLASS C SHARES:
Six Months ended April 30, 2010
Shares sold .................... 2,723,312 $29,524,861
Shares issued in reinvestment of
distributions ............... 27,699 300,219
Shares redeemed ................ (426,240) (4,621,674)
--------- -----------
Net increase (decrease) ........ 2,324,771 $25,203,406
========= ===========
Year ended October 31, 2009(a)
Shares sold .................... 2,467,232 $25,422,627
Shares issued in reinvestment of
distributions ............... 38 372
Shares redeemed ................ (208,511) (2,170,076)
--------- -----------
Net increase (decrease) ........ 2,258,759 $23,252,923
========= ===========
ADVISOR CLASS SHARES:
Six Months ended April 30, 2010
Shares sold .................... 1,949,069 $21,292,985
Shares issued in reinvestment of
distributions ............... 27,959 305,076
Shares redeemed ................ (777,562) (8,506,149)
--------- -----------
Net increase (decrease) ........ 1,199,466 $13,091,912
========= ===========
Year ended October 31, 2009
Shares sold .................... 1,486,014 $15,342,444
Shares issued in reinvestment of
distributions ............... 1,310 12,790
Shares redeemed ................ (772,068) (7,865,742)
--------- -----------
Net increase (decrease) ........ 715,256 $ 7,489,492
========= ===========
(a) For the period November 3, 2008 (effective date) to October 31, 2009.
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 of the following
subsidiaries:
SUBSIDIARY AFFILIATION
- ---------- -----------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (F T Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
106 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The 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
- ------------------- ----------
0.500% Up to and including $250 million
0.475% Over $250 million, up to and including $500 million
0.450% Over $500 million, up to and including $1 billion
0.425% Over $1 billion, up to and including $2.5 billion
0.400% Over $2.5 billion, up to and including $5 billion
0.375% Over $5 billion, up to and including $10 billion
0.350% Over $10 billion, up to and including $15 billion
0.325% Over $15 billion, up to and including $20 billion
0.300% In excess of $20 billion
The Franklin Convertible Securities Fund and the 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
The Franklin Limited Maturity U.S. Government Securities Fund pays an investment
management fee to Advisers based on the month-end net assets of the fund 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% In excess of $250 million
Semiannual Report | 107
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES (CONTINUED)
The 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
- ------------------- ----------
0.425% Up to and including $500 million
0.325% Over $500 million, up to and including $1 billion
0.280% Over $1 billion, up to and including $1.5 billion
0.235% Over $1.5 billion, up to and including $6.5 billion
0.215% Over $6.5 billion, up to and including $11.5 billion
0.200% Over $11.5 billion, up to and including $16.5 billion
0.190% Over $16.5 billion, up to and including $19 billion
0.180% Over $19 billion, up to and including $21.5 billion
0.170% In excess of $21.5 billion
B. ADMINISTRATIVE FEES
FT Services provides administrative services to the Funds. The Franklin Balanced
Fund and the Franklin Real Return Fund each pay an administrative fee to FT
Services of 0.20% per year of their respective average daily net assets. Under
an agreement with Advisers, the administrative fee for the Franklin Convertible
Securities Fund, the Franklin Equity Income Fund and the Franklin Limited
Maturity U.S. Government Securities Fund are paid by Advisers based on each
fund's average daily net assets, and is not an additional expense of the funds.
C. DISTRIBUTION FEES
The Funds' Board of Trustees have adopted distribution plans for each share
class, with the exception of 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. 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 B, 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.
108 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
FRANKLIN FRANKLIN
FRANKLIN FRANKLIN LIMITED MATURITY REAL
FRANKLIN CONVERTIBLE EQUITY U.S. GOVERNMENT RETURN
BALANCED FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
------------- --------------- ----------- ---------------- --------
Reimbursement Plans:
Class A ................. 0.35% 0.25% 0.25% 0.10% 0.25%
Compensation Plans:
Class B ................. -- -- 1.00% -- --
Class C ................. 1.00% 1.00% 1.00% -- 0.65%
Class R ................. 0.50% -- 0.50% -- --
Effective February 1, 2009, the Board of Trustees has set the current rate at
0.30% per year for Class A shares for the Franklin Balanced Fund until further
notice and approval by the Board.
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
FRANKLIN FRANKLIN
FRANKLIN FRANKLIN LIMITED MATURITY REAL
FRANKLIN CONVERTIBLE EQUITY U.S. GOVERNMENT RETURN
BALANCED FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
------------- --------------- ----------- ---------------- --------
Sales charges retained
net of commissions
paid to unaffiliated
broker/dealers .......... $125,788 $129,102 $607,147 $64,815 $188,333
Contingent deferred sales
charges retained ........ $ 2,906 $ 13,329 $ 5,227 $ 3,786 $ 14,209
E. TRANSFER AGENT FEES
For the period ended April 30, 2010, the Funds paid transfer agent fees as noted
in the Statements of Operations of which the following amounts were retained by
Investor Services:
FRANKLIN FRANKLIN
FRANKLIN FRANKLIN LIMITED MATURITY REAL
FRANKLIN CONVERTIBLE EQUITY U.S. GOVERNMENT RETURN
BALANCED FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
------------- --------------- ----------- ---------------- --------
Transfer agent fees ........ $39,884 $274,954 $396,186 $223,495 $147,804
Semiannual Report | 109
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
F. WAIVER AND EXPENSE REIMBURSEMENTS
For the Franklin Balanced Fund and the Franklin Real Return Fund, FT Services
has contractually agreed in advance to waive or limit its fees and to assume as
its own expense certain expenses otherwise payable by the fund so that the
common expenses (i.e. a combination of management fees, administrative fees, and
other expenses, but excluding distribution fees, and acquired fund fees and
expenses,) for each class of the funds do not exceed 0.71% and 0.65%,
respectively (other than certain non-routine expenses or costs, including those
relating to litigation, indemnification, reorganizations, and liquidations)
until February 28, 2011.
G. OTHER AFFILIATED TRANSACTIONS
At April 30, 2010, Advisers owned 8.87% of the Franklin Balanced Fund's
outstanding shares.
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 period ended April 30, 2010, 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, if any. At October 31, 2009, the capital loss carryforwards were as
follows:
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN LIMITED MATURITY FRANKLIN
BALANCED CONVERTIBLE EQUITY U.S. GOVERNMENT REAL
FUND SECURITIES FUND INCOME FUND SECURITIES FUND RETURN FUND
----------- --------------- ------------ ---------------- -----------
Capital loss carryforwards
expiring in:
2012 .................. $ -- $ -- $ -- $ 101,694 $ --
2013 .................. -- -- -- 3,980,527 --
2014 .................. -- -- -- 4,303,979 --
2015 .................. -- -- -- 723,269 --
2016 .................. 3,920,213 1,589,567 45,458,589 -- 1,946,987
2017 .................. 4,932,954 48,494,099 119,253,767 -- 1,217,512
---------- ----------- ------------ ---------- ----------
$8,853,167 $50,083,666 $164,712,356 $9,109,469 $3,164,499
========== =========== ============ ========== ==========
110 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES (CONTINUED)
At April 30, 2010, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
BALANCED CONVERTIBLE EQUITY
FUND SECURITIES FUND INCOME FUND
------------ --------------- ------------
Cost of investments ......................... $149,792,684 $ 927,390,709 $737,624,530
------------ ------------- ------------
Unrealized appreciation ..................... $ 15,577,761 $ 91,002,549 $130,876,690
Unrealized depreciation ..................... (4,843,321) (116,988,591) (46,898,120)
------------ ------------- ------------
Net unrealized appreciation (depreciation) .. $ 10,734,440 $ (25,986,042) $ 83,978,570
============ ============= ============
FRANKLIN
LIMITED MATURITY FRANKLIN
U.S. GOVERNMENT REAL
SECURITIES FUND RETURN FUND
---------------- ------------
Cost of investments ......................... $419,907,323 $463,780,425
------------ ------------
Unrealized appreciation ..................... $ 9,389,377 $ 15,165,382
Unrealized depreciation ..................... (1,010,768) (2,703,863)
------------ ------------
Net unrealized appreciation (depreciation) .. $ 8,378,609 $ 12,461,519
============ ============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, paydown losses, bond discounts and premiums, and inflation related
adjustments on foreign securities.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, paydown losses, and bond discounts and premiums.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended April 30, 2010, were as follows:
FRANKLIN FRANKLIN
FRANKLIN FRANKLIN LIMITED MATURITY REAL
FRANKLIN CONVERTIBLE EQUITY U.S. GOVERNMENT RETURN
BALANCED FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
------------- --------------- ------------ ---------------- ------------
Purchases .. $49,543,679 $134,610,844 $108,906,678 $104,280,021 $160,717,615
Sales ...... $25,017,558 $128,036,556 $ 34,648,990 $ 86,286,804 $ 59,544,354
Semiannual Report | 111
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENT TRANSACTIONS (CONTINUED)
Transactions in options written during the period ended April 30, 2010, were as
follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
FRANKLIN BALANCED FUND
Options outstanding at October 31, 2009 ..... 1,260 $ 56,639
Options written ............................. 10,145 527,049
Options expired ............................. (6,020) (342,913)
Options exercised ........................... (760) (31,300)
Options closed .............................. -- --
------ ---------
Options outstanding at April 30, 2010 ....... 4,625 $ 209,475
====== =========
7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the Institutional Fiduciary Trust Money Market Portfolio
(Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant
to a SEC exemptive order specific to the Funds' investment in the Sweep Money
Fund, management fees paid by the Funds are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management and administrative
fees paid by the Sweep Money Fund.
8. CREDIT RISK AND DEFAULTED SECURITIES
At April 30, 2010, the Franklin Balanced Fund, the Franklin Convertible
Securities Fund, and the Franklin Equity Income Fund had 10.11%, 72.66%, and
14.64%, respectively, of their portfolio invested in high yield, or other
securities rated below investment grade. 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.
The Franklin Convertible Securities Fund held a defaulted security and/or other
securities for which the income has been deemed uncollectible. At April 30,
2010, the value of this security was $0. 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 on
the accompanying Statement of Investments.
9. RESTRICTED SECURITIES
The Funds may invest in securities that are restricted under the Securities Act
of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed
upon restrictions on resale. 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.
112 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. RESTRICTED SECURITIES (CONTINUED)
At April 30, 2010, the Franklin Convertible Securities Fund held investments in
restricted securities, excluding 144A securities deemed to be liquid, as
follows:
PRINCIPAL ACQUISITION
AMOUNT ISSUER DATES COST VALUE
- ---------- ------ ------------------ ----------- -----
14,000,000 BearingPoint Inc., cvt., sub. note,
144A, 2.50%, 12/15/24 .......... 12/17/04 - 4/21/05 $12,814,643 $--
---
10. OTHER DERIVATIVE INFORMATION
At April 30, 2010, the Franklin Balanced Fund and the Franklin Real Return Fund
have invested in derivative contracts which are reflected on the Statements of
Assets and Liabilities as follows:
ASSET DERIVATIVES LIABILITY DERIVATIVES
DERIVATIVE CONTRACTS NOT ------------------------------------- --------------------------------------
ACCOUNTED FOR AS STATEMENT OF ASSETS FAIR VALUE STATEMENT OF ASSETS FAIR VALUE
HEDGING INSTRUMENTS AND LIABILITIES LOCATION AMOUNT AND LIABILITIES LOCATION AMOUNT
- ------------------------ ------------------------ ---------- ------------------------- ----------
FRANKLIN BALANCED FUND
Equity contracts Investments, at value $ -- Options written, at value $284,888
FRANKLIN REAL RETURN FUND
Foreign exchange contracts Unrealized appreciation $366,491 Unrealized depreciation
on forward exchange on forward exchange
contracts contracts $ 90,115
For the period ended April 30, 2010, the effect of derivative contracts on the
Franklin Balanced Fund's and the Franklin Real Return Fund's Statements of
Operations was as follows:
CHANGE IN UNREALIZED AVERAGE
DERIVATIVE CONTRACTS NOT STATEMENT OF REALIZED GAIN APPRECIATION AMOUNT
ACCOUNTED FOR AS OPERATIONS (LOSS) FOR THE (DEPRECIATION) OUTSTANDING
HEDGING INSTRUMENTS LOCATIONS PERIOD FOR THE PERIOD DURING THE PERIOD(a)
- ----------------------- ----------------------------- -------------- -------------------- --------------------
FRANKLIN BALANCED FUND
Equity contracts Net realized gain (loss)
from investments and
written options/Net change
in unrealized appreciation
(depreciation) on
investments $345,613 $ (80,642) 1,522
FRANKLIN REAL RETURN FUND
Foreign exchange contracts Net realized gain (loss)
from foreign currency
transactions/Net change
in unrealized appreciation
(depreciation) on translation
of other assets and
liabilities denominated in
foreign currencies $873,957 $(738,286) $16,897,526
(a) Represents the average number of option contracts or notional amount for
other derivative contracts outstanding during the period.
See Note 1(d) regarding derivative financial instruments.
Semiannual Report | 113
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 $750
million (Global Credit Facility) which matures on January 21, 2011. 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 its
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee of 0.10% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statements of
Operations. During the period ended April 30, 2010, the Funds did not utilize
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' investments and are summarized in the following fair value
hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
114 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
12. FAIR VALUE MEASUREMENTS (CONTINUED)
The following is a summary of the inputs used as of April 30, 2010, in valuing
the Funds' assets and liabilities carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ ------------ ------- ------------
FRANKLIN BALANCED FUND
ASSETS:
Investments in Securities:
Equity Investments:(a)
Health Care ....................... $ 6,858,732 $ 1,805,280 $-- $ 8,664,012
Other Equity Investments(b) ....... 63,585,781 -- -- 63,585,781
Equity-Linked Securities ............. -- 10,436,606 -- 10,436,606
Convertible Bonds .................... -- 8,439,328 -- 8,439,328
Corporate Bonds ...................... -- 47,444,753 -- 47,444,753
Asset-Backed Securities and
Commercial Mortgage-Backed
Securities ........................ -- 82,410 -- 82,410
Mortgage-Backed Securities ........... -- 347,057 -- 347,057
Municipal Bonds ...................... -- 2,127,180 -- 2,127,180
Short Term Investments ............... 19,399,997 -- -- 19,399,997
------------ ------------ --- ------------
Total Investments in Securities ... $ 89,844,510 $ 70,682,614 $-- $160,527,124
============ ============ === ============
LIABILITIES:
Options written ......................... 284,888 -- -- 284,888
FRANKLIN CONVERTIBLE SECURITIES FUND
ASSETS:
Investments in Securities:
Equity Investments:(a)
Consumer Discretionary ............ $ 24,060,662 $ 19,178,988 $-- $ 43,239,650
Energy ............................ -- 29,753,000 -- 29,753,000
Financials ........................ 50,516,200 17,013,500 -- 67,529,700
Health Care ....................... -- 16,924,500 -- 16,924,500
Utilities ......................... -- 17,292,240 -- 17,292,240
Other Equity Investments(b) ....... 31,379,542 -- -- 31,379,542
Convertible Bonds .................... -- 678,742,660 --(c) 678,742,660
Short Term Investments ............... 16,543,375 -- -- 16,543,375
------------ ------------ --- ------------
Total Investments in Securities ......... $122,499,779 $778,904,888 $--(c) $901,404,667
============ ============ === ============
FRANKLIN EQUITY INCOME FUND
ASSETS:
Investments in Securities:
Equity Investments:(a)
Consumer Discretionary ............ $ 52,699,970 $ 9,834,394 $-- $ 62,534,364
Health Care ....................... 79,347,052 7,446,780 -- 86,793,832
Utilities ......................... 35,230,040 13,140,000 -- 48,370,040
Other Equity Investments(b) ....... 523,579,637 -- -- 523,579,637
Equity-Linked Securities ............. -- 8,458,290 -- 8,458,290
Convertible Bonds .................... -- 50,181,143 -- 50,181,143
Corporate Bonds ...................... -- 13,698,724 -- 13,698,724
Short Term Investments ............... 27,987,070 -- -- 27,987,070
------------ ------------ --- ------------
Total Investments in Securities ... $718,843,769 $102,759,331 $-- $821,603,100
============ ============ === ============
Semiannual Report | 115
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
12. FAIR VALUE MEASUREMENTS (CONTINUED)
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------- ------------ ------- ------------
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT
SECURITIES FUND
ASSETS:
Investments in Securities:
Mortgage-Backed Securities ........... $ -- $116,632,485 $-- $116,632,485
U.S. Government and
Agency Securities ................. -- 297,507,941 -- 297,507,941
Short Term Investments ............... 8,587,308 5,558,198 -- 14,145,506
----------- ------------ --- ------------
Total Investments in Securities ... $ 8,587,308 $419,698,624 $-- $428,285,932
=========== ============ === ============
FRANKLIN REAL RETURN FUND
ASSETS:
Investments in Securities:
Equity Investments:(a)
Diversified Financials ............ $ -- $ 90,880 $-- $ 90,880
Other Equity Investments(b) ....... 22,438,725 -- -- 22,438,725
Mutual Funds ......................... 22,980,000 -- -- 22,980,000
Senior Floating Rate Interests ....... -- 383,218 -- 383,218
Corporate Bonds ...................... -- 21,187,300 -- 21,187,300
Foreign Government and
Agency Securities ................. -- 70,965,310 -- 70,965,310
U.S. Government and
Agency Securities ................. -- 310,192,938 -- 310,192,938
Short Term Investments .................. -- 28,003,573 -- 28,003,573
----------- ------------ --- ------------
Total Investments in Securities ... $45,418,725 $430,823,219 $-- $476,241,944
=========== ============ === ============
Forward Exchange Contracts .............. -- 366,491 -- 366,491
LIABILITIES:
Forward Exchange Contracts .............. -- 90,115 -- 90,115
(a) Includes common, preferred, and convertible preferred stock as well as
other equity investments.
(b) For detailed industry descriptions, see the accompanying Statements of
Investments.
(c) Includes securities determined to have no value at April 30,
2010.
At April 30, 2010, the reconciliation of assets in which significant
unobservable inputs (Level 3) were used in determining the Funds' fair value,
were as follows:
NET CHANGE IN
UNREALIZED
NET CHANGE APPRECIATION
BALANCE AT NET IN UNREALIZED NET TRANSFER IN BALANCE (DEPRECIATION)
BEGINNING OF REALIZED APPRECIATION PURCHASES (OUT OF) AT END ON ASSETS HELD
YEAR GAIN (LOSS) (DEPRECIATION) (SALES) LEVEL 3 OF PERIOD AT PERIOD END
------------ ----------- -------------- --------- ----------- --------- --------------
FRANKLIN CONVERTIBLE SECURITIES FUND
ASSETS:
Convertible Bonds $-- $-- $(18,900) $-- $18,900 $--(a) $(18,900)
(a) Includes security determined to have no value at April 30, 2010.
116 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
13. LOSS CONTINGENCY
At April 30, 2010, the Franklin Balanced Fund had two outstanding trades related
to put options written by the fund with Lehman Brothers as the counterparty.
These trades have remained unsettled since the Lehman Brothers bankruptcy on
September 15, 2008. The fund has recorded a loss contingency related to the
depreciation of the common stock underlying these put options and its
obligations to purchase the stock pursuant to the options contracts.
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.
15. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued an Accounting
Standards Update which enhances and clarifies existing fair value measurement
disclosure requirements and is effective for interim and annual periods
beginning after December 15, 2009. The Funds believe the adoption of this
Accounting Standards Update will not have a material impact on their financial
statements.
ABBREVIATIONS
COUNTERPARTY
DBAB - Deutsche Bank AG
HSBC - HSBC Bank USA
JPHQ - JPMorgan Chase Bank, N.A.
CURRENCY
AUD - Australian Dollar
BRL - Brazilian Real
EUR - Euro
KRW - South Korean Won
MYR - Malaysian Ringgit
NOK - Norwegian Krone
PLN - Polish Zloty
SEK - Swedish Krona
SELECTED PORTFOLIO
ADR - American Depository Receipt
ETF - Exchange-Traded Fund
FDIC - Federal Deposit Insurance Corp.
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GO - General Obligation
REIT - Real Estate Investment Trust
SF - Single Family
Semiannual Report | 117
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 23, 2010, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Investors Securities Trust (Fund(s)). In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as additional material, including a Fund
profitability analysis report prepared by management. The Lipper reports
compared each Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates to U.S. mutual funds and other accounts, including
management's explanation of differences where relevant and a three-year expense
analysis with an explanation for any increase in expense ratios. Additional
material accompanying such report was a memorandum prepared by management
describing project initiatives and capital investments relating to the services
provided to the Funds by the Franklin Templeton Investments organization, as
well as a memorandum relating to economies of scale and a comparative analysis
concerning transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
118 | Semiannual Report
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the right to combine holdings in other funds
to obtain a reduced sales charge. Favorable consideration was given to
management's continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted by the Board that such systems and procedures had functioned smoothly
during the Florida hurricanes and blackouts experienced in recent years. Among
other factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of each
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, and the continuous enhancements to and
high industry ranking given the Franklin Templeton website. Particular attention
was given to management's conservative approach and diligent risk management
procedures, including continuous monitoring of counterparty credit risk and
attention given to derivative and other complex instruments. The Board also took
into account, among other things, management's efforts in establishing a global
credit facility for the benefit of the Funds and other accounts managed by
Franklin Templeton Investments to provide a source of cash for temporary and
emergency purposes or to meet unusual redemption requests as well as the strong
financial position of the Manager's parent company and its commitment to the
mutual fund business, as evidenced by its subsidization of money market funds.
The Board also noted management's efforts to minimize any negative impact on the
nature and quality of services provided the Funds arising from Franklin
Templeton Investments' implementation of a hiring freeze and employee reductions
in response to market conditions during the latter part of 2008 and early 2009.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement
renewals. The Lipper reports prepared for each individual Fund showed the
investment performance of its Class A shares in comparison with its selected
performance universe during 2009 and during the previous 10 years ended December
31, 2009, unless otherwise noted. Performance on a total return basis was shown
by Lipper for all Funds with performance on an
Semiannual Report | 119
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
income return basis being shown for those Funds having income return as an
element of their investment objective. The following summarizes the performance
results for each Fund.
FRANKLIN BALANCED FUND - The Fund's investment performance was shown in
comparison with a performance universe consisting of all retail and
institutional mixed-asset target allocation growth funds as selected by Lipper
during 2009, 2008, and 2007, being the Fund's first three full years of
operations. The Lipper report showed both the Fund's income return and total
return to be in the highest quintile of its performance universe during 2009,
and its income return and total return to each be in the highest or
second-highest quintile of such universe during the previous two years on an
annualized basis. The Board was satisfied with such comparative performance,
while noting the Fund's limited period of operation.
FRANKLIN CONVERTIBLE SECURITIES FUND - The Fund's investment performance was
shown in comparison with a performance universe consisting of all retail and
institutional convertible securities funds as selected by Lipper. The Lipper
report showed the Fund's income return during 2009 and on an annualized basis
during each of the previous three-, five- and 10-year periods to be in the
highest quintile of such performance universe. The Lipper report showed that the
Fund's total return during 2009 was in the highest quintile of its performance
universe and in the previous three-, five- and 10-year periods on an annualized
basis was in the middle quintile, second-highest quintile and highest quintile
of such universe, respectively. The Board was satisfied with the Fund's
comparative performance as set forth in the Lipper report.
FRANKLIN EQUITY INCOME FUND - The Fund's investment performance was shown in
comparison with a performance universe consisting of all retail and
institutional equity income funds as selected by Lipper. The Lipper report
showed the Fund's income return during 2009 to be in the highest quintile of the
performance universe, and on an annualized basis during each of the previous
three-, five-, and 10-year periods to also be in the highest quintile of such
performance universe. The Lipper report showed the Fund's total return during
2009 to be in the second-highest quintile of such universe and on an annualized
basis during the previous three-, five- and 10-year periods to be in the
second-lowest quintile, lowest quintile and middle quintile of such universe,
respectively. The Board found such comparative performance to be acceptable.
FRANKLIN LIMITED MATURITY U.S. GOVERNMENT SECURITIES FUND - The Fund's
investment performance was shown in comparison to a performance universe
consisting of all retail and institutional short U.S. government funds as
selected by Lipper. The Lipper report showed the Fund's income return during
2009 to be in the second-highest quintile of its performance universe and on an
annualized basis to be in either the highest or second-highest quintile of such
universe during each of the previous three-, five- and 10-year periods. The
Lipper report showed the Fund's total return to be in the second-lowest quintile
of its performance universe during 2009 and on an annualized basis to be in the
highest quintile for each of the previous three-, five- and 10-year periods. In
discussing such comparative performance, management pointed out that the Fund's
conservative strategy of investing in plain vanilla bonds issued or guaranteed
by the U.S. government or U.S. government-related
120 | Semiannual Report
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
entities underperformed in periods such as 2009 when riskier assets recovered
from the prior year's market turmoil, but that such strategy had resulted in
favorable comparative performance over the longer term as shown in the Lipper
report. The Board was satisfied with such comparative performance, noting
management's explanation.
FRANKLIN REAL RETURN FUND - The Fund has been in operation for five full
calendar years and its investment performance was shown in comparison to a
performance universe consisting of all retail and institutional Treasury
inflation-protected securities (TIPS) funds as selected by Lipper. The Lipper
report showed the Fund's income return during 2009 to be in the lowest quintile
of such performance universe, and on an annualized basis to be in the lowest and
second-lowest quin-tiles of such universe during each of the previous three- and
five-year periods, respectively. The Lipper report showed the Fund's 2009 total
return to be in the second-highest quintile of its performance universe, and on
an annualized basis to be in the second-lowest quintile of such universe during
the previous three-year period, but to be in the highest or best performing
quintile of such universe during the previous five-year period. The Board found
the Fund's comparative performance as set forth in the Lipper report to be
acceptable, noting its favorable annualized total return since inception.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of each Fund compared with those of a
group of other funds selected by Lipper as constituting its appropriate Lipper
expense group. Lipper expense data is based upon information taken from each
fund's most recent annual report, which reflects historical asset levels that
may be quite different from those currently existing, particularly in a period
of market volatility. While recognizing such inherent limitation and the fact
that expense ratios generally increase as assets decline and decrease as assets
grow, the Board believed the independent analysis conducted by Lipper to be an
appropriate measure of comparative expenses. In reviewing comparative costs,
Lipper provides information on each Fund's contractual investment management fee
in comparison with the contractual investment management fee that would have
been charged by other funds within its Lipper expense group assuming they were
similar in size to the Fund, as well as the actual total expense ratio of the
Fund in comparison with those of its expense group. The Lipper contractual
investment management fee analysis includes within such fee any separate
administrative fees, and the Lipper total expenses, for comparative consistency,
are shown by Lipper for Fund Class A shares. The results of such expense
comparisons showed that the contractual investment management fee rate and
actual total expense ratio for each of Franklin Convertible Securities Fund,
Franklin Equity Income Fund and Franklin Balanced Fund were in either the least
expensive or second least expensive quintile of its respective Lipper expense
group. The Board was satisfied with the comparative contractual investment
management fee rates and actual total expense ratios of these Funds as shown in
the Lipper reports. The contractual investment management fee rate of Franklin
Limited Maturity U.S. Government Securities Fund was at the median of its Lipper
expense group, while its actual total expense ratio was four-and-a-half basis
points below the median of such group, including 12b-1 fees, and approximately
eight basis
Semiannual Report | 121
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
points above the median of such group excluding 12b-1 fees. The Board found the
comparative contractual investment management fee rate and total expense ratio
of this Fund as shown in the Lipper report to be acceptable, noting its overall
favorable comparative investment performance. The contractual investment
management fee rate and actual total expense ratio for Franklin Real Return Fund
were above the medians of its Lipper expense group, but the actual total expense
ratio was within less than seven basis points above the median for such expense
group. The Board found the contractual management fees and total expense ratio
of the Fund to be acceptable, noting that expenses were subsidized through
management fee waivers and reimbursements.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds during the 12-month period ended September 30,
2009, being the most recent fiscal year-end for Franklin Resources, Inc., the
Manager's parent. In reviewing the analysis, attention was given to the
methodology followed in allocating costs to each Fund, it being recognized that
allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that, while being continuously refined and reflecting
changes in the Manager's own cost accounting, the cost allocation methodology
was consistent with that followed in profitability report presentations for the
Funds made in prior years and that the Funds' independent registered public
accounting firm had been engaged by the Manager to review the reasonableness of
the allocation methodologies solely for use by the Funds' Board in reference to
the profitability analysis. In reviewing and discussing such analysis,
management discussed with the Board its belief that costs incurred in
establishing the infrastructure necessary for the type of mutual fund operations
conducted by the Manager and its affiliates may not be fully reflected in the
expenses allocated to each Fund in determining its profitability, as well as the
fact that the level of profits, to a certain extent, reflected operational cost
savings and efficiencies initiated by management. The Board also took into
account management's expenditures in improving shareholder services provided the
Funds, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC and other
regulatory requirements. In addition, the Board considered a third-party study
comparing the profitability of the Manager's parent on an overall basis to other
publicly held managers broken down to show profitability from management
operations exclusive of distribution expenses, as well as profitability
including distribution expenses. The Board also considered the extent to which
the Manager and its affiliates might derive ancillary benefits from fund
operations, including its interest in a joint venture entity that financed
up-front commissions paid to brokers/dealers who sold fund Class B shares prior
to February 2005 when the offering of such shares was discontinued, as well as
potential benefits resulting from allocation of fund brokerage and the use of
commission dollars to pay for research. Based upon its consideration of all
these factors, the Board determined that the level of profits realized by the
Manager and its affiliates from providing services to each Fund was not
excessive in view of the nature, quality and extent of services provided.
122 | Semiannual Report
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with each Fund and its shareholders through
management fee breakpoints so that as a Fund grows in size, its effective
management fee rate declines. The management fee structure including a separate
fixed administrative fee for Franklin Real Return Fund provides for breakpoints
in stages going to the $21.5 billion asset level, which far exceeded the size of
the Fund, which at year-end was approximately $418 million. The Board believed
that to the extent economies of scale may be realized by the Manager of the Fund
and its affiliates, that this schedule of fees provided a sharing of benefits
with this Fund and its shareholders, and noted also that the expenses of
Franklin Real Return Fund were partially subsidized by management. The
management fee structure, which includes administrative expenses, for Franklin
Limited Maturity U.S. Government Securities Fund provides an initial fee of
0.625% on the first $100 million of assets; 0.50% on the next $150 million of
assets; and 0.45% on assets in excess of $250 million. At 2009 year-end, the
Fund's assets were approximately $418 million, and while intending to monitor
future growth, the Board believed that to the extent economies of scale may be
realized by the Manager and its affiliates, there was a sharing of benefits with
this Fund and its shareholders. The management fee structure, which includes
administrative expenses, for each of Franklin Convertible Securities Fund and
Franklin Equity Income Fund, provides an initial fee of 0.625% on the first $100
million of assets; 0.50% on the next $150 million of assets; and 0.45% on assets
in excess of $250 million, with additional breakpoints for assets at the $7.5
billion and $10 billion level, and other breakpoints continuing thereafter.
Franklin Convertible Securities Fund and Franklin Equity Income Fund had assets
of $828 million and $724 million, respectively, at year-end, and the Board
believed that to the extent economies of scale may be realized by the Manager
and its affiliates, the schedule of fees under the investment management
agreement for each of these Funds provides a sharing of benefits with each of
these Funds and their shareholders, noting the favorable effective management
fee rate and total expense ratios of each in comparison to its respective Lipper
expense group. The Board did not believe the asset size of Franklin Balanced
Fund, whose expenses were partially subsidized by management, afforded any
economies of scale.
Semiannual Report | 123
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
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, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
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 U.S. 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.
124 | Semiannual Report
Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A SUMMARY PROSPECTUS AND/OR PROSPECTUS, PLEASE
CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com.
INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES
AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER
INFORMATION. PLEASE CAREFULLY READ A PROSPECTUS BEFORE INVESTING. TO ENSURE THE
HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO
OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE
OF A REGULAR BEEPING TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets
Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Conservative Allocation Fund(3)
Franklin Templeton Growth Allocation Fund(3)
Franklin Templeton Moderate Allocation Fund(3)
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(4)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(4)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government
Securities Fund(4)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(5)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(7)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(8)
Michigan(8)
Minnesota(8)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(8)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(3.) Effective 5/1/10, the Franklin Templeton Target Funds changed their name to
the Franklin Templeton Allocation Funds. The funds' investment goals and
principal investment strategies remained unchanged.
(4.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(6.) The fund invests primarily in insured municipal securities.
(7.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(8.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
07/10 Not part of the semiannual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN INVESTORS SECURITIES TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
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 ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
(C) 2010 Franklin Templeton Investments. All rights reserved.
FIST1 S 06/10
APRIL 30, 2010
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
Franklin Adjustable U.S. Government Securities Fund
Franklin Floating Rate Daily Access Fund
Franklin Low Duration Total Return Fund
Franklin Total Return Fund
SIGN UP FOR ELECTRONIC DELIVERY
on franklintempleton.com
(GRAPHIC)
FIXED INCOME
FRANKLIN
INVESTORS SECURITIES TRUST
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ....................................................... 1
SEMIANNUAL REPORT
Economic and Market Overview ............................................. 3
Franklin Adjustable U.S. Government Securities Fund ...................... 5
Franklin Floating Rate Daily Access Fund ................................. 14
Franklin Low Duration Total Return Fund .................................. 24
Franklin Total Return Fund ............................................... 32
Financial Highlights and Statements of Investments ....................... 42
Financial Statements ..................................................... 135
Notes to Financial Statements ............................................ 140
Shareholder Information .................................................. 164
Shareholder Letter
Dear Shareholder:
During the six-month period ended April 30, 2010, the U.S. economy showed signs
of an increasingly broad-based expansion while interest rates remained near
all-time lows and inflation was muted. Although corporate and global economic
data underscored some weak spots amid short-term improvements, most U.S.
companies beat consensus earnings estimates during fourth quarter 2009 and first
quarter 2010, aided by government incentives and a wave of restructuring and
cost-cutting initiatives. U.S. equity markets enjoyed an unusually strong
nine-month rally until first quarter 2010, when volatility returned as investors
began to heed signs of overvaluation. In addition, concerns about some European
countries' creditworthiness contributed to significant market uncertainty.
Investors also questioned the global recovery's sustainability as some
government stimulus measures began to wind down. During the reporting period,
U.S. Treasury yields rose and fell in response to wavering investor sentiment.
The yield curve reached historically steep levels during the first quarter of
2010 and flattened only slightly by period-end.
We think it is important to put short-term market developments in perspective.
Keep in mind we have navigated through past periods of high market volatility by
remaining committed to our long-term perspective and disciplined investment
philosophy. Although conditions remain challenging, our experience gives us
reason to be optimistic about the potential for future market stabilization and
economic recovery.
Franklin Investors Securities Trust's semiannual report goes into greater detail
about prevailing conditions during the period under review. In addition, you
will find performance data, financial information and discussions from the
portfolio managers. Please remember that all securities markets fluctuate, as do
mutual fund share prices.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles and
find helpful financial planning tools. We hope you will take advantage of these
online services.
Although market conditions are constantly changing, we remain committed to our
disciplined strategy as we manage the Funds, keeping in mind the trust you have
placed in us. As always, we recommend investors consult their financial advisors
and review their portfolios to design a long-term strategy and portfolio
allocation that meet their individual needs, goals and risk tolerance. We firmly
believe that most people benefit from professional advice, and that advice is
invaluable as investors navigate current market conditions.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Investors Securities Trust
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30, 2010. 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.
2 | Not part of the semiannual report
Semiannual Report
Economic and Market Overview
The U.S. economy improved during the six-month reporting period as corporate
profits, manufacturing, consumer spending, consumer confidence, and exports
showed gains. The nation's economic activity as measured by gross domestic
product grew at annualized rates of 5.6% in 2009's fourth quarter and an
estimated 3.0% in 2010's first quarter. Remaining challenges to economic
recovery included elevated debt concerns, a still-weak housing sector and lack
of job prospects for the unemployed as federal stimulus measures began to wind
down. The unemployment rate, which peaked at 10.1% in October 2009, dipped to
9.9% by period-end.(1)
As economic conditions improved, demand for energy products increased and crude
oil prices rose from $77 per barrel at the end of October 2009 to $86 at
period-end. April's inflation rate was an annualized 2.2%.(1) Core inflation,
which excludes food and energy costs, rose at a 0.9% annualized rate,(1) which
was below the Federal Reserve Board's (Fed's) informal target range of 1.5% to
2.0%. The core personal consumption expenditures price index reported a 12-month
increase of 1.2%.(2)
During the period under review, economic improvement and benign inflation trends
prompted Fed policymakers to maintain record-low interest rates and discontinue
certain stimulus plans. Noting that it believed the recession had ended, the Fed
left the federal funds target rate unchanged at a range of 0% to 0.25% and began
laying the groundwork for its exit strategy. The market anticipated an eventual
tightening of monetary policy and a gradual phase-out of the Fed's support and
liquidity programs.
In February 2010, investor fears about the Greek government's ability to finance
its budget deficit forced several companies to delay bond sales and prompted
investors to flee to safer assets such as U.S. Treasuries. Investor confidence
and the market plunged again after independent credit rating agency Standard &
Poor's(R) slashed its credit ratings for Greece, Spain and Portugal, but
rebounded after the Federal Open Market Committee announced it would keep
interest rates stable and many companies released upbeat earnings reports.
(1.) Source: Bureau of Labor Statistics.
(2.) Source: Bureau of Economic Analysis.
Semiannual Report | 3
Wary investors favored short-term Treasuries, and the Treasury yield curve
reached historically steep levels during the period. The spread between two-and
10-year Treasury yields increased from 251 basis points (100 basis points equal
one percentage point) at the beginning of the period to 272 basis points at
period-end. The two-year Treasury bill yield rose from 0.90% to 0.97% over the
six-month period, while the 10-year Treasury note yield rose from 3.41% to
3.69%.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30,
2010. 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.
4 | Semiannual Report
Franklin Adjustable U.S. Government Securities Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Adjustable U.S. Government
Securities 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 U.S. government
mortgage securities, which are issued or guaranteed by the U.S. government, its
agency or instrumentalities.(1) The Fund's investments may include securities
issued by government-sponsored entities, such as Fannie Mae and Freddie Mac.(2)
We are pleased to bring you Franklin Adjustable U.S. Government Securities
Fund's semiannual report for the period ended April 30, 2010.
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PERFORMANCE OVERVIEW
Franklin Adjustable U.S. Government Securities Fund - Class A delivered a +1.34%
cumulative total return for the six months under review. The Fund outperformed
its benchmark, the Barclays Capital (BC) U.S. Government Index: 1-2 Year
Component, which posted a +0.59% total return for the same period.(3) You can
find the Fund's long-term performance data in the Performance Summary beginning
on page 9.
PORTFOLIO BREAKDOWN
Franklin Adjustable U.S. Government Securities Fund
Based on Total Net Assets as of 4/30/10
(BAR CHART)
Fannie Mae (FNMA) 66.8%
Freddie Mac (FHLMC) 26.2%
Ginnie Mae (GNMA) 0.8%
Short-Term Investments & Other Net Assets 6.2%
INVESTMENT STRATEGY
We employ a conservative investment strategy as we strive to produce solid
performance in a variety of interest rate climates. We tend to invest in
seasoned adjustable-rate mortgage (ARM) securities, which have been through
(1.) Securities owned by the Fund, but not shares of the Fund, are guaranteed by
the U.S. government, its agencies or instrumentalities as to timely payment
of principal and interest.
(2.) Although U.S. government-sponsored entities may be chartered or sponsored
by acts of Congress, their securities are neither issued nor guaranteed by
the U.S. Treasury. 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: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BC U.S. Government Index: 1-2 Year Component includes
public obligations of the U.S. Treasury with at least one year up to, but
not including, two years to final maturity and publicly issued debt of U.S.
government agencies, quasi-federal corporations, and corporate or foreign
debt guaranteed by the U.S. government. The index is unmanaged and includes
reinvested interest. 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 45.
Semiannual Report | 5
DIVIDEND DISTRIBUTIONS*
Franklin Adjustable U.S. Government Securities Fund
11/1/09-4/30/10
DIVIDEND PER SHARE
---------------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS
- ----- ------------- ------------- -------------
November 2.2020 cents 1.8959 cents 2.3952 cents
December 2.2365 cents 1.9197 cents 2.4337 cents
January 2.0320 cents 1.7460 cents 2.2125 cents
February 2.1433 cents 1.8667 cents 2.3210 cents
March 2.2464 cents 1.9120 cents 2.4495 cents
April 2.0672 cents 1.7730 cents 2.2494 cents
------------- ------------- -------------
TOTAL 12.9274 CENTS 11.1133 CENTS 14.0613 CENTS
* Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on
the date you purchased your shares and any account activity. All Fund
distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
different interest rate cycles and have a lower sensitivity to shifts in
interest rates. 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.
MANAGER'S DISCUSSION
During the reporting period, the economy gradually improved, as financial
systems stabilized and U.S. gross domestic product moved into positive
territory. Many analysts believed these signs indicated the recession had ended.
The economy also experienced other indicators of expansion, including a more
positive employment market, a manufacturing rebound, robust productivity gains
and a potential bottoming in the housing market. Inflation remained relatively
contained and employment and capacity utilization data continued to support
lower inflation over the near term. While there appeared to be a positive growth
trend for the intermediate term, we believe questions remained over the actual
rate of recovery. We are cautious about the longer term U.S. outlook due, in
part, to high fiscal deficits. The impact of the Federal Reserve Board's
eventual tightening of monetary policy also weighed significantly on economic
expectations.
We maintained our investment strategy as we continued to seek strong cash flow
fundamentals and attractive valuations to uncover opportunities across the ARM
universe. The Fund invested predominantly in Fannie Mae, Freddie Mac and Ginnie
Mae ARMs, and continued to focus on seasoned ARMs. Despite periods of volatility
during the six months under review, the ARM market delivered positive
performance. Prepayment risk was heightened as
6 | Semiannual Report
the ARM market was priced at a premium due to low Treasury and mortgage interest
rates. However, refinancing activity was constrained during this cycle due to
the associated cost of refinancing, reduced home equity and declining home
prices. To the extent we can buy ARMs that prepay slower than market
expectations, we may add value for the Fund's shareholders.
Thank you for your continued participation in Franklin Adjustable U.S.
Government Securities Fund. We look forward to serving your future investment
needs.
(PHOTO OF ROGER BAYSTON)
/s/ Roger Bayston
Roger Bayston, CFA
(PHOTO OF PAUL VARUNOK)
/s/ Paul Varunok
Paul Varunok
Portfolio Management Team
Franklin Adjustable U.S. Government Securities Fund
CFA(R) and Chartered Financial Analyst(R) are trademarks owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
Semiannual Report | 7
Effective March 1, 2010, ROGER BAYSTON assumed portfolio manager
responsibilities for Franklin Adjustable U.S. Government Securities Fund. Mr.
Bayston is senior vice president of the Franklin Templeton Fixed Income Group.
He is also a senior portfolio manager for several fixed income products and
private accounts for Franklin Templeton Investments. Mr. Bayston directs a staff
performing research and trading responsibilities for government, mortgage, and
asset-backed securities. He sits on the Fixed Income Policy Committee and helps
set portfolio strategy for multi-sector fixed income portfolios. In addition, he
leads the team responsible for developing and implementing quantitative based
fixed income strategies of Franklin's bond portfolios and fixed income products.
Before joining Franklin Templeton Investments in 1991, Mr. Bayston managed
portfolios of fixed income securities for Bankers Trust Company's Investment
Management Group. He holds a Bachelor of Science degree from the University of
Virginia and an M.B.A. from the University of California at Los Angeles. He is a
member of the Security Analysts of San Francisco and the CFA Institute and is a
Chartered Financial Analyst (CFA) Charterholder.
8 | Semiannual Report
Performance Summary as of 4/30/10
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FISAX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$0.01 $8.95 $8.96
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.129274
CLASS C (SYMBOL: FCSCX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$0.02 $8.94 $8.96
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.111133
ADVISOR CLASS (SYMBOL: FAGZX) CHANGE 4/30/10 10/31/09
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) -$0.01 $8.96 $8.97
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.140613
Semiannual Report | 9
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------ -------
Cumulative Total Return(1) +1.34% +2.95% +20.45% +44.28%
Average Annual Total Return(2) -0.98% +0.59% +3.31% +3.50%
Avg. Ann. Total Return (3/31/10)(3) +0.39% +3.27% +3.50%
Distribution Rate(4) 2.75%
30-Day Standardized Yield(5) 1.32%
Total Annual Operating Expenses(6) 0.90%
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (7/1/03)
- ------- ------- ------ ------ ------------------
Cumulative Total Return(1) +1.02% +2.42% +18.10% +20.31%
Average Annual Total Return(2) +0.02% +1.42% +3.38% +2.74%
Avg. Ann. Total Return (3/31/10)(3) +1.44% +3.34% +2.73%
Distribution Rate(4) 2.41%
30-Day Standardized Yield(5) 0.96%
Total Annual Operating Expenses(6) 1.30%
ADVISOR CLASS(7) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------ ------ -------
Cumulative Total Return(1) +1.46% +3.21% +21.17% +45.15%
Average Annual Total Return(2) +1.46% +3.21% +3.92% +3.80%
Avg. Ann. Total Return (3/31/10)(3) +3.12% +3.87% +3.79%
Distribution Rate(4) 3.05%
30-Day Standardized Yield(5) 1.60%
Total Annual Operating Expenses(6) 0.65%
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.
10 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
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. THUS, AS PRICES OF BONDS IN THE FUND
ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(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 Classes C and Advisor) per share on 4/30/10.
(5.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(6.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(7.) 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 5/14/08, 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 +7.63% and +3.82%.
Semiannual Report | 11
Your Fund's Expenses
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
12 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09-4/30/10
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,013.40 $4.19
Hypothetical (5% return before expenses) $1,000 $1,020.63 $4.21
CLASS C
Actual $1,000 $1,010.20 $6.18
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
ADVISOR CLASS
Actual $1,000 $1,014.60 $2.95
Hypothetical (5% return before expenses) $1,000 $1,021.87 $2.96
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.84%; C: 1.24%; and Advisor: 0.59%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Semiannual Report | 13
Franklin Floating Rate Daily Access Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Floating Rate Daily Access 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.
This semiannual report for Franklin Floating Rate Daily Access Fund covers the
period ended April 30, 2010.
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PERFORMANCE OVERVIEW
Franklin Floating Rate Daily Access Fund - Class A delivered a +6.02% cumulative
total return for the six months under review. The Fund underperformed its
benchmark, the Credit Suisse Leveraged Loan Index (CS LLI), which generated a
total return of +8.83% for the same period.(1) You can find the Fund's long-term
performance data in the Performance Summary beginning on page 19.
WHAT ARE SYNDICATED BANK LOANS?
Syndicated bank loans are typically floating rate loans to corporate borrowers
made by a group, or syndicate, of banks and other lenders. A group of lenders
provides capital to companies for varied purposes, such as merger and
acquisition activity, leveraged buyouts or refinancings. Borrowing rates are
generally pegged to an index, such as LIBOR, the London Interbank Offered Rate.
SYNDICATED BANK LOAN MARKET OVERVIEW
During the six-month period, the Federal Reserve Board (Fed) held short-term
interest rates at historical lows, with the federal funds target rate at 0% to
0.25%, and maintained liquidity programs to support the credit markets. The
three-month LIBOR rate increased from 0.28% to 0.35%, moving slightly above the
federal funds target rate. The 10-year Treasury bond yield rose from 3.41% to
3.69% as U.S. economic conditions improved.
Favorable loan market conditions persisted as investors extended the loan rally
by taking on more risk. This increased risk appetite was supported by improving
fundamentals, attractive valuations, strong liquidity and favorable technical
market conditions as investors continued to allocate money into bank loan funds.
Also aiding technical conditions was a strong high yield bond market, bolstered
by robust new issuance used to repay loans, as well as repayments from
amortization and excess cash flow from issuers.
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The CS LLI is designed to mirror the investible universe
of the $US-denominated leveraged loan market. The index is unmanaged and
includes reinvested interest. 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 72.
14 | Semiannual Report
Secondary loan prices continued to rally nearly to par. At the beginning of the
period, the average secondary loan price was approximately 90 cents on the
dollar, and increased to approximately 95 cents on the dollar at the end of the
period.(2) As a result, the spread to maturity tightened by 157 basis points
(bps; 100 basis points equal one percentage point) and at period-end was 364 bps
above LIBOR.(2) While all loans rallied during the period, lower credit quality
and distressed loans posted the strongest performance. Average secondary loan
prices rallied strongly and spreads returned to more normalized levels, which
led to the further opening up of the new-issue market and more capital market
activity.
Early in the reporting period, transactions in the new-issue market were mostly
refinancings. Demand remained strong, and new-issue activity picked up and
shifted toward a few dividend deals and some smaller, middle-market
transactions. By the end of the period, a few large refinancings, corporate
mergers and acquisitions and leveraged buyouts were announced.
During the credit expansion period from 2005 to 2008, the institutional loan
market grew to a peak of $596 billion in total issuance.(2) As a result of the
heavy new issuance that occurred during that period, the majority of those loans
will mature in 2012 through 2014, creating a "wall of maturities." During the
period, this situation prompted many corporate issuers to refinance or extend
their maturities beyond 2014. A number of corporate issuers extended the
maturities on their existing loans by an average of two to three years (a few
issuers returned for a second round of extensions) and compensated lenders by
paying a higher spread or interest rate. Many of these maturity extensions
helped corresponding secondary loan prices and benefited investors as the loans
traded closer to par.
Corporate fundamentals improved in tandem with the U.S. economy, with earnings
and profitability driven by cost cutting over the past several quarters, along
with more recent revenue growth. In a period of improving economic conditions
and stabilizing corporate earnings, issuers were able to improve their cash flow
generation and overall liquidity. With increased access to the capital markets,
as well as the ability to "amend and extend" loan maturities, the loan default
rate by principal amount trended lower from its peak of 10.8% in November 2009
to 5.7% as of April 30, 2010.(2)
PORTFOLIO BREAKDOWN
Franklin Floating Rate Daily Access Fund Based on Total Net Assets as of 4/30/10
Senior Floating Rate Interests 95.4%
Asset-Backed Securities & Commercial
Mortgage-Backed Securities 0.2%
Short-Term Investments & Other Net Assets 4.4%
(2.) Source: Standard & Poor's. The S&P/LCD Flow Name Composite Index comprises
the 15 most actively traded loan facilities, generally drawn from the
S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index
(LLI).
Semiannual Report | 15
DIVIDEND DISTRIBUTIONS*
Franklin Floating Rate Daily Access Fund
11/1/09-4/30/10
DIVIDEND PER SHARE
-------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ------------- ------------- ------------- -------------
November 2.5564 cents 2.0002 cents 2.2561 cents 2.7429 cents
December** 3.1214 cents 2.6322 cents 2.8234 cents 3.3092 cents
January 2.3639 cents 1.8383 cents 2.0808 cents 2.5423 cents
February 2.4015 cents 1.8919 cents 2.1273 cents 2.5744 cents
March 2.8797 cents 2.2908 cents 2.5540 cents 3.0838 cents
April 2.7856 cents 2.2310 cents 2.4876 cents 2.9729 cents
------------- ------------- ------------- -------------
TOTAL 16.1085 CENTS 12.8844 CENTS 14.3292 CENTS 17.2255 CENTS
* Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on
the date you purchased your shares and any account activity. All Fund
distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
** Includes an additional 0.48 cent per share distribution to meet excise tax
requirements.
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
below-investment-grade securities, we 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.
MANAGER'S DISCUSSION
The Fund's underperformance relative to the CS LLI was largely due to our higher
credit quality focus (BB-rated loans) and our overall defensive positioning, as
higher risk credits (B-rated and below) outperformed BB-rated loans. During the
six-month period, BB-rated loans returned +4.94%, B-rated loans returned +9.10%
and distressed (CC, C and defaulted) loans returned +14.31%, as measured by the
Index.
A few of our individual loans, most notably those that were higher beta credits,
positively contributed to performance. Our position in Dex One Corporation(3)
(formerly known as R.H. Donnelley), among our largest positions and one of
(3.) R.H. Donnelley Inc. in the SOI.
16 | Semiannual Report
our highest yielding investments, continued to strengthen as company performance
improved. Investors anticipated a potential near-par recovery for the
directories publisher as it exited from Chapter 11 bankruptcy. Similarly, our
position in Tribune, a large newspaper and broadcasting company, continued to
perform well as prospects appeared to improve for higher asset recovery for
lenders. The Fund's position in Hexion Specialty Chemicals, a producer of
resins, adhesives and coatings for a range of consumer and industrial uses, also
performed well. The company returned to the capital markets to address its
balance sheet issues and upcoming maturities, which generally improved the
loan's risk/reward profile.
Conversely, the Fund's position in Metro-Goldwyn-Mayer detracted from
performance, as competing bids for this distressed asset were below
expectations, which further extended the period needed to realize better value
for the film studio's library.
The Fund shifted its focus toward the new-issue market where we identified more
attractive opportunities that offered a higher spread, a LIBOR floor and an
original issue discount, as well as a more favorable risk/reward profile than
the secondary market. The Fund participated in a large number of new issues
across a broad spectrum of industries, including Reynolds Consumer Products
Holdings and Anchor Glass Container Corp. in the paper packaging and metal and
glass containers industry. We invested in Anchor Glass Container Corp., North
America's third-largest glass container company with a focus on beverages, due
to tight industry demand and supply conditions and a high production level that
was contracted out to a strong customer base. We invested in Reynolds Consumer
Products Holdings, a manufacturer of consumer packaging products such as
beverage cartons and consumer foil and wraps, due to the company's strong market
position, high revenue visibility from multi-year contracts, brand recognition,
and resilient food and beverage packaging end markets.
Some of the companies held by the Fund refinanced their debt and extended out
their maturities. These refinancings repriced their credit spreads higher to
reach market levels, which contributed additional income to the Fund and
enhanced the loans' value in the secondary market.
During the period, as lower rated credits and more cyclical industries
outperformed, our focus on higher credit quality issuers and overweighting in
defensive industries hurt the Fund's performance. In the past, our defensive
positioning in the cable television and health care industries helped us due to
their stable revenue and cash flow characteristics. In this period, however, the
Fund benefited more from the strong appreciation of loans in cyclical sectors,
such as broadcasting and chemicals.
TOP 10 HOLDINGS
Franklin Floating Rate Daily Access Fund
4/30/10
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
RBS Global Inc. (Rexnord) 1.6%
INDUSTRIAL MACHINERY
Affinion Group Inc. 1.6%
SPECIALIZED CONSUMER SERVICES
Harrah's Operating Co. Inc. 1.5%
CASINOS & GAMING
Intelsat Corp. (PanAmSat) 1.3%
WIRELESS TELECOMMUNICATION SERVICES
R.H. Donnelley Inc. 1.3%
PUBLISHING
Tribune Co. 1.3%
PUBLISHING
HCA Inc. 1.3%
HEALTH CARE FACILITIES
VML U.S. Finance LLC (Venetian Macau) 1.2%
CASINOS & GAMING
Entravision Communications Corp. 1.2%
BROADCASTING
Conseco Inc. 1.2%
LIFE & HEALTH INSURANCE
Semiannual Report | 17
We believe the new-issue market should continue to offer additional
opportunities for a better supply and demand balance. We continue to invest in
companies that we believe can perform well in the current economic climate, with
what we believe are adequate liquidity and strong cash flows to service debt.
Our longer term focus remains on minimizing defaults, with a preference for
higher credit-quality credits. However, as corporate earnings and the broader
economy showed signs of stabilization, we shifted our positioning into
industries that may benefit more from an economic recovery. Overall, we remain
focused on maximizing the Fund's risk/reward profile within our conservative
investment philosophy.
Thank you for your continued participation in Franklin Floating Rate Daily
Access Fund. We look forward to serving your future investment needs.
(PHOTO OF RICHARD S. HSU)
/s/ Richard S. Hsu
Richard S. Hsu, CFA
(PHOTO OF MADELINE LAM)
/s/ Madeline Lam
Madeline Lam
Portfolio Management Team
Franklin Floating Rate Daily Access Fund
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
18 | Semiannual Report
Performance Summary as of 4/30/10
FRANKLIN FLOATING RATE DAILY ACCESS FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FAFRX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.36 $9.09 $8.73
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.161085
CLASS B (SYMBOL: FBFRX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.36 $9.08 $8.72
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.128844
CLASS C (SYMBOL: FCFRX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.36 $9.09 $8.73
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.143292
ADVISOR CLASS (SYMBOL: FDAAX) CHANGE 4/30/10 10/31/09
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) +$0.36 $9.09 $8.73
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.172255
Semiannual Report | 19
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------- ------- ------ ------ ------------------
Cumulative Total Return(1) +6.02% +19.42% +15.85% +37.54%
Average Annual Total Return(2) +3.64% +16.75% +2.52% +3.34%
Avg. Ann. Total Return (3/31/10)(3) +21.97% +2.35% +3.28%
Distribution Rate(4) 3.64%
30-Day Standardized Yield(5) 3.28%
Total Annual Operating Expenses(6) 1.09%
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------- ------- ------ ------ ------------------
Cumulative Total Return(1) +5.64% +18.57% +11.68% +29.94%
Average Annual Total Return(2) +1.64% +14.57% +1.90% +2.95%
Avg. Ann. Total Return (3/31/10)(3) +19.70% +1.73% +2.88%
Distribution Rate(4) 2.99%
30-Day Standardized Yield(5) 2.63%
Total Annual Operating Expenses(6) 1.84%
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------- ------- ------ ------ ------------------
Cumulative Total Return(1) +5.81% +18.95% +13.59% +32.82%
Average Annual Total Return(2) +4.81% +17.95% +2.58% +3.20%
Avg. Ann. Total Return (3/31/10)(3) +23.24% +2.41% +3.14%
Distribution Rate(4) 3.33%
30-Day Standardized Yield(5) 2.97%
Total Annual Operating Expenses(6) 1.49%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR INCEPTION (5/1/01)
- ------------- ------- ------ ------ ------------------
Cumulative Total Return(1) +6.03% +19.72% +17.19% +40.65%
Average Annual Total Return(2) +6.03% +19.72% +3.22% +3.86%
Avg. Ann. Total Return (3/31/10)(3) +24.88% +3.05% +3.80%
Distribution Rate(4) 3.98%
30-Day Standardized Yield(5) 3.61%
Total Annual Operating Expenses(6) 0.84%
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.
20 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
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. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
past 30 days' daily distributions and the maximum offering price (NAV for
Classes B, C and Advisor) per share on 4/30/10.
(5.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(6.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
Semiannual Report | 21
Your Fund's Expenses
FRANKLIN FLOATING RATE DAILY ACCESS FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
22 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09-4/30/10
----------------- -------------- -----------------------
CLASS A
- -------
Actual $1,000 $1,060.20 $4.90
Hypothetical (5% return before expenses) $1,000 $1,020.03 $4.81
CLASS B
Actual $1,000 $1,056.40 $8.62
Hypothetical (5% return before expenses) $1,000 $1,016.41 $8.45
CLASS C
Actual $1,000 $1,058.10 $6.94
Hypothetical (5% return before expenses) $1,000 $1,018.05 $6.80
ADVISOR CLASS
Actual $1,000 $1,060.30 $3.63
Hypothetical (5% return before expenses) $1,000 $1,021.27 $3.56
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.96%; B: 1.69%; C: 1.36%; and Advisor:
0.71%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
Semiannual Report | 23
Franklin Low Duration Total Return Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Low Duration Total Return Fund
seeks as high a level of current income as is consistent with prudent investing,
while seeking capital preservation. The Fund invests primarily in
investment-grade debt securities, including government and corporate debt
securities and mortgage- and asset-backed securities, targeting an estimated
average portfolio duration of three years or less.
We are pleased to bring you Franklin Low Duration Total Return Fund's semiannual
report for the period ended April 30, 2010.
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
Franklin Low Duration Total Return Fund - Class A delivered a +3.12% cumulative
total return for the six months under review. The Fund outperformed the +1.26%
total return of its benchmark, the Barclays Capital (BC) U.S. Government/Credit
Index: 1-3 Year Component.(1) You can find more of the Fund's performance data
in the Performance Summary beginning on page 27.
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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 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.
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BC U.S. Government/Credit Index: 1-3 Year Component
includes dollar-denominated investment-grade corporate debt and nonnative
currency agency and local authority debt, sovereign, supranational, and
taxable municipal debt, public obligations of the U.S. Treasury with at
least one year up to, but not including, three years to final maturity, and
publicly issued debt of U.S. government agencies, quasi-federal
corporations, and corporate or foreign debt guaranteed by the U.S.
government. The index is unmanaged and includes reinvested interest. 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 87.
24 | Semiannual Report
DIVIDEND DISTRIBUTIONS*
Franklin Low Duration Total Return Fund
11/1/09-4/30/10
DIVIDEND PER SHARE
----------------------------------
MONTH CLASS A ADVISOR CLASS
- ----- ------------- ------------------
November 2.6447 cents 2.8659 cents
December** 3.8096 cents 4.0196 cents
January 2.4825 cents 2.7101 cents
February 2.3727 cents 2.6160 cents
March 2.4621 cents 2.7245 cents
April 2.4600 cents 2.6693 cents
------------- -------------
TOTAL 16.2316 CENTS 17.6054 CENTS
* Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on
the date you purchased your shares and any account activity. All Fund
distributions will vary depending upon current market conditions, and past
distributions are not indicative of future trends.
** Includes an additional 1.40 cent per share distribution to meet excise tax
requirements.
MANAGER'S DISCUSSION
Economic data continued to provide the market with optimism in the six months
ended April 30, 2010. A U.S. economic recovery appeared to be well under way, as
continued positive employment market and manufacturing sector data drove growth.
Ongoing signs of a possible bottoming and rebound in the housing market helped
drive a more favorable market outlook. Inflation remained relatively contained
and employment and capacity utilization data continued to support lower
inflation over the near term.
During the reporting period, we remained committed to our investment strategy as
we searched for new investments. We emphasized shorter term and adjustable-rate
securities as we sought to maintain a lower duration than longer term,
fixed-rate securities generally provide. Our outperformance versus the benchmark
was largely the result of exposure to high yield bonds and bank loans,
commercial mortgage-backed securities (CMBS) and non-U.S. bonds and currencies.
Each of these asset classes outperformed U.S. Treasuries.
The Fund increased its allocation to U.S. Treasury securities and certain
non-U.S. bonds and currencies. We continued to invest in higher quality CMBS and
decreased the Fund's exposure to investment-grade corporates and agency
mortgages. Within the securitized sectors, such as CMBS, we emphasized higher
quality securities that were senior in the capital structure and benefited from
strong levels of credit protection. We maintained significant holdings in
corporate credit, including high yield bonds and senior secured floating rate
bank loans, reflecting our assessment that valuations remained attractive on a
PORTFOLIO BREAKDOWN
Franklin Low Duration Total Return Fund
Based on Total Investments as of 4/30/10
(BAR CHART)
U.S. Government & Agency Securities 45.5%
Corporate Bonds 22.3%
Foreign Government & Agency Securities 10.5%
Mortgage-Backed Securities 9.1%
Asset-Backed & Commercial Mortgage-Backed Securities 3.9%
Senior Floating Rate Interests 2.3%
Municipal Bonds 0.7%
Convertible Bonds 0.0%*
Preferred Stocks 0.0%*
Short-Term Investments 5.7%
* Rounds to less than 0.1% of total investments.
Semiannual Report | 25
longer term basis and that an improved financing landscape would reduce
estimated default rates. Our research indicated that many of the best
opportunities in global bond markets were outside of the U.S., and accordingly,
we added diversified positions in international bonds and currencies.
Thank you for your continued participation in Franklin Low Duration Total Return
Fund. We look forward to serving your future investment needs.
(PHOTO OF ROGER A. BAYSTON)
/s/ Roger A. Bayston
Roger A. Bayston, CFA
(PHOTO OF KENT BURNS)
/s/ Kent Burns
Kent Burns, CFA
(PHOTO OF CHRISTOPHER J. MOLUMPHY)
/s/ Christopher J. Molumphy
Christopher J. Molumphy, CFA
Portfolio Management Team
Franklin Low Duration Total Return Fund
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
26 | Semiannual Report
Performance Summary as of 4/30/10
FRANKLIN LOW DURATION TOTAL RETURN FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FLDAX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.12 $10.31 $10.19
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.162316
Short-Term Capital Gain $0.028000
Long-Term Capital Gain $0.004100
TOTAL $0.194416
ADVISOR CLASS (SYMBOL: N/A) CHANGE 4/30/10 10/31/09
- --------------------------- ------ ------- --------
Net Asset Value (NAV) +$0.13 $10.33 $10.20
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.176054
Short-Term Capital Gain $0.028000
Long-Term Capital Gain $0.004100
TOTAL $0.208154
Semiannual Report | 27
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (11/17/04)
- ------- ------- ------ ------ --------------------
Cumulative Total Return(2) +3.12% +7.91% +26.25% +26.55%
Average Annual Total Return(3) +0.84% +5.46% +4.29% +3.98%
Avg. Ann. Total Return (3/31/10)(4) +6.02% +4.28% +3.94%
Distribution Rate(5) 2.80%
30-Day Standardized Yield(6) 1.58%
Total Annual Operating Expenses(7)
Without Waiver 1.19%
With Waiver 0.94%
ADVISOR CLASS(8) 6-MONTH 1-YEAR 5-YEAR INCEPTION (11/17/04)
- ---------------- ------- ------ ------ --------------------
Cumulative Total Return(2) +3.35% +8.39% +27.07% +27.37%
Average Annual Total Return(3) +3.35% +8.39% +4.91% +4.54%
Avg. Ann. Total Return (3/31/10)(4) +8.77% +4.87% +4.49%
Distribution Rate(5) 3.10%
30-Day Standardized Yield(6) 1.86%
Total Annual Operating Expenses(7)
Without Waiver 0.94%
With Waiver 0.69%
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.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
ASSUME CERTAIN EXPENSES SO THAT COMMON EXPENSES (EXCLUDING THE RULE 12B-1 FEES
AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED
0.65% (OTHER THAN CERTAIN NONROUTINE EXPENSES), UNTIL 2/28/11.
28 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
INTEREST RATE MOVEMENTS 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. THE FUND'S INVESTMENT IN DERIVATIVES, SUCH AS FINANCIAL
FUTURES AND OPTION CONTRACTS, AND THE FUND'S USE OF FOREIGN CURRENCY TECHNIQUES
INVOLVE SPECIAL RISKS AS SUCH MAY NOT ACHIEVE THE ANTICIPATED BENEFITS AND/OR
MAY RESULT IN LOSSES TO THE FUND. SOME DERIVATIVES ARE PARTICULARLY SENSITIVE TO
CHANGES IN INTEREST RATES. THE RISKS OF FOREIGN SECURITIES INCLUDE CURRENCY
FLUCTUATIONS AND POLITICAL UNCERTAINTY. DURING PERIODS OF DECLINING INTEREST
RATES, PRINCIPAL PREPAYMENTS TEND TO INCREASE AS BORROWERS REFINANCE THEIR
MORTGAGES AT LOWER RATES; THEREFORE, THE FUND MAY BE FORCED TO REINVEST RETURNED
PRINCIPAL AT LOWER INTEREST RATES, REDUCING ITS INCOME. THE FUND'S PROSPECTUS
ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yields for
the period would have been 1.45% for Class A and 1.73% for Advisor Class.
(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. Six-month return has not been
annualized.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(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 4/30/10.
(6.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 5/14/08, 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 +11.90% and +5.91%.
Semiannual Report | 29
Your Fund's Expenses
FRANKLIN LOW DURATION TOTAL RETURN FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
30 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09-4/30/10
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,031.20 $4.53
Hypothetical (5% return before expenses) $1,000 $1,020.33 $4.51
ADVISOR CLASS
Actual $1,000 $1,033.50 $3.28
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 0.90% and Advisor:
0.65%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
Semiannual Report | 31
Franklin Total Return Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Total Return Fund seeks to
provide investors with 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. The Fund
focuses on government and corporate debt securities and mortgage- and
asset-backed securities.
We are pleased to bring you Franklin Total Return Fund's semiannual report for
the period ended April 30, 2010.
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PERFORMANCE OVERVIEW
Franklin Total Return Fund - Class A delivered a +5.49% cumulative total return
for the six months under review. The Fund outperformed its benchmark, the
Barclays Capital (BC) U.S. Aggregate Index, which returned +2.54%.(1) You can
find the Fund's long-term performance data in the Performance Summary beginning
on page 36.
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.
MANAGER'S DISCUSSION
During the reporting period, economic data continued to provide the market with
optimism. A U.S. economic recovery appeared to be well under way, as
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The BC U.S. Aggregate Index is a market-capitalization
weighted index representing the U.S. 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 non-convertible, 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. The index is unmanaged and includes
reinvested interest. 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 108.
32 | Semiannual Report
PORTFOLIO BREAKDOWN
Franklin Total Return Fund
Based on Total Investments
SECTOR 4/30/10 10/31/09
- ------ ------- --------
Corporate Bonds 30.2% 31.5%
Mortgage-Backed Securities 19.4% 29.1%
U.S. Government & Agency Securities 14.2% 8.2%
Foreign Government & Agency Securities 13.8% 11.5%
Asset-Backed & Commercial Mortgage-Backed Securities 8.8% 11.1%
Senior Floating Rate Interests 4.3% 3.8%
Municipal Bonds 2.7% 2.0%
Convertible Bonds 0.1% 0.3%
Common Stocks 0.1% 0.0%*
Preferred Stocks 0.0%* 0.0%*
Convertible Preferred Stocks 0.0%* 0.0%*
Short-Term Investments 6.4% 2.5%
* Rounds to less than 0.1% of total investments.
continued positive employment market and manufacturing sector data drove growth.
Ongoing signs of a possible bottoming and rebound in the housing market helped
drive a more favorable market outlook. Inflation remained relatively contained
and employment and capacity utilization data continued to support lower
inflation over the near term.
As measured by BC indexes, fixed income sectors made significant gains during
the period under review. Many sectors provided positive performance, including
the U.S. Corporate High Yield Index (+11.70%), the U.S. Corporate Investment
Grade Index (+4.82%), the Asset-Backed Securities Index (+2.97%), the Commercial
Mortgage-Backed Securities (CMBS) ERISA-Eligible Index (+12.83%), the U.S.
Mortgage-Backed Securities (MBS) Index (+2.01%) and the U.S. Agency Index
(+1.41%).(2)
(2.) Source: (C) 2010 Morningstar. The BC U.S. Corporate High Yield Index covers
the universe of U.S. dollar-denominated, noninvestment-grade, fixed-rate,
taxable corporate bond market. Securities are classified as high yield if
the middle rating of Moody's, Fitch and Standard & Poor's is Ba1/BB+/BB+,
respectively, or below. The BC U.S. Corporate Investment Grade Index is the
U.S. corporate component of the BC U.S. Credit Index and covers U.S.
dollar-denominated, investment-grade, fixed-rate, taxable securities sold
by industrial, utility, and financial institution issuers. It includes
publicly issued U.S. corporate and foreign debentures and secured notes
that meet specified maturity, liquidity, and quality requirements. The BC
Asset-Backed Securities Index is the ABS component of the BC U.S. Aggregate
Index and includes credit and charge, auto and utility loans. The BC CMBS
ERISA-Eligible Index is the CMBS component of the BC U.S. Aggregate Index
and includes the investment grade securities that are ERISA-eligible under
the underwriter's exemption. The BC U.S. MBS Index is the MBS component of
the BC U.S. Aggregate Index and covers agency mortgage-backed pass-through
securities (both fixed rate and hybrid ARM) issued by Ginnie Mae, Fannie
Mae and Freddie Mac. The BC U.S. Agency Index is the U.S. Agency component
of the BC U.S. Government/Credit Index and includes publicly issued debt of
U.S. government agencies, quasi-federal corporations and corporate or
foreign debt guaranteed by the U.S. government.
Semiannual Report | 33
DIVIDEND DISTRIBUTIONS*
Franklin Total Return Fund
11/1/09-4/30/10
DIVIDEND PER SHARE (CENTS)
------------------------------------------------------
MONTH CLASS A CLASS B CLASS C CLASS R ADVISOR CLASS
- ----- ------- ------- ------- ------- -------------
November 3.8102 3.4822 3.4793 3.6055 4.0212
December** 5.8120 5.5220 5.4983 5.6210 6.0112
January 3.1474 2.8401 2.8369 2.9555 3.3454
February 3.1750 2.9079 2.9073 3.0083 3.3462
March 3.8390 3.5268 3.5016 3.6317 4.0540
April 3.5022 3.1779 3.1773 3.3009 3.7111
------- ------- ------- ------- -------
TOTAL 23.2858 21.4569 21.4007 22.1229 24.4891
======= ======= ======= ======= =======
* 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 an additional 2.25 cent per share distribution to meet excise tax
requirements.
We continued to apply our disciplined process to choose what were, in our view,
attractive investment opportunities across debt-related sectors. The Fund's
outperformance versus the benchmark was largely the result of exposure to high
yield bonds and bank loans, CMBS and other securitized products as well as
non-U.S. bonds and currencies. Each of these asset classes outperformed U.S.
Treasuries. The Fund increased its allocation to a number of fixed income
sectors, such as U.S. government and agency securities, senior secured bank
loans, as well as non-U.S. bonds and currencies.
Within the securitized sectors, such as CMBS, we emphasized higher quality
securities that were senior in the capital structure and benefited from strong
levels of credit protection. We maintained significant holdings in corporate
credit, including high yield bonds, reflecting our assessment that valuations
remained attractive on a longer term basis and that an improved financing
landscape would reduce estimated default rates. Our research indicated that many
of the best opportunities in global bond markets were outside of the U.S., and
accordingly, we continued to hold diversified positions in international bonds
and currencies.
34 | Semiannual Report
Thank you for your continued participation in Franklin Total Return Fund. We
look forward to serving your future investment needs.
(PHOTO OF ROGER A. BAYSTON)
/s/ Roger A. Bayston
Roger A. Bayston, CFA
(PHOTO OF KENT BURNS)
/s/ Kent Burns
Kent Burns, CFA
(PHOTO OF CHRISTOPHER J. MOLUMPHY)
/s/ Christopher J. Molumphy
Christopher J. Molumphy, CFA
(PHOTO OF DAVID YUEN)
/s/ David Yuen
David Yuen, CFA, FRM
Portfolio Management Team
Franklin Total Return Fund
CFA(R) is a trademark owned by CFA Institute.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2010, 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.
Semiannual Report | 35
Performance Summary as of 4/30/10
FRANKLIN TOTAL RETURN FUND
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. The performance table does 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKBAX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.29 $9.94 $9.65
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.232858
CLASS B (SYMBOL: FBTLX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.28 $9.93 $9.65
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.214569
CLASS C (SYMBOL: FCTLX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.28 $9.93 $9.65
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.214007
CLASS R (SYMBOL: FTRRX) CHANGE 4/30/10 10/31/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.28 $9.93 $9.65
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.221229
ADVISOR CLASS (SYMBOL: FBDAX) CHANGE 4/30/10 10/31/09
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) +$0.28 $9.95 $9.67
DISTRIBUTIONS (11/1/09-4/30/10)
Dividend Income $0.244891
36 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS
R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------ -------
Cumulative Total Return(2) +5.49% +16.27% +27.89% +85.01%
Average Annual Total Return(3) +0.99% +11.29% +4.13% +5.89%
Avg. Ann. Total Return (3/31/10)(4) +12.74% +4.00% +5.67%
Distribution Rate(5) 4.05%
30-Day Standardized Yield(6) 3.66%
Total Annual Operating Expenses(7)
Without Waiver 1.06%
With Waiver 0.91%
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (3/1/02)
- ------- ------- ------ ------ ------------------
Cumulative Total Return(2) +5.30% +15.85% +25.29% +51.84%
Average Annual Total Return(3) +1.30% +11.85% +4.28% +5.25%
Avg. Ann. Total Return (3/31/10)(4) +13.35% +4.17% +5.10%
Distribution Rate(5) 3.84%
30-Day Standardized Yield(6) 3.43%
Total Annual Operating Expenses(7)
Without Waiver 1.46%
With Waiver 1.31%
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (3/1/02)
- ------- ------- ------ ------ ------------------
Cumulative Total Return(2) +5.29% +15.84% +25.25% +51.68%
Average Annual Total Return(3) +4.29% +14.84% +4.61% +5.24%
Avg. Ann. Total Return (3/31/10)(4) +16.22% +4.50% +5.09%
Distribution Rate(5) 3.84%
30-Day Standardized Yield(6) 3.43%
Total Annual Operating Expenses(7)
Without Waiver 1.46%
With Waiver 1.31%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------- ------- ------ ------ ------------------
Cumulative Total Return(2) +5.26% +15.88% +26.20% +54.95%
Average Annual Total Return(3) +5.26% +15.88% +4.76% +5.40%
Avg. Ann. Total Return (3/31/10)(4) +17.51% +4.65% +5.27%
Distribution Rate(5) 3.99%
30-Day Standardized Yield(6) 3.59%
Total Annual Operating Expenses(7)
Without Waiver 1.31%
With Waiver 1.16%
Semiannual Report | 37
Performance Summary (CONTINUED)
PERFORMANCE(1) (CONTINUED)
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------ ------ -------
Cumulative Total Return(2) +5.61% +16.53% +29.34% +89.60%
Average Annual Total Return(3) +5.61% +16.53% +5.28% +6.61%
Avg. Ann. Total Return (3/31/10)(4) +18.16% +5.19% +6.40%
Distribution Rate(5) 4.48%
30-Day Standardized Yield(6) 4.07%
Total Annual Operating Expenses(7)
Without Waiver 0.81%
With Waiver 0.66%
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.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
ASSUME CERTAIN EXPENSES SO THAT COMMON EXPENSES (EXCLUDING THE RULE 12B-1 FEES
AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF THE FUND DO NOT EXCEED
0.63% (OTHER THAN CERTAIN NONROUTINE EXPENSES), UNTIL 2/28/11.
38 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
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. INVESTING IN DERIVATIVE
SECURITIES SUCH AS FINANCIAL FUTURES AND OPTION CONTRACTS, AND THE USE OF
FOREIGN CURRENCY TECHNIQUES INVOLVE SPECIAL RISKS AS SUCH MAY NOT ACHIEVE THE
ANTICIPATED BENEFITS AND/OR MAY RESULT IN LOSSES TO THE FUND. THE RISKS
ASSOCIATED WITH HIGHER YIELDING, LOWER RATED SECURITIES (COMMONLY CALLED JUNK
BONDS) 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. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower, and yields for
the period would have been 3.65%, 3.42%, 3.42%, 3.56% and 4.06% for Classes
A, B, C, R and Advisor, respectively.
(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. Six-month return has not been
annualized.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(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 Classes B, C, R and Advisor) per share on 4/30/10.
(6.) The 30-day standardized yield for the 30 days ended 4/30/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
Semiannual Report | 39
Your Fund's Expenses
FRANKLIN TOTAL RETURN FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
40 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 11/1/09 VALUE 4/30/10 PERIOD* 11/1/09-4/30/10
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,054.90 $4.38
Hypothetical (5% return before expenses) $1,000 $1,020.53 $4.31
CLASS B
Actual $1,000 $1,053.00 $6.36
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26
CLASS C
Actual $1,000 $1,052.90 $6.41
Hypothetical (5% return before expenses) $1,000 $1,018.55 $6.31
CLASS R
Actual $1,000 $1,052.60 $5.65
Hypothetical (5% return before expenses) $1,000 $1,019.29 $5.56
ADVISOR CLASS
Actual $1,000 $1,056.10 $3.11
Hypothetical (5% return before expenses) $1,000 $1,021.77 $3.06
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 0.86%; B: 1.25%; C:
1.26%; R: 1.11%; and Advisor: 0.61%), multiplied by the average account
value over the period, multiplied by 181/365 to reflect the one-half year
period.
Semiannual Report | 41
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -------------------------------------------------------------
(UNAUDITED) 2009 2008 2007 2006 2005
---------------- ---------- -------- -------- -------- --------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ....... $ 8.96 $ 8.86 $ 8.87 $ 8.88 $ 8.93 $ 9.06
---------- ---------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income ................... 0.081 0.239 0.344 0.380 0.303 0.292
Net realized and unrealized gains
(losses) ............................. 0.038 0.120 0.010 0.053 0.025 (0.129)
---------- ---------- -------- -------- -------- --------
Total from investment operations ........... 0.119 0.359 0.354 0.433 0.328 0.163
---------- ---------- -------- -------- -------- --------
Less distributions from net investment
income .................................. (0.129) (0.259) (0.364) (0.443) (0.378) (0.293)
---------- ---------- -------- -------- -------- --------
Redemption fees(b) ......................... -- -- --(c) --(c) --(c) --(c)
---------- ---------- -------- -------- -------- --------
Net asset value, end of period ............. $ 8.95 $ 8.96 $ 8.86 $ 8.87 $ 8.88 $ 8.93
========== ========== ======== ======== ======== ========
Total return(d) ............................ 1.34% 4.10% 4.06% 4.99% 3.75% 1.82%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) ................................ 0.84% 0.87%(g) 0.90%(g) 0.91%(g) 0.89%(g) 0.90%
Net investment income ...................... 1.75% 2.48% 3.64% 4.29% 3.50% 3.23%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .......... $1,638,563 $1,375,234 $586,696 $333,425 $372,703 $475,213
Portfolio turnover rate(h) ................. 19.16% 22.45% 23.83% 27.39% 15.91% 24.99%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Prior to October 27, 2005, the expense ratio includes the Fund's shares of
the U.S. Government Adjustable Rate Mortgage Portfolio's (Portfolio)
allocated net assets.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Prior to October 27, 2005, represents the Portfolio's rate of turnover.
The accompanying notes are an integral part of these financial statements.
42 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ---------------------------------------------------------
(UNAUDITED) 2009 2008 2007 2006 2005
---------------- -------- -------- ------- ------- -------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ....... $ 8.96 $ 8.86 $ 8.87 $ 8.88 $ 8.92 $ 9.05
-------- -------- -------- ------- ------- -------
Income from investment operations(a):
Net investment income ................... 0.069 0.206 0.314 0.348 0.266 0.258
Net realized and unrealized gains
(losses) ............................. 0.022 0.117 0.004 0.048 0.038 (0.129)
-------- -------- -------- ------- ------- -------
Total from investment operations ........... 0.091 0.323 0.318 0.396 0.304 0.129
-------- -------- -------- ------- ------- -------
Less distributions from net investment
income .................................. (0.111) (0.223) (0.328) (0.406) (0.344) (0.259)
-------- -------- -------- ------- ------- -------
Redemption fees(b) ......................... -- -- --(c) --(c) --(c) --(c)
-------- -------- -------- ------- ------- -------
Net asset value, end of period ............. $ 8.94 $ 8.96 $ 8.86 $ 8.87 $ 8.88 $ 8.92
======== ======== ======== ======= ======= =======
Total return(d) ............................ 1.02% 3.69% 3.64% 4.56% 3.47% 1.43%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) ................................ 1.24% 1.27%(g) 1.30%(g) 1.32%(g) 1.28%(g) 1.28%
Net investment income ...................... 1.35% 2.08% 3.24% 3.88% 3.11% 2.85%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .......... $925,372 $596,640 $132,254 $36,684 $35,967 $48,461
Portfolio turnover rate(h) ................. 19.16% 22.45% 23.83% 27.39% 15.91% 24.99%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Prior to October 27, 2005, the expense ratio includes the Fund's shares of
the U.S. Government Adjustable Rate Mortgage Portfolio's (Portfolio)
allocated net assets.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Prior to October 27, 2005, represents the Portfolio's rate of turnover.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 43
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2010 -------------------
(UNAUDITED) 2009 2008(a)
---------------- ------- -------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................ $ 8.97 $ 8.87 $ 8.88
-------- ------- -------
Income from investment operations(b):
Net investment income .................................... 0.111 0.267 0.154
Net realized and unrealized gains (losses) ............... 0.020 0.115 (0.009)
-------- ------- -------
Total from investment operations ............................ 0.131 0.382 0.145
-------- ------- -------
Less distributions from net investment income ............... (0.141) (0.282) (0.155)
-------- ------- -------
Redemption fees(c) .......................................... -- -- --(d)
-------- ------- -------
Net asset value, end of period .............................. $ 8.96 $ 8.97 $ 8.87
======== ======= =======
Total return(e) ............................................. 1.46% 4.36% 1.64%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses .................................................... 0.59% 0.62%(g) 0.65%(g)
Net investment income ....................................... 2.00% 2.73% 3.89%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................... $252,054 $87,296 $ 4,124
Portfolio turnover rate ..................................... 19.16% 22.45% 23.83%
(a) For the period May 15, 2008 (effective date) to October 31, 2008.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.001 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
44 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES 93.8%
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 26.2%
FHLMC, 2.125%, 11/01/16 .............................................. $ 285,842 $ 292,890
FHLMC, 2.206%, 4/01/35 ............................................... 26,762,715 28,024,130
FHLMC, 2.359%, 2/01/33 ............................................... 98,352 101,434
FHLMC, 2.379%, 5/01/18 ............................................... 25,199 25,542
FHLMC, 2.385%, 10/01/29 .............................................. 122,810 126,750
FHLMC, 2.452%, 12/01/35 .............................................. 227,984 233,281
FHLMC, 2.454%, 12/01/32 .............................................. 108,054 112,365
FHLMC, 2.494%, 12/01/16 .............................................. 193,362 201,939
FHLMC, 2.544%, 12/01/29 .............................................. 17,183 17,941
FHLMC, 2.564%, 3/01/18 ............................................... 101,752 106,327
FHLMC, 2.578%, 12/01/32 .............................................. 650,326 677,722
FHLMC, 2.584%, 5/01/20 ............................................... 880,428 921,356
FHLMC, 2.585%, 2/01/32 ............................................... 16,828 17,568
FHLMC, 2.591%, 10/01/33 .............................................. 1,124,347 1,167,889
FHLMC, 2.593%, 9/01/18 ............................................... 539,938 565,343
FHLMC, 2.598%, 1/01/33 - 3/01/33 ..................................... 190,217 198,353
FHLMC, 2.604%, 4/01/32 ............................................... 20,808 21,724
FHLMC, 2.605%, 1/01/34 - 4/01/34 ..................................... 1,106,965 1,149,761
FHLMC, 2.609%, 1/01/34 ............................................... 372,831 387,858
FHLMC, 2.61%, 7/01/33 ................................................ 291,288 300,618
FHLMC, 2.614%, 4/01/34 ............................................... 1,086,528 1,129,963
FHLMC, 2.615%, 4/01/34 ............................................... 855,886 889,689
FHLMC, 2.62%, 4/01/29 ................................................ 3,102 3,244
FHLMC, 2.621%, 12/01/32 .............................................. 377,693 393,517
FHLMC, 2.624%, 3/01/32 ............................................... 712,717 744,734
FHLMC, 2.625%, 4/01/16 - 1/01/32 ..................................... 21,379 22,250
FHLMC, 2.626%, 12/01/32 .............................................. 103,891 108,265
FHLMC, 2.63%, 3/01/35 ................................................ 32,993 34,187
FHLMC, 2.631%, 1/01/34 ............................................... 159,541 166,140
FHLMC, 2.643%, 4/01/34 ............................................... 42,624 44,309
FHLMC, 2.646%, 4/01/26 ............................................... 198,515 208,039
FHLMC, 2.654%, 11/01/31 .............................................. 1,284,604 1,337,869
FHLMC, 2.666%, 9/01/19 - 12/01/33 .................................... 553,683 578,247
FHLMC, 2.687%, 5/01/32 ............................................... 353,752 368,780
FHLMC, 2.702%, 12/01/34 .............................................. 48,998 51,046
FHLMC, 2.718%, 11/01/34 .............................................. 312,091 324,831
FHLMC, 2.719%, 10/01/33 .............................................. 180,791 189,397
FHLMC, 2.721%, 4/01/35 ............................................... 17,500 18,052
FHLMC, 2.725%, 11/01/34 .............................................. 437,521 455,482
FHLMC, 2.726%, 4/01/29 ............................................... 918,464 964,689
FHLMC, 2.727%, 8/01/33 ............................................... 204,533 211,775
FHLMC, 2.734%, 4/01/19 ............................................... 466,696 490,625
FHLMC, 2.735%, 12/01/32 .............................................. 81,815 85,183
FHLMC, 2.742%, 2/01/35 ............................................... 1,142,382 1,182,594
FHLMC, 2.743%, 8/01/30 ............................................... 26,561 27,751
FHLMC, 2.747%, 9/01/33 ............................................... 60,146 62,719
FHLMC, 2.75%, 12/01/19 - 10/01/32 .................................... 88,729 93,050
Semiannual Report | 45
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE (CONTINUED)
FHLMC, 2.762%, 9/01/34 ............................................... $ 1,435,842 $ 1,494,099
FHLMC, 2.768%, 7/01/35 ............................................... 263,804 272,200
FHLMC, 2.769%, 9/01/33 ............................................... 25,486 26,580
FHLMC, 2.781%, 12/01/35 .............................................. 1,436,866 1,494,956
FHLMC, 2.782%, 11/01/33 .............................................. 107,404 112,228
FHLMC, 2.785%, 3/01/32 - 4/01/34 ..................................... 276,541 289,687
FHLMC, 2.798%, 1/01/35 ............................................... 234,604 244,243
FHLMC, 2.815%, 5/01/32 ............................................... 280,676 292,993
FHLMC, 2.828%, 3/01/36 ............................................... 776,094 815,491
FHLMC, 2.833%, 11/01/28 - 7/01/30 .................................... 28,475 29,972
FHLMC, 2.845%, 1/01/29 ............................................... 299,054 315,019
FHLMC, 2.854%, 10/01/25 .............................................. 363,275 378,746
FHLMC, 2.859%, 8/01/30 - 11/01/32 .................................... 1,913,516 2,009,689
FHLMC, 2.862%, 10/01/33 .............................................. 1,283,913 1,345,868
FHLMC, 2.866%, 7/01/32 ............................................... 60,535 62,624
FHLMC, 2.875%, 10/01/22 - 3/01/35 .................................... 877,348 911,995
FHLMC, 2.878%, 4/01/18 ............................................... 617,084 648,747
FHLMC, 2.904%, 9/01/32 ............................................... 74,455 78,168
FHLMC, 2.906%, 2/01/32 ............................................... 178,133 186,710
FHLMC, 2.907%, 11/01/33 .............................................. 61,661 64,392
FHLMC, 2.91%, 11/01/23 ............................................... 8,016 8,393
FHLMC, 2.916%, 4/01/28 ............................................... 114,424 119,503
FHLMC, 2.919%, 6/01/34 ............................................... 1,428,152 1,469,282
FHLMC, 2.921%, 9/01/27 ............................................... 54,580 57,288
FHLMC, 2.927%, 4/01/30 - 6/01/33 ..................................... 181,865 187,614
FHLMC, 2.93%, 3/01/35 ................................................ 148,702 155,842
FHLMC, 2.932%, 6/01/34 ............................................... 341,949 354,715
FHLMC, 2.935%, 5/01/36 ............................................... 322,954 335,781
FHLMC, 2.952%, 5/01/25 ............................................... 209,852 221,635
FHLMC, 2.953%, 6/01/33 ............................................... 68,976 71,088
FHLMC, 2.956%, 7/01/28 ............................................... 69,446 73,024
FHLMC, 2.959%, 3/01/27 ............................................... 35,951 37,847
FHLMC, 2.961%, 4/01/25 - 2/01/33 ..................................... 243,195 255,023
FHLMC, 2.964%, 4/01/33 ............................................... 68,026 71,064
FHLMC, 2.967%, 8/01/30 ............................................... 396,950 418,111
FHLMC, 2.985%, 7/01/30 ............................................... 343,093 359,915
FHLMC, 2.987%, 8/01/19 ............................................... 62,529 65,669
FHLMC, 2.998%, 7/01/18 - 8/01/30 ..................................... 215,828 225,165
FHLMC, 3.004%, 4/01/35 ............................................... 773,841 805,730
FHLMC, 3.006%, 8/01/26 ............................................... 15,953 16,624
FHLMC, 3.016%, 3/01/32 ............................................... 41,467 43,392
FHLMC, 3.023%, 8/01/27 ............................................... 769,836 807,439
FHLMC, 3.028%, 11/01/35 .............................................. 195,667 203,709
FHLMC, 3.03%, 6/01/30 ................................................ 174,530 182,589
FHLMC, 3.035%, 10/01/24 .............................................. 811,407 849,878
FHLMC, 3.036%, 8/01/18 ............................................... 56,126 57,636
FHLMC, 3.041%, 10/01/31 .............................................. 1,729,383 1,813,019
46 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE (CONTINUED)
FHLMC, 3.043%, 7/01/35 ............................................... $ 982,797 $ 1,015,363
FHLMC, 3.048%, 5/01/33 ............................................... 63,577 65,632
FHLMC, 3.06%, 7/01/27 ................................................ 229,124 238,633
FHLMC, 3.07%, 12/01/34 ............................................... 835,621 875,572
FHLMC, 3.079%, 8/01/31 ............................................... 214,861 226,099
FHLMC, 3.08%, 2/01/19 ................................................ 124,225 125,524
FHLMC, 3.093%, 5/01/33 ............................................... 75,850 78,569
FHLMC, 3.10%, 8/01/30 - 4/01/33 ...................................... 91,934 95,588
FHLMC, 3.106%, 9/01/30 ............................................... 47,160 48,835
FHLMC, 3.107%, 2/01/24 ............................................... 132,179 135,985
FHLMC, 3.115%, 8/01/35 - 11/01/35 .................................... 807,702 842,153
FHLMC, 3.12%, 7/01/23 ................................................ 5,400 5,612
FHLMC, 3.122%, 8/01/32 ............................................... 1,746,598 1,819,919
FHLMC, 3.128%, 9/01/32 - 8/01/34 ..................................... 401,504 416,628
FHLMC, 3.134%, 7/01/19 ............................................... 42,093 43,280
FHLMC, 3.136%, 7/01/30 ............................................... 122,568 127,972
FHLMC, 3.144%, 1/01/29 ............................................... 7,897 8,232
FHLMC, 3.148%, 7/01/33 - 6/01/34 ..................................... 428,576 443,088
FHLMC, 3.154%, 12/01/34 .............................................. 987,903 1,032,445
FHLMC, 3.16%, 8/01/32 ................................................ 119,390 123,912
FHLMC, 3.163%, 10/01/26 .............................................. 9,204 9,624
FHLMC, 3.173%, 1/01/29 ............................................... 3,199 3,332
FHLMC, 3.175%, 10/01/18 - 10/01/32 ................................... 133,479 138,868
FHLMC, 3.177%, 7/01/20 ............................................... 89,055 92,797
FHLMC, 3.199%, 5/01/35 ............................................... 577,909 604,770
FHLMC, 3.208%, 10/01/34 .............................................. 1,933,216 2,001,275
FHLMC, 3.225%, 12/01/30 - 10/01/32 ................................... 1,626,744 1,708,106
FHLMC, 3.229%, 11/01/25 .............................................. 17,669 18,409
FHLMC, 3.23%, 9/01/31 ................................................ 93,528 96,902
FHLMC, 3.234%, 12/01/34 .............................................. 5,495,138 5,716,263
FHLMC, 3.24%, 3/01/19 ................................................ 40,611 42,386
FHLMC, 3.243%, 10/01/36 .............................................. 90,074 93,538
FHLMC, 3.247%, 9/01/32 - 4/01/34 ..................................... 347,288 359,139
FHLMC, 3.248%, 9/01/31 ............................................... 3,082 3,185
FHLMC, 3.249%, 4/01/33 ............................................... 8,879 9,193
FHLMC, 3.25%, 4/01/23 - 9/01/31 ...................................... 179,265 185,559
FHLMC, 3.254%, 8/01/32 ............................................... 209,116 216,458
FHLMC, 3.261%, 9/01/34 ............................................... 67,264 69,595
FHLMC, 3.265%, 8/01/30 ............................................... 144,612 149,994
FHLMC, 3.276%, 7/01/29 ............................................... 69,103 71,749
FHLMC, 3.279%, 1/01/36 ............................................... 7,593,570 7,853,265
FHLMC, 3.30%, 11/01/35 ............................................... 22,349,272 23,139,311
FHLMC, 3.307%, 12/01/19 .............................................. 1,332,264 1,370,593
FHLMC, 3.325%, 11/01/27 - 11/01/33 ................................... 45,298 47,347
FHLMC, 3.326%, 10/01/34 .............................................. 100,251 103,782
FHLMC, 3.328%, 4/01/35 ............................................... 157,378 162,729
FHLMC, 3.329%, 8/01/35 ............................................... 260,592 269,555
FHLMC, 3.341%, 1/01/36 ............................................... 160,977 167,277
Semiannual Report | 47
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE (CONTINUED)
FHLMC, 3.365%, 4/01/30 - 12/01/35 .................................... $ 380,435 $ 395,484
FHLMC, 3.374%, 1/01/29 ............................................... 27,260 28,340
FHLMC, 3.375%, 7/01/18 - 11/01/23 .................................... 84,774 87,910
FHLMC, 3.379%, 12/01/33 .............................................. 3,218,036 3,363,069
FHLMC, 3.383%, 1/01/30 ............................................... 279,060 291,124
FHLMC, 3.391%, 5/01/35 ............................................... 4,340,197 4,493,544
FHLMC, 3.408%, 7/01/30 ............................................... 156,330 161,623
FHLMC, 3.411%, 8/01/34 ............................................... 218,971 225,600
FHLMC, 3.411%, 9/01/37 ............................................... 34,992,545 36,568,125
FHLMC, 3.418%, 6/01/29 ............................................... 2,179,109 2,227,654
FHLMC, 3.425%, 3/01/37 ............................................... 4,473,589 4,670,212
FHLMC, 3.428%, 12/01/34 .............................................. 4,099,583 4,232,170
FHLMC, 3.451%, 11/01/29 .............................................. 512,739 533,157
FHLMC, 3.477%, 3/01/37 ............................................... 896,867 936,635
FHLMC, 3.489%, 8/01/33 ............................................... 85,824 89,107
FHLMC, 3.492%, 5/01/35 ............................................... 139,948 143,525
FHLMC, 3.50%, 6/01/23 ............................................... 42,976 44,347
FHLMC, 3.504%, 1/01/34 ............................................... 182,262 187,959
FHLMC, 3.526%, 8/01/34 ............................................... 81,883 85,129
FHLMC, 3.533%, 8/01/31 ............................................... 96,578 99,178
FHLMC, 3.537%, 3/01/33 ............................................... 22,258 23,032
FHLMC, 3.551%, 11/01/17 .............................................. 6,932 6,906
FHLMC, 3.553%, 6/01/35 ............................................... 5,214,173 5,428,352
FHLMC, 3.567%, 9/01/32 - 8/01/36 ..................................... 3,509,130 3,652,058
FHLMC, 3.577%, 6/01/34 ............................................... 35,680 36,815
FHLMC, 3.58%, 1/01/37 ................................................ 486,014 506,826
FHLMC, 3.585%, 12/01/28 .............................................. 311,271 321,709
FHLMC, 3.598%, 9/01/34 ............................................... 3,806,228 3,955,776
FHLMC, 3.603%, 12/01/35 .............................................. 2,014,220 2,100,703
FHLMC, 3.63%, 6/01/35 ................................................ 65,837 68,625
FHLMC, 3.688%, 11/01/36 .............................................. 874,899 909,059
FHLMC, 3.692%, 6/01/34 ............................................... 198,436 200,832
FHLMC, 3.703%, 10/01/36 .............................................. 894,756 933,701
FHLMC, 3.766%, 8/01/36 ............................................... 408,324 424,678
FHLMC, 3.779%, 8/01/20 ............................................... 18,705 18,875
FHLMC, 3.80%, 2/01/36 ................................................ 8,878,430 9,203,872
FHLMC, 3.824%, 6/01/35 ............................................... 1,462,499 1,496,829
FHLMC, 3.889%, 11/01/25 .............................................. 2,904,823 2,953,781
FHLMC, 3.896%, 1/01/37 ............................................... 31,273,866 32,588,607
FHLMC, 3.906%, 12/01/31 .............................................. 282,488 291,391
FHLMC, 3.973%, 5/01/35 ............................................... 1,441,929 1,472,992
FHLMC, 3.977%, 5/01/34 ............................................... 749,443 768,552
FHLMC, 3.982%, 10/01/36 .............................................. 1,178,859 1,227,053
FHLMC, 3.987%, 10/01/36 .............................................. 1,142,965 1,194,427
FHLMC, 3.989%, 10/01/36 .............................................. 3,595,386 3,730,471
FHLMC, 4.015%, 6/01/35 ............................................... 53,465 54,875
FHLMC, 4.027%, 7/01/33 ............................................... 462,107 478,676
FHLMC, 4.033%, 4/01/31 ............................................... 33,643 34,463
48 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE (CONTINUED)
FHLMC, 4.108%, 10/01/32 .............................................. $ 11,436 $ 11,806
FHLMC, 4.114%, 10/01/33 .............................................. 719,220 744,174
FHLMC, 4.119%, 5/01/33 ............................................... 43,275 44,454
FHLMC, 4.153%, 5/01/37 ............................................... 105,604 110,451
FHLMC, 4.201%, 6/01/29 ............................................... 19,392 20,141
FHLMC, 4.216%, 5/01/35 ............................................... 358,726 371,376
FHLMC, 4.225%, 5/01/32 ............................................... 25,285 26,002
FHLMC, 4.226%, 9/01/33 ............................................... 2,482,203 2,580,963
FHLMC, 4.24%, 11/01/35 ............................................... 54,935 56,252
FHLMC, 4.267%, 8/01/35 ............................................... 45,630 47,084
FHLMC, 4.286%, 1/01/23 ............................................... 177,940 185,872
FHLMC, 4.359%, 6/01/30 ............................................... 71,406 74,319
FHLMC, 4.375%, 3/01/24 ............................................... 1,696 1,763
FHLMC, 4.442%, 8/01/34 ............................................... 13,757,177 14,475,063
FHLMC, 4.459%, 7/01/22 ............................................... 13,914 14,379
FHLMC, 4.569%, 6/01/34 ............................................... 132,363 138,481
FHLMC, 4.601%, 4/01/25 ............................................... 829,486 865,940
FHLMC, 4.642%, 6/01/35 ............................................... 17,005,602 17,534,801
FHLMC, 4.669%, 11/01/17 .............................................. 4,904 5,008
FHLMC, 4.676%, 1/01/34 ............................................... 1,133,349 1,178,451
FHLMC, 4.692%, 2/01/34 ............................................... 1,943,174 2,033,061
FHLMC, 4.696%, 11/01/34 .............................................. 285,085 296,716
FHLMC, 4.709%, 4/01/35 ............................................... 244,484 255,596
FHLMC, 4.724%, 8/01/35 ............................................... 8,111,704 8,415,879
FHLMC, 4.753%, 9/01/35 ............................................... 1,683,206 1,736,817
FHLMC, 4.774%, 12/01/35 .............................................. 9,281,180 9,700,267
FHLMC, 4.777%, 1/01/37 ............................................... 964,125 1,003,937
FHLMC, 4.803%, 9/01/35 ............................................... 6,250,849 6,479,919
FHLMC, 4.804%, 8/01/35 ............................................... 269,325 282,297
FHLMC, 4.811%, 12/01/34 .............................................. 15,084,182 15,686,557
FHLMC, 4.816%, 2/01/35 ............................................... 179,336 188,408
FHLMC, 4.826%, 9/01/35 ............................................... 1,613,105 1,686,377
(b) FHLMC, 4.831%, 11/01/36 .............................................. 34,066,324 36,075,042
FHLMC, 4.84%, 6/01/38 ................................................ 623,079 646,274
FHLMC, 4.863%, 6/01/37 ............................................... 929,893 970,016
FHLMC, 4.892%, 7/01/35 ............................................... 9,599,765 9,903,565
FHLMC, 4.894%, 11/01/34 .............................................. 2,753,327 2,857,461
FHLMC, 4.905%, 4/01/36 ............................................... 640,723 668,944
FHLMC, 4.916%, 9/01/35 ............................................... 2,106,011 2,204,920
FHLMC, 4.935%, 4/01/25 ............................................... 895,793 937,103
FHLMC, 4.951%, 5/01/35 ............................................... 2,969,122 3,061,582
FHLMC, 4.954%, 8/01/35 ............................................... 14,350,969 14,999,027
FHLMC, 4.962%, 6/01/35 ............................................... 58,881 61,572
FHLMC, 4.964%, 5/01/36 ............................................... 5,478,218 5,735,699
FHLMC, 4.968%, 6/01/26 ............................................... 317,143 332,585
FHLMC, 4.973%, 10/01/35 .............................................. 30,754,806 32,118,849
FHLMC, 5.017%, 4/01/36 ............................................... 1,926,614 2,029,250
FHLMC, 5.051%, 1/01/36 ............................................... 9,221,605 9,676,133
Semiannual Report | 49
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE (CONTINUED)
FHLMC, 5.053%, 12/01/35 .............................................. $ 8,596,053 $ 8,939,862
FHLMC, 5.069%, 7/01/35 ............................................... 1,714,741 1,778,538
(b) FHLMC, 5.083%, 6/01/37 ............................................... 2,076,314 2,175,285
FHLMC, 5.095%, 12/01/35 .............................................. 1,821,248 1,915,059
FHLMC, 5.107%, 1/01/37 ............................................... 10,399,562 10,892,078
FHLMC, 5.115%, 6/01/38 ............................................... 591,365 620,067
FHLMC, 5.15%, 2/01/36 ................................................ 20,419,437 21,412,642
FHLMC, 5.158%, 8/01/35 ............................................... 847,531 882,845
FHLMC, 5.212%, 2/01/36 ............................................... 5,843,474 6,119,409
FHLMC, 5.213%, 11/01/33 .............................................. 65,998 69,722
FHLMC, 5.216%, 12/01/35 - 2/01/36 .................................... 4,868,110 5,072,425
FHLMC, 5.24%, 7/01/35 ................................................ 234,000 248,905
FHLMC, 5.244%, 9/01/35 ............................................... 29,177,641 30,408,615
FHLMC, 5.251%, 5/01/36 ............................................... 1,260,192 1,322,885
FHLMC, 5.263%, 2/01/37 ............................................... 881,311 929,693
FHLMC, 5.264%, 1/01/36 ............................................... 207,593 217,966
FHLMC, 5.274%, 11/01/35 .............................................. 690,253 723,345
FHLMC, 5.312%, 11/01/30 .............................................. 22,390 23,381
FHLMC, 5.315%, 9/01/37 ............................................... 575,861 604,952
FHLMC, 5.331%, 4/01/36 ............................................... 202,388 212,618
FHLMC, 5.344%, 11/01/35 .............................................. 441,533 461,751
FHLMC, 5.374%, 3/01/36 ............................................... 6,678,234 6,967,291
FHLMC, 5.386%, 2/01/36 ............................................... 177,280 186,404
FHLMC, 5.39%, 3/01/36 ................................................ 418,315 440,167
FHLMC, 5.414%, 7/01/37 ............................................... 354,664 371,568
FHLMC, 5.433%, 5/01/36 ............................................... 180,652 190,979
FHLMC, 5.438%, 3/01/36 ............................................... 268,826 283,513
FHLMC, 5.451%, 2/01/36 ............................................... 141,231 147,687
FHLMC, 5.507%, 10/01/36 .............................................. 377,672 398,220
FHLMC, 5.511%, 4/01/36 ............................................... 562,930 593,672
FHLMC, 5.524%, 9/01/37 ............................................... 4,829,811 5,110,431
FHLMC, 5.549%, 5/01/36 ............................................... 18,689,293 19,771,414
FHLMC, 5.572%, 6/01/36 ............................................... 1,593,074 1,671,733
FHLMC, 5.575%, 7/01/36 ............................................... 129,604 136,829
FHLMC, 5.585%, 10/01/35 .............................................. 25,780 27,519
FHLMC, 5.588%, 11/01/37 .............................................. 37,486,049 39,632,928
FHLMC, 5.608%, 6/01/36 ............................................... 1,865,922 1,971,001
FHLMC, 5.613%, 4/01/36 ............................................... 3,580,659 3,777,854
FHLMC, 5.617%, 1/01/36 ............................................... 6,939,192 7,334,735
FHLMC, 5.618%, 9/01/35 ............................................... 449,086 475,583
FHLMC, 5.628%, 12/01/35 .............................................. 325,200 347,652
FHLMC, 5.661%, 2/01/36 ............................................... 657,403 693,838
FHLMC, 5.662%, 7/01/36 ............................................... 45,529 48,285
FHLMC, 5.665%, 12/01/36 .............................................. 466,500 493,571
FHLMC, 5.712%, 2/01/37 ............................................... 3,582,620 3,799,200
FHLMC, 5.722%, 8/01/37 ............................................... 558,660 591,183
FHLMC, 5.729%, 6/01/36 ............................................... 8,287,076 8,762,200
FHLMC, 5.735%, 1/01/36 ............................................... 4,661,590 4,928,325
50 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE (CONTINUED)
FHLMC, 5.755%, 4/01/37 ............................................... $ 194,670 $ 206,233
FHLMC, 5.765%, 2/01/37 ............................................... 38,011 40,282
FHLMC, 5.772%, 8/01/37 ............................................... 35,272 37,459
FHLMC, 5.779%, 7/01/36 ............................................... 7,328,401 7,766,550
FHLMC, 5.791%, 10/01/36 .............................................. 20,352 21,574
FHLMC, 5.796%, 11/01/36 .............................................. 18,372,007 19,547,523
FHLMC, 5.86%, 1/01/37 ................................................ 184,773 196,085
FHLMC, 5.874%, 11/01/36 .............................................. 73,354 77,856
FHLMC, 5.90%, 4/01/37 ................................................ 407,161 433,459
FHLMC, 5.919%, 4/01/36 ............................................... 25,099,042 26,467,207
FHLMC, 5.924%, 2/01/37 ............................................... 537,757 570,687
FHLMC, 5.934%, 7/01/36 ............................................... 5,702,984 5,928,214
FHLMC, 5.986%, 10/01/36 .............................................. 108,870 115,303
FHLMC, 6.028%, 3/01/37 ............................................... 764,028 822,013
FHLMC, 6.101%, 11/01/35 .............................................. 361,263 370,909
FHLMC, 6.118%, 1/01/37 ............................................... 172,237 183,978
FHLMC, 6.121%, 6/01/36 - 2/01/37 ..................................... 6,872,629 7,221,298
FHLMC, 6.127%, 6/01/36 ............................................... 243,757 255,965
FHLMC, 6.175%, 12/01/36 .............................................. 1,142,573 1,207,033
FHLMC, 6.199%, 3/01/37 ............................................... 97,605 102,750
FHLMC, 6.201%, 9/01/36 ............................................... 2,222,410 2,347,862
FHLMC, 6.344%, 9/01/36 ............................................... 93,216 98,142
FHLMC, 6.382%, 5/01/26 ............................................... 129,643 131,608
FHLMC, 6.532%, 11/01/35 - 8/01/36 .................................... 463,427 486,867
FHLMC, 6.635%, 12/01/21 .............................................. 32,945 33,978
FHLMC, 6.676%, 10/01/36 .............................................. 122,212 129,387
FHLMC, 6.801%, 8/01/36 ............................................... 337,926 357,471
FHLMC, 7.652%, 5/01/15 ............................................... 101,340 103,645
--------------
738,578,266
--------------
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 66.8%
FNMA, 1.537%, 9/01/33 ................................................ 2,507,409 2,550,214
FNMA, 1.599%, 10/01/26 ............................................... 150,918 151,593
FNMA, 1.641%, 8/01/42 - 10/01/44 ..................................... 186,527 184,739
FNMA, 1.71%, 8/01/34 ................................................. 99,541 102,101
FNMA, 1.748%, 10/01/33 ............................................... 272,434 278,565
FNMA, 1.789%, 5/01/35 ................................................ 45,699 45,844
FNMA, 1.791%, 10/01/34 - 9/01/35 ..................................... 896,378 921,422
FNMA, 1.792%, 3/01/32 ................................................ 970,171 988,599
FNMA, 1.805%, 4/01/34 ................................................ 197,681 203,107
FNMA, 1.841%, 11/01/30 - 11/01/40 .................................... 1,453,848 1,457,704
FNMA, 1.85%, 10/01/33 ................................................ 21,922 22,076
FNMA, 1.855%, 3/01/35 ................................................ 3,386,231 3,454,074
FNMA, 1.856%, 3/01/32 ................................................ 912,315 929,616
FNMA, 1.89%, 4/01/33 ................................................. 4,173,652 4,279,521
FNMA, 1.891%, 9/01/32 ................................................ 472,053 484,954
FNMA, 1.895%, 11/01/31 ............................................... 286,124 291,072
FNMA, 1.897%, 11/01/32 ............................................... 771,873 788,001
Semiannual Report | 51
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 1.911%, 10/01/34 ............................................... $ 241,574 $ 248,167
FNMA, 1.913%, 3/01/32 ................................................ 405,991 417,111
FNMA, 1.921%, 4/01/33 ................................................ 373,999 383,856
FNMA, 1.93%, 1/01/19 ................................................. 297,587 301,049
FNMA, 1.932%, 10/01/34 ............................................... 439,863 452,171
FNMA, 1.936%, 10/01/33 ............................................... 63,450 65,169
FNMA, 1.937%, 4/01/33 ................................................ 94,036 96,566
FNMA, 1.957%, 9/01/34 - 3/01/35 ...................................... 19,552,539 20,139,466
FNMA, 1.976%, 2/01/34 ................................................ 32,063 32,648
FNMA, 1.981%, 12/01/34 ............................................... 219,752 226,118
FNMA, 1.992%, 2/01/33 ................................................ 158,207 162,691
FNMA, 1.998%, 2/01/35 ................................................ 212,745 219,039
FNMA, 2.00%, 10/01/32 ................................................ 625,646 642,292
FNMA, 2.001%, 8/01/34 ................................................ 53,407 54,939
FNMA, 2.008%, 5/01/35 ................................................ 19,222,866 19,829,918
FNMA, 2.018%, 1/01/35 ................................................ 541,720 555,274
FNMA, 2.019%, 5/01/35 ................................................ 84,214 86,891
FNMA, 2.021%, 1/01/35 ................................................ 106,908 108,884
FNMA, 2.027%, 11/01/33 - 1/01/35 ..................................... 3,137,827 3,205,988
FNMA, 2.032%, 8/01/34 - 10/01/34 ..................................... 1,658,608 1,709,973
FNMA, 2.036%, 7/01/35 ................................................ 9,891,251 10,166,550
FNMA, 2.037%, 1/01/35 ................................................ 17,098,982 17,417,979
FNMA, 2.04%, 12/01/20 ................................................ 165,872 167,231
FNMA, 2.042%, 5/01/34 ................................................ 1,302,487 1,340,558
FNMA, 2.047%, 9/01/32 ................................................ 1,791,464 1,838,433
FNMA, 2.048%, 2/01/35 ................................................ 2,142,437 2,204,643
FNMA, 2.05%, 11/01/32 - 3/01/35 ...................................... 762,680 795,849
FNMA, 2.058%, 11/01/34 ............................................... 419,686 431,877
FNMA, 2.066%, 8/01/34 ................................................ 1,652,613 1,702,606
FNMA, 2.067%, 7/01/34 ................................................ 90,780 93,380
FNMA, 2.078%, 1/01/35 ................................................ 943,753 971,483
FNMA, 2.08%, 6/01/35 ................................................. 340,437 346,216
FNMA, 2.096%, 1/01/35 ................................................ 1,591,002 1,651,775
FNMA, 2.105%, 11/01/34 - 1/01/35 ..................................... 201,257 204,987
FNMA, 2.129%, 7/01/35 ................................................ 72,199 74,283
FNMA, 2.136%, 3/01/35 ................................................ 4,457 4,582
FNMA, 2.137%, 5/01/33 ................................................ 293,425 301,100
FNMA, 2.145%, 2/01/34 ................................................ 98,997 101,030
FNMA, 2.148%, 6/01/33 ................................................ 471,283 483,519
FNMA, 2.153%, 3/01/33 ................................................ 661,808 677,194
FNMA, 2.157%, 5/01/35 ................................................ 175,556 178,741
FNMA, 2.161%, 6/01/35 ................................................ 106,373 109,397
FNMA, 2.185%, 5/01/33 ................................................ 1,011,875 1,035,651
FNMA, 2.244%, 4/01/35 ................................................ 369,085 377,724
FNMA, 2.245%, 7/01/33 ................................................ 43,434 44,274
FNMA, 2.247%, 1/01/36 ................................................ 188,587 192,635
FNMA, 2.253%, 4/01/35 ................................................ 543,257 555,945
FNMA, 2.282%, 1/01/35 ................................................ 173,831 178,416
52 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE
(CONTINUED)
FNMA, 2.299%, 11/01/35 ............................................... $ 684,690 $ 704,841
FNMA, 2.309%, 4/01/18 ................................................ 108,880 111,018
FNMA, 2.315%, 5/01/35 ................................................ 9,849,504 9,994,303
FNMA, 2.318%, 1/01/32 ................................................ 1,585,475 1,618,440
FNMA, 2.32%, 4/01/34 ................................................. 63,548 65,423
FNMA, 2.323%, 5/01/34 ................................................ 231,391 237,812
FNMA, 2.33%, 1/01/35 ................................................. 51,503 53,187
FNMA, 2.334%, 5/01/35 ................................................ 5,247,370 5,348,472
FNMA, 2.337%, 2/01/33 - 4/01/36 ...................................... 736,627 758,505
FNMA, 2.342%, 9/01/33 ................................................ 563,647 574,375
FNMA, 2.35%, 3/01/18 ................................................. 55,050 56,770
FNMA, 2.355%, 3/01/20 ................................................ 1,224,806 1,238,358
FNMA, 2.357%, 3/01/33 ................................................ 51,319 52,511
FNMA, 2.358%, 6/01/33 ................................................ 428,615 438,414
FNMA, 2.37%, 1/01/35 ................................................. 551,477 564,003
FNMA, 2.372%, 2/01/35 ................................................ 80,438 83,377
FNMA, 2.375%, 1/01/33 ................................................ 21,514 22,313
FNMA, 2.378%, 10/01/32 ............................................... 126,089 129,653
FNMA, 2.379%, 2/01/33 ................................................ 29,303 30,392
FNMA, 2.386%, 2/01/35 ................................................ 12,388,281 12,778,488
FNMA, 2.387%, 5/01/19 ................................................ 162,548 167,851
FNMA, 2.389%, 1/01/29 ................................................ 419,035 423,265
FNMA, 2.404%, 10/01/35 - 11/01/35 .................................... 1,887,613 1,944,792
FNMA, 2.41%, 11/01/25 ................................................ 78,818 79,726
FNMA, 2.414%, 4/01/33 - 6/01/33 ...................................... 584,049 599,117
FNMA, 2.417%, 5/01/18 - 4/01/34 ...................................... 203,192 210,243
FNMA, 2.419%, 11/01/35 ............................................... 1,649,442 1,701,380
FNMA, 2.425%, 11/01/35 ............................................... 1,620,378 1,672,005
FNMA, 2.427%, 11/01/35 ............................................... 1,652,110 1,703,855
FNMA, 2.428%, 11/01/35 ............................................... 1,554,369 1,603,179
FNMA, 2.43%, 11/01/19 ................................................ 46,889 47,564
FNMA, 2.44%, 6/01/19 - 3/01/22 ....................................... 79,591 82,694
FNMA, 2.45%, 12/01/23 ................................................ 64,773 67,169
FNMA, 2.453%, 4/01/32 - 4/01/33 ...................................... 234,068 240,734
FNMA, 2.459%, 12/01/35 ............................................... 56,468 58,731
FNMA, 2.46%, 3/01/34 ................................................. 783,779 812,835
FNMA, 2.462%, 4/01/34 ................................................ 1,163,313 1,201,221
FNMA, 2.465%, 3/01/32 - 4/01/32 ...................................... 708,498 740,789
FNMA, 2.47%, 7/01/25 - 12/01/33 ...................................... 523,745 546,089
FNMA, 2.475%, 6/01/19 ................................................ 153,363 160,107
FNMA, 2.48%, 4/01/35 ................................................. 257,562 267,630
FNMA, 2.483%, 4/01/32 ................................................ 347,329 360,935
FNMA, 2.484%, 4/01/33 ................................................ 356,217 364,160
FNMA, 2.486%, 2/01/33 ................................................ 96,710 101,071
FNMA, 2.491%, 2/01/35 ................................................ 5,619,507 5,832,173
FNMA, 2.493%, 1/01/28 ................................................ 14,811 15,447
FNMA, 2.497%, 9/01/34 ................................................ 22,915 23,838
FNMA, 2.499%, 3/01/33 - 4/01/33 ...................................... 325,605 340,517
Semiannual Report | 53
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 2.50%, 7/01/17 - 10/01/34 ...................................... $ 1,381,763 $ 1,444,330
FNMA, 2.505%, 11/01/33 ............................................... 73,615 77,099
FNMA, 2.51%, 3/01/34 - 1/01/35 ....................................... 169,562 176,265
FNMA, 2.511%, 1/01/34 - 4/01/35 ...................................... 1,019,362 1,062,109
FNMA, 2.512%, 3/01/34 ................................................ 23,614 24,689
FNMA, 2.521%, 1/01/19 - 4/01/33 ...................................... 708,062 725,926
FNMA, 2.523%, 4/01/31 - 2/01/35 ...................................... 336,418 346,891
FNMA, 2.524%, 3/01/35 ................................................ 59,292 61,666
FNMA, 2.527%, 3/01/34 ................................................ 50,862 53,160
FNMA, 2.53%, 9/01/33 ................................................. 189,228 194,425
FNMA, 2.532%, 11/01/34 ............................................... 168,355 175,456
FNMA, 2.533%, 6/01/33 ................................................ 67,099 69,055
FNMA, 2.537%, 1/01/16 ................................................ 384,066 398,887
FNMA, 2.542%, 4/01/33 ................................................ 200,708 208,086
FNMA, 2.546%, 3/01/32 ................................................ 178,558 185,338
FNMA, 2.548%, 10/01/34 ............................................... 110,018 114,803
FNMA, 2.55%, 9/01/16 - 4/01/34 ....................................... 2,651,565 2,754,285
FNMA, 2.555%, 7/01/34 - 3/01/35 ...................................... 178,709 185,767
FNMA, 2.56%, 1/01/32 ................................................. 6,012 6,270
FNMA, 2.565%, 5/01/33 ................................................ 726,778 754,865
FNMA, 2.568%, 3/01/32 ................................................ 876,517 918,370
FNMA, 2.575%, 3/01/19 - 3/01/32 ...................................... 157,174 164,160
FNMA, 2.579%, 6/01/19 ................................................ 222,374 232,353
FNMA, 2.581%, 4/01/19 ................................................ 161,061 166,694
FNMA, 2.582%, 2/01/32 ................................................ 128,599 133,504
FNMA, 2.583%, 3/01/35 ................................................ 14,143 14,764
FNMA, 2.584%, 3/01/35 ................................................ 6,872,893 7,152,024
FNMA, 2.588%, 4/01/34 ................................................ 144,831 147,511
FNMA, 2.589%, 2/01/34 ................................................ 220,372 229,131
FNMA, 2.59%, 4/01/18 - 5/01/33 ....................................... 1,461,543 1,516,779
FNMA, 2.596%, 2/01/31 ................................................ 210,231 219,563
FNMA, 2.60%, 5/01/22 ................................................. 27,237 28,149
FNMA, 2.603%, 8/01/34 ................................................ 676,409 707,603
FNMA, 2.612%, 12/01/34 ............................................... 4,974,408 5,079,321
FNMA, 2.616%, 10/01/34 ............................................... 169,365 176,785
FNMA, 2.619%, 3/01/34 ................................................ 337,878 350,392
FNMA, 2.62%, 2/01/32 - 5/01/35 ....................................... 1,773,639 1,838,130
FNMA, 2.625%, 2/01/19 - 11/01/35 ..................................... 707,020 733,661
FNMA, 2.626%, 8/01/33 ................................................ 163,906 169,808
FNMA, 2.627%, 8/01/34 ................................................ 3,856,714 4,016,491
FNMA, 2.628%, 2/01/34 ................................................ 1,992,338 2,071,863
FNMA, 2.629%, 2/01/32 ................................................ 46,599 48,565
FNMA, 2.63%, 6/01/32 - 1/01/34 ....................................... 405,388 418,043
FNMA, 2.637%, 2/01/36 ................................................ 1,186,654 1,236,785
FNMA, 2.64%, 3/01/35 ................................................. 20,183 20,975
FNMA, 2.641%, 1/01/35 ................................................ 5,530,378 5,719,860
FNMA, 2.643%, 12/01/32 ............................................... 45,539 47,554
FNMA, 2.644%, 3/01/33 ................................................ 63,118 65,575
54 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 2.645%, 4/01/31- 3/01/32 ....................................... $ 1,052,141 $ 1,098,939
FNMA, 2.647%, 9/01/15 ................................................ 274,432 287,552
FNMA, 2.648%, 1/01/34- 4/01/34 ....................................... 528,709 548,677
FNMA, 2.65%, 1/01/32 - 11/01/33 ...................................... 1,994,117 2,076,697
FNMA, 2.651%, 8/01/29 ................................................ 148,043 153,173
FNMA, 2.66%, 2/01/18 - 5/01/35 ....................................... 5,775,472 5,995,383
FNMA, 2.663%, 3/01/35 ................................................ 659,884 683,474
FNMA, 2.665%, 1/01/33- 2/01/33 ....................................... 86,966 90,633
FNMA, 2.668%, 9/01/33- 3/01/35 ....................................... 1,604,812 1,662,999
FNMA, 2.67%, 5/01/28 - 8/01/33 ....................................... 1,386,720 1,447,219
FNMA, 2.671%, 2/01/33 ................................................ 368,626 382,558
FNMA, 2.672%, 4/01/33- 4/01/35 ....................................... 1,358,200 1,394,811
FNMA, 2.673%, 4/01/33 ................................................ 84,869 88,397
FNMA, 2.675%, 7/01/23 ................................................ 100,823 105,013
FNMA, 2.677%, 2/01/32 ................................................ 501,112 524,142
FNMA, 2.678%, 2/01/34 ................................................ 3,804,086 3,955,803
FNMA, 2.68%, 2/01/35 ................................................. 46,798 48,585
FNMA, 2.681%, 7/01/40 ................................................ 149,492 155,856
FNMA, 2.683%, 3/01/35 ................................................ 5,927,862 6,176,946
FNMA, 2.686%, 1/01/35 ................................................ 342,535 351,234
FNMA, 2.70%, 1/01/32 ................................................. 202,092 210,541
FNMA, 2.701%, 2/01/34- 3/01/34 ....................................... 1,352,601 1,400,973
FNMA, 2.706%, 5/01/29 ................................................ 151,968 158,453
FNMA, 2.708%, 1/01/34 ................................................ 20,397 21,272
FNMA, 2.71%, 6/01/32 ................................................. 450,463 469,422
FNMA, 2.711%, 5/01/26 ................................................ 67,807 70,708
FNMA, 2.712%, 8/01/35 ................................................ 6,410,546 6,737,979
FNMA, 2.715%, 3/01/34 ................................................ 778,944 806,280
FNMA, 2.716%, 2/01/33 ................................................ 128,956 133,338
FNMA, 2.717%, 1/01/33 ................................................ 138,227 141,637
FNMA, 2.72%, 3/01/28 - 3/01/35 ....................................... 499,851 520,322
FNMA, 2.721%, 8/01/33 ................................................ 58,896 61,079
FNMA, 2.723%, 3/01/19 ................................................ 214,500 224,204
FNMA, 2.725%, 11/01/33 ............................................... 181,031 184,306
FNMA, 2.727%, 12/01/18 - 8/01/36 ..................................... 210,534 218,019
FNMA, 2.729%, 1/01/33 ................................................ 64,474 67,183
FNMA, 2.745%, 11/01/34 ............................................... 58,268 60,012
FNMA, 2.746%, 9/01/35 ................................................ 75,304 78,603
FNMA, 2.75%, 2/01/33 ................................................. 116,978 122,074
FNMA, 2.759%, 12/01/32 - 4/01/35 ..................................... 239,201 248,358
FNMA, 2.76%, 4/01/18 ................................................. 176,687 178,878
FNMA, 2.763%, 2/01/34- 2/01/35 ....................................... 182,606 189,256
FNMA, 2.764%, 1/01/35 ................................................ 1,395,020 1,453,704
FNMA, 2.765%, 5/01/35- 10/01/36 ...................................... 1,358,972 1,409,271
FNMA, 2.767%, 7/01/22 ................................................ 126,862 133,200
FNMA, 2.769%, 8/01/34 ................................................ 93,498 97,904
FNMA, 2.77%, 6/01/34 - 5/01/35 ....................................... 171,566 178,306
FNMA, 2.771%, 2/01/25- 12/01/32 ...................................... 490,613 511,542
Semiannual Report | 55
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 2.773%, 10/01/33 - 1/01/35 ..................................... $ 6,206,140 $ 6,438,100
FNMA, 2.774%, 3/01/25 ................................................ 130,151 136,098
FNMA, 2.779%, 4/01/34 ................................................ 60,160 62,733
FNMA, 2.78%, 11/01/32 ................................................ 34,484 36,084
FNMA, 2.783%, 7/01/35 ................................................ 152,422 158,205
FNMA, 2.79%, 1/01/34 ................................................. 478,413 496,638
FNMA, 2.793%, 10/01/19 - 2/01/36 ..................................... 323,036 339,016
FNMA, 2.795%, 8/01/34 ................................................ 101,315 105,113
FNMA, 2.797%, 8/01/35 ................................................ 48,932 50,788
FNMA, 2.798%, 10/01/34 ............................................... 599,551 616,414
FNMA, 2.799%, 10/01/33 ............................................... 22,769 23,916
FNMA, 2.803%, 12/01/20 - 11/01/35 .................................... 390,693 407,503
FNMA, 2.812%, 11/01/17 - 5/01/27 ..................................... 1,165,395 1,221,940
FNMA, 2.813%, 11/01/34 - 9/01/35 ..................................... 20,171,246 21,057,382
FNMA, 2.814%, 1/01/37 ................................................ 342,929 357,382
FNMA, 2.817%, 9/01/32 - 7/01/33 ...................................... 1,157,284 1,210,762
FNMA, 2.818%, 12/01/34 ............................................... 2,926,865 3,034,226
FNMA, 2.819%, 7/01/32 ................................................ 116,530 118,744
FNMA, 2.823%, 11/01/34 ............................................... 1,564,723 1,645,997
FNMA, 2.829%, 7/01/33 ................................................ 31,628 33,231
FNMA, 2.83%, 8/01/30 ................................................. 39,654 41,540
FNMA, 2.835%, 12/01/32 ............................................... 270,738 281,117
FNMA, 2.836%, 8/01/27 - 12/01/34 ..................................... 1,582,484 1,646,525
FNMA, 2.84%, 2/01/34 - 6/01/34 ....................................... 1,082,949 1,107,599
FNMA, 2.842%, 8/01/27 ................................................ 22,023 23,115
FNMA, 2.843%, 11/01/31 ............................................... 92,557 96,749
FNMA, 2.844%, 3/01/35 ................................................ 41,020,025 42,755,998
FNMA, 2.85%, 1/01/35 ................................................. 4,887,474 5,083,782
FNMA, 2.855%, 9/01/22 ................................................ 637,971 668,553
FNMA, 2.858%, 4/01/22 ................................................ 777,529 790,223
FNMA, 2.864%, 9/01/17 - 6/01/38 ...................................... 2,835,394 2,882,372
FNMA, 2.866%, 12/01/28 ............................................... 871,008 909,429
FNMA, 2.868%, 10/01/34 - 10/01/35 .................................... 8,923,525 9,170,600
FNMA, 2.869%, 10/01/32 - 10/01/34 .................................... 238,781 244,242
FNMA, 2.87%, 10/01/31 ................................................ 142,712 147,357
FNMA, 2.873%, 6/01/32 ................................................ 105,532 110,550
FNMA, 2.875%, 2/01/18 - 1/01/36 ...................................... 562,499 580,204
FNMA, 2.876%, 1/01/18 ................................................ 4,935,148 5,030,300
FNMA, 2.878%, 3/01/33 ................................................ 1,184,413 1,230,039
FNMA, 2.881%, 1/01/31 - 6/01/33 ...................................... 1,715,420 1,777,613
FNMA, 2.882%, 5/01/25 ................................................ 718,526 752,160
FNMA, 2.885%, 7/01/35 ................................................ 137,610 142,334
FNMA, 2.886%, 1/01/32 ................................................ 68,927 72,509
FNMA, 2.887%, 5/01/34 ................................................ 172,567 179,325
FNMA, 2.888%, 11/01/20 - 6/01/33 ..................................... 653,639 686,048
FNMA, 2.891%, 9/01/35 ................................................ 89,890 94,074
FNMA, 2.892%, 1/01/35 ................................................ 122,179 126,632
FNMA, 2.896%, 3/01/19 ................................................ 1,823,380 1,847,191
56 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 2.898%, 11/01/34 ............................................... $ 8,062,829 $ 8,381,130
FNMA, 2.899%, 2/01/34 ................................................ 32,901 34,074
FNMA, 2.90%, 12/01/19 ................................................ 212,487 215,781
FNMA, 2.901%, 10/01/28 - 8/01/32 ..................................... 125,396 131,573
FNMA, 2.906%, 6/01/20 ................................................ 963,361 989,543
FNMA, 2.91%, 2/01/35 ................................................. 4,697 4,886
FNMA, 2.911%, 1/01/35 ................................................ 618,166 630,896
FNMA, 2.917%, 6/01/27 ................................................ 354,415 372,369
FNMA, 2.919%, 1/01/34 ................................................ 363,756 376,755
FNMA, 2.92%, 7/01/34 ................................................. 958,351 994,667
FNMA, 2.924%, 6/01/30 ................................................ 48,387 50,569
FNMA, 2.926%, 5/01/19 - 11/01/34 ..................................... 869,230 887,603
FNMA, 2.927%, 10/01/34 ............................................... 162,800 168,155
FNMA, 2.931%, 3/01/19 ................................................ 105,548 106,927
FNMA, 2.934%, 6/01/33 ................................................ 463,861 479,827
FNMA, 2.937%, 9/01/31 ................................................ 34,524 35,810
FNMA, 2.938%, 1/01/31 ................................................ 682,338 715,743
FNMA, 2.941%, 6/01/34 ................................................ 333,642 345,286
FNMA, 2.945%, 9/01/17 ................................................ 9,124 9,432
FNMA, 2.95%, 1/01/33 ................................................. 51,991 53,829
FNMA, 2.959%, 2/01/29 ................................................ 204,106 212,997
FNMA, 2.96%, 6/01/25 ................................................. 12,769 13,070
FNMA, 2.961%, 10/01/26 ............................................... 200,715 210,482
FNMA, 2.965%, 3/01/20 - 5/01/33 ...................................... 373,312 387,015
FNMA, 2.966%, 7/01/33 ................................................ 458,301 468,782
FNMA, 2.971%, 1/01/34 ................................................ 162,152 170,156
FNMA, 2.972%, 12/01/27 ............................................... 562,123 594,073
FNMA, 2.976%, 12/01/23 ............................................... 356 364
FNMA, 2.977%, 1/01/33 ................................................ 556,744 583,677
FNMA, 2.98%, 11/01/33 - 1/01/45 ...................................... 301,445 315,856
FNMA, 2.984%, 3/01/38 ................................................ 102,797 108,067
FNMA, 2.992%, 11/01/27 ............................................... 204,412 215,039
FNMA, 2.993%, 5/01/25 - 5/01/34 ...................................... 650,272 683,106
FNMA, 2.995%, 5/01/33 ................................................ 55,127 57,300
FNMA, 2.997%, 3/01/18 - 12/01/29 ..................................... 130,771 135,490
FNMA, 2.998%, 9/01/39 ................................................ 541,015 566,798
FNMA, 3.00%, 1/01/21 - 5/01/36 ....................................... 535,413 557,646
FNMA, 3.004%, 8/01/34 ................................................ 68,258 69,963
FNMA, 3.006%, 5/01/35 ................................................ 24,651 25,570
FNMA, 3.01%, 5/01/29 ................................................. 38,486 39,702
FNMA, 3.011%, 6/01/19 - 12/01/34 ..................................... 1,375,003 1,426,039
FNMA, 3.012%, 2/01/16 ................................................ 183,619 190,334
FNMA, 3.015%, 5/01/34 ................................................ 120,286 124,994
FNMA, 3.016%, 4/01/30 ................................................ 465,719 482,670
FNMA, 3.023%, 9/01/24 - 12/01/32 ..................................... 596,148 624,891
FNMA, 3.024%, 10/01/25 ............................................... 38,120 40,102
FNMA, 3.025%, 10/01/32 ............................................... 464,960 485,093
FNMA, 3.031%, 12/01/34 ............................................... 5,632,893 5,769,853
Semiannual Report | 57
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 3.033%, 2/01/34 ................................................ $ 585,192 $ 605,837
FNMA, 3.036%, 9/01/18 - 3/01/35 ...................................... 14,147,215 14,487,086
FNMA, 3.037%,12/01/17 ................................................ 61,566 64,553
FNMA, 3.04%, 7/01/35 ................................................. 612,859 627,447
FNMA, 3.041%, 10/01/34 ............................................... 1,932,799 2,009,861
FNMA, 3.045%, 9/01/33 - 8/01/35 ...................................... 3,436,856 3,567,848
FNMA, 3.05%, 12/01/33 ................................................ 2,779,389 2,893,939
FNMA, 3.054%, 6/01/28 ................................................ 67,874 71,469
FNMA, 3.057%, 5/01/18 ................................................ 3,808,841 3,922,477
FNMA, 3.065%, 10/01/34 ............................................... 653,399 678,301
FNMA, 3.067%, 6/01/31 ................................................ 288,889 299,649
FNMA, 3.068%, 12/01/24 - 11/01/34 .................................... 24,691,357 25,635,331
FNMA, 3.07%, 5/01/31 ................................................. 23,879 24,731
FNMA, 3.071%, 9/01/34 ................................................ 9,753 10,126
FNMA, 3.073%, 10/01/34 ............................................... 476,564 494,883
FNMA, 3.078%, 3/01/33 ................................................ 1,935,253 1,970,415
FNMA, 3.081%, 5/01/35 ................................................ 2,928,057 3,035,855
FNMA, 3.084%, 11/01/36 ............................................... 102,084 104,671
FNMA, 3.088%, 10/01/35 ............................................... 525,397 548,964
FNMA, 3.096%, 11/01/33 ............................................... 31,671,898 32,889,480
FNMA, 3.10%, 5/01/29 ................................................. 136,490 142,322
FNMA, 3.101%, 5/01/28 ................................................ 403,450 418,470
FNMA, 3.108%, 7/01/34 ................................................ 12,715,582 13,225,050
FNMA, 3.111%, 10/01/35 ............................................... 65,393 67,336
FNMA, 3.115%, 11/01/44 ............................................... 183,642 191,691
FNMA, 3.116%, 8/01/28 ................................................ 1,028,695 1,077,167
FNMA, 3.118%, 1/01/34 - 11/01/34 ..................................... 381,810 393,645
FNMA, 3.119%, 2/01/33 ................................................ 2,423,515 2,507,532
FNMA, 3.122%, 1/01/34 ................................................ 24,056 25,017
FNMA, 3.123%, 9/01/33 ................................................ 60,482 62,830
FNMA, 3.125%, 7/01/18 - 6/01/35 ...................................... 172,650 173,786
FNMA, 3.128%, 9/01/34 ................................................ 90,736 94,357
FNMA, 3.13%, 2/01/33 ................................................. 35,951 36,965
FNMA, 3.134%, 9/01/35 ................................................ 1,096,184 1,126,537
FNMA, 3.135%, 8/01/29 ................................................ 236,104 240,470
FNMA, 3.142%, 9/01/31 ................................................ 136,275 142,042
FNMA, 3.144%, 9/01/34 ................................................ 41,394 43,041
FNMA, 3.148%, 5/01/34 ................................................ 4,084,399 4,237,650
FNMA, 3.151%, 5/01/35 ................................................ 2,022,905 2,089,663
FNMA, 3.152%, 9/01/34 ................................................ 21,320 21,915
FNMA, 3.153%, 11/01/36 ............................................... 444,246 462,756
FNMA, 3.154%, 7/01/31 ................................................ 36,219 37,498
FNMA, 3.155%, 6/01/31 - 11/01/31 ..................................... 569,772 591,931
FNMA, 3.164%, 8/01/32 ................................................ 36,000 37,329
FNMA, 3.169%, 6/01/35 ................................................ 64,461 66,784
FNMA, 3.174%, 7/01/34 ................................................ 62,306 64,007
FNMA, 3.18%, 8/01/31 - 1/01/36 ....................................... 9,850,526 10,178,704
FNMA, 3.184%, 1/01/33 ................................................ 706,734 728,446
58 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 3.186%, 7/01/34 ................................................ $ 56,940 $ 59,087
FNMA, 3.189%, 4/01/34 - 7/01/34 ...................................... 618,571 642,747
FNMA, 3.191%, 9/01/33 ................................................ 176,868 183,199
FNMA, 3.195%, 9/01/34 ................................................ 109,623 113,556
FNMA, 3.198%, 10/01/27 ............................................... 66,562 69,441
FNMA, 3.20%, 11/01/27 ................................................ 113,004 117,627
FNMA, 3.201%, 1/01/33 ................................................ 245,341 254,353
FNMA, 3.203%, 11/01/17 - 1/01/36 ..................................... 1,530,720 1,591,544
FNMA, 3.205%, 3/01/21 ................................................ 47,391 49,501
FNMA, 3.207%, 2/01/34 ................................................ 2,861,617 2,959,222
FNMA, 3.208%, 2/01/18 - 12/01/30 ..................................... 127,357 132,893
FNMA, 3.211%, 12/01/35 ............................................... 111,902 116,084
FNMA, 3.215%, 5/01/31 - 11/01/34 ..................................... 164,857 170,551
FNMA, 3.216%, 6/01/33 ................................................ 48,121 49,391
FNMA, 3.219%, 8/01/33 - 9/01/35 ...................................... 11,238,631 11,732,800
FNMA, 3.223%, 5/01/34 ................................................ 166,495 173,701
FNMA, 3.233%, 12/01/35 ............................................... 2,994,259 3,107,175
FNMA, 3.234%, 6/01/33 ................................................ 50,862 53,067
FNMA, 3.235%, 9/01/32 - 9/01/34 ...................................... 336,486 347,870
FNMA, 3.238%, 4/01/35 ................................................ 6,324,855 6,625,625
FNMA, 3.241%, 10/01/34 ............................................... 122,219 127,018
FNMA, 3.244%, 8/01/34 ................................................ 191,988 199,249
FNMA, 3.246%, 7/01/36 ................................................ 753,970 788,455
FNMA, 3.247%, 11/01/35 ............................................... 961,302 1,000,008
FNMA, 3.248%, 8/01/35 ................................................ 498,831 512,887
FNMA, 3.25%, 10/01/30 ................................................ 247,283 256,356
FNMA, 3.254%, 7/01/24 ................................................ 719,451 730,854
FNMA, 3.26%, 11/01/32 - 8/01/33 ...................................... 851,504 879,443
FNMA, 3.266%, 10/01/34 ............................................... 23,305,550 24,385,833
FNMA, 3.269%, 7/01/35 ................................................ 1,126,323 1,157,520
FNMA, 3.271%, 9/01/32 - 7/01/34 ...................................... 13,462,082 13,939,937
FNMA, 3.277%, 7/01/27 ................................................ 7,747 8,062
FNMA, 3.286%, 6/01/35 ................................................ 190,134 198,674
FNMA, 3.288%, 8/01/33 ................................................ 139,539 144,189
FNMA, 3.29%, 10/01/32 - 9/01/34 ...................................... 1,212,092 1,260,709
FNMA, 3.297%, 8/01/34 ................................................ 14,830 15,357
FNMA, 3.298%, 2/01/36 ................................................ 151,863 157,939
FNMA, 3.301%, 10/01/18 ............................................... 10,941 11,415
FNMA, 3.303%, 6/01/19 ................................................ 154,050 156,407
FNMA, 3.309%, 5/01/36 ................................................ 92,558 97,195
FNMA, 3.319%, 7/01/34 ................................................ 477,948 493,515
FNMA, 3.32%, 1/01/36 ................................................. 7,284,561 7,597,436
FNMA, 3.323%, 7/01/34 ................................................ 220,845 229,506
FNMA, 3.329%, 7/01/32 ................................................ 80,578 83,353
FNMA, 3.333%, 8/01/33 ................................................ 35,370 36,513
FNMA, 3.334%, 4/01/19 - 9/01/34 ...................................... 2,357,727 2,443,525
FNMA, 3.335%, 1/01/37 ................................................ 1,515,210 1,578,004
FNMA, 3.336%, 10/01/33 ............................................... 88,999 93,088
Semiannual Report | 59
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 3.337%, 8/01/33 ................................................ $ 132,605 $ 137,664
FNMA, 3.338%, 9/01/35 ................................................ 937,474 973,792
FNMA, 3.339%, 10/01/35 ............................................... 1,353,823 1,392,021
FNMA, 3.34%, 11/01/35 ................................................ 457,616 476,380
FNMA, 3.344%, 9/01/33 ................................................ 134,037 138,864
FNMA, 3.345%, 7/01/33 ................................................ 2,192,991 2,257,630
FNMA, 3.347%, 7/01/26 - 7/01/35 ...................................... 1,096,518 1,135,641
FNMA, 3.348%, 9/01/29 ................................................ 81,221 84,082
FNMA, 3.353%, 7/01/35 ................................................ 104,883 108,028
FNMA, 3.357%, 7/01/28 ................................................ 168,248 174,742
FNMA, 3.358%, 7/01/34 ................................................ 86,560 89,029
FNMA, 3.361%, 9/01/34 ................................................ 37,083 38,581
FNMA, 3.365%, 6/01/28 ................................................ 1,566,393 1,636,723
FNMA, 3.375%, 7/01/35 ................................................ 270,515 280,693
FNMA, 3.376%, 7/01/34 ................................................ 21,196 21,897
FNMA, 3.398%, 5/01/39 ................................................ 42,158,822 43,617,856
FNMA, 3.405%, 11/01/23 - 11/01/33 .................................... 73,375 75,595
FNMA, 3.409%, 5/01/34 ................................................ 988,545 1,001,089
FNMA, 3.41%, 8/01/36 ................................................. 23,765,725 24,588,208
FNMA, 3.414%, 1/01/36 ................................................ 34,314,266 35,667,924
FNMA, 3.417%, 10/01/24 ............................................... 24,927 25,326
FNMA, 3.419%, 4/01/35 ................................................ 628,345 651,577
FNMA, 3.429%, 7/01/34 ................................................ 289,984 299,040
FNMA, 3.432%, 9/01/34 ................................................ 176,246 183,755
FNMA, 3.433%, 7/01/35 ................................................ 66,624 68,786
FNMA, 3.437%, 9/01/34 ................................................ 47,843 49,386
FNMA, 3.439%, 1/01/29 ................................................ 324,001 337,178
FNMA, 3.443%, 1/01/19 ................................................ 241,025 245,399
FNMA, 3.445%, 9/01/19 - 11/01/35 ..................................... 2,962,982 3,079,259
FNMA, 3.461%, 11/01/33 - 6/01/35 ..................................... 3,609,466 3,743,819
FNMA, 3.485%, 9/01/35 ................................................ 63,654 65,713
FNMA, 3.51%, 7/01/34 - 11/01/35 ...................................... 810,126 838,546
FNMA, 3.512%, 9/01/33 ................................................ 497,098 514,756
FNMA, 3.513%, 9/01/26 ................................................ 20,339 21,016
FNMA, 3.516%, 12/01/32 ............................................... 316,382 327,399
FNMA, 3.525%, 1/01/19 ................................................ 1,182,053 1,214,559
FNMA, 3.534%, 9/01/29 ................................................ 227,358 232,594
FNMA, 3.55%, 8/01/16 - 8/01/34 ....................................... 186,688 192,728
FNMA, 3.551%, 5/01/35 ................................................ 321,740 335,032
FNMA, 3.552%, 10/01/32 ............................................... 255,840 265,473
FNMA, 3.557%, 8/01/26 ................................................ 98,968 102,268
FNMA, 3.565%, 10/01/33 ............................................... 422,230 439,127
FNMA, 3.568%, 4/01/35 ................................................ 541,858 561,714
FNMA, 3.57%, 6/01/32 ................................................. 69,409 71,808
FNMA, 3.58%, 12/01/19 ................................................ 395,637 412,455
FNMA, 3.59%, 6/01/32 ................................................. 520,313 536,836
FNMA, 3.592%, 11/01/27 ............................................... 120,331 124,150
FNMA, 3.594%, 10/01/22 ............................................... 410,028 424,774
60 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 3.598%, 9/01/25 ................................................ $ 196,574 $ 204,670
FNMA, 3.60%, 8/01/34 ................................................. 27,377 28,521
FNMA, 3.609%,1/01/34 ................................................. 16,632 17,159
FNMA, 3.614%, 12/01/35 ............................................... 2,306,985 2,401,299
FNMA, 3.615%, 5/01/36 ................................................ 1,298,561 1,312,318
FNMA, 3.625%, 10/01/18 ............................................... 74,063 75,483
FNMA, 3.637%, 8/01/39 ................................................ 82,429 84,648
FNMA, 3.641%, 12/01/35 ............................................... 1,578,204 1,642,780
FNMA, 3.649%, 9/01/36 ................................................ 687,938 711,774
FNMA, 3.655%, 8/01/32 ................................................ 40,444 41,951
FNMA, 3.656%, 4/01/34 ................................................ 4,958,666 5,050,940
FNMA, 3.666%, 12/01/34 ............................................... 4,045,538 4,130,502
FNMA, 3.667%, 5/01/36 ................................................ 17,523,508 18,344,448
FNMA, 3.673%, 1/01/37 ................................................ 31,347,637 32,787,167
FNMA, 3.674%, 2/01/28 ................................................ 150,787 155,649
FNMA, 3.678%, 11/01/35 ............................................... 1,233,586 1,285,679
FNMA, 3.681%, 7/01/35 ................................................ 1,212,744 1,261,534
FNMA, 3.682%, 12/01/36 ............................................... 29,893 31,196
FNMA, 3.687%, 10/01/35 ............................................... 101,673 106,250
FNMA, 3.70%, 11/01/36 ................................................ 191,748 200,419
FNMA, 3.705%, 6/01/19 ................................................ 175,465 180,051
FNMA, 3.72%, 5/01/19 ................................................. 222,441 228,002
FNMA, 3.74%, 1/01/34 ................................................. 80,678 82,642
FNMA, 3.755%, 8/01/36 ................................................ 258,669 259,816
FNMA, 3.758%, 8/01/33 ................................................ 43,316 44,194
FNMA, 3.759%, 5/01/36 ................................................ 2,133,010 2,150,194
FNMA, 3.763%, 9/01/35 ................................................ 276,996 288,567
FNMA, 3.766%, 1/01/34 ................................................ 492,209 504,914
FNMA, 3.767%, 7/01/34 ................................................ 241,048 248,348
FNMA, 3.777%, 6/01/20 ................................................ 280,255 288,548
FNMA, 3.782%, 10/01/28 ............................................... 99,335 100,376
FNMA, 3.788%, 12/01/33 ............................................... 221,403 229,058
FNMA, 3.799%, 6/01/34 ................................................ 1,779,909 1,830,502
FNMA, 3.826%, 5/01/33 ................................................ 476,836 494,492
FNMA, 3.832%, 11/01/35 ............................................... 393,141 409,977
FNMA, 3.835%, 6/01/17 ................................................ 2,964 2,993
FNMA, 3.84%, 12/01/33 ................................................ 81,665 83,889
FNMA, 3.844%, 12/01/35 ............................................... 602,600 625,346
FNMA, 3.853%, 12/01/35 ............................................... 204,838 212,478
FNMA, 3.878%, 8/01/32 ................................................ 816,150 844,343
FNMA, 3.912%, 4/01/32 ................................................ 54,869 56,632
FNMA, 3.934%, 12/01/35 ............................................... 6,053,815 6,308,575
FNMA, 3.98%, 9/01/33 ................................................. 1,057,861 1,092,640
FNMA, 4.019%, 9/01/32 ................................................ 1,644,840 1,706,721
FNMA, 4.035%, 5/01/35 ................................................ 166,861 173,580
FNMA, 4.045%, 6/01/35 ................................................ 2,648,557 2,743,305
FNMA, 4.049%, 12/01/36 ............................................... 43,674,517 45,544,250
FNMA, 4.061%, 9/01/33 ................................................ 195,009 202,320
Semiannual Report | 61
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 4.093%, 9/01/33 ................................................ $ 238,561 $ 247,279
FNMA, 4.106%, 8/01/34 ................................................ 290,186 300,387
FNMA, 4.127%, 10/01/35 ............................................... 1,103,892 1,148,849
FNMA, 4.128%, 8/01/33 ................................................ 352,072 366,858
FNMA, 4.131%, 9/01/33 ................................................ 2,024,285 2,107,280
FNMA, 4.141%, 8/01/33 ................................................ 245,700 255,935
FNMA, 4.145%, 1/01/25 ................................................ 1,050,407 1,080,756
FNMA, 4.15%, 9/01/33 ................................................. 104,827 108,661
FNMA, 4.163%, 8/01/21 ................................................ 1,442,746 1,480,221
FNMA, 4.164%, 6/01/35 ................................................ 84,908 88,813
FNMA, 4.168%, 4/01/35 ................................................ 186,267 192,684
FNMA, 4.174%, 12/01/35 ............................................... 3,135,349 3,258,761
FNMA, 4.182%, 7/01/36 ................................................ 2,081,030 2,157,139
FNMA, 4.185%, 9/01/35 ................................................ 476,927 492,386
FNMA, 4.191%, 8/01/35 ................................................ 382,478 395,307
FNMA, 4.194%, 4/01/34 ................................................ 181,650 188,891
FNMA, 4.205%, 1/01/26 ................................................ 4,166 4,284
FNMA, 4.226%, 4/01/38 ................................................ 5,862,122 6,111,476
FNMA, 4.229%, 1/01/36 ................................................ 13,350,095 13,890,670
FNMA, 4.236%, 11/01/35 ............................................... 314,905 327,891
FNMA, 4.249%, 5/01/25 ................................................ 387,857 402,340
FNMA, 4.25%, 1/01/17 ................................................. 426,826 444,307
FNMA, 4.266%, 8/01/33 ................................................ 6,589,112 6,879,957
FNMA, 4.29%, 6/01/36 ................................................. 181,628 188,429
FNMA, 4.302%, 4/01/38 ................................................ 2,244,954 2,338,587
FNMA, 4.324%, 9/01/33 ................................................ 239,885 250,777
FNMA, 4.353%, 3/01/29 ................................................ 9,872 10,182
FNMA, 4.379%, 10/01/33 ............................................... 147,659 153,821
FNMA, 4.393%, 10/01/33 ............................................... 232,017 242,482
FNMA, 4.394%, 5/01/34 ................................................ 235,335 247,071
FNMA, 4.406%, 11/01/35 ............................................... 410,771 428,728
FNMA, 4.409%, 8/01/33 ................................................ 3,043,824 3,160,933
FNMA, 4.411%, 6/01/28 ................................................ 7,944 8,167
FNMA, 4.421%, 11/01/17 ............................................... 1,207,977 1,267,219
FNMA, 4.442%, 4/01/34 ................................................ 995,581 1,039,872
FNMA, 4.447%, 2/01/34 ................................................ 1,495,421 1,561,279
FNMA, 4.451%, 9/01/33 ................................................ 257,488 269,689
FNMA, 4.459%, 4/01/38 ................................................ 19,485,824 20,601,389
FNMA, 4.461%, 11/01/34 ............................................... 354,325 374,122
FNMA, 4.467%, 5/01/37 ................................................ 1,760,802 1,838,256
FNMA, 4.486%, 12/01/35 ............................................... 341,600 356,530
FNMA, 4.491%, 8/01/34 ................................................ 626,240 656,670
FNMA, 4.498%, 3/01/34 ................................................ 285,192 296,891
FNMA, 4.502%, 9/01/37 ................................................ 11,678,951 12,259,451
FNMA, 4.523%, 3/01/36 ................................................ 199,531 207,837
FNMA, 4.527%, 5/01/38 ................................................ 27,312,516 28,528,903
FNMA, 4.53%, 12/01/33 ................................................ 170,037 178,529
FNMA, 4.531%, 3/01/24 ................................................ 2,786 2,857
62 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 4.532%, 1/01/28 ................................................ $ 32,203 $ 33,117
FNMA, 4.536%, 8/01/34 ................................................ 68,933 69,685
FNMA, 4.55%, 9/01/30 ................................................. 44,232 46,498
FNMA, 4.553%, 5/01/33 ................................................ 21,024 21,802
FNMA, 4.56%, 5/01/32 ................................................. 72,874 76,506
FNMA, 4.561%, 1/01/35 ................................................ 3,308,582 3,451,668
FNMA, 4.563%, 4/01/35 ................................................ 132,580 136,461
FNMA, 4.569%, 1/01/30 ................................................ 227,503 231,149
FNMA, 4.574%, 1/01/38 ................................................ 25,754,392 26,906,325
FNMA, 4.577%, 3/01/35 ................................................ 16,241 16,981
FNMA, 4.59%, 2/01/30 ................................................. 197,623 207,646
FNMA, 4.593%, 7/01/35 ................................................ 850,322 879,638
FNMA, 4.595%, 8/01/35 ................................................ 9,431,534 9,821,374
FNMA, 4.598%, 4/01/34 ................................................ 96,387 100,362
FNMA, 4.602%, 1/01/36 ................................................ 1,531,670 1,600,588
FNMA, 4.625%, 10/01/33 ............................................... 3,810,587 3,981,772
FNMA, 4.63%, 11/01/33 ................................................ 3,053,424 3,186,790
FNMA, 4.633%, 1/01/36 ................................................ 860,214 898,598
FNMA, 4.641%, 5/01/21 - 8/01/37 ...................................... 14,922,436 15,687,144
FNMA, 4.65%, 2/01/14 ................................................. 13,593 13,620
FNMA, 4.66%, 5/01/35 ................................................. 143,101 147,896
FNMA, 4.666%, 9/01/35 ................................................ 565,586 595,686
FNMA, 4.668%, 4/01/38 ................................................ 684,769 711,805
FNMA, 4.692%, 2/01/34 ................................................ 1,115,625 1,170,554
FNMA, 4.715%, 7/01/17 ................................................ 588,022 615,422
FNMA, 4.717%, 6/01/35 ................................................ 17,269,338 17,930,067
FNMA, 4.723%, 10/01/14 ............................................... 31,578 32,079
FNMA, 4.727%, 9/01/33 ................................................ 4,630,482 4,838,566
FNMA, 4.744%, 7/01/35 ................................................ 4,554,351 4,743,586
FNMA, 4.747%, 12/01/26 ............................................... 81,687 83,908
FNMA, 4.748%, 11/01/18 ............................................... 45,454 46,217
FNMA, 4.762%, 6/01/35 - 7/01/36 ...................................... 1,176,098 1,231,110
FNMA, 4.779%, 9/01/35 ................................................ 3,337,638 3,488,648
FNMA, 4.784%, 1/01/35 ................................................ 356,648 372,412
FNMA, 4.785%, 6/01/35 ................................................ 1,311,938 1,362,787
FNMA, 4.793%, 2/01/35 ................................................ 84,933 89,611
FNMA, 4.806%, 7/01/35 ................................................ 186,842 193,918
FNMA, 4.825%, 7/01/35 ................................................ 19,446,706 20,150,506
FNMA, 4.833%, 5/01/35 ................................................ 11,919 12,600
FNMA, 4.834%, 11/01/33 ............................................... 2,967,557 3,090,848
FNMA, 4.841%, 7/01/35 ................................................ 4,710,076 4,900,313
FNMA, 4.845%, 9/01/35 ................................................ 18,356,516 19,117,414
FNMA, 4.849%, 10/01/34 - 2/01/36 ..................................... 11,970,532 12,433,863
FNMA, 4.853%, 12/01/35 ............................................... 3,403,996 3,552,562
FNMA, 4.854%, 9/01/35 ................................................ 229,340 239,603
FNMA, 4.856%, 11/01/33 ............................................... 1,499,405 1,564,758
FNMA, 4.858%, 5/01/35 - 7/01/35 ...................................... 22,208,916 23,019,707
FNMA, 4.874%, 5/01/35 ................................................ 45,065 47,262
Semiannual Report | 63
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 4.889%, 2/01/34 ................................................ $ 1,916,270 $ 2,009,129
FNMA, 4.902%, 6/01/35 ................................................ 2,018,360 2,099,693
FNMA, 4.903%, 6/01/35 ................................................ 1,255,653 1,304,878
FNMA, 4.904%, 10/01/33 ............................................... 3,887,324 4,058,506
FNMA, 4.909%, 6/01/35 ................................................ 973,915 1,007,668
FNMA, 4.943%, 9/01/35 ................................................ 87,808 92,199
FNMA, 4.951%, 7/01/35 - 12/01/35 ..................................... 3,971,517 4,143,570
FNMA, 4.959%, 11/01/35 ............................................... 21,779,397 22,792,992
FNMA, 4.964%, 11/01/35 ............................................... 4,335,868 4,552,945
FNMA, 4.981%, 11/01/33 ............................................... 1,989,140 2,080,130
FNMA, 4.99%, 3/01/36 ................................................. 595,887 627,928
FNMA, 4.997%, 11/01/35 ............................................... 21,562,831 22,638,046
FNMA, 4.999%, 4/01/36 ................................................ 6,956,717 7,322,104
FNMA, 5.017%, 9/01/35 ................................................ 960,511 1,000,238
FNMA, 5.034%, 7/01/35 ................................................ 2,366,648 2,476,345
FNMA, 5.035%, 6/01/35 ................................................ 947,263 999,081
FNMA, 5.036%, 10/01/34 - 10/01/35 .................................... 250,168 263,153
FNMA, 5.079%, 1/01/38 ................................................ 425,270 445,806
FNMA, 5.085%, 11/01/35 ............................................... 701,420 735,486
FNMA, 5.085%, 1/01/36 ................................................ 36,567,999 38,397,942
FNMA, 5.088%, 6/01/17 - 1/01/36 ...................................... 1,796,395 1,888,057
FNMA, 5.092%, 1/01/36 ................................................ 1,194,077 1,229,936
FNMA, 5.102%, 6/01/29 ................................................ 527,251 536,625
FNMA, 5.105%, 11/01/33 ............................................... 4,196,762 4,411,402
FNMA, 5.112%, 2/01/33 ................................................ 87,735 92,854
FNMA, 5.116%, 8/01/35 ................................................ 3,860,891 4,055,412
FNMA, 5.152%, 9/01/35 ................................................ 1,073,444 1,126,734
FNMA, 5.155%, 12/01/24 ............................................... 401,281 423,120
FNMA, 5.156%, 3/01/36 ................................................ 5,142,705 5,404,603
FNMA, 5.165%, 8/01/35 ................................................ 918,799 958,510
FNMA, 5.169%, 11/01/35 ............................................... 742,123 743,881
FNMA, 5.177%, 10/01/35 - 5/01/36 ..................................... 11,943,220 12,653,983
FNMA, 5.182%, 9/01/35 ................................................ 4,901,275 5,143,295
FNMA, 5.191%, 11/01/35 ............................................... 6,718,266 7,037,232
FNMA, 5.228%, 9/01/35 ................................................ 2,603,577 2,734,196
FNMA, 5.243%, 6/01/32 ................................................ 341,582 347,766
FNMA, 5.246%, 8/01/34 ................................................ 429,293 450,589
FNMA, 5.275%, 11/01/35 ............................................... 2,097,888 2,198,484
FNMA, 5.30%, 1/01/19 ................................................. 627,134 633,223
FNMA, 5.308%, 1/01/36 ................................................ 19,760,763 20,840,028
FNMA, 5.324%, 1/01/38 ................................................ 1,106,175 1,170,345
FNMA, 5.327%, 1/01/36 ................................................ 9,327,685 9,769,792
FNMA, 5.348%, 3/01/36 ................................................ 2,287,169 2,400,389
FNMA, 5.356%, 3/01/36 ................................................ 6,709,509 7,029,062
FNMA, 5.363%, 1/01/37 ................................................ 223,424 235,205
FNMA, 5.391%, 9/01/37 ................................................ 10,589,905 11,149,330
FNMA, 5.40%, 6/01/36 - 1/01/37 ....................................... 499,720 525,391
FNMA, 5.416%, 2/01/36 ................................................ 55,401 58,107
64 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 5.426%, 8/01/36 ................................................ $ 14,051,121 $ 14,748,231
FNMA, 5.439%, 2/01/36 ................................................ 18,433,921 19,387,536
FNMA, 5.449%, 5/01/36 ................................................ 4,283,087 4,490,176
FNMA, 5.458%, 2/01/36 ................................................ 15,885,965 16,750,594
(b) FNMA, 5.463%, 1/01/37 ................................................ 371,346 390,653
FNMA, 5.464%, 6/01/36 ................................................ 4,176,452 4,376,883
FNMA, 5.477%, 2/01/36 ................................................ 3,163,866 3,309,479
FNMA, 5.479%, 2/01/37 ................................................ 13,992,001 14,719,815
FNMA, 5.485%, 5/01/36 ................................................ 2,417,812 2,537,171
FNMA, 5.497%, 10/01/37 ............................................... 4,068,122 4,278,287
FNMA, 5.50%, 2/01/36 ................................................. 12,731,042 13,342,832
FNMA, 5.505%, 4/01/36 ................................................ 1,835,733 1,924,818
FNMA, 5.508%, 4/01/36 ................................................ 12,293,807 12,903,748
FNMA, 5.515%, 4/01/36 ................................................ 3,823,372 4,006,947
FNMA, 5.517%, 10/01/36 ............................................... 3,603,776 3,780,775
FNMA, 5.52%, 9/01/36 ................................................. 9,408,393 9,881,184
FNMA, 5.529%, 4/01/36 ................................................ 2,791,684 2,930,417
FNMA, 5.531%, 7/01/36 ................................................ 7,076,151 7,223,521
FNMA, 5.539%, 3/01/26 ................................................ 459,247 485,379
FNMA, 5.546%, 5/01/36 ................................................ 11,292,411 11,854,072
FNMA, 5.563%, 9/01/35 ................................................ 2,003,561 2,082,916
FNMA, 5.572%, 4/01/36 ................................................ 2,318,885 2,432,039
FNMA, 5.586%, 7/01/36 - 9/01/36 ...................................... 774,061 813,307
FNMA, 5.601%, 11/01/37 ............................................... 231,474 244,581
FNMA, 5.606%, 4/01/37 ................................................ 237,890 250,607
FNMA, 5.616%, 10/01/36 ............................................... 2,424,716 2,472,148
FNMA, 5.617%, 3/01/37 ................................................ 1,186,141 1,248,567
FNMA, 5.622%, 11/01/26 ............................................... 64,460 65,028
FNMA, 5.639%, 4/01/36 ................................................ 597,768 627,185
FNMA, 5.654%, 8/01/36 ................................................ 13,919,079 14,648,830
FNMA, 5.655%, 5/01/37 ................................................ 10,709,929 11,254,019
FNMA, 5.657%, 12/01/35 ............................................... 357,273 376,666
FNMA, 5.659%, 6/01/36 ................................................ 2,307,889 2,420,932
FNMA, 5.66%, 5/01/36 ................................................. 3,724,174 3,915,604
FNMA, 5.674%, 6/01/36 ................................................ 9,849,201 10,355,304
FNMA, 5.677%, 11/01/36 ............................................... 6,968,773 7,335,723
FNMA, 5.684%, 1/01/36 ................................................ 1,337,402 1,408,048
FNMA, 5.715%, 1/01/37 ................................................ 222,878 235,245
FNMA, 5.751%, 3/01/36 ................................................ 9,071,347 9,536,701
FNMA, 5.753%, 3/01/36 ................................................ 2,110,610 2,214,473
FNMA, 5.76%, 1/01/37 ................................................. 45,034 47,383
FNMA, 5.762%, 4/01/36 ................................................ 14,419,645 15,126,797
FNMA, 5.769%, 9/01/36 ................................................ 803,730 845,882
FNMA, 5.772%, 1/01/37 ................................................ 15,770,827 16,662,705
FNMA, 5.777%, 8/01/37 ................................................ 179,304 189,293
FNMA, 5.797%, 3/01/36 ................................................ 31,642,774 33,294,906
FNMA, 5.80%, 7/01/46 ................................................. 49,037,088 51,562,974
FNMA, 5.817%, 10/01/36 ............................................... 134,779 141,776
Semiannual Report | 65
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE (CONTINUED)
FNMA, 5.822%, 3/01/36 ................................................ $ 5,740,700 $ 6,030,680
FNMA, 5.834%, 8/01/36 ................................................ 260,759 274,448
FNMA, 5.836%, 1/01/37 ................................................ 644,876 681,563
FNMA, 5.837%, 6/01/36 - 1/01/37 ...................................... 5,625,965 5,928,275
FNMA, 5.862%, 12/01/36 ............................................... 123,773 130,237
FNMA, 5.864%, 6/01/35 ................................................ 179,695 197,582
FNMA, 5.90%, 2/01/37 ................................................. 369,954 390,092
FNMA, 5.904%, 6/01/36 ................................................ 8,233,201 8,652,596
FNMA, 5.905%, 4/01/36 ................................................ 5,645,688 5,954,199
FNMA, 5.921%, 6/01/36 ................................................ 1,404,197 1,465,934
FNMA, 5.927%, 11/01/37 ............................................... 34,145 35,964
FNMA, 5.95%, 6/01/31 ................................................. 17,554 18,086
FNMA, 5.954%, 5/01/36 ................................................ 1,826,285 1,918,440
FNMA, 5.955%, 2/01/37 ................................................ 62,359 65,690
FNMA, 5.965%, 2/01/37 ................................................ 655,714 691,052
FNMA, 5.972%, 4/01/36 ................................................ 18,233,851 19,174,465
FNMA, 5.995%, 8/01/36 ................................................ 10,469,488 10,961,230
FNMA, 6.00%, 12/01/21 ................................................ 186,723 194,791
FNMA, 6.015%, 4/01/36 ................................................ 360,126 377,500
FNMA, 6.024%, 3/01/36 ................................................ 657,694 678,549
FNMA, 6.076%, 8/01/36 ................................................ 989,077 1,033,824
FNMA, 6.085%, 3/01/36 ................................................ 361,822 375,190
FNMA, 6.099%, 12/01/27 ............................................... 78,272 79,904
FNMA, 6.113%, 8/01/36 ................................................ 14,978,569 15,919,785
FNMA, 6.119%, 5/01/36 ................................................ 1,129,766 1,180,509
FNMA, 6.125%, 8/01/35 ................................................ 246,357 248,118
FNMA, 6.134%, 5/01/36 ................................................ 16,350,848 17,071,913
FNMA, 6.20%, 5/01/36 ................................................. 10,241,241 10,691,461
FNMA, 6.219%, 10/01/37 ............................................... 525,495 548,620
FNMA, 6.25%, 7/01/36 ................................................. 515,714 538,720
FNMA, 6.274%, 9/01/36 ................................................ 2,889,074 3,074,020
FNMA, 6.279%, 1/01/26 ................................................ 451,468 464,404
FNMA, 6.305%, 11/01/46 ............................................... 583,641 608,410
FNMA, 6.396%, 5/01/21 ................................................ 213,715 214,747
FNMA, 6.45%, 3/01/20 ................................................. 60,213 61,987
FNMA, 6.48%, 8/01/22 ................................................. 55,946 57,954
FNMA, 6.712%, 7/01/24 ................................................ 178,848 181,413
FNMA, 6.837%, 10/01/17 ............................................... 169,363 172,828
FNMA, 6.868%, 12/01/17 ............................................... 106,426 109,562
FNMA, 6.989%, 2/01/20 ................................................ 433,927 435,283
FNMA, 7.634%, 3/01/25 ................................................ 105,160 108,204
---------------
1,881,089,186
---------------
(a) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) ADJUSTABLE RATE 0.8%
GNMA, 2.75%, 2/20/32 ................................................. 78,780 81,537
GNMA, 3.00%, 12/20/33 ................................................ 229,172 235,530
GNMA, 3.125%, 11/20/21 - 11/20/33 .................................... 6,889,250 7,082,953
GNMA, 3.25%, 10/20/33 ................................................ 216,971 223,262
66 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
--------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(a) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) ADJUSTABLE RATE (CONTINUED)
GNMA, 3.375%, 3/20/22 - 2/20/28 ...................................... $ 6,517,898 $ 6,766,340
GNMA, 3.625%, 7/20/21 - 7/20/33 ...................................... 5,545,013 5,721,717
GNMA, 4.125%, 8/20/34 ................................................ 129,574 134,092
GNMA, 4.375%, 4/20/22 - 4/20/33 ...................................... 2,811,984 2,915,654
---------------
23,161,085
---------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $2,621,452,930) ............... 2,642,828,537
---------------
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $48,515) 0.0%(c)
FINANCE 0.0%(c)
(a) Travelers Mortgage Services Inc., 1998-5A, A, FRN, 3.027%, 12/25/18 .. 47,696 42,926
---------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $2,621,501,445) ............................................. 2,642,871,463
---------------
SHARES
----------------
SHORT TERM INVESTMENTS 6.0%
MONEY MARKET FUNDS (COST $139,827,181) 5.0%
(d) Institutional Fiduciary Trust Money Market Portfolio, 0.00% .......... 139,827,181 139,827,181
---------------
PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENTS (COST $27,864,263) 1.0%
(e) Joint Repurchase Agreement, 0.174%, 5/03/10 (Maturity Value
$27,864,668) ...................................................... $ 27,864,263 27,864,263
Banc of America Securities LLC (Maturity Value $4,305,091)
Barclays Capital Inc. (Maturity Value $4,305,091)
BNP Paribas Securities Corp. (Maturity Value $4,510,453)
Credit Suisse Securities (USA) LLC (Maturity Value $4,100,007)
Deutsche Bank Securities Inc. (Maturity Value $4,494,014)
HSBC Securities (USA) Inc. (Maturity Value $2,050,004)
Morgan Stanley & Co. Inc. (Maturity Value $2,050,004)
UBS Securities LLC (Maturity Value $2,050,004)
Collateralized by U.S. Government Agency Securities,
0.18% - 5.875%, 5/04/10 - 8/13/14;
(f) U.S. Government Agency Discount Notes, 12/14/10; (f)U.S.
Treasury Bills, 5/06/10 - 3/10/11; and U.S. Treasury Notes,
0.875% - 4.375%, 7/31/10 - 4/30/14
---------------
TOTAL INVESTMENTS (COST $2,789,192,889) 99.8% ........................ 2,810,562,907
OTHER ASSETS, LESS LIABILITIES 0.2% .................................. 5,425,741
---------------
NET ASSETS 100.0% .................................................... $ 2,815,988,648
===============
See Abbreviations on page 163.
(a) The coupon rate shown represents the rate at period end.
(b) A portion or all of the security purchased on a delayed delivery basis. See
Note 1(d).
(c) Rounds to less than 0.1% of net assets.
(d) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(e) See Note 1(c) regarding joint repurchase agreement.
(f) The security is traded on a discount basis with no stated coupon rate.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 67
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FLOATING RATE DAILY ACCESS FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -------------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ..... $ 8.73 $ 7.66 $ 9.81 $ 10.06 $ 10.11 $ 10.13
---------- -------- -------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income ................. 0.165 0.292 0.478 0.645 0.599 0.416
Net realized and unrealized gains
(losses) ........................... 0.356 1.072 (2.152) (0.249) (0.048) (0.018)
---------- -------- -------- ---------- ---------- ----------
Total from investment operations ......... 0.521 1.364 (1.674) 0.396 0.551 0.398
---------- -------- -------- ---------- ---------- ----------
Less distributions from net investment
income ................................ (0.161) (0.294) (0.476) (0.646) (0.601) (0.418)
---------- -------- -------- ---------- ---------- ----------
Redemption fees(b) ....................... -- -- --(c) --(c) --(c) --(c)
---------- -------- -------- ---------- ---------- ----------
Net asset value, end of period ........... $ 9.09 $ 8.73 $ 7.66 $ 9.81 $ 10.06 $ 10.11
========== ======== ======== ========== ========== ==========
Total return(d) .......................... 6.02% 18.32% (17.75)% 4.02% 5.59% 4.00%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) .............................. 0.96% 0.96% 0.93% 0.89% 0.87% 0.89%
Net investment income .................... 3.72% 3.66% 5.23% 6.44% 5.94% 4.26%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ............................... $1,037,483 $955,944 $796,384 $1,375,871 $1,742,514 $1,890,591
Portfolio turnover rate .................. 34.26% 51.46% 31.59% 69.25% 74.56% 77.13%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
68 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FLOATING RATE DAILY ACCESS FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 --------------------------------------------------
CLASS B (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 8.72 $ 7.66 $ 9.80 $ 10.06 $ 10.10 $ 10.12
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ......................... 0.128 0.228 0.400 0.567 0.524 0.339
Net realized and unrealized gains (losses) .... 0.361 1.067 (2.133) (0.254) (0.037) (0.015)
------- ------- ------- ------- ------- -------
Total from investment operations ................. 0.489 1.295 (1.733) 0.313 0.487 0.324
------- ------- ------- ------- ------- -------
Less distributions from net investment income .... (0.129) (0.235) (0.407) (0.573) (0.527) (0.344)
------- ------- ------- ------- ------- -------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
------- ------- ------- ------- ------- -------
Net asset value, end of period ................... $ 9.08 $ 8.72 $ 7.66 $ 9.80 $ 10.06 $ 10.10
======= ======= ======= ======= ======= =======
Total return(d) .................................. 5.64% 17.31% (18.28)% 3.17% 4.93% 3.25%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) ...................................... 1.69% 1.71% 1.67% 1.61% 1.60% 1.62%
Net investment income ............................ 2.99% 2.91% 4.49% 5.72% 5.21% 3.53%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $12,688 $14,747 $17,481 $39,548 $60,972 $65,687
Portfolio turnover rate .......................... 34.26% 51.46% 31.59% 69.25% 74.56% 77.13%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 69
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FLOATING RATE DAILY ACCESS FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -------------------------------------------------------
CLASS C (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 8.73 $ 7.67 $ 9.81 $ 10.07 $ 10.11 $ 10.13
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income ......................... 0.147 0.260 0.441 0.605 0.561 0.373
Net realized and unrealized gains (losses) .... 0.356 1.062 (2.140) (0.259) (0.039) (0.015)
-------- -------- -------- -------- -------- --------
Total from investment operations ................. 0.503 1.322 (1.699) 0.346 0.522 0.358
-------- -------- -------- -------- -------- --------
Less distributions from net investment income .... (0.143) (0.262) (0.441) (0.606) (0.562) (0.378)
-------- -------- -------- -------- -------- --------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................... $ 9.09 $ 8.73 $ 7.67 $ 9.81 $ 10.07 $ 10.11
======== ======== ======== ======== ======== ========
Total return(d) .................................. 5.81% 17.69% (17.96)% 3.50% 5.29% 3.59%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) ...................................... 1.36% 1.36% 1.32% 1.29% 1.26% 1.29%
Net investment income ............................ 3.32% 3.26% 4.84% 6.04% 5.55% 3.86%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $255,537 $209,897 $188,240 $382,911 $380,599 $331,218
Portfolio turnover rate .......................... 34.26% 51.46% 31.59% 69.25% 74.56% 77.13%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
70 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FLOATING RATE DAILY ACCESS FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ---------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007 2006 2005
- ------------- ---------------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 8.73 $ 7.66 $ 9.81 $ 10.08 $ 10.12 $ 10.13
-------- -------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ......................... 0.176 0.312 0.500 0.671 0.630 0.438
Net realized and unrealized gains (losses) .... 0.356 1.071 (2.150) (0.269) (0.043) (0.004)
-------- -------- ------- ------- ------- -------
Total from investment operations ................. 0.532 1.383 (1.650) 0.402 0.587 0.434
-------- -------- ------- ------- ------- -------
Less distributions from net investment income .... (0.172) (0.313) (0.500) (0.672) (0.627) (0.444)
-------- -------- ------- ------- ------- -------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
-------- -------- ------- ------- ------- -------
Net asset value, end of period ................... $ 9.09 $ 8.73 $ 7.66 $ 9.81 $ 10.08 $ 10.12
======== ======== ======= ======= ======= =======
Total return(d) .................................. 6.03% 18.74% (17.54)% 4.08% 5.96% 4.37%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) ...................................... 0.71% 0.71% 0.68% 0.64% 0.62% 0.64%
Net investment income ............................ 3.97% 3.91% 5.48% 6.69% 6.19% 4.51%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $246,027 $186,816 $91,831 $85,416 $94,185 $38,822
Portfolio turnover rate .......................... 34.26% 51.46% 31.59% 69.25% 74.56% 77.13%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 71
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS 95.4%
ADVERTISING 0.2%
Lamar Media Corp., Term Loan B, 5.25%, 12/31/16 ............. United States $ 3,510,000 $ 3,524,626
--------------
AEROSPACE & DEFENSE 1.8%
BE Aerospace Inc., Term Loan B, 5.75%, 7/28/14 .............. United States 4,174,720 4,214,726
ILC Industries Inc., June 2006 Term Loan, 2.273%, 2/24/12 ... United States 3,117,376 3,099,192
L-1 Identity Solutions Operating Co.,
Tranche B-1 Term Loan, 6.75%, 8/05/13 .................... United States 825,195 828,289
Tranche B-2 Term Loan, 7.25%, 8/05/13 .................... United States 3,416,371 3,429,183
Spirit Aerosystems Inc. (Onex Wind Finance LP), Term B-1
Loan, 2.05%, 9/30/13 ..................................... United States 4,639,019 4,594,564
TASC Inc.,
Tranche A Term Loan, 5.50%, 12/18/14 ..................... United States 3,232,125 3,240,205
Tranche B Term Loan, 5.75%, 12/18/15 ..................... United States 4,673,288 4,696,654
TransDigm Inc., Term Loan B, 2.278%, 6/23/13 ................ United States 1,885,000 1,860,652
Wyle Services Corp., Term Loan B, 6.25%, 3/26/16 ............ United States 1,250,000 1,253,125
--------------
27,216,590
--------------
AGRICULTURAL PRODUCTS 0.9%
Dole Food Co. Inc., Tranche B-1 Term Loan, 5.00% - 5.50%,
3/02/17 .................................................. United States 4,055,460 4,104,125
Solvest Ltd. (Dole), Tranche C-1 Term Loan, 5.00% - 5.50%,
3/02/17 .................................................. Bermuda 10,072,748 10,193,621
--------------
14,297,746
--------------
AIR FREIGHT & LOGISTICS 0.2%
Ozburn-Hessey Holding Co. LLC, First Lien Term Loan, 7.50%,
4/08/16 .................................................. United States 2,700,000 2,727,000
--------------
AIRLINES 0.5%
Delta Air Lines Inc., Term Loan, 8.75%, 9/27/13 ............. United States 7,467,113 7,595,921
--------------
APPAREL, ACCESSORIES & LUXURY GOODS 0.3%
Hanesbrands Inc., New Term Loan, 5.25%, 12/10/15 ............ United States 4,028,767 4,079,114
The William Carter Co., Term Loan B, 1.773% - 1.838%,
7/14/12 .................................................. United States 1,396,375 1,394,629
--------------
5,473,743
--------------
APPLICATION SOFTWARE 1.2%
CCC Information Services Group Inc., Term Loan B, 2.53%,
2/10/13 .................................................. United States 1,391,478 1,367,997
(d) Dealer Computer Services Inc. (Reynolds & Reynolds),
Term Loan B, 5.75%, 4/21/17 .............................. United States 10,580,000 10,580,000
Nuance Communications Inc.,
Incremental Term Loan, 2.28%, 3/31/13 .................... United States 6,824,124 6,706,838
Term Loan, 2.28%, 3/31/13 ................................ United States 606,753 596,325
--------------
19,251,160
--------------
AUTO PARTS & EQUIPMENT 4.0%
Cooper-Standard Automotive Canada Ltd.,
DIP Term Loan B, 8.25%, 8/04/10 .......................... Canada 291,580 293,732
Multicurrency Revolver (CAD), 5.00%, 12/23/10 ............ Canada 281,752 283,689
Term Loan A, 5.00%, 12/23/10 ............................. Canada 240,800 242,455
(e) Term Loan B, 5.00%, 12/23/11 ............................ Canada 734,249 739,297
72 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
AUTO PARTS & EQUIPMENT (CONTINUED)
Cooper-Standard Automotive Inc.,
DIP Term Loan A, 8.25%, 8/04/10 .......................... United States $ 876,939 $ 883,411
Dollar Revolver, 5.00%, 12/23/10 ......................... United States 537,093 540,785
Dual Borrower Dual Currency Revolver, 5.00%, 12/23/10 .... United States 305,794 307,897
(e) Term Loan C, 5.00%, 12/23/11 ............................ United States 1,834,120 1,846,729
(e) Term Loan D, 5.00%, 12/23/11 ............................ United States 2,038,815 2,052,832
Term Loan E, 5.00%, 12/23/11 ............................. United States 1,011,826 1,018,783
Dayco Products LLC,
Term Loan B, 10.50%, 5/13/14 ............................. United States 1,884,047 1,884,047
(f) Term Loan C, PIK, 12.50%, 11/13/14 ...................... United States 278,793 256,489
U.S. Term Loan, 10.00%, 11/13/12 ......................... United States 3,525,000 3,525,000
Federal-Mogul Corp.,
Term Loan B, 2.188% - 2.198%, 12/27/14 ................... United States 7,878,787 7,222,224
Term Loan C, 2.188% - 2.198%, 12/27/15 ................... United States 582,747 534,185
Key Safety Systems Inc., Term Loan B, 2.50% - 2.515%,
3/10/14 .................................................. United States 14,508,287 13,105,815
Mark IV Industries Corp., Canadian Term Loan, 10.00%,
11/13/12 ................................................. Canada 1,175,000 1,175,000
(d) Tenneco Inc., Tranche B-1 Credit Linked, 5.249%,
3/16/14 .................................................. United States 14,591,504 14,646,222
(d) TRW Automotive Inc., Tranche A2 Term Loan, 5.00% - 5.063%,
5/30/15 .................................................. United States 7,946,991 7,986,726
United Components Inc., Term Loan D, 2.25% - 2.251%,
6/29/12 .................................................. United States 3,329,735 3,254,816
--------------
61,800,134
--------------
BROADCASTING 4.5%
Citadel Broadcasting Corp., Term Loan B, 2.03%, 6/12/14 ..... United States 6,777,691 6,602,603
Discovery Communications Inc., Term Loan C, 5.25%, 5/14/14 .. United States 4,751,623 4,799,881
Entravision Communications Corp., Term Loan B, 5.55%,
3/29/13 .................................................. United States 18,733,081 18,725,270
Gray Television Inc., Term Loan B, 3.80% - 3.81%, 12/31/14 .. United States 11,120,515 10,941,797
LBI Media Inc., Term Loan B, 1.773%, 3/31/12 ................ United States 960,000 888,400
Mission Broadcasting Inc., Term Loan B, 5.00%, 9/30/16 ...... United States 2,244,462 2,255,685
Nexstar Broadcasting Inc., Term Loan B, 5.00% - 6.25%,
9/30/16 .................................................. United States 3,510,569 3,528,122
Sinclair Television Group Inc., Tranche B Term Loan, 6.50%,
10/29/15 ................................................. United States 7,024,242 7,107,655
Univision Communications Inc., Initial Term Loan, 2.54%,
9/29/14 .................................................. United States 16,600,000 15,164,100
--------------
70,013,513
--------------
BUILDING PRODUCTS 0.4%
Goodman Global Holdings Co. Inc., Term Loan B, 6.25%,
2/13/14 .................................................. United States 5,887,892 5,916,107
Re/Max LLC, Term Loan B, 5.50%, 4/16/16 ..................... United States 603,333 604,842
--------------
6,520,949
--------------
CABLE & SATELLITE 3.6%
CSC Holdings Inc. (Cablevision),
(d) Incremental Term Loan B-2, 2.004%, 3/29/16 .............. United States 11,351,675 11,370,122
Incremental Term Loan B-3, 1.98%, 3/29/16 ................ United States 1,592,846 1,573,931
Insight Midwest Holdings LLC, Term Loan B, 2.25% - 2.29%,
4/02/14 .................................................. United States 4,825,000 4,724,732
MCC Iowa LLC (Mediacom Broadband), Term Loan F, 5.25%,
10/31/17 ................................................. United States 6,913,855 6,919,040
Semiannual Report | 73
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
CABLE & SATELLITE (CONTINUED)
Mediacom LLC,
Term Loan E, 4.50%, 10/23/17 ............................. United States $ 6,380,000 $ 6,385,984
Tranche D, 5.50%, 3/31/17 ................................ United States 1,791,000 1,802,642
TWCC Holding Corp., Replacement Term Loans, 5.00%, 9/12/15 .. United States 6,530,576 6,601,596
UPC Financing Partnership,
Term Loan N, 2.18%, 12/31/14 ............................. Netherlands 1,748,462 1,706,936
Term Loan T, 3.93%, 12/31/16 ............................. Netherlands 12,140,074 12,009,568
WideOpenWest Finance LLC, Series A New Term Loan, 6.751% -
8.75%, 5/01/13 ........................................... United States 2,992,267 3,014,242
--------------
56,108,793
--------------
CASINOS & GAMING 5.6%
Ameristar Casinos Inc., Initial Term Loan, 3.555%,
11/10/12 ................................................. United States 15,721,957 15,715,338
CCM Merger Inc. (MotorCity Casino), Term Loan B, 8.50%,
7/13/12 .................................................. United States 13,645,698 13,540,517
Harrah's Operating Co. Inc.,
(d) Term Loan B-2, 5.25%, 1/28/15 ........................... United States 1,000,000 882,153
Term Loan B-3, 3.29% - 3.316%, 1/28/15 ................... United States 4,000,000 3,515,716
Term Loan B-4, 9.50%, 10/31/16 ........................... United States 18,361,500 19,099,779
Las Vegas Sands LLC,
(d) Delayed Draw I Term Loan, 2.05%, 5/23/14 ................ United States 637,116 603,469
Delayed Draw II Term Loan, 2.05%, 5/23/13 ................ United States 704,190 665,240
(d) Term Loan B, 2.05%, 5/23/14 ............................. United States 6,638,225 6,287,647
Penn National Gaming Inc., Term Loan B, 2.00% - 2.07%,
10/03/12 ................................................. United States 7,251,096 7,189,143
VML U.S. Finance LLC (Venetian Macau),
Delayed Draw, 4.80%, 5/25/12 ............................. Macau 5,515,940 5,448,264
New Project Term Loans, 4.80%, 5/25/13 ................... Macau 6,663,039 6,571,589
Term Loan B, 4.80%, 5/25/13 .............................. Macau 7,357,702 7,267,431
--------------
86,786,286
--------------
COMMERCIAL PRINTING 1.3%
Cenveo Corp.,
Delayed Draw Term Loan, 4.771%, 6/21/13 .................. United States 237,661 238,514
Term Loan C, 4.771%, 6/21/13 ............................. United States 7,028,414 7,053,631
(d) Quad/Graphics Inc., Term Loan B, 6.25%, 4/20/16 ............. United States 12,330,000 12,318,447
--------------
19,610,592
--------------
COMMODITY CHEMICALS 0.2%
(d) Lyondell Chemical Co., Term Loan, 6.25%, 4/01/16 ............ United States 2,750,000 2,763,239
--------------
COMMUNICATIONS EQUIPMENT 0.2%
Brocade Communications Systems Inc., Term Loan, 7.00%,
10/07/13 ................................................. United States 1,422,353 1,434,651
CommScope Inc., Term Loan B, 2.773% - 2.79%, 12/26/14 ....... United States 1,713,739 1,708,911
--------------
3,143,562
--------------
CONSTRUCTION & ENGINEERING 0.4%
URS Corp., Term Loan B, 2.54% - 2.541%, 5/15/13 ............. United States 6,188,742 6,173,270
--------------
74 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS 2.2%
Bucyrus International Inc.,
Term Loan C, 4.50%, 2/19/16 .............................. United States $ 8,520,000 $ 8,588,433
Tranche B Dollar Term Loan, 3.25% - 3.27%, 5/04/14 ....... United States 4,754,395 4,758,855
(d) Manitowoc Co. Inc., Term Loan B, 7.50%, 11/06/14 ............ United States 14,569,397 14,626,640
Oshkosh Truck Corp., Term Loan B, 6.25% - 6.26%, 12/06/13 ... United States 5,465,886 5,501,758
--------------
33,475,686
--------------
DATA PROCESSING & OUTSOURCED SERVICES 3.6%
Emdeon Business Services LLC, First Lien Term Loan, 2.30%,
11/16/13 ................................................. United States 5,380,758 5,284,916
Fidelity National Information Services Inc., Tranche C Term
Loan, 4.506%, 1/18/12 .................................... United States 1,358,659 1,371,380
First American Corp. (Information Solutions Co.), Term Loan
B, 4.75%, 4/12/16 ........................................ United States 8,940,000 9,004,261
First Data Corp.,
Term Loan B-1, 3.013% - 3.04%, 9/24/14 ................... United States 3,253,087 2,932,853
(d) Term Loan B-2, 3.032% - 3.04%, 9/24/14 .................. United States 6,440,959 5,797,578
Term Loan B-3, 3.032% - 3.04%, 9/24/14 ................... United States 5,471,625 4,926,515
Lender Processing Services Inc., Term Loan B, 2.773%,
7/02/14 .................................................. United States 1,561,399 1,567,906
Metavante Corp., Term Loan B, 3.499%, 11/01/14 .............. United States 8,123,795 8,191,490
SunGard Data Systems Inc.,
Incremental Term Loan, 6.75%, 2/28/14 .................... United States 9,880,593 9,936,171
Tranche A U.S. Term Loan, 2.001%, 2/28/14 ................ United States 60,968 59,077
Tranche B U.S. Term Loan, 3.874% - 3.895%, 2/28/16 ....... United States 7,464,718 7,434,725
--------------
56,506,872
--------------
DISTILLERS & VINTNERS 0.2%
Constellation Brands Inc.,
Extended Term Loan B, 3.00%, 6/05/15 ..................... United States 908,777 917,014
Term Loan B, 1.75%, 6/05/13 .............................. United States 1,842,127 1,828,805
--------------
2,745,819
--------------
DIVERSIFIED CHEMICALS 1.2%
Celanese U.S. Holdings LLC, Dollar Term Loan, 2.042%,
4/02/14 .................................................. United States 8,043,392 7,897,147
Huntsman International LLC, Term Loan B, 2.016% - 2.078%,
4/19/14 .................................................. United States 8,209,992 7,921,789
Solutia Inc., Term Loan B, 4.75%, 3/17/17 ................... United States 2,810,000 2,833,123
--------------
18,652,059
--------------
DIVERSIFIED REAL ESTATE ACTIVITIES 0.4%
CB Richard Ellis Services Inc., Term Loan B, 6.00% - 6.25%,
12/20/13 ................................................. United States 6,296,642 6,304,513
--------------
DIVERSIFIED SUPPORT SERVICES 2.6%
ARAMARK Corp.,
Extended Synthetic L/C, 0.142%, 7/26/16 .................. United States 369,858 368,216
Synthetic L/C, 2.167%, 1/26/14 ........................... United States 207,987 204,679
Term Loan B, 2.165%, 1/26/14 ............................. United States 3,113,234 3,063,715
Term Loan B Extended, 3.54%, 7/26/16 ..................... United States 5,607,941 5,583,042
Semiannual Report | 75
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
DIVERSIFIED SUPPORT SERVICES (CONTINUED)
Diversey Inc., Tranche B Dollar Term Loan, 5.50%, 11/24/15 .. United States $ 6,295,858 $ 6,350,947
KAR Auction Services Inc. (Adesa), Initial Term Loan,
3.03%, 10/18/13 .......................................... United States 3,800,000 3,734,845
Language Line LLC, Term Loan B, 5.50%, 11/04/15 ............. United States 6,184,500 6,220,574
West Corp.,
Term Loan B-2, 2.625% - 2.682%, 10/24/13 ................. United States 2,168,859 2,119,884
Term Loan B-3, 7.25%, 10/24/13 ........................... United States 8,120,342 8,202,999
Term Loan B-4, 4.125% - 4.182%, 7/15/16 .................. United States 5,178,554 5,162,371
--------------
41,011,272
--------------
DRUG RETAIL 0.7%
Rite Aid Corp.,
(d) Tranche 3 Term Loan, 6.00%, 6/04/14....................... United States 4,030,981 3,989,232
Tranche 4 Term Loan, 9.50%, 6/10/15 ...................... United States 6,520,000 6,818,831
--------------
10,808,063
--------------
EDUCATION SERVICES 2.6%
ATI Acquisition Co., Tranche B Term Loan, 8.25%, 12/30/14 ... United States 2,244,375 2,210,710
Bright Horizons Family Solution Inc., Term Loan B, 7.50%,
5/21/15 .................................................. United States 12,029,287 12,093,728
Education Management LLC, Term Loan C, 2.063%, 6/01/13 ...... United States 11,191,455 10,971,588
Laureate Education Inc.,
Closing Date Term Loan, 3.571%, 8/18/14 .................. United States 5,669,196 5,309,304
Delayed Draw Term Loan, 3.571%, 8/18/14 .................. United States 848,575 794,706
Series A New Term Loan, 7.00%, 8/18/14 ................... United States 8,989,408 8,986,603
--------------
40,366,639
--------------
ELECTRIC UTILITIES 0.2%
(d) Great Point Power LLC, Term Loan, 5.75%, 3/10/17 ............ United States 3,040,000 3,093,200
--------------
ELECTRICAL COMPONENTS & EQUIPMENT 0.8%
Baldor Electric Co., Term Loan B, 5.25%, 1/31/14 ............ United States 12,086,349 12,169,575
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 0.5%
Itron Inc., Dollar Term Loan, 3.78%, 4/18/14 ................ United States 7,506,892 7,505,015
--------------
ELECTRONIC MANUFACTURING SERVICES 0.6%
FCI USA,
Term Loan B1, 3.67%, 11/01/13 ............................ United States 1,987,205 1,887,845
Term Loan B5B, 3.67%, 11/03/14 ........................... United States 1,987,205 1,887,845
Flextronics International USA Inc.,
A Closing Date Loan, 2.541% - 2.554%, 10/01/14 ........... United States 2,941,332 2,840,959
A-1-A Delayed Draw Term Loan, 2.553%, 10/01/14 ........... United States 845,210 816,368
B Closing Date Loan, 2.541%, 10/01/12 .................... United States 2,274,169 2,231,528
--------------
9,664,545
--------------
ENVIRONMENTAL & FACILITIES SERVICES 2.0%
Advanced Disposal Services Inc., Term Loan B, 6.00%,
1/14/15 .................................................. United States 4,418,925 4,457,591
Aquilex Holdings Inc., Term Loan B, 6.25%, 4/01/16 .......... United States 4,205,714 4,237,257
Casella Waste Systems Inc., Term Loan B, 7.00%, 4/09/14 ..... United States 5,283,672 5,329,904
Duratek Inc. (EnergySolutions), Term Loan B, 4.03%,
6/07/13 .................................................. United States 3,289,657 3,249,908
76 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
ENVIRONMENTAL & FACILITIES SERVICES (CONTINUED)
EnergySolutions LLC,
Synthetic A Deposit, 4.02%, 6/07/13 ...................... United States $ 1,982,452 $ 1,958,498
Synthetic L/C, 4.02%, 6/07/13 ............................ United States 488,640 482,736
Term Loan B, 4.03%, 6/07/13 .............................. United States 6,856,663 6,773,814
(e, f) EnviroSolutions Inc., Initial Term Loan, PIK, 4.75%,
7/07/12 .................................................. United States 6,250,478 5,083,720
--------------
31,573,428
--------------
FOOD DISTRIBUTORS 0.3%
JRD Holdings Inc., Term Loan, 2.51%, 7/02/14 ................ United States 2,570,476 2,520,115
Wm. Wrigley Jr. Co.,
Term Loan B1, 3.063%, 12/17/12 ........................... United States 816,348 822,468
Term Loan B2, 3.313%, 10/06/14 ........................... United States 1,141,871 1,150,431
--------------
4,493,014
--------------
FOOD RETAIL 0.2%
Pantry Inc.,
Delayed Draw Term Loan, 2.03%, 5/14/14 ................... United States 779,315 750,740
Term Loan B, 2.03%, 5/14/14 .............................. United States 2,705,284 2,606,090
--------------
3,356,830
--------------
GENERAL MERCHANDISE STORES 0.8%
Dollar General Corp., Tranche B-1 Term Loan, 3.006% -
3.088%, 7/07/14 .......................................... United States 13,366,970 13,197,610
--------------
HEALTH CARE EQUIPMENT 0.9%
DJO Finance LLC, Term Loan B, 3.273%, 5/20/14 ............... United States 7,149,162 6,973,414
(d) Fresenius SE,
Tranche C1 Dollar Term Loan, 4.50%, 9/10/14 .............. Germany 4,354,149 4,407,217
Tranche C2 Term Loan, 4.50%, 9/10/14 ..................... Germany 2,818,851 2,853,207
--------------
14,233,838
--------------
HEALTH CARE FACILITIES 5.9%
Ardent Medical Services Inc., Term Loan, 6.50%, 9/15/15 ..... United States 2,800,000 2,771,300
Community Health Systems Inc.,
Delayed Draw Term Loan, 2.502%, 7/25/14 .................. United States 913,243 888,982
Term Loan, 2.502%, 7/25/14 ............................... United States 17,765,536 17,293,595
HCA Inc., Term Loan B-1, 2.54%, 11/18/13 .................... United States 20,002,409 19,491,108
Health Management Associates Inc., Term Loan B, 2.04%,
2/28/14 .................................................. United States 2,523,124 2,448,061
HealthSouth Corp.,
Term Loan B, 2.51% - 2.55%, 3/10/13 ...................... United States 5,794,532 5,703,993
Term Loan B-2, 4.01% - 4.05%, 9/10/15 .................... United States 5,469,150 5,473,706
Iasis Healthcare LLC,
Delayed Draw Term Loan, 2.273%, 3/14/14 .................. United States 3,494,933 3,403,191
Initial Term Loan, 2.273%, 3/14/14 ....................... United States 10,098,370 9,833,287
Synthetic L/C, 2.293%, 3/14/14 ........................... United States 948,582 923,682
Psychiatric Solutions Inc., Term Loan, 2.002% - 2.154%,
7/01/12 .................................................. United States 7,432,409 7,374,347
Vanguard Health Holding Co. II LLC, Initial Term Loan,
5.00%, 1/29/16 ........................................... United States 15,657,885 15,739,431
--------------
91,344,683
--------------
Semiannual Report | 77
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
HEALTH CARE SERVICES 1.9%
Alliance HealthCare Services Inc., Initial Term Loan,
5.50%, 6/02/16 ........................................... United States $ 6,783,000 $ 6,788,650
AMR Holdco/EmCare Holdco, Term Loan, 3.251%, 4/08/15 ........ United States 2,073,980 2,084,999
DaVita Inc., Term Loan B-1, 1.75% - 1.80%, 10/05/12 ......... United States 11,014,532 10,913,562
Fresenius Medical Care Holdings Inc., Term Loan B, 1.631% -
1.665%, 3/31/13 .......................................... Germany 3,268,582 3,225,682
Team Finance LLC, Term Loan B, 2.251% - 2.284%, 11/23/12 .... United States 2,727,334 2,662,560
VICAR Operating Inc., Incremental Term Loan, 1.813%,
5/16/11 .................................................. United States 3,205,577 3,173,522
--------------
28,848,975
--------------
HEALTH CARE SUPPLIES 0.6%
Bausch and Lomb Inc.,
Delayed Draw Term Loan, 3.54%, 4/28/15 ................... United States 1,936,262 1,899,512
Parent Term Loan, 3.54%, 4/28/15 ......................... United States 7,983,882 7,832,348
--------------
9,731,860
--------------
HEALTH CARE TECHNOLOGY 0.1%
IMS Health Inc., Tranche B Dollar Term Loan, 5.25%,
2/26/16 .................................................. United States 2,030,277 2,046,011
--------------
HOUSEHOLD PRODUCTS 0.3%
Prestige Brands Inc., Term Loan B, 5.50%, 3/24/16 ........... United States 4,394,072 4,421,535
--------------
HOUSEWARES & SPECIALTIES 1.2%
Jarden Corp.,
Term Loan B1, 2.04%, 1/24/12 ............................. United States 1,797,997 1,792,860
Term Loan B2, 2.04%, 1/24/12 ............................. United States 2,524,995 2,516,157
Term Loan B4, 3.54%, 1/26/15 ............................. United States 7,521,269 7,556,160
Jostens IH Corp. (Visant Holding Corp.), Term Loan C,
2.251%, 10/04/11 ......................................... United States 6,743,692 6,705,759
--------------
18,570,936
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 2.5%
Dynegy Holdings Inc.,
Term L/C Facility, 4.03%, 4/02/13 ........................ United States 9,937,312 9,782,817
Term Loan B, 4.03%, 4/02/13 .............................. United States 924,841 910,462
NRG Energy Inc.,
Credit Link, 2.04%, 2/01/13 .............................. United States 6,658,609 6,540,192
Term Loan, 2.023% - 2.04%, 2/01/13 ....................... United States 10,084,534 9,905,191
Texas Competitive Electric Holdings Co. LLC,
Term Loan B-2, 3.751% - 3.79%, 10/10/14 .................. United States 9,730,920 8,003,682
Term Loan B-3, 3.751% - 3.79%, 10/10/14 .................. United States 3,900,000 3,187,708
--------------
38,330,052
--------------
INDUSTRIAL CONGLOMERATES 0.8%
Sensus Metering Systems Inc., Term Loan B-3, 7.00%,
6/17/13 .................................................. United States 7,785,949 7,795,681
TriMas Co. LLC,
Class A Tranche B Term Loan, 6.00%, 12/15/15 ............. United States 4,389,052 4,323,216
Class A Tranche B-1 L/C, 6.00%, 8/02/11 .................. United States 1,049,594 1,033,850
--------------
13,152,747
--------------
78 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
INDUSTRIAL MACHINERY 2.6%
CI Acquisition Inc. (Chart Industries), Term Loan B,
2.313%, 10/17/12 ......................................... United States $ 1,735,586 $ 1,731,247
Husky Injection Molding Systems Ltd. (Ontario Inc.), Term
Loan, 3.273% - 3.54%, 12/14/12 ........................... Canada 3,054,311 3,046,675
Mueller Water Products Inc.,
Term Loan A, 5.29%, 5/24/12 .............................. United States 3,126,906 3,130,815
Term Loan B, 5.29% - 5.338%, 5/24/14 ..................... United States 7,235,375 7,264,317
RBS Global Inc. (Rexnord),
(d) Incremental Tranche B-2, 2.563%, 7/22/13 ................ United States 9,457,312 9,135,177
Tranche B-1 Term Loan B, 2.813%, 7/22/13 ................. United States 16,442,430 16,093,028
--------------
40,401,259
--------------
INTEGRATED TELECOMMUNICATION SERVICES 1.5%
Intelsat Subsidiary Holding Co. Ltd., Term Loan B, 2.792%,
6/30/13 .................................................. United States 2,968,362 2,915,798
U.S. TelePacific Corp., Term Loan, 9.25%, 8/17/15 ........... United States 3,600,000 3,642,750
Wind Telecomunicazioni SpA,
Term Loan B-2, 3.658%, 5/26/13 ........................... Italy 4,850,000 4,809,430
Term Loan C-2, 4.658%, 5/26/14 ........................... Italy 4,850,000 4,811,200
Windstream Corp., Tranche B-2 Term Loan, 3.06%, 12/17/15 .... United States 6,935,878 6,944,547
--------------
23,123,725
--------------
INTERNET RETAIL 0.5%
Ticketmaster Entertainment Inc.,
Term Loan A, 6.25%, 7/25/13 .............................. United States 4,350,000 4,373,142
Term Loan B, 7.00%, 7/25/14 .............................. United States 2,828,571 2,857,742
--------------
7,230,884
--------------
INTERNET SOFTWARE & SERVICES 0.7%
Springboard Finance LLC (Skype), New Dollar Term Loan,
7.00%, 2/23/15 ........................................... United States 10,660,000 10,693,259
--------------
IT CONSULTING & OTHER SERVICES 0.3%
Acxiom Corp., Term Loan B-2, 3.316%, 3/15/15 ................ United States 5,132,774 5,119,942
--------------
LEISURE FACILITIES 2.2%
24 Hour Fitness Worldwide Inc., Term Loan B, 7.00%,
4/22/16.................................................... United States 15,150,000 14,847,000
Six Flags Theme Parks Inc.,
Second Lien Term Loan, 9.50%, 12/31/16 ................... United States 600,000 613,500
Term Loan B, 6.25%, 6/30/16 .............................. United States 10,200,000 10,222,318
Universal City Development Partners Ltd., Term Loan, 5.50%,
11/06/14 ................................................. United States 7,630,875 7,592,721
--------------
33,275,539
--------------
LEISURE PRODUCTS 0.1%
PlayPower Inc., Term Loan B, 5.25% - 5.34%, 6/30/12 ......... United States 1,138,022 1,086,811
--------------
LIFE & HEALTH INSURANCE 1.2%
Conseco Inc., Term Loan, 7.50%, 10/10/13 .................... United States 18,911,155 18,462,015
--------------
Semiannual Report | 79
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
METAL & GLASS CONTAINERS 1.8%
Anchor Glass Container Corp.,
First Lien Term Loan, 6.00%, 3/02/16 ........................ United States $ 12,720,000 $ 12,696,150
Second Lien Term Loan, 10.00%, 9/02/16 ...................... United States 4,550,000 4,527,250
Crown Americas LLC, Additional Term B Dollar Loan, 2.004%,
11/15/12 ................................................. United States 471,213 466,698
Graham Packaging Co. LP, Term Loan C, 6.75%, 4/05/14 ........ United States 7,997,090 8,075,189
Owens-Brockway Glass Container Inc., Term Loan B, 1.754%,
6/14/13 .................................................. United States 2,251,958 2,233,943
--------------
27,999,230
--------------
MOVIES & ENTERTAINMENT 1.8%
Carmike Cinemas Inc., Initial Term Loan, 5.50%, 1/27/16 ..... United States 517,493 518,092
Cinemark USA Inc., Extended Term Loan, 3.50% - 3.56%,
4/30/16 .................................................. United States 2,913,617 2,917,609
(e) Metro-Goldwyn-Mayer Inc., Term Loan B, 20.50%, 4/08/12 ...... United States 10,943,152 5,081,726
Regal Cinemas Corp., Term Loan, 3.79%, 11/17/16 ............. United States 15,182,478 15,238,653
Zuffa LLC, Incremental Term Loan, 7.50%, 6/19/15 ............ United States 4,875,500 4,948,632
--------------
28,704,712
--------------
OIL & GAS DRILLING 0.5%
Dresser Inc., Term Loan B, 2.497% - 2.50%, 5/04/14 .......... United States 7,794,806 7,603,568
--------------
OIL & GAS STORAGE & TRANSPORTATION 0.2%
Targa Resources Inc., Term Loan, 6.00%, 7/05/16 ............. United States 2,733,909 2,747,579
--------------
OTHER DIVERSIFIED FINANCIAL SERVICES 0.3%
N.E.W. Customer Service Companies, First Lien Term Loan,
6.00%, 3/23/16 ........................................... United States 5,200,000 5,186,459
--------------
PACKAGED FOODS & MEATS 0.6%
Dean Foods Co., Term Loan B, 1.675%, 4/02/14 ................ United States 3,789,526 3,716,096
Michael Foods Inc., Term Loan B, 6.50%, 5/01/14 ............. United States 4,878,726 4,919,586
--------------
8,635,682
--------------
PAPER PACKAGING 1.0%
(d) Reynolds Consumer Products Holdings Inc., U.S. Term
Loan, 6.25%, 5/05/16 ..................................... United States 15,521,250 15,622,138
--------------
PAPER PRODUCTS 1.0%
Domtar Corp., Term Loan, 1.631%, 3/07/14 .................... United States 1,536,627 1,532,498
Georgia-Pacific LLC,
Additional Term Loan, 2.29% - 2.338%, 12/20/12 .............. United States 1,994,134 1,985,410
Term Loan B, 2.254% - 2.338%, 12/20/12 ...................... United States 4,756,035 4,735,227
Term Loan C, 3.504% - 3.588%, 12/23/14 ...................... United States 4,328,486 4,343,705
Graphic Packaging International Inc., 2008 Incremental
Term Loan, 3.041% - 3.05%, 5/16/14 ....................... United States 2,631,148 2,623,092
--------------
15,219,932
--------------
PERSONAL PRODUCTS 0.4%
Herbalife International Inc., Term Loan B, 1.77%, 7/21/13 ... United States 2,972,345 2,935,191
Revlon Consumer Products Corp., Term Loan B, 6.00%,
3/11/15 .................................................. United States 3,000,000 2,990,346
--------------
5,925,537
--------------
80 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
PHARMACEUTICALS 1.4%
Mylan Inc., Term Loan B, 3.563%, 10/02/14 ................... United States $ 6,673,888 $ 6,676,184
Warner Chilcott Co. LLC,
Term Loan A, 5.50%, 10/30/14 ............................. United States 4,760,153 4,772,787
Term Loan B2, 5.75%, 4/30/15 ............................. United States 4,702,735 4,716,933
Warner Chilcott Corp.,
Additional Term Loan, 5.75%, 4/30/15 ..................... United States 2,795,261 2,802,825
Term Loan B1, 5.75%, 4/30/15 ............................. United States 2,824,158 2,832,685
--------------
21,801,414
--------------
PROPERTY & CASUALTY INSURANCE 0.1%
Affirmative Insurance Holdings Inc., Term Loan, 9.25%,
1/31/14 .................................................. United States 1,016,911 854,205
--------------
PUBLISHING 3.9%
Dex Media East LLC, Term Loan B, 2.76% - 2.84%, 10/24/14 .... United States 1,174,643 1,047,424
Dex Media West LLC, Term Loan B, 7.50%, 10/24/14 ............ United States 13,194,966 12,574,393
Newsday LLC, Floating Rate Term Loan, 6.553%, 8/01/13 ....... United States 5,000,000 5,108,335
(d) R.H. Donnelley Inc., Term Loan B, 9.25%, 10/24/14 ........... United States 21,074,572 20,574,051
(e) Tribune Co.,
Initial Tranche B Advances, 5.25%, 5/16/14 ............... United States 19,920,771 13,403,830
Term Loan X, 5.00%, 5/18/09 .............................. United States 9,606,743 6,322,438
Wenner Media LLC, Term Loan B, 2.023%, 10/02/13 ............. United States 2,202,504 2,136,430
--------------
61,166,901
--------------
RAILROADS 0.2%
Kansas City Southern Railway Co., Term Loan B, 2.00% -
2.09%, 4/26/13 ........................................... United States 3,488,099 3,448,858
--------------
RESEARCH & CONSULTING SERVICES 0.9%
Alix Partners LLP, Term Loan C, 2.26% - 2.30%, 10/12/13 ..... United States 1,936,582 1,900,271
Nielsen Finance LLC (VNU Inc.),
Class A Term Loan, 2.251%, 8/09/13 ....................... United States 6,933,988 6,774,721
(d) Class B Term Loan, 4.001%, 5/02/16 ...................... United States 4,802,379 4,755,858
--------------
13,430,850
--------------
RESTAURANTS 0.1%
(d) Arby's Restaurant Holdings LLC, Term Loan B, 7.25%,
7/25/12 .................................................. United States 1,825,000 1,846,900
--------------
SECURITY & ALARM SERVICES 0.2%
Protection One Alarm Monitoring Inc.,
Tranche B-1, 2.52%, 3/31/12 .............................. United States 211,551 212,080
Tranche B-2, 6.25%, 3/31/14 .............................. United States 2,293,445 2,299,179
--------------
2,511,259
--------------
SEMICONDUCTORS 0.5%
Fairchild Semiconductor Corp.,
Incremental Term Loan, 2.813%, 6/26/13 ................... United States 4,851,000 4,776,212
Initial Term Loan, 1.813%, 6/26/13 ....................... United States 1,382,631 1,365,348
Intersil Corp., Term Loan B, 5.50%, 4/27/16 ................. United States 1,870,000 1,879,923
--------------
8,021,483
--------------
Semiannual Report | 81
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
SPECIALIZED CONSUMER SERVICES 2.3%
Advantage Sales & Marketing Inc., Term Loan B, 5.75%,
5/05/16 .................................................. United States $ 5,850,000 $ 5,820,750
Affinion Group Inc., Tranche B Term Loan, 5.00%, 10/09/16 ... United States 25,173,052 25,047,186
Brickman Group Holdings Inc., Term Loan B, 2.29%, 1/23/14 ... United States 4,260,809 4,175,593
--------------
35,043,529
--------------
SPECIALIZED FINANCE 0.5%
AGFS Funding Co., Term Loan, 7.25%, 4/21/15 ................. United States 7,940,000 7,963,820
--------------
SPECIALTY CHEMICALS 5.3%
Brenntag Holding GmbH & Co. KG,
Acquisition Facility, 4.066% - 4.143%, 1/20/14 ........... Germany 486,569 487,785
(d) Term Loan B2, 4.013% - 4.066%, 1/20/14 .................. United States 3,372,901 3,381,333
(d) CF Industries, B-1 Term Loan, 5.25%, 4/05/15 ................ United States 5,780,000 5,839,476
Chemtura Corp., Term Loan, 6.00%, 2/02/11 ................... United States 3,800,000 3,828,500
Cognis GmbH, Term Loan C , 2.257%, 9/15/13 .................. Germany 5,500,000 5,404,515
Compass Minerals Group Inc., Term Loan, 1.76% - 1.80%,
12/22/12 ................................................. United States 3,278,714 3,262,320
(d) GenTek Holding LLC, Term Loan B, 7.00% - 8.25%, 10/29/14 .... United States 6,064,800 6,129,239
Hexion Specialty Chemicals BV,
Tranche C-2B Term Loan, 4.063%, 5/03/15 .................. Netherlands 4,341,280 4,191,145
Tranche C-5B Term Loan, 4.063%, 5/03/15 .................. Netherlands 1,167,000 1,108,650
Hexion Specialty Chemicals Inc.,
Tranche C-1B Term Loan, 4.063%, 5/03/15 .................. United States 9,800,704 9,461,766
Tranche C-4B Term Loan, 4.00%, 5/03/15 ................... United States 1,222,725 1,179,930
Nalco Co.,
Term Loan, 6.50%, 5/13/16 ................................ United States 9,685,269 9,780,107
Term Loan B, 2.063%, 11/04/10 ............................ United States 380,170 380,764
Oxbow Carbon LLC, Term Loan B, 2.29%, 5/08/14 ............... United States 3,975,258 3,904,450
Polypore Inc., U.S. Term Loan, 2.53%, 7/03/14 ............... United States 5,273,386 5,154,735
Rockwood Specialties Group Inc., Term Loan H, 6.00%,
5/15/14 .................................................. United States 8,105,615 8,175,697
Univar Inc., Opco Tranche B Term Loan, 3.273%, 10/10/14 ..... United States 10,104,882 9,945,731
--------------
81,616,143
--------------
SPECIALTY STORES 1.4%
Bass Pro Group, Term Loan B, 5.75%, 4/12/15 ................. United States 8,360,000 8,387,864
(d) Pilot Travel Centers LLC, Term Loan B, 5.50%, 12/15/15 ...... United States 6,800,000 6,860,717
Savers Inc., Term Loan B, 5.75%, 3/11/16 .................... United States 5,870,000 5,906,688
--------------
21,155,269
--------------
SYSTEMS SOFTWARE 0.4%
Audatex North America Inc., Domestic Term Loan C, 2.063%,
5/16/14 .................................................. United States 1,193,117 1,175,718
Intergraph Corp., Incremental Term B-1 Loan, 6.00%,
5/29/14 .................................................. United States 4,950,000 4,976,814
--------------
6,152,532
--------------
TRADING COMPANIES & DISTRIBUTORS 0.3%
Ashtead Group PLC, Term Loan, 2.063%, 8/31/11 ............... United Kingdom 2,891,854 2,877,395
Interline Brands,
Delayed Draw Term Loan, 2.038%, 6/23/13 .................. United States 1,549,186 1,463,981
Term Loan B, 2.013%, 6/23/13 ............................. United States 421,721 398,526
--------------
4,739,902
--------------
82 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
PRINCIPAL
FRANKLIN FLOATING RATE DAILY ACCESS FUND COUNTRY AMOUNT(a) VALUE
---------------------------------------- -------------- ------------ --------------
(b, c) SENIOR FLOATING RATE INTERESTS (CONTINUED)
TRUCKING 0.2%
Hertz Corp.,
Credit Link, 0.271%, 12/21/12 ............................ United States $ 377,149 $ 373,064
Term Loan B, 2.01% - 2.02%, 12/21/12 ..................... United States 2,044,214 2,022,069
--------------
2,395,133
--------------
WIRELESS TELECOMMUNICATION SERVICES 2.6%
Intelsat Corp. (PanAmSat),
Tranche B-2-A, 2.792%, 1/03/14 ........................... United States 7,054,934 6,929,821
Tranche B-2-B, 2.792%, 1/03/14 ........................... United States 7,052,768 6,927,695
Tranche B-2-C, 2.792%, 1/03/14 ........................... United States 7,052,768 6,927,695
NTELOS Inc., Term Loan B, 5.75%, 8/07/15 .................... United States 13,579,365 13,672,723
TowerCo Finance LLC, Term Loan, 6.00%, 11/24/14 ............. United States 6,593,974 6,665,406
--------------
41,123,340
--------------
TOTAL SENIOR FLOATING RATE INTERESTS
(COST $1,444,161,748) .................................... 1,478,921,710
--------------
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES (COST $3,534,844) 0.2%
OTHER DIVERSIFIED FINANCIAL SERVICES 0.2%
(b, g) Armstrong Loan Funding Ltd., 2008-1A, B, 144A,
FRN, 1.249%, 8/10/16 ..................................... Cayman Islands 3,786,062 3,559,144
--------------
SHARES
------------
COMMON STOCKS (COST $150,406) 0.0%(h)
STEEL 0.0%(h)
(i, j) Copperweld Holding Co., B, Escrow Account ................... United States 1,741 181,360
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $1,447,846,998) .................................... 1,482,662,214
--------------
PRINCIPAL
AMOUNT(a)
------------
SHORT TERM INVESTMENTS 10.6%
(b, c) SENIOR FLOATING RATE INTERESTS (COST $3,411,719) 0.2%
PAPER PACKAGING 0.2%
(d) Smurfit-Stone Container Enterprises, CAM Exchange,
4.50%, 1/11/11 ........................................... United States $ 3,437,500 3,431,055
--------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS
(COST $1,451,258,717) .................................... 1,486,093,269
--------------
SHARES
------------
MONEY MARKET FUNDS (COST $161,406,777) 10.4%
(k) Institutional Fiduciary Trust Money Market Portfolio,
0.00% .................................................... United States 161,406,777 161,406,777
--------------
TOTAL INVESTMENTS (COST $1,612,665,494) 106.2% .............. 1,647,500,046
OTHER ASSETS, LESS LIABILITIES (6.2)% ....................... (95,764,907)
--------------
NET ASSETS 100.0% ........................................... $1,551,735,139
--------------
Semiannual Report | 83
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN FLOATING RATE DAILY ACCESS FUND
See Abbreviations on page 163.
(a) The principal amount is stated in U.S. dollars unless otherwise indicated.
(b) The coupon rate shown represents the rate at period end.
(c) See Note 1(g) regarding senior floating rate interests.
(d) A portion or all of the security purchased on a delayed delivery basis. See
Note 1(d).
(e) See Note 8 regarding defaulted securities.
(f) Income may be received in additional securities and/or cash.
(g) Security 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. This security has been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At April 30, 2010,
the value of this security was $3,559,144, representing 0.23% of net
assets.
(h) Rounds to less than 0.1% of net assets.
(i) Security has been deemed illiquid because it may not be able to be sold
within seven days. At April 30, 2010, the value of this security was
$181,360, representing 0.01% of net assets.
(j) Non-income producing.
(k) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
The accompanying notes are an integral part of these financial statements.
84 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LOW DURATION TOTAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ---------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005(a)
- ------- ---------------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ........ $ 10.19 $ 9.58 $ 9.89 $ 9.79 $ 9.77 $ 10.00
-------- -------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income .................... 0.130 0.347 0.334 0.398 0.346 0.263
Net realized and unrealized gains
(losses) .............................. 0.184 0.645 (0.273) 0.113 0.036 (0.186)
-------- -------- ------- ------- ------- -------
Total from investment operations ............ 0.314 0.992 0.061 0.511 0.382 0.077
-------- -------- ------- ------- ------- -------
Less distributions from:
Net investment income .................... (0.162) (0.382) (0.371) (0.411) (0.362) (0.307)
Net realized gains ....................... (0.032) -- -- -- -- --
-------- -------- ------- ------- ------- -------
Total distributions ......................... (0.194) (0.382) (0.371) (0.411) (0.362) (0.307)
-------- -------- ------- ------- ------- -------
Redemption fees(c) .......................... -- -- --(d) --(d) --(d) --(d)
-------- -------- ------- ------- ------- -------
Net asset value, end of period .............. $ 10.31 $ 10.19 $ 9.58 $ 9.89 $ 9.79 $ 9.77
======== ======== ======= ======= ======= =======
Total return(e) ............................. 3.12% 10.55% 0.56% 5.33% 3.99% 0.78%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses before waiver and payments by
affiliates ............................... 1.06% 1.12% 1.48% 1.40% 1.37% 1.97%
Expenses net of waiver and payments by
affiliates(g) ............................ 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
Net investment income ....................... 2.55% 3.04% 3.36% 3.97% 3.52% 2.68%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ........... $243,319 $152,673 $35,181 $16,744 $11,722 $10,311
Portfolio turnover rate ..................... 12.70% 53.06% 115.61% 82.95% 86.38% 79.69%
Portfolio turnover rate excluding
mortgage dollar rolls(h) ................. 12.70% 53.06% 108.45% 49.38% 86.38% 79.69%
(a) For the period November 17, 2004 (commencement of operations) to October
31, 2005.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.001 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) See Note 1(f) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 85
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND
YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 2010 -----------------
ADVISOR CLASS (UNAUDITED) 2009 2008(a)
- ------------- ---------------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ........ $ 10.20 $ 9.59 $ 9.98
------- ------- -------
Income from investment operations(b):
Net investment income .................... 0.124 0.011 0.132
Net realized and unrealized gains
(losses) .............................. 0.214 1.003 (0.357)
------- ------- -------
Total from investment operations ............ 0.338 1.014 (0.225)
------- ------- -------
Less distributions from:
Net investment income .................... (0.176) (0.404) (0.165)
Net realized gains ....................... (0.032) -- --
------- ------- -------
Total distributions ......................... (0.208) (0.404) (0.165)
------- ------- -------
Redemption fees(c) .......................... -- -- --(d)
------- ------- -------
Net asset value, end of period .............. $ 10.33 $ 10.20 $ 9.59
======= ======= =======
Total return(e) ............................. 3.35% 10.80% (2.28)%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses before waiver and payments by
affiliates ............................... 0.81% 0.87% 1.23%
Expenses net of waiver and payments by
affiliates(g) ............................ 0.65% 0.65% 0.65%
Net investment income ....................... 2.80% 3.29% 3.61%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ........... $ 9,454 $ 1,893 $ 75
Portfolio turnover rate ..................... 12.70% 53.06% 115.61%
Portfolio turnover rate excluding mortgage
dollar rolls(h) .......................... 12.70% 53.06% 108.45%
(a) For the period May 15, 2008 (effective date) to October 31, 2008.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.001 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) See Note 1(f) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
86 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY SHARES VALUE
--------------------------------------- -------------- ------------------- -------------
PREFERRED STOCKS (COST $104,200) 0.0%(a)
BANKS 0.0%(a)
(b) Freddie Mac, 8.375%, pfd., Z................................... United States 4,000 $ 6,440
-------------
PRINCIPAL AMOUNT(c)
-------------------
CORPORATE BONDS 22.1%
AUTOMOBILES & COMPONENTS 0.1%
Ford Motor Credit Co. LLC, senior note, 7.50%, 8/01/12 ........ United States 400,000 413,661
-------------
BANKS 2.8%
Barclays Bank PLC, senior note, 5.20%, 7/10/14 ................ United Kingdom 400,000 429,424
BB&T Corp., senior note, 5.70%, 4/30/14 ....................... United States 500,000 549,868
(d) Commonwealth Bank of Australia, senior note, 144A, 3.75%,
10/15/14 ................................................... Australia 1,000,000 1,022,853
PNC Funding Corp., senior note, 5.40%, 6/10/14 ................ United States 750,000 813,882
Regions Financial Corp., senior note, 7.75%, 11/10/14 ......... United States 500,000 540,448
(d) Royal Bank of Scotland PLC, senior note, 144A, 4.875%,
8/25/14 .................................................... United Kingdom 750,000 768,103
(e) Wells Fargo Capital XIII, pfd., 7.70%, Perpetual .............. United States 100,000 104,500
(e) Wells Fargo Capital XV, pfd., 9.75%, Perpetual ................ United States 150,000 168,750
Western Corporate Federal Credit Union, senior note, 1.75%,
11/02/12 ................................................... United States 2,000,000 2,018,151
Westpac Banking Corp., senior note, 4.20%, 2/27/15 ............ Australia 750,000 782,692
-------------
7,198,671
-------------
CAPITAL GOODS 0.9%
Case New Holland Inc., senior note, 7.125%, 3/01/14 ........... United States 200,000 205,500
Greenbrier Cos. Inc., senior note, 8.375%, 5/15/15 ............ United States 100,000 95,500
Ingersoll-Rand Global Holding Co. Ltd., senior note, 9.50%,
4/15/14 .................................................... United States 300,000 368,141
John Deere Capital Corp.,
5.25%, 10/01/12 ............................................ United States 250,000 272,345
(f) senior note, FRN, 1.004%, 6/10/11 ............................. United States 300,000 301,724
(d) Libbey Glass Inc., senior secured note, 144A, 10.00%,
2/15/15 .................................................... United States 100,000 106,125
Northrop Grumman Corp., senior note, 3.70%, 8/01/14 ........... United States 750,000 776,108
RSC Equipment Rental Inc., senior note, 9.50%, 12/01/14 ....... United States 200,000 206,500
-------------
2,331,943
-------------
CONSUMER DURABLES & APPAREL 0.5%
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 .......... United States 200,000 201,750
Standard Pacific Corp., senior note, 7.75%, 3/15/13 ........... United States 1,000,000 1,015,000
-------------
1,216,750
-------------
CONSUMER SERVICES 2.1%
Host Hotels & Resorts LP, senior note, K, 7.125%, 11/01/13 .... United States 200,000 204,500
(d) Shingle Springs Tribal Gaming, senior note, 144A, 9.375%,
6/15/15 .................................................... United States 100,000 85,500
Starwood Hotels & Resorts Worldwide Inc., senior note, 6.25%,
2/15/13 .................................................... United States 1,000,000 1,062,500
(g) Station Casinos Inc., senior note, 7.75%, 8/15/16 ............. United States 100,000 6,062
Wendy's International Inc., senior note,
6.25%, 11/15/11 ............................................ United States 1,000,000 1,041,250
6.20%, 6/15/14 ............................................. United States 2,000,000 2,065,000
Yum! Brands Inc., senior note, 4.25%, 9/15/15 ................. United States 750,000 780,991
-------------
5,245,803
-------------
Semiannual Report | 87
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
CORPORATE BONDS (CONTINUED)
DIVERSIFIED FINANCIALS 4.6%
American Express Credit Corp., senior note, 5.125%, 8/25/14 ... United States 750,000 $ 807,196
Bank of America Corp.,
4.50%, 4/01/15 ............................................. United States 1,000,000 1,010,261
senior note, L, 7.375%, 5/15/14 ............................... United States 500,000 563,667
(f) The Bear Stearns Cos. LLC, FRN, 0.704%, 7/19/10 ............... United States 300,000 300,375
Capital One Financial Corp., senior note, 7.375%, 5/23/14 ..... United States 400,000 462,717
(f) Caterpillar Financial Services Corp., senior note, FRN, 1.035%,
6/24/11 .................................................... United States 300,000 302,626
Citigroup Inc., senior note, 5.50%, 10/15/14 .................. United States 1,000,000 1,039,849
Deutsche Bank AG, 4.875%, 5/20/13 ............................. Germany 200,000 213,240
General Electric Capital Corp.,
5.90%, 5/13/14 ............................................. United States 500,000 554,082
(f) FRN, 0.405%, 10/21/10 ......................................... United States 18,000 18,006
GMAC Inc., senior note, 6.875%,
9/15/11 .................................................... United States 1,231,000 1,258,697
8/28/12 .................................................... United States 100,000 102,375
The Goldman Sachs Group Inc.,
5.125%, 1/15/15 ............................................ United States 1,000,000 1,034,033
senior note, 3.625%, 8/01/12 ............................... United States 750,000 764,506
JPMorgan Chase & Co., senior note, 4.65%, 6/01/14 ............. United States 750,000 799,287
(f, g) Lehman Brothers Holdings Inc., senior note, FRN, 3.005%,
7/18/11 .................................................... United States 200,000 44,250
Morgan Stanley Dean Witter & Co., 5.30%, 3/01/13 .............. United States 200,000 211,682
Morgan Stanley, senior note, 6.00%, 5/13/14 ................... United States 500,000 538,342
PHH Corp., senior note, 7.125%, 3/01/13 ....................... United States 1,000,000 1,000,000
(d) Pricoa Global Funding I, 144A, 5.45%, 6/11/14 ................. United States 500,000 539,773
-------------
11,564,964
-------------
ENERGY 1.9%
Anadarko Petroleum Corp., senior note, 5.75%, 6/15/14 ......... United States 500,000 549,845
Berry Petroleum Co., senior note, 10.25%, 6/01/14 ............. United States 200,000 222,500
BP Capital Markets PLC, senior note, 3.625%, 5/08/14 .......... United Kingdom 600,000 626,415
ConocoPhillips, 4.75%, 2/01/14 ................................ United States 100,000 109,036
El Paso Corp., senior note, 12.00%, 12/12/13 .................. United States 200,000 239,014
(d) Gazprom, secured note, 144A, 7.51%, 7/31/13 ................... Russia 100,000 108,959
Peabody Energy Corp., senior note, B, 6.875%, 3/15/13 ......... United States 300,000 305,250
Petrohawk Energy Corp., senior note, 10.50%, 8/01/14 .......... United States 200,000 222,000
Petroleos de Venezuela SA, senior bond, zero cpn., 7/10/11 .... Venezuela 1,010,000 877,437
Valero Energy Corp., senior note, 6.875%, 4/15/12 ............. United States 500,000 543,367
(d) Woodside Finance Ltd., 144A, 4.50%, 11/10/14 .................. Australia 1,000,000 1,035,986
-------------
4,839,809
-------------
FOOD & STAPLES RETAILING 0.2%
Wal-Mart Stores Inc., 3.20%, 5/15/14 .......................... United States 500,000 518,246
-------------
FOOD, BEVERAGE & TOBACCO 0.9%
Altria Group Inc., 7.75%, 2/06/14 ............................. United States 100,000 115,365
(d) Anheuser-Busch InBev NV, senior note, 144A, 7.20%, 1/15/14 .... United States 100,000 115,206
88 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
CORPORATE BONDS (CONTINUED)
FOOD, BEVERAGE & TOBACCO (CONTINUED)
Bunge Ltd. Finance Co., senior note, 7.80%, 10/15/12 .......... United States 500,000 $ 557,465
(d) Cargill Inc., 144A, 5.20%, 1/22/13 ............................ United States 500,000 533,230
ConAgra Foods Inc., 5.875%, 4/15/14 ........................... United States 300,000 333,517
(d) JBS USA LLC, senior note, 144A, 11.625%, 5/01/14 .............. United States 200,000 231,500
Kraft Foods Inc., senior note, 2.625%, 5/08/13 ................ United States 500,000 511,595
-------------
2,397,878
-------------
HEALTH CARE EQUIPMENT & SERVICES 0.6%
CareFusion Corp., senior note, 5.125%, 8/01/14 ................ United States 750,000 803,233
Express Scripts Inc., senior note, 5.25%, 6/15/12 ............. United States 500,000 535,879
Fresenius Medical Care Capital Trust IV, 7.875%, 6/15/11 ...... Germany 200,000 211,000
-------------
1,550,112
-------------
INSURANCE 0.7%
Berkshire Hathaway Finance Corp., senior note, 4.00%,
4/15/12 .................................................... United States 400,000 422,260
Marsh & McLennan Cos. Inc., senior note, 5.15%, 9/15/10 ....... United States 500,000 507,036
(d) Metropolitan Life Global Funding I,
144A, 2.875%, 9/17/12 ...................................... United States 500,000 509,954
senior secured note, 144A, 5.125%, 4/10/13 ................. United States 250,000 270,232
-------------
1,709,482
-------------
MATERIALS 0.9%
(d) Anglo American Capital PLC, senior note, 144A, 9.375%,
4/08/14 .................................................... United Kingdom 400,000 485,728
The Dow Chemical Co., senior note, 4.85%, 8/15/12 ............. United States 750,000 793,474
Huntsman International LLC, senior sub. note, 7.875%,
11/15/14 ................................................... United States 200,000 204,000
NewPage Corp., senior secured note, 11.375%, 12/31/14 ......... United States 200,000 206,500
Novelis Inc., senior note, 7.25%, 2/15/15 ..................... Canada 200,000 198,000
Solo Cup Co.,
senior secured note, 10.50%, 11/01/13 ...................... United States 100,000 107,000
senior sub. note, 8.50%, 2/15/14 ........................... United States 100,000 101,000
Teck Resources Ltd., senior note, 9.75%, 5/15/14 .............. Canada 100,000 122,000
-------------
2,217,702
-------------
MEDIA 0.8%
Belo Corp., senior note, 6.75%, 5/30/13 ....................... United States 1,000,000 1,022,500
(d) CCH II LLC/CCH II Capital Corp., senior note, 144A, 13.50%,
11/30/16 ................................................... United States 36,669 44,186
(d) Lamar Media Corp., senior sub. note, 144A, 7.875%, 4/15/18 .... United States 100,000 102,750
LIN Television Corp., senior sub. note, 6.50%, 5/15/13 ........ United States 200,000 199,000
(d) Univision Communications Inc., senior secured note, 144A,
12.00%, 7/01/14 ............................................ United States 200,000 222,000
Viacom Inc., 4.375%, 9/15/14 .................................. United States 350,000 367,857
-------------
1,958,293
-------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.8%
Merck & Co Inc., senior note, 1.875%, 6/30/11 ................. United States 700,000 709,517
Pfizer Inc., senior note, 4.45%, 3/15/12 ...................... United States 250,000 264,894
(d) Roche Holdings Inc., senior note, 144A, 4.50%, 3/01/12 ........ Switzerland 250,000 264,386
Watson Pharmaceuticals Inc., senior note, 5.00%, 8/15/14 ...... United States 750,000 789,268
-------------
2,028,065
-------------
Semiannual Report | 89
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
CORPORATE BONDS (CONTINUED)
REAL ESTATE 1.2%
(d) Dexus Finance Property Ltd., 144A, 7.125%, 10/15/14 ........... Australia 750,000 $ 829,625
Duke Realty LP, senior note, 7.375%, 2/15/15 .................. United States 400,000 444,978
FelCor Lodging LP, senior secured note, 10.00%, 10/01/14 ...... United States 100,000 105,000
HCP Inc., senior note, F, 4.875%, 9/15/10 ..................... United States 750,000 757,905
(d) WEA Finance/WT Finance Australia, 144A, 5.75%, 9/02/15 ........ United States 750,000 811,819
-------------
2,949,327
-------------
RETAILING 0.2%
(d, f) Edcon Proprietary Ltd., senior secured note, 144A, FRN, 3.90%,
6/15/14 .................................................... South Africa 200,000 EUR 208,689
Michaels Stores Inc., senior note, 10.00%, 11/01/14 ........... United States 200,000 213,000
-------------
421,689
-------------
SOFTWARE & SERVICES 0.3%
Oracle Corp., senior note, 3.75%, 7/08/14 ..................... United States 500,000 525,329
SunGard Data Systems Inc., senior note, 9.125%, 8/15/13 ....... United States 200,000 206,250
-------------
731,579
-------------
TECHNOLOGY HARDWARE & EQUIPMENT 0.2%
Hewlett-Packard Co., senior note, 2.95%, 8/15/12 .............. United States 500,000 517,600
-------------
TELECOMMUNICATION SERVICES 1.0%
AT&T Inc., 4.95%, 1/15/13 ..................................... United States 100,000 107,933
Cellco Partnership/Verizon Wireless, senior note, 5.25%,
2/01/12 .................................................... United States 200,000 213,364
(d) Digicel SA, senior note, 144A, 12.00%, 4/01/14 ................ Jamaica 200,000 230,000
MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 .......... United States 200,000 208,500
Millicom International Cellular SA, senior note, 10.00%,
12/01/13 ................................................... Luxembourg 200,000 208,500
(d) New Communications Holdings, senior note, 144A, 7.875%,
4/15/15 .................................................... United States 200,000 207,500
(f) Telecom Italia Capital SA, senior note, FRN, 0.914%, 7/18/11 .. Italy 300,000 298,767
Telefonica Europe BV, 7.75%, 9/15/10 .......................... Netherlands 200,000 204,267
Telefonica SA, senior note, 4.949%, 1/15/15 ................... Spain 500,000 530,777
Verizon New England Inc., senior note, 6.50%, 9/15/11 ......... United States 200,000 212,723
Verizon New York Inc., senior deb., A, 6.875%, 4/01/12 ........ United States 200,000 217,554
-------------
2,639,885
-------------
TRANSPORTATION 0.1%
(d) Delta Air Lines Inc., senior secured note, 144A, 9.50%,
9/15/14 .................................................... United States 200,000 214,500
-------------
UTILITIES 1.3%
Ameren Corp., senior note, 8.875%, 5/15/14 .................... United States 500,000 584,489
Duke Energy Corp., senior note, 6.30%, 2/01/14 ................ United States 750,000 842,699
Midamerican Energy Holdings Co., senior note, 3.15%, 7/15/12 .. United States 700,000 721,027
NRG Energy Inc., senior note, 7.25%, 2/01/14 .................. United States 200,000 203,250
PG&E Corp., senior note, 5.75%, 4/01/14 ....................... United States 500,000 550,033
(f) Southern Co., senior note, 2008A, FRN, 0.951%, 8/20/10 ........ United States 300,000 300,630
-------------
3,202,128
-------------
TOTAL CORPORATE BONDS (COST $52,967,171) 55,868,087
-------------
90 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
CONVERTIBLE BONDS (COST $34,110) 0.0%(a)
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.0%(a)
PDL BioPharma Inc., cvt., sub. note, 2.75%, 8/16/23 ........... United States 30,000 $ 34,200
-------------
ASSET-BACKED SECURITIES AND COMMERCIAL MORTGAGE-BACKED
SECURITIES 3.8%
BANKS 1.3%
Banc of America Commercial Mortgage Inc.,
(f) 2006-3, AM, FRN, 5.812%, 7/10/44 .............................. United States 164,000 147,843
2006-4, AM, 5.675%, 7/10/46 ................................... United States 710,000 643,565
(f) Capital One Auto Finance Trust, 2006-C, A4, FRN, 0.284%,
5/15/13 .................................................... United States 74,304 73,795
(f) Countrywide Asset-Backed Certificates,
2001-BC3, A, FRN, 0.743%, 12/25/31 ......................... United States 2,482 1,270
2002-3, 1A1, FRN, 1.003%, 5/25/32 .......................... United States 1,795 1,586
FNMA, G93-33, K, 7.00%, 9/25/23 ............................... United States 11,992 13,057
(f) FHLMC, 2996, FK, FRN, 0.504%, 6/15/35 ......................... United States 123,663 123,493
Greenwich Capital Commercial Funding Corp., 2004-GG1, A7,
5.317%, 6/10/36 ............................................ United States 126,000 133,369
(d, f) Wachovia Bank Commercial Mortgage Trust, 2007-WHL8, A1, 144A,
FRN, 0.334%, 6/15/20 ....................................... United States 2,341,418 2,081,064
-------------
3,219,042
-------------
DIVERSIFIED FINANCIALS 2.5%
(f) Advanta Business Card Master Trust,
2005-A2, A2, FRN, 0.386%, 5/20/13 .......................... United States 91,205 90,190
2007-A4, A4, FRN, 0.286%, 4/22/13 .......................... United States 182,410 180,379
(f) Capital One Multi-Asset Execution Trust, 2007-A6, A6, FRN,
0.324%, 5/15/13 ............................................ United States 1,391,000 1,390,875
(f) Chase Funding Mortgage Loan Asset-Backed Certificates, 2004-2,
2A2, FRN, 0.763%, 2/25/35 .................................. United States 31,205 22,470
(f) Chase Issuance Trust, 2007-A9, A9, FRN, 0.284%, 6/16/14 ....... United States 500,000 498,144
(d, f) JPMorgan Chase Commercial Mortgage Securities Corp., 2007-FL1A,
A1, 144A, FRN, 0.629%, 7/15/19 ............................ United States 2,523,947 2,196,591
(f) MBNA Credit Card Master Note Trust, 2005-A4, A4, FRN, 0.294%,
11/15/12 ................................................... United States 2,000,000 1,999,845
-------------
6,378,494
-------------
REAL ESTATE 0.0%(a)
(f) Ownit Mortgage Loan Asset-Backed Certificates, 2006-6, A2B,
FRN, 0.373%, 9/25/37 ....................................... United States 119,965 87,789
-------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES (COST $9,561,752) 9,685,325
-------------
MORTGAGE-BACKED SECURITIES 9.1%
(f) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE 0.9%
FHLMC, 2.733%, 12/01/34 ....................................... United States 72,385 75,295
FHLMC, 3.324%, 11/01/35 ....................................... United States 767,275 797,485
FHLMC, 3.34%, 10/01/33 ........................................ United States 51,441 53,802
FHLMC, 4.642%, 6/01/35 ........................................ United States 1,298,992 1,339,416
-------------
2,265,998
-------------
Semiannual Report | 91
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
MORTGAGE-BACKED SECURITIES (CONTINUED).........................
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 2.3%
FHLMC Gold 15 Year, 5.00%, 10/01/23............................. United States 1,899,444 $ 2,010,551
FHLMC Gold 15 Year, 6.00%, 6/01/23.............................. United States 453,192 488,403
FHLMC Gold 30 Year, 5.00%, 1/01/39.............................. United States 3,014,374 3,128,732
-------------
5,627,686
-------------
(f) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE RATE 5.0%
FNMA, 1.898%,4/01/34............................................ United States 12,595 12,953
FNMA, 1.953%,6/01/34............................................ United States 33,035 33,849
FNMA, 2.037%,1/01/35............................................ United States 1,203,925 1,226,385
FNMA, 2.05%, 8/01/34............................................ United States 92,206 94,937
FNMA, 2.055%,3/01/33............................................ United States 54,314 55,401
FNMA, 2.105%,11/01/34........................................... United States 11,346 11,533
FNMA, 2.207%,7/01/34............................................ United States 42,341 43,486
FNMA, 2.261%,4/01/33............................................ United States 16,433 16,841
FNMA, 2.415%,3/01/34............................................ United States 25,650 26,522
FNMA, 2.429%,3/01/35............................................ United States 130,838 135,098
FNMA, 2.514%,2/01/35............................................ United States 67,088 69,893
FNMA, 2.55%, 12/01/34........................................... United States 5,524 5,771
FNMA, 2.568%,5/01/33............................................ United States 24,528 25,126
FNMA, 2.622%,8/01/34............................................ United States 15,341 15,895
FNMA, 2.641%,1/01/35............................................ United States 653,130 675,508
FNMA, 2.76%, 4/01/33............................................ United States 96,016 98,833
FNMA, 2.773%,1/01/33............................................ United States 12,438 12,926
FNMA, 2.844%,3/01/35............................................ United States 1,621,782 1,690,416
FNMA, 2.895%,4/01/35............................................ United States 22,100 22,249
FNMA, 2.928%,2/01/34............................................ United States 33,164 34,396
FNMA, 3.087%,1/01/35............................................ United States 24,601 25,680
FNMA, 3.087%,11/01/36........................................... United States 226,408 235,933
FNMA, 3.096%,11/01/33........................................... United States 1,470,238 1,526,759
FNMA, 3.148%,5/01/34............................................ United States 866,605 899,121
FNMA, 3.334%,9/01/34............................................ United States 597,187 619,474
FNMA, 3.351%,11/01/32........................................... United States 47,887 50,005
FNMA, 3.80%, 12/01/33........................................... United States 123,743 127,834
FNMA, 4.104%,8/01/33............................................ United States 111,515 115,483
FNMA, 5.017%,9/01/35............................................ United States 688,201 716,665
FNMA, 5.537%,2/01/36............................................ United States 3,787,606 3,975,601
-------------
12,600,573
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 0.9%
FNMA 15 Year, 4.50%, 1/01/24.................................... United States 1,524,337 1,586,962
FNMA 30 Year, 5.00%, 3/01/38.................................... United States 717,983 744,436
FNMA 30 Year, 9.00%, 12/01/20................................... United States 181 198
-------------
2,331,596
-------------
(f) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) ADJUSTABLE RATE 0.0%(a)
GNMA, 3.625%, 8/20/26 - 9/20/26................................. United States 38,296 39,516
GNMA, 4.375%, 4/20/26........................................... United States 25,941 26,897
-------------
66,413
-------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $22,399,982) 22,892,266
-------------
92 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 10.5%
(f, h) Government of Argentina, senior bond, FRN, 0.389%, 8/03/12 .... Argentina 30,000 $ 10,155
Government of Australia, TB123, 5.75%, 4/15/12 ................ Australia 2,810,000 AUD 2,635,853
Government of Hungary, 6.75%, 7/28/14 ......................... Hungary 300,000 EUR 441,342
Government of Indonesia,
FR36, 11.50%, 9/15/19 ...................................... Indonesia 165,000,000 IDR 21,790
FR51, 11.25%, 5/15/14 ...................................... Indonesia 17,100,000,000 IDR 2,116,823
Government of Israel, 2680, 7.00%, 4/29/11 .................... Israel 730,000 ILS 205,002
Government of Korea, senior note, 5.75%, 4/16/14 .............. South Korea 210,000 230,858
(d) Government of Lithuania, 144A, 6.75%, 1/15/15 ................. Lithuania 250,000 270,325
Government of Malaysia,
3.756%, 4/28/11 ............................................ Malaysia 5,310,000 MYR 1,686,438
3.833%, 9/28/11 ............................................ Malaysia 2,065,000 MYR 658,444
Government of Mexico, MI10, 8.00%, 12/19/13 ................... Mexico 38,350(i)MXN 330,123
Government of Norway, 6.00%, 5/16/11 .......................... Norway 865,000 NOK 152,212
Government of Poland,
4.75%, 4/25/12 ............................................. Poland 760,000 PLN 259,544
5.00%, 10/24/13 ............................................ Poland 370,000 PLN 126,077
5.75%, 4/25/14 ............................................. Poland 4,595,000 PLN 1,598,838
Government of Sri Lanka, A,
12.00%, 7/15/11 ............................................ Sri Lanka 960,000 LKR 8,650
8.50%, 1/15/13 ............................................. Sri Lanka 3,400,000 LKR 28,537
13.50%, 2/01/13 ............................................ Sri Lanka 3,900,000 LKR 36,873
11.25%, 7/15/14 ............................................ Sri Lanka 11,700,000 LKR 103,373
11.00%, 8/01/15 ............................................ Sri Lanka 13,400,000 LKR 115,844
Government of Sweden,
5.25%, 3/15/11 ............................................. Sweden 6,870,000 SEK 986,122
5.50%, 10/08/12 ............................................ Sweden 13,460,000 SEK 2,040,174
Government of Venezuela,
10.75%, 9/19/13 ............................................ Venezuela 35,000 34,083
(j) senior bond, Reg S, 5.375%, 8/07/10 ........................... Venezuela 20,000 19,880
Korea Treasury Bond,
0400-1206, 4.00%, 6/10/12 .................................. South Korea 7,400,000,000 KRW 6,750,602
0475-1112, 4.75%, 12/10/11 ................................. South Korea 95,000,000 KRW 87,731
New South Wales Treasury Corp., 6.00%, 5/01/12 ................ Australia 2,180,000 AUD 2,041,816
Nota Do Tesouro Nacional,
10.00%, 1/01/12 ............................................ Brazil 3,400(k) BRL 1,890,807
10.00%, 1/01/13 ............................................ Brazil 700(k) BRL 379,942
(l) Index Linked, 6.00%, 5/15/17 .................................. Brazil 150(k) BRL 160,993
(d, f) Societe Financement de l'Economie Francaise, senior bond,
144A, FRN,
0.504%, 7/16/12 ............................................ France 1,000,000 1,003,387
-------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $25,639,633) ......................................... 26,432,638
-------------
U.S. GOVERNMENT AND AGENCY SECURITIES 45.2%
Bank of America Corp., FDIC Guaranteed, 2.375%, 6/22/12 ....... United States 1,500,000 1,537,612
FHLB,
4.875%, 5/14/10 ............................................ United States 500,000 500,715
3.50%, 7/16/10 ............................................. United States 1,000,000 1,006,798
2.25% 4/13/12 .............................................. United States 3,500,000 3,579,338
5.75%, 5/15/12 ............................................. United States 600,000 655,801
Semiannual Report | 93
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
U.S. GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
FHLMC,
2.375%, 5/28/10 ............................................ United States 700,000 $ 701,058
2.875%, 6/28/10 ............................................ United States 1,000,000 1,004,152
4.125%, 7/12/10 ............................................ United States 400,000 403,010
5.125%, 8/23/10 ............................................ United States 600,000 608,992
5.125%, 7/15/12 ............................................ United States 1,000,000 1,085,715
5.50%, 8/20/12 ............................................. United States 1,200,000 1,312,715
3.50%, 5/29/13 ............................................. United States 500,000 526,803
4.50%, 1/15/14 ............................................. United States 2,000,000 2,170,518
senior note, 2.50%, 4/23/14 ................................ United States 3,000,000 3,035,928
FNMA,
7.125%, 6/15/10 ............................................ United States 200,000 201,627
3.00%, 7/12/10 ............................................. United States 1,000,000 1,005,371
4.25%, 8/15/10 ............................................. United States 750,000 758,608
4.375%, 9/13/10 ............................................ United States 300,000 304,546
2.875%, 10/12/10 ........................................... United States 3,600,000 3,641,688
6.625%, 11/15/10 ........................................... United States 800,000 826,685
5.00%, 10/15/11 ............................................ United States 50,000 53,033
0.875%, 1/12/12 ............................................ United States 4,000,000 3,994,116
1.00%, 4/04/12 ............................................. United States 3,300,000 3,296,584
1.25%, 6/22/12 ............................................. United States 2,000,000 2,002,458
1.75%, 5/07/13 ............................................. United States 3,900,000 3,907,422
U.S. Treasury Note,
5.125%, 6/30/11 ............................................ United States 3,000,000 3,160,899
4.875%, 7/31/11 ............................................ United States 3,000,000 3,162,072
4.50%, 11/30/11 ............................................ United States 4,000,000 4,237,968
1.00%, 12/31/11 ............................................ United States 5,000,000 5,017,385
1.375%, 2/15/12 ............................................ United States 4,000,000 4,037,188
4.50%, 4/30/12 ............................................. United States 4,500,000 4,817,461
4.75%, 5/31/12 ............................................. United States 7,500,000 8,081,250
4.875%, 6/30/12 ............................................ United States 6,000,000 6,494,064
1.75%, 8/15/12 ............................................. United States 7,500,000 7,611,915
1.25%, 10/15/12 ............................................ United States 4,000,000 4,016,876
1.375%, 2/15/13 ............................................ United States 4,000,000 3,997,500
2.75%, 2/28/13 ............................................. United States 4,000,000 4,151,252
3.125%, 4/30/13 ............................................ United States 3,000,000 3,145,782
2.75%, 10/31/13 ............................................ United States 4,200,000 4,341,095
1.75%, 3/31/14 ............................................. United States 5,300,000 5,256,111
2.375%, 1/31/15 ............................................ United States 4,000,000 3,985,640
(m) Index Linked, 3.00%, 7/15/12 .................................. United States 602,723 652,777
-------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $113,614,625) ............................................... 114,288,528
-------------
94 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
(f, n) SENIOR FLOATING RATE INTERESTS 2.3%
CAPITAL GOODS 0.2%
BE Aerospace Inc., Term Loan B, 5.75%, 7/28/14 ................ United States 25,620 $ 25,866
RBS Global Inc. (Rexnord),
Incremental Tranche B-2, 2.563%, 7/22/13 ................... United States 9,032 8,724
Tranche B-1 Term Loan B, 2.813%, 7/22/13 ................... United States 459,428 449,665
TransDigm Inc., Term Loan B, 2.278%, 6/23/13 .................. United States 86,116 85,003
-------------
569,258
-------------
COMMERCIAL & PROFESSIONAL SERVICES 0.1%
ARAMARK Corp.,
Extended Synthetic L/C, 0.142%, 7/26/16 .................... United States 5,305 5,281
Synthetic L/C, 2.167%, 1/26/14 ............................. United States 2,944 2,897
Term Loan B, 2.165%, 1/26/14 ............................... United States 44,769 44,057
Term Loan B Extended, 3.54%, 7/26/16 ....................... United States 80,643 80,286
Diversey Inc., Tranche B Dollar Term Loan, 5.50%, 11/24/15 .... United States 98,561 99,424
Duratek Inc. (EnergySolutions), Term Loan B, 4.03%, 6/07/13 ... United States 11,438 11,299
EnergySolutions LLC,
Synthetic A Deposit, 4.02%, 6/07/13 ........................ United States 457 452
Synthetic L/C, 4.02%, 6/07/13 .............................. United States 1,699 1,678
Term Loan B, 4.03%, 6/07/13 ................................ United States 23,840 23,552
-------------
268,926
-------------
CONSUMER DURABLES & APPAREL 0.1%
Jarden Corp.,
Term Loan B1, 2.04%, 1/24/12 ............................... United States 2,447 2,440
Term Loan B2, 2.04%, 1/24/12 ............................... United States 7,344 7,318
Term Loan B4, 3.54%, 1/26/15 ............................... United States 116,536 117,077
Jostens IH Corp. (Visant Holding Corp.), Term Loan C, 2.251%,
10/04/11 ................................................... United States 44,050 43,802
-------------
170,637
-------------
CONSUMER SERVICES 0.2%
Education Management LLC, Term Loan C, 2.063%, 6/01/13 ........ United States 291,316 285,592
Penn National Gaming Inc., Term Loan B, 2.00% - 2.07%,
10/03/12 ................................................... United States 123,754 122,697
-------------
408,289
-------------
FOOD & STAPLES RETAILING 0.1%
SUPERVALU Inc.,
Term Loan B, 1.523%, 6/02/12 ............................... United States 41,112 40,604
Term Loan B-2, 3.023%, 10/15/15 ............................ United States 72,821 72,662
Wm. Wrigley Jr. Co.,
Term Loan B1, 3.063%, 12/17/12 ............................. United States 113,723 114,576
Term Loan B2, 3.313%, 10/06/14 ............................. United States 159,071 160,264
-------------
388,106
-------------
FOOD, BEVERAGE & TOBACCO 0.1%
Constellation Brands Inc.,
Extended Term Loan B, 3.00%, 6/05/15 ....................... United States 2,523 2,546
Term Loan B, 1.75%, 6/05/13 ................................ United States 52,416 52,037
Dean Foods Co., Term Loan B, 1.675%, 4/02/14 .................. United States 91,833 90,053
-------------
144,636
-------------
Semiannual Report | 95
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
(f, n) SENIOR FLOATING RATE INTERESTS (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES 0.4%
Community Health Systems Inc.,
Delayed Draw Term Loan, 2.502%, 7/25/14 .................... United States 22,614 $ 22,013
Term Loan, 2.502%, 7/25/14 ................................. United States 441,600 429,869
DaVita Inc., Term Loan B-1, 1.75% - 1.80%, 10/05/12 ........... United States 15,598 15,455
DJO Finance LLC, Term Loan B, 3.273%, 5/20/14 ................. United States 188,478 183,844
Fresenius Medical Care Holdings Inc., Term Loan B, 1.631% -
1.665%, 3/31/13 ............................................ Germany 53,725 53,020
HCA Inc.,
Term Loan B-1, 2.54%, 11/18/13 ............................. United States 65,972 64,286
Tranche B-2 Term Loan, 3.54%, 3/31/17 ...................... United States 158,214 157,390
LifePoint Hospitals Inc., Term B-2 Loan, 3.01%, 4/15/15 ....... United States 100,270 100,003
-------------
1,025,880
-------------
MATERIALS 0.2%
Celanese U.S. Holdings LLC, Dollar Term Loan, 2.042%,
4/02/14 .................................................... United States 161,358 158,424
Georgia-Pacific LLC, Term Loan C, 3.504% - 3.588%, 12/23/14 ... United States 115,429 115,835
Nalco Co.,
Term Loan, 6.50%, 5/13/16 .................................. United States 91,968 92,869
Term Loan B, 2.063%, 11/04/10 .............................. United States 15,639 15,664
Rockwood Specialties Group Inc., Term Loan H, 6.00%, 5/15/14 .. United States 220,169 222,072
-------------
604,864
-------------
MEDIA 0.3%
Cinemark USA Inc., Extended Term Loan, 3.50% - 3.56%,
4/30/16 .................................................... United States 284,770 285,160
(o) CSC Holdings Inc. (Cablevision), Incremental Term Loan B-2,
2.004%, 3/29/16 ............................................ United States 200,103 200,429
DIRECTV Holdings LLC, Term Loan B, 1.773%, 4/13/13 ............ United States 9,605 9,621
Discovery Communications Inc.,
Term Loan B, 2.29%, 5/14/14 ................................ United States 38,044 38,074
(o) Term Loan C, 5.25%, 5/14/14 ............................... United States 27,352 27,629
Regal Cinemas Corp., Term Loan, 3.79%, 11/17/16 ............... United States 119,271 119,712
UPC Financing Partnership, Term Loan T, 3.93%, 12/31/16 ....... Netherlands 57,989 57,365
-------------
737,990
-------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.1%
Mylan Inc., Term Loan B, 3.563%, 10/02/14 ..................... United States 265,869 265,960
-------------
RETAILING 0.1%
Dollar General Corp., Tranche B-1 Term Loan, 3.006% - 3.088%,
7/07/14 .................................................... United States 148,827 146,941
-------------
SOFTWARE & SERVICES 0.0%(a)
Lender Processing Services Inc., Term Loan B, 2.773%,
7/02/14 .................................................... United States 39,508 39,673
SunGard Data Systems Inc., Tranche B U.S. Term Loan,
3.874% - 3.895%, 2/28/16 ................................... United States 44,277 44,099
-------------
83,772
-------------
96 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY PRINCIPAL AMOUNT(c) VALUE
--------------------------------------- -------------- ------------------- -------------
(f, n) SENIOR FLOATING RATE INTERESTS (CONTINUED)
TECHNOLOGY HARDWARE & EQUIPMENT 0.0%(a)
Flextronics International USA Inc.,
A Closing Date Loan, 2.541% - 2.554%, 10/01/14 ............. United States 31,550 $ 30,474
A-1-A Delayed Draw Term Loan, 2.553%, 10/01/14 ............. United States 3,330 3,216
A-1-B Delayed Draw Term Loan, 2.54%, 10/01/14 .............. United States 15,138 14,621
A-3 Delayed Draw Term Loan, 2.523%, 10/01/14 ............... United States 21,173 20,326
-------------
68,637
-------------
TELECOMMUNICATION SERVICES 0.2%
Intelsat Corp. (PanAmSat),
Incremental Term Loan B-2-A, 2.792%, 1/03/14 ............... United States 1,152 1,131
Incremental Term Loan B-2-B, 2.792%, 1/03/14 ............... United States 1,151 1,131
Incremental Term Loan B-2-C, 2.792%, 1/03/14 ............... United States 1,151 1,131
Tranche B-2-A, 2.792%, 1/03/14 ............................. United States 162,952 160,062
Tranche B-2-B, 2.792%, 1/03/14 ............................. United States 162,902 160,013
Tranche B-2-C, 2.792%, 1/03/14 ............................. United States 162,902 160,013
NTELOS Inc., Term Loan B, 5.75%, 8/07/15 ...................... United States 51,046 51,397
Windstream Corp., Tranche B-2 Term Loan, 3.06%, 12/17/15 ...... United States 53,876 53,944
-------------
588,822
-------------
UTILITIES 0.2%
NRG Energy Inc.,
Credit Link, 2.04%, 2/01/13 ................................ United States 169,085 166,078
Term Loan, 2.023% - 2.04%, 2/01/13 ......................... United States 256,690 252,125
-------------
418,203
-------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $5,756,722) 5,890,921
-------------
MUNICIPAL BONDS (COST $1,633,551) 0.7%
California State GO, Various Purpose, Refunding, 5.00%,
3/01/14 .................................................... United States 1,475,000 1,633,563
-------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $231,711,746) 236,731,968
-------------
SHORT TERM INVESTMENTS 5.6%
FOREIGN GOVERNMENT AND AGENCY SECURITIES 0.6%
(p) Israel Treasury Bills, 10/06/10 - 4/06/11 ..................... Israel 6,085,000 ILS 1,603,461
(p) Malaysia Treasury Bills,
11/09/10 - 1/06/11 ......................................... Malaysia 10,000 MYR 3,087
1810, 11/02/10 ............................................. Malaysia 5,000 MYR 1,548
-------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $1,618,508) 1,608,096
-------------
U.S. GOVERNMENT AND AGENCY SECURITIES (COST $669,931) 0.3%
(p, q) U.S. Treasury Bill, 5/27/10 ................................... United States 670,000 669,944
-------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS
(COST $234,000,185) ........................................ 239,010,008
-------------
Semiannual Report | 97
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND COUNTRY SHARES VALUE
--------------------------------------- -------------- ------------------- -------------
SHORT TERM INVESTMENTS (CONTINUED)
MONEY MARKET FUNDS (COST $11,908,693) 4.7%
(r) Institutional Fiduciary Trust Money Market
Portfolio, 0.00%............................................ United States 11,908,693 $ 11,908,693
-------------
TOTAL INVESTMENTS (COST $245,908,878) 99.3%.................... 250,918,701
OTHER ASSETS, LESS LIABILITIES 0.7%............................ 1,854,382
-------------
NET ASSETS 100.0%.............................................. $ 252,773,083
=============
(a) Rounds to less than 0.1% of net assets.
(b) Non-income producing.
(c) The principal amount is stated in U.S. dollars unless otherwise indicated.
(d) Security 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 April 30, 2010,
the aggregate value of these securities was $14,499,971, representing 5.74%
of net assets.
(e) Perpetual security with no stated maturity date.
(f) The coupon rate shown represents the rate at period end.
(g) See Note 8 regarding defaulted securities.
(h) The principal amount is stated in original face, and scheduled paydowns are
reflected in the market price on ex-date.
(i) Principal amount is stated in 100 Mexican Peso Units.
(j) Security 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. This
security has been deemed liquid under guidelines approved by the Trust's
Board of Trustees. At April 30, 2010, the value of this security was
$19,880, representing 0.01% of net assets.
(k) Principal amount is stated in 1,000 Brazilian Real Units.
(l) Redemption price at maturity is adjusted for inflation. See Note 1(i).
(m) Principal amount of security is adjusted for inflation. See Note 1(i).
(n) See Note 1(g) regarding senior floating rate interests.
(o) A portion of the security purchased on a delayed delivery basis. See Note
1(d).
(p) The security is traded on a discount basis with no stated coupon rate.
(q) Security or a portion of the security has been segregated as collateral for
open futures and swap contracts. At April 30, 2010, the value of this
security was $669,942.
(r) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
At April 30, 2010, the fund had the following financial futures contracts
outstanding. See Note 1(e).
FINANCIAL FUTURES CONTRACTS
NUMBER OF DELIVERY UNREALIZED UNREALIZED
DESCRIPTION TYPE CONTRACTS NOTIONAL AMOUNT DATE APPRECIATION DEPRECIATION
- ----------- ----- --------- --------------- -------- ------------ ------------
U.S. Treasury 2 Year Note ...................... Long 60 $12,000,000 6/30/10 $47,662 $ --
U.S. Treasury 5 Year Note ...................... Short 62 6,200,000 6/30/10 4,689 --
U.S. Treasury 10 Year Note ..................... Short 41 4,100,000 6/21/10 -- (19,321)
------- --------
Unrealized appreciation (depreciation) ....................................................... 52,351 (19,321)
------- --------
Net unrealized appreciation (depreciation) ................................................ $33,030
=======
98 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND
At April 30, 2010, the fund had the following forward exchange contracts
outstanding. See Note 1(e).
FORWARD EXCHANGE CONTRACTS
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT(A) DATE APPRECIATION DEPRECIATION
- -------- ------------ ---- ------------- ------------- ---------- ------------ ------------
Indian Rupee ........ DBAB Buy 1,843,000 37,552 6/01/10 $ 3,946 $ --
Indian Rupee ........ HSBC Buy 55,000 1,134 6/02/10 104 --
Indian Rupee ........ HSBC Buy 270,000 5,625 6/03/10 453 --
Indian Rupee ........ HSBC Buy 1,805,000 37,557 6/04/10 3,072 --
Indian Rupee ........ DBAB Buy 903,000 18,789 6/07/10 1,531 --
Indian Rupee ........ DBAB Buy 455,000 9,440 6/08/10 798 --
Indian Rupee ........ HSBC Buy 362,000 7,503 6/08/10 643 --
Indian Rupee ........ DBAB Buy 368,000 7,564 6/10/10 714 --
Indian Rupee ........ BZWS Buy 550,000 11,340 6/11/10 1,031 --
Indian Rupee ........ HSBC Buy 368,000 7,549 6/11/10 729 --
Indian Rupee ........ DBAB Buy 920,000 18,887 6/16/10 1,797 --
Indian Rupee ........ DBAB Buy 838,000 16,998 6/21/10 1,833 --
Indonesian Rupiah ... JPHQ Buy 5,835,300,000 530,000 6/30/10 110,427 --
New Zealand Dollar .. DBAB Buy 1,348,065 986,379 7/06/10 -- (10,836)
New Zealand Dollar .. DBAB Sell 1,348,065 848,000 7/06/10 -- (127,542)
New Zealand Dollar .. DBAB Buy 142,170 103,784 7/30/10 -- (1,070)
New Zealand Dollar .. DBAB Sell 142,170 91,486 7/30/10 -- (11,228)
New Zealand Dollar .. BZWS Buy 55,442 40,284 8/03/10 -- (242)
New Zealand Dollar .. DBAB Buy 141,629 103,347 8/03/10 -- (1,056)
New Zealand Dollar .. BZWS Sell 55,442 35,594 8/03/10 -- (4,449)
New Zealand Dollar .. DBAB Sell 141,629 90,975 8/03/10 -- (11,315)
New Zealand Dollar .. BZWS Buy 27,935 20,296 8/04/10 -- (121)
New Zealand Dollar .. DBAB Buy 56,112 40,945 8/04/10 -- (422)
New Zealand Dollar .. BZWS Sell 27,935 17,934 8/04/10 -- (2,240)
New Zealand Dollar .. DBAB Sell 56,112 35,850 8/04/10 -- (4,673)
New Zealand Dollar .. CITI Buy 140,649 102,139 8/05/10 -- (573)
New Zealand Dollar .. DBAB Buy 41,724 30,442 8/05/10 -- (312)
New Zealand Dollar .. HSBC Buy 289,000 210,739 8/05/10 -- (2,045)
New Zealand Dollar .. CITI Sell 140,649 91,847 8/05/10 -- (9,719)
New Zealand Dollar .. DBAB Sell 41,724 27,196 8/05/10 -- (2,934)
New Zealand Dollar .. HSBC Sell 289,000 186,925 8/05/10 -- (21,769)
New Zealand Dollar .. CITI Buy 55,081 39,994 8/06/10 -- (222)
New Zealand Dollar .. FBCO Buy 27,490 19,971 8/06/10 -- (122)
New Zealand Dollar .. CITI Sell 55,081 35,996 8/06/10 -- (3,776)
New Zealand Dollar .. FBCO Sell 27,490 17,903 8/06/10 -- (1,947)
New Zealand Dollar .. CITI Buy 54,349 38,280 8/09/10 955 --
New Zealand Dollar .. FBCO Buy 53,729 37,863 8/09/10 924 --
New Zealand Dollar .. DBAB Sell 54,595 35,912 8/09/10 -- (3,499)
New Zealand Dollar .. CITI Sell 54,349 35,733 8/09/10 -- (3,502)
New Zealand Dollar .. DBAB Buy 54,595 38,533 8/09/10 879 --
New Zealand Dollar .. FBCO Sell 53,729 35,405 8/09/10 -- (3,382)
Semiannual Report | 99
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND
FORWARD EXCHANGE CONTRACTS (CONTINUED)
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT(A) DATE APPRECIATION DEPRECIATION
- -------- ------------ ---- ------------- ------------- ---------- ------------ ------------
New Zealand Dollar .. FBCO Buy 26,918 18,967 8/11/10 $ 462 $ --
New Zealand Dollar .. FBCO Sell 53,824 35,746 8/11/10 -- (3,103)
New Zealand Dollar .. DBAB Buy 50,534 35,657 8/12/10 814 --
New Zealand Dollar .. DBAB Sell 50,534 33,009 8/12/10 -- (3,462)
New Israeli Shekel .. CITI Buy 150,000 39,584 8/17/10 608 --
New Israeli Shekel .. CITI Buy 150,000 39,518 8/19/10 673 --
New Israeli Shekel .. DBAB Buy 15,000 3,952 8/19/10 68 --
New Israeli Shekel .. CITI Buy 57,600 15,070 8/20/10 363 --
New Israeli Shekel .. CITI Buy 98,200 25,753 8/23/10 558 --
New Zealand Dollar .. FBCO Sell 49,380 32,560 8/24/10 -- (3,044)
New Zealand Dollar .. DBAB Buy 49,000 34,535 8/27/10 786 --
New Zealand Dollar .. DBAB Sell 49,000 32,757 8/27/10 -- (2,565)
Euro ................ BZWS Sell 2,400 3,534 9/20/10 338 --
Euro ................ UBSW Sell 15,642 22,935 9/23/10 2,105 --
Euro ................ JPHQ Sell 6,904 10,222 9/24/10 1,028 --
Malaysian Ringgit ... JPHQ Buy 90,000 17,654 EUR 9/28/10 4,499 --
Euro ................ DBAB Sell 1,355,000 1,982,270 10/04/10 177,909 --
Philippine Peso ..... DBAB Buy 2,962,000 61,394 10/04/10 4,045 --
Philippine Peso ..... HSBC Buy 2,376,000 49,116 10/04/10 3,376 --
Philippine Peso ..... DBAB Buy 3,542,000 73,686 10/05/10 4,558 --
Philippine Peso ..... HSBC Buy 3,543,000 73,689 10/05/10 4,578 --
Indian Rupee ........ DBAB Buy 37,626,250 775,000 10/06/10 62,684 --
Philippine Peso ..... JPHQ Buy 936,000 19,656 10/06/10 1,019 --
Philippine Peso ..... DBAB Buy 2,908,000 61,412 10/07/10 2,813 --
Philippine Peso ..... CITI Buy 1,164,000 24,565 10/08/10 1,140 --
Philippine Peso ..... DBAB Buy 2,327,000 49,130 10/08/10 2,258 --
Philippine Peso ..... HSBC Buy 2,331,000 49,122 10/08/10 2,355 --
Philippine Peso ..... JPHQ Buy 1,160,000 24,545 10/08/10 1,072 --
Philippine Peso ..... DBAB Buy 693,000 14,742 10/12/10 556 --
Philippine Peso ..... HSBC Buy 1,155,000 24,559 10/13/10 935 --
Philippine Peso ..... JPHQ Buy 2,582,000 55,171 10/13/10 1,820 --
Chinese Yuan ........ HSBC Buy 58,724 5,963 EUR 10/15/10 748 --
Chinese Yuan ........ HSBC Buy 19,095 2,900 10/25/10 -- (73)
Chinese Yuan ........ HSBC Buy 37,968 5,751 10/26/10 -- (129)
Chinese Yuan ........ HSBC Buy 18,971 2,868 10/27/10 -- (58)
Japanese Yen ........ DBAB Sell 59,567,300 650,000 10/28/10 14,573 --
Euro ................ DBAB Sell 1,051,000 1,554,009 10/29/10 154,468 --
Japanese Yen ........ BZWS Sell 55,436,000 618,999 11/10/10 27,490 --
Japanese Yen ........ UBSW Sell 172,318,944 1,932,000 11/17/10 93,081 --
Euro ................ DBAB Sell 332,718 495,916 11/29/10 52,845 --
Mexican Peso ........ CITI Sell 121,000 8,910 12/02/10 -- (676)
Euro ................ UBSW Sell 373,000 533,334 1/11/11 36,597 --
Euro ................ BZWS Sell 147,003 211,537 1/12/11 15,768 --
100 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND
FORWARD EXCHANGE CONTRACTS (CONTINUED)
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT(A) DATE APPRECIATION DEPRECIATION
- -------- ------------ ---- ------------- ------------- ---------- ------------ ------------
Philippine Peso ..... JPHQ Buy 5,053,000 108,651 1/13/11 $ 1,930 $ --
Euro ................ BZWS Sell 227,000 329,377 1/14/11 27,073 --
Philippin e Peso .... HSBC Buy 810,000 17,319 1/14/11 406 --
Euro ................ DBAB Sell 47,000 67,989 1/18/11 5,397 --
Euro ................ CITI Sell 532,000 751,051 1/27/11 42,550 --
Japanese Yen ....... DBAB Sell 120,543,920 1,337,000 2/02/11 48,563 --
Malaysian Ringgit .. DBAB Buy 462,000 134,568 2/17/11 8,137 --
Indian Rupee ........ DBAB Buy 1,355,000 29,856 4/11/11 -- (137)
Indian Rupee ........ DBAB Buy 2,905,000 64,001 4/12/11 -- (292)
Indian Rupee ........ JPHQ Buy 1,951,000 43,107 4/13/11 -- (323)
Indian Rupee ........ JPHQ Buy 1,915,000 42,311 4/15/11 -- (323)
Indian Rupee ........ DBAB Buy 673,000 14,824 4/19/11 -- (73)
Indian Rupee ........ JPHQ Buy 957,000 21,056 4/19/11 -- (80)
Chilean Peso ........ MSCO Buy 62,760,000 119,484 4/25/11 470 --
Indian Rupee ........ DBAB Buy 1,361,000 30,051 4/26/11 -- (236)
Chilean Peso ........ JPHQ Buy 29,522,000 56,206 4/27/11 216 --
Indian Rupee ........ JPHQ Buy 194,000 4,281 4/27/11 -- (31)
Chilean Peso ........ CITI Buy 47,586,000 91,161 4/28/11 -- (223)
Indian Rupee ........ JPHQ Buy 963,000 21,249 4/28/11 -- (156)
Indian Rupee ........ JPHQ Buy 964,000 21,280 4/29/11 -- (168)
Indian Rupee ........ JPHQ Buy 60,155,900 1,330,000 5/04/11 -- (16,575)
------------ ------------
Unrealized appreciation (depreciation) .............................................. 943,568 (260,723)
------------ ------------
Net unrealized appreciation (depreciation) .......................................... $ 682,845
============
(a) In U.S. dollars unless otherwise indicated.
At April 30, 2010, the fund had the following credit default swap contracts
outstanding. See Note 1(e).
CREDIT DEFAULT SWAP CONTRACTS
PERIODIC
NOTIONAL PAYMENT EXPIRATION UNREALIZED UNREALIZED
DESCRIPTION COUNTERPARTY(a) AMOUNT(b) RATE DATE APPRECIATION DEPRECIATION RATING(c)
- ----------- --------------- ---------- -------- ---------- ------------ ------------ ----------
CONTRACTS TO BUY PROTECTION
SINGLE NAME
Bank of America Corp. ....... FBCO $1,000,000 1.00% 6/20/15 $ 9,356 $ --
Belo Corp. .................. JPHQ 1,000,000 5.00% 3/20/11 -- (26,239)
GMAC Inc. ................... FBCO 1,000,000 5.00% 9/20/11 -- (8,716)
Marsh & McLennan Cos. Inc. .. FBCO 500,000 0.65% 9/20/10 119 --
PHH Corp. ................... BOFA 1,000,000 5.00% 3/20/13 -- (26,608)
Starwood Hotels & Resorts
Worldwide Inc. ........... FBCO 1,000,000 5.00% 3/20/13 -- (19,291)
Wendy's International Inc. .. DBAB 1,000,000 5.00% 12/20/11 2,257 --
Wendy's International Inc. .. MSCO 2,000,000 5.00% 6/20/14 830 --
Semiannual Report | 101
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN LOW DURATION TOTAL RETURN FUND
CREDIT DEFAULT SWAP CONTRACTS (CONTINUED)
PERIODIC
NOTIONAL PAYMENT EXPIRATION UNREALIZED UNREALIZED
DESCRIPTION COUNTERPARTY(a) AMOUNT(b) RATE DATE APPRECIATION DEPRECIATION RATING(c)
- ----------- --------------- ---------- -------- ---------- ------------ ------------ ----------
CONTRACTS TO SELL PROTECTION(d)
SINGLE NAME
Freescale Semiconductor
Inc. ..................... FBCO $ 200,000 5.00% 12/20/14 $ 11,350 $ -- CCC
Merrill Lynch & Co. Inc. .... FBCO 1,000,000 1.00% 6/20/15 -- (13,295) A
TRADED INDEX
CDX.NA.HY.14 ................ FBCO 2,000,000 5.00% 6/20/15 30,424 -- Non
Investment
Grade
CDX.NA.IG.14 ................ FBCO 2,000,000 1.00% 6/20/15 759 -- Investment
Grade
LCDX.NA.13 .................. FBCO 5,500,000 5.00% 12/20/14 439,034 -- Non
Investment
Grade
-------- --------
Unrealized appreciation (depreciation) .......................................... 494,129 (94,149)
-------- --------
Net unrealized appreciation (depreciation) ................................... $399,980
========
(a) Positions are generally not collateralized if the unrealized appreciation
(depreciation) is under $250,000. Collateral requirements may be net of
current positions at the individual counterparty for the fund. The table
below summarizes the cash and/or securities held as collateral for each
applicable counterparty at period end:
COLLATERAL
COUNTERPARTY POSTED (RECEIVED)
- ------------ -----------------
BOFA $ 99,992
MSCS 269,977
MLCO (20,000)
--------
Total collateral for credit default swaps $349,969
========
(b) 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.
(c) Based 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.
(d) The fund enters contracts to sell protection to create a long credit
position. Performance triggers include default, bankruptcy or restructuring
for single name swaps, and failure to pay or bankruptcy for traded index
swaps.
See Abbreviations on page 163.
The accompanying notes are an integral part of these financial statements.
102 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS
FRANKLIN TOTAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -------------------------------------------------------
CLASS A (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ----------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 9.65 $ 8.60 $ 9.92 $ 9.95 $ 9.91 $ 10.22
---------- ---------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income ......................... 0.210 0.480 0.449 0.469 0.439 0.410
Net realized and unrealized gains (losses) .... 0.313 1.190 (1.289) (0.010) 0.096 (0.280)
---------- ---------- -------- -------- -------- --------
Total from investment operations ................. 0.523 1.670 (0.840) 0.459 0.535 0.130
---------- ---------- -------- -------- -------- --------
Less distributions from net investment
income and net foreign currency gains ......... (0.233) (0.620) (0.480) (0.489) (0.495) (0.440)
---------- ---------- -------- -------- -------- --------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
---------- ---------- -------- -------- -------- --------
Net asset value, end of period ................... $ 9.94 $ 9.65 $ 8.60 $ 9.92 $ 9.95 $ 9.91
========== ========== ======== ======== ======== ========
Total return(d) .................................. 5.49% 20.25% (8.79)% 4.62% 5.56% 1.27%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses before waiver and payments by
affiliates .................................... 0.95% 1.01% 1.01% 1.03% 1.03% 1.04%
Expenses net of waiver and payments by
affiliates(f) ................................. 0.86% 0.85% 0.85% 0.85% 0.85% 0.85%
Net investment income ............................ 4.47% 4.75% 4.68% 4.69% 4.39% 3.88%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $1,504,173 $1,244,157 $780,551 $683,736 $406,242 $291,473
Portfolio turnover rate .......................... 62.02% 187.73% 300.07% 313.08% 251.50% 58.81%
Portfolio turnover rate excluding mortgage
dollar rolls(g) ............................... 23.32% 59.67% 68.00% 92.51% 89.19% 51.26%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) See Note 1(f) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 103
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TOTAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 --------------------------------------------------
CLASS B (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 9.65 $ 8.60 $ 9.92 $ 9.94 $ 9.91 $ 10.22
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ......................... 0.204 0.406 0.412 0.422 0.392 0.356
Net realized and unrealized gains (losses) .... 0.291 1.230 (1.291) 0.007 0.094 (0.266)
------- ------- ------- ------- ------- -------
Total from investment operations ................. 0.495 1.636 (0.879) 0.429 0.486 0.090
------- ------- ------- ------- ------- -------
Less distributions from net investment income
and net foreign currency gains ................ (0.215) (0.586) (0.441) (0.449) (0.456) (0.400)
------- ------- ------- ------- ------- -------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
------- ------- ------- ------- ------- -------
Net asset value, end of period ................... $ 9.93 $ 9.65 $ 8.60 $ 9.92 $ 9.94 $ 9.91
======= ======= ======= ======= ======= =======
Total return(d) .................................. 5.30% 19.67% (9.15)% 4.31% 5.04% 0.87%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses before waiver and payments by
affiliates .................................... 1.34% 1.41% 1.41% 1.43% 1.43% 1.44%
Expenses net of waiver and payments by
affiliates(f) ................................. 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income ............................ 4.08% 4.35% 4.28% 4.29% 3.99% 3.48%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $20,900 $22,492 $19,176 $20,422 $21,028 $21,366
Portfolio turnover rate .......................... 62.02% 187.73% 300.07% 313.08% 251.50% 58.81%
Portfolio turnover rate excluding mortgage
dollar rolls(g) ............................... 23.32% 59.67% 68.00% 92.51% 89.19% 51.26%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) See Note 1(f) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
104 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TOTAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 ----------------------------------------------------
CLASS C (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 9.65 $ 8.60 $ 9.91 $ 9.94 $ 9.91 $ 10.22
-------- -------- -------- ------- ------- -------
Income from investment operations(a):
Net investment income ......................... 0.188 0.473 0.406 0.424 0.395 0.364
Net realized and unrealized gains (losses) .... 0.306 1.163 (1.275) (0.005) 0.089 (0.275)
-------- -------- -------- ------- ------- -------
Total from investment operations ................. 0.494 1.636 (0.869) 0.419 0.484 0.089
-------- -------- -------- ------- ------- -------
Less distributions from net investment income
and net foreign currency gains ................ (0.214) (0.586) (0.441) (0.449) (0.454) (0.399)
-------- -------- -------- ------- ------- -------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
-------- -------- -------- ------- ------- -------
Net asset value, end of period ................... $ 9.93 $ 9.65 $ 8.60 $ 9.91 $ 9.94 $ 9.91
======== ======== ======== ======= ======= =======
Total return(d) .................................. 5.29% 19.67% (9.15)% 4.31% 5.03% 0.86%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses before waiver and payments by
affiliates .................................... 1.35% 1.41% 1.41% 1.43% 1.43% 1.44%
Expenses net of waiver and payments by
affiliates(f) ................................. 1.26% 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income ............................ 4.07% 4.35% 4.28% 4.29% 3.99% 3.48%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $289,784 $237,596 $103,564 $84,457 $46,110 $34,751
Portfolio turnover rate .......................... 62.02% 187.73% 300.07% 313.08% 251.50% 58.81%
Portfolio turnover rate excluding mortgage
dollar rolls(g) ............................... 23.32% 59.67% 68.00% 92.51% 89.19% 51.26%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) See Note 1(f) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 105
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TOTAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 --------------------------------------------------
CLASS R (UNAUDITED) 2009 2008 2007 2006 2005
- ------- ---------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 9.65 $ 8.60 $ 9.92 $ 9.94 $ 9.91 $ 10.22
------- ------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income ......................... 0.203 0.425 0.422 0.439 0.407 0.389
Net realized and unrealized gains (losses) .... 0.298 1.224 (1.286) 0.005 0.093 (0.284)
------- ------- ------- ------- ------- -------
Total from investment operations ................. 0.501 1.649 (0.864) 0.444 0.500 0.105
------- ------- ------- ------- ------- -------
Less distributions from net investment income
and net foreign currency gains ................ (0.221) (0.599) (0.456) (0.464) (0.470) (0.415)
------- ------- ------- ------- ------- -------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
------- ------- ------- ------- ------- -------
Net asset value, end of period ................... $ 9.93 $ 9.65 $ 8.60 $ 9.92 $ 9.94 $ 9.91
======= ======= ======= ======= ======= =======
Total return(d) .................................. 5.26% 19.97% (9.01)% 4.47% 5.20% 1.01%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses before waiver and payments by
affiliates .................................... 1.20% 1.26% 1.26% 1.28% 1.28% 1.29%
Expenses net of waiver and payments by
affiliates(f) ................................. 1.11% 1.10% 1.10% 1.10% 1.10% 1.10%
Net investment income ............................ 4.22% 4.50% 4.43% 4.44% 4.14% 3.63%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $90,810 $85,024 $68,775 $57,935 $30,219 $21,647
Portfolio turnover rate .......................... 62.02% 187.73% 300.07% 313.08% 251.50% 58.81%
Portfolio turnover rate excluding mortgage
dollar rolls(g) ............................... 23.32% 59.67% 68.00% 92.51% 89.19% 51.26%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) See Note 1(f) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
106 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TOTAL RETURN FUND
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2010 -------------------------------------------------------
ADVISOR CLASS (UNAUDITED) 2009 2008 2007 2006 2005
- ------------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 9.67 $ 8.61 $ 9.93 $ 9.96 $ 9.92 $ 10.24
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income ......................... 0.224 0.517 0.479 0.497 0.470 0.436
Net realized and unrealized gains (losses) .... 0.301 1.186 (1.295) (0.012) 0.090 (0.289)
-------- -------- -------- -------- -------- --------
Total from investment operations ................. 0.525 1.703 (0.816) 0.485 0.560 0.147
-------- -------- -------- -------- -------- --------
Less distributions from net investment income
and net foreign currency gains ................ (0.245) (0.643) (0.504) (0.515) (0.520) (0.467)
-------- -------- -------- -------- -------- --------
Redemption fees(b) ............................... -- -- --(c) --(c) --(c) --(c)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................... $ 9.95 $ 9.67 $ 8.61 $ 9.93 $ 9.96 $ 9.92
======== ======== ======== ======== ======== ========
Total return(d) .................................. 5.61% 20.52% (8.64)% 4.99% 5.82% 1.43%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses before waiver and payments by
affiliates .................................... 0.70% 0.76% 0.76% 0.78% 0.78% 0.79%
Expenses net of waiver and payments by
affiliates(f) ................................. 0.61% 0.60% 0.60% 0.60% 0.60% 0.60%
Net investment income ............................ 4.72% 5.00% 4.93% 4.94% 4.64% 4.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $818,593 $668,955 $345,256 $280,776 $222,992 $178,792
Portfolio turnover rate .......................... 62.02% 187.73% 300.07% 313.08% 251.50% 58.81%
Portfolio turnover rate excluding mortgage
dollar rolls(g) ............................... 23.32% 59.67% 68.00% 92.51% 89.19% 51.26%
(a) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(b) Effective September 1, 2008, the redemption fee was eliminated.
(c) Amount rounds to less than $0.001 per share.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) See Note 1(f) regarding mortgage dollar rolls.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 107
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION SHARES VALUE
----------------------------------------------------------- -------------- -------------------- --------------
COMMON STOCKS 0.1%
CONSUMER DURABLES & APPAREL 0.0%
(a, b) Comfort Co., Inc. ......................................... United States 716 $ --
--------------
CONSUMER SERVICES 0.1%
(a, c, d) Turtle Bay Resort ......................................... United States 1,550,568 1,550,568
--------------
MEDIA 0.0%(e)
(a) Charter Communications Inc., A ............................ United States 1,331 50,445
(a) Dex One Corp. ............................................. United States 24,301 736,563
--------------
787,008
--------------
TOTAL COMMON STOCKS (COST $2,311,187) 2,337,576
--------------
CONVERTIBLE PREFERRED STOCKS (COST $1,000,891) 0.0%(e)
AUTOMOBILES & COMPONENTS 0.0%(e)
(a) General Motors Corp., 6.25%, cvt. pfd., C ................. United States 43,500 380,516
--------------
PREFERRED STOCKS (COST $164,010) 0.0%(e)
DIVERSIFIED FINANCIALS 0.0%(e)
(f) GMAC Inc., 7.00%, pfd., 144A .............................. United States 462 392,397
--------------
PRINCIPAL AMOUNT(g)
--------------------
CORPORATE BONDS 32.0%
AUTOMOBILES & COMPONENTS 0.2%
Ford Motor Credit Co. LLC, senior note,
9.875%, 8/10/11 ..................................... United States 500,000 529,272
7.50%, 8/01/12 ...................................... United States 3,500,000 3,619,532
7.00%, 4/15/15 ...................................... United States 1,000,000 1,017,993
8.125%, 1/15/20 ..................................... United States 1,000,000 1,061,269
--------------
6,228,066
--------------
BANKS 2.7%
Barclays Bank PLC, senior note,
5.20%, 7/10/14 ...................................... United Kingdom 3,200,000 3,435,389
5.125%, 1/08/20 ..................................... United Kingdom 8,000,000 8,043,872
BB&T Corp., senior note, 6.85%, 4/30/19 ................... United States 6,800,000 7,864,261
(f, h) BNP Paribas, 144A, 7.195%, Perpetual ...................... France 3,500,000 3,325,000
Countrywide Financial Corp., 4.00%, 3/22/11 ............... United States 1,300,000 1,332,516
Discover Bank, sub. note, 8.70%, 11/18/19 ................. United States 4,000,000 4,550,068
(i) Fifth Third Capital Trust IV, junior sub. note, FRN, 6.50%,
4/15/67 .. ............................................. United States 3,000,000 2,595,000
HSBC Holdings PLC, sub. note, 6.50%, 9/15/37 .............. United Kingdom 3,000,000 3,189,612
(j) HSBK (Europe) BV, Reg S, 7.25%, 5/03/17 ................... Kazakhstan 3,850,000 3,774,155
PNC Funding Corp., senior note, 5.125%, 2/08/20 ........... United States 7,000,000 7,140,749
(i) Regions Financial Corp., senior note, FRN, 0.455%,
6/26/12 ................................................ United States 4,500,000 4,218,691
Royal Bank of Scotland Group PLC, senior note, 6.40%,
10/21/19 ............................................... United Kingdom 7,000,000 7,189,514
UBS AG Stamford, senior note, 5.875%, 12/20/17 ............ United States 4,000,000 4,237,480
(h) Wachovia Capital Trust III, junior sub. bond, 5.80%,
Perpetual .............................................. United States 4,000,000 3,500,000
Wells Fargo & Co., senior note, 3.625%, 4/15/15 ........... United States 1,000,000 1,016,376
108 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
BANKS (CONTINUED)
(h) Wells Fargo Capital XIII, pfd., 7.70%, Perpetual .......... United States 2,000,000 $ 2,090,000
(h) Wells Fargo Capital XV, pfd., 9.75%, Perpetual ............ United States 5,500,000 6,187,500
Wells Fargo Financial Inc., senior note, 5.50%, 8/01/12 ... United States 850,000 912,395
--------------
74,602,578
--------------
CAPITAL GOODS 0.7%
(f) Allison Transmission Inc., senior note, 144A, 11.00%,
11/01/15 ............................................... United States 2,500,000 2,712,500
Case New Holland Inc., senior note, 7.125%, 3/01/14 ....... United States 2,500,000 2,568,750
Greenbrier Cos. Inc., senior note, 8.375%, 5/15/15 ........ United States 600,000 573,000
Hubbell Inc., 6.375%, 5/15/12 ............................. United States 1,000,000 1,075,863
Ingersoll-Rand Global Holding Co. Ltd., senior note, 9.50%,
4/15/14 ................................................ United States 3,900,000 4,785,830
(f) Libbey Glass Inc., senior secured note, 144A, 10.00%,
2/15/15 ................................................ United States 1,000,000 1,061,250
Manitowoc Co. Inc., senior note, 9.50%, 2/15/18 ........... United States 1,400,000 1,477,000
(f) RBS Global & Rexnord Corp., senior note, 144A, 8.50%,
5/01/18 ................................................ United States 2,700,000 2,710,125
RSC Equipment Rental Inc./RSC Holdings III LLC, senior
note,
(f) 144A, 10.25%, 11/15/19 .............................. United States 1,000,000 1,047,500
9.50%, 12/01/14 .................................... United States 1,500,000 1,548,750
--------------
19,560,568
--------------
COMMERCIAL & PROFESSIONAL SERVICES 0.1%
(f, k) JohnsonDiversey Holdings Inc., senior note, 144A, PIK,
10.50%, 5/15/20 ........................................ United States 1,600,000 1,715,200
--------------
CONSUMER DURABLES & APPAREL 0.8%
Centex Corp., senior note,
7.50%, 1/15/12 ...................................... United States 3,750,000 4,031,250
5.45%, 8/15/12 ...................................... United States 5,000,000 5,225,000
Jarden Corp., senior sub. note, 7.50%, 5/01/17 ............ United States 2,500,000 2,568,750
Meritage Homes Corp., senior note, 6.25%, 3/15/15 ......... United States 5,000,000 4,837,500
Standard Pacific Corp., senior note, 7.75%, 3/15/13 ....... United States 5,000,000 5,075,000
--------------
21,737,500
--------------
CONSUMER SERVICES 2.0%
Harrah's Operating Co. Inc., senior secured note, 11.25%,
6/01/17 ................................................ United States 5,000,000 5,475,000
MGM MIRAGE,
senior note, 6.625%, 7/15/15 ........................ United States 4,500,000 3,903,750
(f) senior secured note, 144A, 9.00%, 3/15/20 ........... United States 600,000 633,000
(f) Norwegian Cruise Line Ltd., senior secured note, 144A,
11.75%, 11/15/16 ....................................... United States 2,500,000 2,787,500
Pinnacle Entertainment Inc., senior sub. note, 7.50%,
6/15/15 ................................................ United States 2,500,000 2,418,750
Royal Caribbean Cruises Ltd., senior note, 7.25%,
6/15/16 ................................................ United States 2,500,000 2,531,250
(f) Shingle Springs Tribal Gaming, senior note, 144A, 9.375%,
6/15/15 ................................................ United States 1,000,000 855,000
Semiannual Report | 109
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
Starwood Hotels & Resorts Worldwide Inc., senior note,
6.25%, 2/15/13 ...................................... United States 3,682,000 $ 3,912,125
6.75%, 5/15/18 ...................................... United States 1,500,000 1,552,500
7.15%, 12/01/19 ..................................... United States 1,000,000 1,042,500
(l) Station Casinos Inc., senior note, 7.75%, 8/15/16 ......... United States 1,000,000 60,625
(f) Universal City Development,
senior note, 144A, 8.875%, 11/15/15 ................. United States 1,500,000 1,545,000
senior sub. note, 144A, 10.875%, 11/15/16 ........... United States 200,000 213,500
Wendy's International Inc., senior note,
6.25%, 11/15/11 ..................................... United States 4,000,000 4,165,000
6.20%, 6/15/14 ...................................... United States 18,401,000 18,999,032
Yum! Brands Inc., senior note, 5.30%, 9/15/19 ............. United States 3,000,000 3,136,032
--------------
53,230,564
--------------
DIVERSIFIED FINANCIALS 7.1%
American Express Centurion, senior note, 5.95%, 6/12/17 ... United States 800,000 864,972
American Express Co., senior note, 7.00%, 3/19/18 ......... United States 4,300,000 4,924,244
Bank of America Corp.,
4.50%, 4/01/15 ...................................... United States 8,000,000 8,082,088
(h) pfd., sub. bond, M, 8.125%, Perpetual ............... United States 6,000,000 6,075,000
The Bear Stearns Cos. LLC, senior note,
4.50%, 10/28/10 ..................................... United States 675,000 687,180
B, 4.55%, 6/23/10 ................................... United States 1,000,000 1,004,860
B, 6.95%, 8/10/12 ................................... United States 1,100,000 1,222,582
(f) Cantor Fitzgerald LP, 144A, 7.875%, 10/15/19 .............. United States 5,600,000 5,756,781
Capital One Bank USA NA, sub. note, 8.80%, 7/15/19 ........ United States 5,000,000 6,141,360
Capital One Financial Corp., senior note, 7.375%,
5/23/14 ................................................ United States 4,600,000 5,321,243
Citigroup Inc.,
senior note, 6.50%, 8/19/13 ......................... United States 250,000 270,643
senior note, 5.50%, 10/15/14 ........................ United States 5,000,000 5,199,245
senior note, 8.125%, 7/15/39 ........................ United States 4,400,000 5,259,993
sub. note, 5.00%, 9/15/14 ........................... United States 4,000,000 4,052,972
Commonwealth Edison Co., secured bond, 6.45%, 1/15/38 United States 700,000 793,711
Deutsche Bank AG, 4.875%, 5/20/13 ......................... Germany 6,100,000 6,503,820
The Export-Import Bank of Korea, senior note, 8.125%,
1/21/14 ................................................ South Korea 3,700,000 4,309,471
General Electric Capital Corp.,
(i) FRN, 0.405%, 10/21/10 ............................... United States 1,500,000 1,500,474
senior note, 5.625%, 5/01/18 ........................ United States 500,000 530,654
senior note, 6.00%, 8/07/19 ......................... United States 8,000,000 8,662,808
senior note, A, 8.50%, 4/06/18 ...................... United States 245,000,000 MXN 18,752,747
GMAC Inc.,
senior note, 6.875%, 9/15/11 ........................ United States 10,500,000 10,736,250
senior note, 6.875%, 8/28/12 ........................ United States 3,000,000 3,071,250
sub. note, 8.00%, 12/31/18 .......................... United States 1,000,000 1,006,250
The Goldman Sachs Group Inc.,
senior bond, 5.375%, 3/15/20 ........................ United States 10,000,000 9,731,620
sub. note, 6.75%, 10/01/37 .......................... United States 2,700,000 2,625,969
110 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
DIVERSIFIED FINANCIALS (CONTINUED)
International Lease Finance Corp., senior note, 5.875%,
5/01/13 ................................................ United States 5,000,000 $ 4,724,065
JPMorgan Chase & Co.,
6.30%, 4/23/19 ...................................... United States 7,500,000 8,337,772
(h) junior sub. note, 1, 7.90%, Perpetual ............... United States 4,500,000 4,741,866
JPMorgan Chase Bank NA, sub. note, 6.00%, 10/01/17 ........ United States 3,000,000 3,224,367
JPMorgan Chase Capital XXII, sub. bond, 6.45%, 2/02/37 .... United States 4,000,000 3,789,640
Lazard Group, senior note, 6.85%, 6/15/17 ................. United States 4,850,000 4,937,838
(l) Lehman Brothers Holdings Inc., senior note, 6.875%,
5/02/18 ................................................ United States 6,575,000 1,495,813
Merrill Lynch & Co. Inc., 6.875%, 4/25/18 ................. United States 12,000,000 12,930,285
Morgan Stanley, senior note,
6.00%, 4/28/15 ...................................... United States 2,140,000 2,289,254
5.50%, 1/26/20 ...................................... United States 10,000,000 9,784,430
Nomura Holdings Inc., senior note, 6.70%, 3/04/20 ......... Japan 6,100,000 6,546,044
(f) Pricoa Global Funding I, 144A, 5.45%, 6/11/14 ............. United States 5,000,000 5,397,730
--------------
191,287,291
--------------
ENERGY 4.2%
Anadarko Petroleum Corp., senior note, 6.95%, 6/15/19 ..... United States 4,100,000 4,755,615
(f) Antero Resources Finance, senior note, 144A, 9.375%,
12/01/17 ............................................... United States 2,000,000 2,080,000
Canadian Natural Resources Ltd., 5.90%, 2/01/18 ........... Canada 5,000,000 5,533,320
Chesapeake Energy Corp., senior note, 6.625%, 1/15/16 ..... United States 4,000,000 3,960,000
Compagnie Generale de Geophysique-Veritas, senior note,
7.50%, 5/15/15 ...................................... France 1,100,000 1,119,250
9.50%, 5/15/16 ...................................... France 900,000 980,568
7.75%, 5/15/17 ...................................... France 600,000 609,000
(f) Consol Energy Inc., senior note, 144A,
8.00%, 4/01/17 ...................................... United States 400,000 424,500
8.25%, 4/01/20 ...................................... United States 500,000 535,000
(f) Crosstex Energy LP/ Crosstex Energy Finance Corp., senior
note, 144A, 8.875%, 2/15/18 ............................ United States 500,000 522,500
Denbury Resources Inc., senior sub. note, 8.25%, 2/15/20 .. United States 694,000 747,785
(i) Enterprise Products Operating LLC, junior sub. note, FRN,
7.034%, 1/15/68 ........................................ United States 2,500,000 2,419,143
(f) Expro Finance Luxembourg, senior secured note, 144A, 8.50%,
12/15/16 ............................................... United Kingdom 2,000,000 2,049,426
(f) Gaz Capital SA, 144A, 6.212%, 11/22/16 .................... Luxembourg 2,800,000 2,831,500
(f) General Maritime Corp., senior note, 144A, 12.00%,
11/15/17 ............................................... United States 1,100,000 1,193,500
Hess Corp., 7.125%, 3/15/33 ............................... United States 500,000 577,325
(f) Holly Corp., senior note, 144A, 9.875%, 6/15/17 ........... United States 1,200,000 1,254,000
Kinder Morgan Inc., senior note, 5.15%, 3/01/15 ........... United States 10,000,000 9,887,500
(f) LUKOIL International Finance BV, 144A, 6.656%, 6/07/22 .... Russia 4,100,000 4,018,000
Mariner Energy Inc., senior note, 11.75%, 6/30/16 ......... United States 2,000,000 2,570,000
MarkWest Energy Partners LP, senior note, B, 6.875%,
11/01/14 ............................................... United States 1,000,000 985,000
Semiannual Report | 111
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
(f) OPTI Canada Inc., senior secured note, 144A, 9.00%,
12/15/12 ............................................... Canada 700,000 $ 721,000
Peabody Energy Corp., senior note,
7.375%, 11/01/16 .................................... United States 1,500,000 1,597,500
B, 6.875%, 3/15/13 .................................. United States 1,100,000 1,119,250
Petroleos de Venezuela SA, senior bond, zero cpn.,
7/10/11 ................................................ Venezuela 22,900,000 19,894,375
(f) Petroleum Export Cayman, senior note, 144A, 5.265%,
6/15/11 ................................................ Egypt 396,054 394,541
Plains All American Pipeline LP, senior note, 5.75%,
1/15/20 ................................................ United States 5,000,000 5,224,330
(f) SandRidge Energy Inc., senior note, 144A, 9.875%,
5/15/16 ................................................ United States 3,000,000 3,165,000
Teekay Corp., senior note, 8.50%, 1/15/20 ................. Marshall
Islands 600,000 638,250
Tesoro Corp., senior note, 9.75%, 6/01/19 ................. United States 800,000 864,000
Transcontinental Gas Pipe Line Corp., senior note, 6.05%,
6/15/18 ................................................ United States 550,000 605,954
Valero Energy Corp., 6.125%, 2/01/20 ...................... United States 9,000,000 9,363,591
Weatherford International Ltd., 7.00%, 3/15/38 ............ United States 3,400,000 3,780,198
(f) Woodside Finance Ltd., 144A, 4.50%, 11/10/14 .............. Australia 10,000,000 10,365,920
XTO Energy Inc., senior bond, 5.50%, 6/15/18 .............. United States 6,000,000 6,602,640
--------------
113,389,481
--------------
FOOD & STAPLES RETAILING 0.2%
CVS Caremark Corp., senior note, 5.75%, 6/01/17 ........... United States 1,200,000 1,315,820
The Kroger Co.,
6.15%, 1/15/20 ...................................... United States 2,500,000 2,776,373
senior note, 5.00%, 4/15/13 ......................... United States 275,000 294,470
Rite Aid Corp., senior secured note, 9.75%, 6/12/16 ....... United States 1,300,000 1,438,125
SUPERVALU Inc., senior note, 8.00%, 5/01/16 ............... United States 600,000 613,500
--------------
6,438,288
--------------
FOOD, BEVERAGE & TOBACCO 2.0%
Altria Group Inc., senior note, 9.70%, 11/10/18 ........... United States 8,500,000 10,705,861
(f) Anheuser-Busch InBev NV, senior note, 144A, 7.75%,
1/15/19 ................................................ United States 10,000,000 12,056,080
Bunge Ltd. Finance Corp., senior note,
5.875%, 5/15/13 ..................................... United States 2,000,000 2,142,444
5.10%, 7/15/15 ...................................... United States 680,000 707,487
(f) Cargill Inc.,
144A, 6.00%, 11/27/17 .................................. United States 6,000,000 6,603,516
senior note, 144A, 5.60%, 9/15/12 ...................... United States 600,000 649,819
(f) CEDC Finance Corp. International Inc., senior secured
note, 144A,
9.125%, 12/01/16 ....................................... United States 1,400,000 1,491,000
ConAgra Foods Inc., 5.875%, 4/15/14 ....................... United States 4,700,000 5,225,098
(f) JBS USA LLC, senior note, 144A, 11.625%, 5/01/14 .......... United States 2,500,000 2,893,750
Kraft Foods Inc., senior note, 5.375%, 2/10/20 ............ United States 8,000,000 8,313,464
(f) Pinnacle Foods Finance LLC, senior note, 144A, 9.25%,
4/01/15 ................................................ United States 1,300,000 1,358,500
Reynolds American Inc., senior secured note, 7.625%,
6/01/16 ................................................ United States 1,000,000 1,125,847
--------------
53,272,866
--------------
HEALTH CARE EQUIPMENT & SERVICES 1.4%
Boston Scientific Corp., senior note, 6.00%, 1/15/20 ...... United States 6,000,000 5,940,456
CareFusion Corp., senior note, 6.375%, 8/01/19 ............ United States 5,000,000 5,595,520
112 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES (CONTINUED)
Coventry Health Care Inc., senior note, 6.30%, 8/15/14 .... United States 4,750,000 $ 5,009,963
DaVita Inc., senior sub. note, 7.25%, 3/15/15 ............. United States 2,500,000 2,562,500
HCA Inc.,
senior note, 6.95%, 5/01/12 ......................... United States 4,000,000 4,175,000
(f) senior secured note, 144A, 7.25%, 9/15/20 ........... United States 1,700,000 1,782,875
(f) senior secured note, 144A, 7.875%, 2/15/20 .......... United States 2,000,000 2,157,500
(k) senior secured note, PIK, 9.625%, 11/15/16 .......... United States 3,000,000 3,270,000
Medco Health Solutions Inc., 7.125%, 3/15/18 .............. United States 4,500,000 5,235,421
(f) Tenet Healthcare Corp., senior secured note, 144A,
10.00%, 5/01/18 ..................................... United States 800,000 915,000
8.875%, 7/01/19 ..................................... United States 1,000,000 1,106,250
US Oncology Inc., senior secured note, 9.125%, 8/15/17 United States 1,200,000 1,260,000
--------------
39,010,485
--------------
INSURANCE 0.9%
Aflac Inc., senior note, 8.50%, 5/15/19 ................... United States 6,000,000 7,363,062
(i) Lincoln National Corp., junior sub. deb., FRN, 6.05%,
4/20/67 ................................................ United States 3,800,000 3,290,455
(i) MetLife Inc., junior sub. note, FRN, 6.40%, 12/15/66 ...... United States 4,000,000 3,849,684
(f) Nationwide Mutual Insurance Co., 144A, 8.25%, 12/01/31 .... United States 1,200,000 1,281,320
Reinsurance Group of America Inc., senior note, 6.45%,
11/15/19 ............................................... United States 5,700,000 6,039,948
Willis North America Inc., senior note, 7.00%, 9/29/19 .... United States 2,600,000 2,753,853
--------------
24,578,322
--------------
MATERIALS 1.6%
(f) Anglo American Capital PLC, senior note, 144A, 9.375%,
4/08/14 ................................................ United Kingdom 6,500,000 7,893,080
Ball Corp., senior note,
7.125%, 9/01/16 ..................................... United States 300,000 320,250
7.375%, 9/01/19 ..................................... United States 300,000 317,250
The Dow Chemical Co., senior note, 4.85%, 8/15/12 ......... United States 6,000,000 6,347,796
Huntsman International LLC,
(f) senior note, 144A, 5.50%, 6/30/16 ................... United States 300,000 274,500
senior sub. note, 7.875%, 11/15/14 .................. United States 2,500,000 2,550,000
(f) Ineos Group Holdings PLC, senior secured note, 144A,
8.50%, 2/15/16 ......................................... United Kingdom 1,000,000 895,000
(f) Kerling PLC, senior secured note, 144A, 10.625%, 1/28/17 .. United Kingdom 1,400,000 EUR 1,985,052
(f) LBI Escrow Corp., senior secured note, 144A, 8.00%,
11/01/17 ............................................... United States 700,000 727,125
(f) MacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 .... United States 1,200,000 1,245,000
NewPage Corp., senior secured note, 11.375%, 12/31/14 ..... United States 3,500,000 3,613,750
Novelis Inc., senior note,
7.25%, 2/15/15 ...................................... Canada 1,300,000 1,287,000
11.50%, 2/15/15 ..................................... Canada 500,000 552,500
Owens-Brockway Glass Container Inc., senior note, 6.75%,
12/01/14 ............................................... United States 700,000 721,000
Owens-Illinois Inc., senior note, 7.80%, 5/15/18 .......... United States 1,000,000 1,057,500
RPM International Inc.,
6.25%, 12/15/13 ..................................... United States 1,000,000 1,099,659
6.50%, 2/15/18 ...................................... United States 5,000,000 5,285,975
Semiannual Report | 113
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
MATERIALS (CONTINUED)
(f) RPM U.K. G.P., 144A, 6.70%, 11/01/15 ...................... United States 1,000,000 $ 1,093,628
Solo Cup Co., senior sub. note, 8.50%, 2/15/14 ............ United States 2,500,000 2,525,000
Weyerhaeuser Co., senior note, 7.375%, 10/01/19 ........... United States 2,900,000 3,171,565
--------------
42,962,630
--------------
MEDIA 2.0%
Belo Corp., senior note, 6.75%, 5/30/13 ................... United States 10,000,000 10,225,000
(f) CCH II LLC/CCH II Capital Corp., senior note, 144A, 13.50%,
11/30/16 ............................................... United States 1,558,428 1,877,906
(f) CCO Holdings LLC, senior note, 144A, 8.125%, 4/30/20 ...... United States 700,000 719,250
(f) Clear Channel Worldwide Holdings Inc., senior note,
A, 144A, 9.25%, 12/15/17 ............................ United States 300,000 321,750
B, 144A, 9.25%, 12/15/17 ............................ United States 1,000,000 1,076,250
EchoStar DBS Corp., senior note,
7.75%, 5/31/15 ...................................... United States 500,000 527,500
7.125%, 2/01/16 ..................................... United States 2,500,000 2,550,000
Lamar Media Corp., senior note, 9.75%, 4/01/14 ............ United States 2,500,000 2,793,750
LIN Television Corp., senior sub. note, 6.50%, 5/15/13 .... United States 2,000,000 1,990,000
(f) Media General Inc., senior secured note, 144A, 11.75%,
2/15/17 ................................................ United States 1,500,000 1,608,750
News America Holdings Inc., senior bond, 7.90%, 12/01/95 .. United States 500,000 584,424
News America Inc.,
senior deb., 7.25%, 5/18/18 ......................... United States 2,000,000 2,349,808
senior note, 6.90%, 8/15/39 ......................... United States 1,800,000 2,018,686
(f) Seat Pagine Gialle SpA, senior secured note, 144A, 10.50%,
1/31/17 ................................................ Italy 2,000,000 EUR 2,630,526
(f) Sinclair Television Group Inc., senior secured note, 144A,
9.25%, 11/01/17 ........................................ United States 2,500,000 2,668,750
Time Warner Cable Inc.,
senior bond, 7.30%, 7/01/38 ......................... United States 625,000 723,171
senior note, 6.75%, 7/01/18 ......................... United States 8,500,000 9,652,472
Time Warner Inc.,
7.70%, 5/01/32 ...................................... United States 550,000 647,419
senior note, 6.875%, 5/01/12 ........................ United States 600,000 660,617
(f) UPC Germany GmbH, senior sub. note, 144A, 9.625%,
12/01/19 ............................................... Germany 600,000 EUR 860,718
Viacom Inc., senior note,
6.25%, 4/30/16 ...................................... United States 2,000,000 2,247,168
6.125%, 10/05/17 .................................... United States 2,500,000 2,751,017
(f) Virgin Media Secured Finance, senior secured note, 144A,
6.50%, 1/15/18 ......................................... United Kingdom 1,000,000 1,017,601
(f) Vivendi, senior note, 144A, 5.75%, 4/04/13 ................ France 400,000 434,612
(f) WMG Acquisition Corp., senior secured note, 144A, 9.50%,
6/15/16 ................................................ United States 2,500,000 2,712,500
--------------
55,649,645
--------------
114 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.3%
GlaxoSmithKline Capital Inc., 4.85%, 5/15/13 .............. United States 25,000 $ 27,231
Pfizer Inc., senior note, 6.20%, 3/15/19 .................. United States 7,000,000 7,995,932
(f) Talecris Biotherapeutics Holdings Corp., senior note, 144A,
7.75%, 11/15/16 ........................................ United States 1,100,000 1,116,500
--------------
9,139,663
--------------
REAL ESTATE 1.2%
Boston Properties LP, senior note, 5.625%, 11/15/20 ....... United States 4,800,000 4,934,659
(f) Dexus Finance Property Ltd., 144A, 7.125%, 10/15/14 ....... Australia 4,250,000 4,701,210
(f) Digital Realty Trust LP, 144A, 5.875%, 2/01/20 ............ United States 6,400,000 6,440,992
ERP Operating LP, 5.75%, 6/15/17 .......................... United States 2,000,000 2,147,852
FelCor Lodging LP, senior secured note, 10.00%, 10/01/14 .. United States 1,300,000 1,365,000
Forest City Enterprises Inc., senior note, 7.625%,
6/01/15 ................................................ United States 1,000,000 935,000
HCP Inc., senior note, 6.70%, 1/30/18 ..................... United States 5,000,000 5,232,485
Kimco Realty Corp., senior note, 6.875%, 10/01/19 ......... United States 5,000,000 5,656,120
--------------
31,413,318
--------------
RETAILING 0.2%
Michaels Stores Inc., senior note, 10.00%, 11/01/14 ....... United States 2,000,000 2,130,000
Target Corp., 6.50%, 10/15/37 ............................. United States 2,800,000 3,174,968
--------------
5,304,968
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.0%(e)
(f) Advanced Micro Devices Inc., senior note, 144A, 8.125%,
12/15/17 ............................................... United States 500,000 517,500
--------------
SOFTWARE & SERVICES 0.2%
Electronic Data Systems Corp., senior note, B, 6.00%,
8/01/13 ................................................ United States 800,000 898,162
Fiserv Inc., senior note, 6.125%, 11/20/12 ................ United States 2,500,000 2,730,788
SunGard Data Systems Inc., senior note, 9.125%, 8/15/13 ... United States 1,000,000 1,031,250
--------------
4,660,200
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 0.0%(e)
(f) ViaSat Inc., senior note, 144A, 8.875%, 9/15/16 ........... United States 500,000 515,000
--------------
TELECOMMUNICATION SERVICES 1.7%
AT&T Inc., 5.80%, 2/15/19 ................................. United States 4,000,000 4,362,440
Cellco Partnership/Verizon Wireless, senior note, 8.50%,
11/15/18 ............................................... United States 6,300,000 7,983,272
(f) Digicel Group Ltd., senior note, 144A,
8.875%, 1/15/15 ..................................... Jamaica 1,500,000 1,513,125
8.25%, 9/01/17 ...................................... Jamaica 1,000,000 1,027,500
Embarq Corp., senior note, 7.082%, 6/01/16 ................ United States 2,500,000 2,760,775
GTE Corp., senior bond, 6.84%, 4/15/18 .................... United States 750,000 840,268
Intelsat Bermuda Ltd., senior note, 11.25%, 6/15/16 ....... Bermuda 3,000,000 3,262,500
Intelsat Subsidiary Holding Co. Ltd., senior note, 8.50%,
1/15/13 ................................................ Bermuda 2,000,000 2,045,000
MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 ...... United States 2,500,000 2,606,250
Semiannual Report | 115
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
(f) New Communications Holdings, senior note, 144A,
8.25%, 4/15/17 ...................................... United States 300,000 $ 310,500
8.50%, 4/15/20 ...................................... United States 400,000 414,000
8.75%, 4/15/22 ...................................... United States 900,000 931,500
Telecom Italia Capital SA, senior note,
4.95%, 9/30/14 ...................................... Italy 1,500,000 1,553,046
6.999%, 6/04/18 ..................................... Italy 6,000,000 6,504,360
Time Warner Entertainment Co. LP,
senior bond, 8.375%, 3/15/23 ........................ United States 800,000 1,006,062
senior note, 8.875%, 10/01/12 ....................... United States 350,000 404,408
Verizon New York Inc., senior deb.,
A, 6.875%, 4/01/12 .................................. United States 4,700,000 5,112,509
B, 7.375%, 4/01/32 .................................. United States 1,000,000 1,113,675
Verizon Pennsylvania Inc., senior bond, A, 5.65%,
11/15/11 ............................................... United States 275,000 291,106
Verizon Virginia Inc., A, 4.625%, 3/15/13 ................. United States 1,000,000 1,059,319
(f, k) Wind Acquisition Holding, senior secured note, 144A, PIK,
12.25%, 7/15/17 ........................................ Italy 1,500,000 EUR 1,945,228
--------------
47,046,843
--------------
TRANSPORTATION 0.5%
Burlington Northern and Santa Fe 99-2 Trust, secured bond,
7.57%, 1/02/21 ......................................... United States 245,406 293,603
(f) Ceva Group PLC, senior secured note, 144A,
11.625%, 10/01/16 ................................... United Kingdom 500,000 545,625
11.50%, 4/01/18 ..................................... United Kingdom 1,400,000 1,513,750
(f) Delta Air Lines Inc., senior secured note, 144A, 9.50%,
9/15/14 ................................................ United States 1,800,000 1,930,500
(f) DP World Ltd., 144A, 6.85%, 7/02/37 ....................... United Arab
Emirates 3,700,000 3,068,521
Hertz Corp., senior note, 7.625%, 6/01/12 ................. United States 2,950,000 3,038,500
Union Pacific Corp., senior note,
3.625%, 6/01/10 ..................................... United States 1,500,000 1,503,313
5.75%, 11/15/17 ..................................... United States 1,350,000 1,470,818
Union Pacific Railroad Co. 1998 Pass Trust, 98-B, 6.85%,
1/02/19 ................................................ United States 863,416 982,091
Union Pacific Railroad Co. 2005 Pass Trust, 05-1, 5.082%,
1/02/29 ................................................ United States 276,773 285,184
--------------
14,631,905
--------------
UTILITIES 2.0%
Ameren Corp., senior note, 8.875%, 5/15/14 ................ United States 6,400,000 7,481,459
CenterPoint Energy Inc., senior note,
6.85%, 6/01/15 ...................................... United States 1,000,000 1,126,502
6.125%, 11/01/17 .................................... United States 1,400,000 1,521,400
6.50%, 5/01/18 ...................................... United States 7,000,000 7,643,146
CMS Energy Corp., senior note, 8.75%, 6/15/19 ............. United States 700,000 804,678
Dominion Resources Inc., 6.40%, 6/15/18 ................... United States 3,650,000 4,160,350
DPL Inc., senior note, 6.875%, 9/01/11 .................... United States 500,000 533,686
116 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
CORPORATE BONDS (CONTINUED)
UTILITIES (CONTINUED)
Duke Energy Corp., senior note,
5.65%, 6/15/13 ...................................... United States 525,000 $ 576,437
6.25%, 6/15/18 ...................................... United States 1,800,000 2,007,324
5.05%, 9/15/19 ...................................... United States 5,000,000 5,174,685
Dynegy Holdings Inc., senior note, 8.375%, 5/01/16 ........ United States 2,500,000 2,212,500
(f) Enogex LLC, senior note, 144A, 6.25%, 3/15/20 ............. United States 5,000,000 5,153,105
(f) Infinis PLC, senior note, 144A, 9.125%, 12/15/14 .......... United Kingdom 300,000 GBP 477,072
MidAmerican Energy Co., senior note, 5.95%, 7/15/17 ....... United States 2,200,000 2,460,511
Northeast Generation Co., senior secured note, B-1, 8.812%,
10/15/26 ............................................... United States 375,938 383,736
NRG Energy Inc., senior note,
7.25%, 2/01/14 ...................................... United States 2,000,000 2,032,500
7.375%, 2/01/16 ..................................... United States 2,000,000 1,985,000
Texas Competitive Electric Holdings Co. LLC, senior note,
A, 10.25%, 11/01/15 .................................... United States 5,000,000 3,762,500
Virginia Electric and Power Co., senior note, 8.875%,
11/15/38 ............................................... United States 4,000,000 5,778,104
--------------
55,274,695
--------------
TOTAL CORPORATE BONDS (COST $814,722,343) .................. 872,167,576
--------------
CONVERTIBLE BONDS 0.1%
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.1%
PDL BioPharma Inc., cvt., sub. note, 2.75%, 8/16/23 ....... United States 1,900,000 2,166,000
--------------
SOFTWARE & SERVICES 0.0%(e)
(f) VeriFone Holdings Inc., cvt., senior note, 144A, 1.375%,
6/15/12 ................................................ United States 2,100,000 1,960,875
--------------
TOTAL CONVERTIBLE BONDS (COST $4,221,159) ................. 4,126,875
--------------
ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES 9.3%
BANKS 6.3%
Banc of America Commercial Mortgage Inc.,
2006-1, AM, 5.421%, 9/10/45 ........................ United States 3,140,000 2,961,075
(i) 2006-3, AM, FRN, 5.812%, 7/10/44 ................... United States 6,745,000 6,080,474
2006-4, AM, 5.675%, 7/10/46 ........................ United States 7,350,000 6,662,261
(i) Capital One Auto Finance Trust, 2006-C, A4, FRN, 0.284%,
5/15/13 ................................................ United States 3,900,976 3,874,244
Citigroup Commercial Mortgage Trust,
2006-C5, A2, 5.378%, 10/15/49 ...................... United States 1,100,000 1,151,924
(i) 2007-C6, AM, FRN, 5.70%, 6/10/17 ................... United States 1,840,000 1,665,219
Citigroup/Deutsche Bank Commercial Mortgage Trust,
(i) 2005-CD1, E, FRN, 5.40%, 7/15/44 ................... United States 4,500,000 2,505,515
2006-CD3, A5, 5.617%, 10/15/48 ..................... United States 13,500,000 13,907,183
2007-CD4, B, 5.447%, 12/11/49 ...................... United States 4,100,000 851,119
2007-CD4, C, 5.476%, 12/11/49 ...................... United States 14,200,000 2,525,498
FNMA,
(i) 2005-122, FN, FRN, 0.613%, 1/25/36 ................. United States 4,672,672 4,670,219
G93-33, K, 7.00%, 9/25/23 .......................... United States 839,423 913,974
Semiannual Report | 117
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES (CONTINUED)
BANKS (CONTINUED)
FHLMC,
2643, OG, 5.00%, 7/15/32 ........................... United States 3,182,750 $ 3,356,080
(i) 2942, TF, FRN, 0.687%, 3/15/35 ..................... United States 1,498,174 1,497,099
GE Capital Commercial Mortgage Corp., 2003-C1, A4, 4.819%,
1/10/38 ................................................ United States 1,578,354 1,660,639
Greenwich Capital Commercial Funding Corp.,
2004-GG1, A7, 5.317%, 6/10/36 ...................... United States 1,775,000 1,878,815
2005-GG5, A5, 5.224%, 4/10/37 ...................... United States 28,900,000 29,399,652
(i) 2006-GG7, A4, FRN, 5.888%, 7/10/38 ................. United States 21,200,000 22,079,143
2007-GG9, C, 5.554%, 3/10/39 ....................... United States 6,438,000 1,835,391
(i) GS Mortgage Securities Corp. II,
1997-GL, X2, IO, FRN, 0.29%, 7/13/30 ............... United States 34,323 354
2006-GG6, A4, FRN, 5.553%, 4/10/38 ................. United States 19,807,000 20,313,410
LB-UBS Commercial Mortgage Trust, 2005-C5, A4, 4.954%,
9/15/30 ................................................ United States 14,570,000 15,052,392
(i) Morgan Stanley Capital I Trust, 2004-IQ7, A4, FRN, 5.537%,
6/15/38 ................................................ United States 6,900,000 7,274,507
(f, i) Schiller Park CLO Ltd., 2007-1A, A2, 144A, FRN, 0.556%,
4/25/21 ................................................ United States 3,500,000 3,135,510
(i) South Carolina Student Loan Corp., 2008-1, A1, FRN, 0.752%,
9/02/14 ................................................ United States 251,646 251,145
(f, i) Wachovia Bank Commercial Mortgage Trust, 2007-WHL8, A1,
144A, FRN, 0.417%, 6/15/20 ............................. United States 16,640,923 14,790,536
(b) Weyerhaeuser Mortgage Co., 1984-A, 7.43%, 1/01/24 ......... United States 25,299 25,299
--------------
170,318,677
--------------
DIVERSIFIED FINANCIALS 2.7%
(i) Advanta Business Card Master Trust,
2005-A2, A2, FRN, 0.386%, 5/20/13 ................... United States 419,543 414,872
2007-A4, A4, FRN, 0.286%, 4/22/13 ................... United States 492,507 487,023
(i) AFC Home Equity Loan Trust, 1997-4, 2A2, FRN, 0.903%,
12/22/27 ............................................... United States 161,289 102,089
(i) Amortizing Residential Collateral Trust, 2002-BC1, M1, FRN,
1.538%, 1/25/32 ........................................ United States 316,134 117,332
(f, i) Armstrong Loan Funding Ltd., 2008-1A, B, 144A, FRN,
1.344%, 8/01/16 ........................................ Cayman Islands 4,363,265 4,101,753
(f, i) Babson CLO Ltd., 2005-2A, A1, 144A, FRN, 0.499%, 7/20/19 .. Cayman Islands 4,090,699 3,759,884
(f, i) Cent CDO Ltd., 2007-15A, A2B, 144A, FRN, 0.596%, 3/11/21 .. Cayman Islands 1,006,000 880,351
(i) Chase Funding Mortgage Loan Asset-Backed Certificates,
2004-2, 2A2, FRN, 0.763%, 2/25/35 ...................... United States 1,591,433 1,145,991
(i) Chase Issuance Trust, 2007-A9, A9, FRN, 0.284%, 6/16/14 ... United States 16,450,000 16,388,943
(f, i) Columbus Nova CLO Ltd., 2007-2A, A2, 144A, FRN, 1.303%,
10/15/21 ............................................... Cayman Islands 690,000 558,817
(f, i) DLJ Mortgage Acceptance Corp., 1997-CF1, S, 144A, IO,
FRN, 1.038%, 5/15/30 ................................... United States 10,781 --
(i) First Franklin Mortgage Loan Asset-Backed Certificates,
2004-FF11, 1A2, FRN, 0.613%, 1/25/35 ................... United States 760,091 644,693
118 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES (CONTINUED)
DIVERSIFIED FINANCIALS (CONTINUED)
JPMorgan Chase Commercial Mortgage Securities Corp.,
(i) 2004-CB9, A4, FRN, 5.371%, 6/12/41 ................. United States 11,324,540 $ 11,762,730
2004-LN2, A2, 5.115%, 7/15/41 ...................... United States 697,106 713,345
2005-LDP2, AM, 4.78%, 7/15/42 ...................... United States 2,470,000 2,348,854
(f, i) 2007-FL1A, A1, 144A, FRN, 0.712%, 7/15/19 .......... United States 18,719,274 16,291,386
(f) Legacy Benefits Insurance Settlements LLC, 2004-1, A, 144A,
5.35%, 2/10/39 ......................................... United States 2,027,963 1,965,705
(f, i) MAPS CLO Fund LLC, 2005-1A, B, 144A, FRN, 0.771%,
12/21/17 ............................................... United States 1,200,000 1,006,500
(i) MBNA Credit Card Master Note Trust, 2005-A4, A4, FRN,
0.294%, 11/15/12 ....................................... United States 1,850,000 1,849,856
Residential Asset Securities Corp.,
2001-KS2, AI5, 7.514%, 6/25/31 ..................... United States 8,866 7,162
2004-KS1, AI4, 4.213%, 4/25/32 ..................... United States 391,458 381,020
(i) 2005-AHL2, A2, FRN, 0.523%, 10/25/35 ............... United States 1,019,008 939,634
(i) Securitized Asset-Backed Receivables LLC Trust, 2006-FR2,
A2, FRN, 0.413%, 3/25/36 ............................... United States 2,676,721 2,481,751
(i) SLM Student Loan Trust,
2005-4, A2, FRN, 0.396%, 4/26/21 .................... United States 510,490 509,424
2005-9, A4, FRN, 0.416%, 1/25/23 .................... United States 1,405,010 1,400,637
2006-9, A2, FRN, 0.316%, 4/25/17 .................... United States 98,314 98,252
(i) Structured Asset Securities Corp., 2002-1A, 2A1, FRN,
2.871%, 2/25/32 ........................................ United States 50,676 44,489
(f, i) Westchester CLO Ltd., 2007-1A, A1A, 144A, FRN, 0.474%,
8/01/22 ................................................ Cayman Islands 4,070,610 3,651,541
--------------
74,054,034
--------------
REAL ESTATE 0.3%
(i) Ownit Mortgage Loan Asset-Backed Certificates, 2006-6, A2B,
FRN, 0.373%, 9/25/37 ................................... United States 11,276,723 8,252,116
--------------
RETAILING 0.0%(e)
(i) Carmax Auto Owner Trust, 2008-2, A2B, FRN, 1.154%,
9/15/11 ................................................ United States 347,796 348,314
--------------
TOTAL ASSET-BACKED SECURITIES AND COMMERCIAL
MORTGAGE-BACKED SECURITIES (COST $270,906,788)........... 252,973,141
--------------
MORTGAGE-BACKED SECURITIES 20.6%
(i) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE
0.3%
FHLMC, 2.748%, 7/01/34 .................................... United States 544,636 568,847
FHLMC, 3.036%, 11/01/27 ................................... United States 4,902,597 5,037,860
FHLMC, 3.041%, 4/01/32 .................................... United States 884,275 923,507
FHLMC, 3.059%, 4/01/30 .................................... United States 445,609 467,560
FHLMC, 3.154%, 12/01/34 ................................... United States 376,344 393,312
FHLMC, 3.479%, 9/01/32 .................................... United States 257,644 266,981
FHLMC, 5.275%, 3/01/25 .................................... United States 131,743 140,408
Semiannual Report | 119
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(i) FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) ADJUSTABLE RATE
(CONTINUED)
FHLMC, 5.924%, 10/01/36 ................................... United States 76,142 $ 80,647
FHLMC, 6.127%, 6/01/36 .................................... United States 460,429 483,490
--------------
8,362,612
--------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 6.8%
FHLMC 30 Year, 6.00%, 6/01/37 ............................. United States 608,638 652,606
FHLMC 30 Year, 6.50%, 8/01/25 - 11/01/31 .................. United States 327,519 360,152
FHLMC 30 Year, 7.00%, 7/01/31 ............................. United States 14,164 15,809
FHLMC 30 Year, 8.00%, 2/01/30 ............................. United States 117,922 135,651
FHLMC 30 Year, 8.50%, 10/01/24 ............................ United States 18,032 21,091
FHLMC Gold 15 Year, 5.00%, 10/01/17 - 7/01/23 ............. United States 10,417,034 11,031,237
FHLMC Gold 15 Year, 5.50%, 11/01/22 ....................... United States 1,532,321 1,641,647
FHLMC Gold 15 Year, 6.00%, 2/01/17 - 9/01/22 .............. United States 4,214,285 4,547,633
(m) FHLMC Gold 30 Year, 4.50%, 3/01/39 - 5/01/39 .............. United States 16,182,715 16,357,390
FHLMC Gold 30 Year, 5.00%, 1/01/37 ........................ United States 28,722,920 29,857,477
FHLMC Gold 30 Year, 5.00%, 8/01/33 - 1/01/38 .............. United States 17,817,861 18,517,713
(m) FHLMC Gold 30 Year, 5.00%, 5/01/39 ........................ United States 30,000,000 31,087,500
FHLMC Gold 30 Year, 5.50%, 1/01/35 - 12/01/37 ............. United States 22,374,864 23,667,982
(m) FHLMC Gold 30 Year, 6.00%, 5/01/33 - 5/01/39 .............. United States 30,290,327 32,486,785
FHLMC Gold 30 Year, 6.50%, 4/01/28 - 3/01/39 .............. United States 12,400,711 13,481,164
FHLMC Gold 30 Year, 7.00%, 1/01/28 - 7/01/32 .............. United States 489,391 547,473
FHLMC Gold 30 Year, 7.50%, 3/01/32 ........................ United States 70,171 80,044
FHLMC Gold 30 Year, 8.50%, 8/01/30 ........................ United States 8,649 10,170
FHLMC Gold 30 Year, 9.00%, 1/01/22 ........................ United States 71,544 76,391
FHLMC Gold 30 Year, 10.00%, 10/01/30 ...................... United States 118,215 136,664
--------------
184,712,579
--------------
(i) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE
RATE 0.9%
FNMA, 2.00%, 10/01/32 ..................................... United States 873,303 896,538
FNMA, 2.253%, 4/01/35 ..................................... United States 4,126,364 4,222,736
FNMA, 2.55%, 12/01/34 ..................................... United States 493,833 515,942
FNMA, 2.732%, 12/01/34 .................................... United States 729,628 764,922
FNMA, 2.75%, 6/01/15 ...................................... United States 75,988 77,242
FNMA, 2.773%, 12/01/22 .................................... United States 118,248 123,720
FNMA, 2.833%, 11/01/31 .................................... United States 320,001 337,353
FNMA, 2.882%, 5/01/25 ..................................... United States 124,394 130,217
FNMA, 2.928%, 2/01/34 ..................................... United States 1,473,958 1,528,715
FNMA, 3.036%, 9/01/34 ..................................... United States 5,376,184 5,490,080
FNMA, 3.132%, 10/01/36 .................................... United States 125,962 131,864
FNMA, 3.198%, 1/01/17 ..................................... United States 464,691 479,822
FNMA, 3.429%, 12/01/27 .................................... United States 413,304 426,956
FNMA, 3.445%, 6/01/33 ..................................... United States 347,515 353,870
FNMA, 3.455%, 3/01/33 ..................................... United States 409,403 423,673
FNMA, 3.475%, 6/01/32 ..................................... United States 52,748 53,328
FNMA, 4.104%, 8/01/33 ..................................... United States 5,575,590 5,773,980
FNMA, 4.939%, 12/01/24 .................................... United States 43,862 45,960
120 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
(i) FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ADJUSTABLE
RATE (CONTINUED)
FNMA, 5.282%, 6/01/17 ..................................... United States 69,962 $ 70,307
FNMA, 5.883%, 3/01/37 ..................................... United States 1,097,336 1,161,814
--------------
23,009,039
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED
RATE 12.3%
FNMA 15 Year, 4.50%, 3/01/19 - 6/01/19 .................... United States 1,029,582 1,085,393
FNMA 15 Year, 5.00%, 6/01/18 - 7/01/18 .................... United States 1,061,622 1,133,236
(m) FNMA 15 Year, 5.50%, 1/01/14 - 5/01/24 ................ United States 11,607,718 12,413,028
FNMA 15 Year, 6.00%, 8/01/16 - 9/01/22 .................... United States 1,570,018 1,692,988
FNMA 15 Year, 6.50%, 10/01/12 - 9/01/16 ................... United States 26,943 28,998
FNMA 30 Year, 4.50%, 4/01/38 - 1/01/39 .................... United States 45,178,693 45,673,306
FNMA 30 Year, 5.00%, 6/01/36 - 5/01/39 .................... United States 55,450,534 57,524,415
(m) FNMA 30 Year, 5.00%, 5/01/39 .............................. United States 35,278,000 36,518,233
FNMA 30 Year, 5.50%, 6/01/33 - 11/01/38 ................... United States 61,324,653 64,779,699
FNMA 30 Year, 6.00%, 9/01/32 - 9/01/38 .................... United States 33,029,087 35,235,284
(m) FNMA 30 Year, 6.00%, 5/01/39 .............................. United States 68,000,000 72,611,284
(m) FNMA 30 Year, 6.50%, 5/01/28 - 5/01/39 .................... United States 5,030,585 5,472,994
FNMA 30 Year, 7.00%, 11/01/25 - 1/01/31 ................... United States 72,805 81,298
FNMA 30 Year, 7.50%, 1/01/30 .............................. United States 49,482 55,921
FNMA 30 Year, 8.50%, 4/01/30 - 5/01/32 .................... United States 295,348 343,823
FNMA 30 Year, 9.00%, 11/01/26 - 5/01/27 ................... United States 659,474 768,234
--------------
335,418,134
--------------
(i) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) ADJUSTABLE
RATE 0.0%(e)
GNMA, 3.125%, 10/20/26 .................................... United States 78,629 80,840
GNMA, 3.375%, 1/20/23 ..................................... United States 37,016 38,427
--------------
119,267
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE
0.3%
GNMA I SF 30 Year, 6.00%, 1/15/39 ......................... United States 2,394,459 2,572,098
GNMA I SF 30 Year, 6.50%, 10/15/31 - 7/15/38 .............. United States 380,875 414,882
GNMA I SF 30 Year, 7.00%, 10/15/27 - 6/15/31 .............. United States 128,607 144,441
GNMA I SF 30 Year, 7.50%, 2/15/17 - 5/15/26 ............... United States 386,473 434,697
GNMA I SF 30 Year, 8.00%, 8/15/16 - 5/15/17 ............... United States 136,879 152,053
GNMA I SF 30 Year, 9.00%, 9/15/25 - 1/15/31 ............... United States 3,190 3,717
GNMA II SF 30 Year, 6.00%, 5/20/31 ........................ United States 27,419 29,942
GNMA II SF 30 Year, 6.50%, 3/20/28 - 7/20/38 .............. United States 4,040,324 4,391,074
GNMA II SF 30 Year, 7.50%, 8/20/30 - 1/20/33 .............. United States 171,524 193,101
GNMA II SF 30 Year, 8.00%, 5/20/27 - 7/20/27 .............. United States 199,783 228,831
--------------
8,564,836
--------------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $543,078,676) 560,186,467
--------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 14.7%
(f) Emirate of Abu Dhabi, 144A, 6.75%, 4/08/19 ................ United Arab
Emirates 1,980,000 2,286,924
European Investment Bank, senior note, 4.50%, 5/15/13 ..... Supranational(n) 2,700,000 NOK 475,394
(i, o) Government of Argentina, senior bond, FRN, 0.39%,
8/03/12 ................................................ Argentina 2,225,000 753,163
Semiannual Report | 121
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STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
Government of Australia, TB123, 5.75%, 4/15/12 ............ Australia 21,290,000 AUD $ 19,970,576
(j) Government of Ghana, Reg S, 8.50%, 10/04/17 ............... Ghana 300,000 330,750
Government of Hungary,
6.75%, 7/28/14 ...................................... Hungary 1,400,000 EUR 2,059,598
3.50%, 7/18/16 ...................................... Hungary 115,000 EUR 147,283
4.375%, 7/04/17 ..................................... Hungary 215,000 EUR 285,585
5.75%, 6/11/18 ...................................... Hungary 695,000 EUR 990,535
6.25%, 1/29/20 ...................................... Hungary 2,310,000 2,413,938
senior note, 3.875%, 2/24/20 ........................ Hungary 285,000 EUR 358,293
Government of Indonesia,
FR19, 14.25%, 6/15/13 ............................... Indonesia 7,995,000,000 IDR 1,049,619
FR34, 12.80%, 6/15/21 ............................... Indonesia 9,705,000,000 IDR 1,390,880
FR35, 12.90%, 6/15/22 ............................... Indonesia 21,000,000,000 IDR 3,028,504
FR36, 11.50%, 9/15/19 ............................... Indonesia 12,200,000,000 IDR 1,611,156
FR40, 11.00%, 9/15/25 ............................... Indonesia 43,390,000,000 IDR 5,487,863
FR44, 10.00%, 9/15/24 ............................... Indonesia 75,880,000,000 IDR 8,964,577
FR47, 10.00%, 2/15/28 ............................... Indonesia 188,340,000,000 IDR 21,465,034
(j) senior bond, Reg S, 7.75%, 1/17/38 .................. Indonesia 1,590,000 1,864,673
(f) senior note, 144A, 11.625%, 3/04/19 ................. Indonesia 1,540,000 2,233,513
(j) Government of Iraq, Reg S, 5.80%, 1/15/28 ................. Iraq 260,000 217,100
Government of Israel, 2680, 7.00%, 4/29/11 ................ Israel 11,620,000 ILS 3,263,189
(f) Government of Lithuania, 144A,
6.75%, 1/15/15 ...................................... Lithuania 3,720,000 4,022,436
7.375%, 2/11/20 ..................................... Lithuania 4,670,000 5,090,300
Government of Malaysia,
3.756%, 4/28/11 ..................................... Malaysia 32,550,000 MYR 10,337,770
3.833%, 9/28/11 ..................................... Malaysia 52,810,000 MYR 16,838,938
Government of Mexico, M 20,
7.50%, 6/03/27 ...................................... Mexico 902,900(p) MXN 7,101,841
10.00%, 12/05/24 .................................... Mexico 400,000(p) MXN 3,909,672
Government of Norway,
6.00%, 5/16/11 ...................................... Norway 3,600,000 NOK 633,485
6.50%, 5/15/13 ...................................... Norway 35,500,000 NOK 6,692,988
Government of Peru,
7, 8.60%, 8/12/17 ................................... Peru 3,200,000 PEN 1,357,805
7.84%, 8/12/20 ...................................... Peru 1,100,000 PEN 440,997
Government of Poland,
4.75%, 4/25/12 ...................................... Poland 9,660,000 PLN 3,298,946
5.00%, 10/24/13 ..................................... Poland 4,665,000 PLN 1,589,594
5.75%, 4/25/14 ...................................... Poland 69,430,000 PLN 24,158,288
senior note, 6.375%, 7/15/19 .............................. Poland 4,500,000 4,928,445
(f) Government of Qatar, senior note, 144A, 6.55%, 4/09/19 .... Qatar 2,010,000 2,284,767
Government of Russia,
(f) 144A, 7.50%, 3/31/30 ................................ Russia 5,195,240 5,961,798
(j) senior bond, Reg S, 7.50%, 3/31/30 .................. Russia 8,574,400 9,839,553
Government of South Africa,
6.875%, 5/27/19 ..................................... South Africa 2,680,000 3,012,990
senior note, 6.50%, 6/02/14 ......................... South Africa 195,000 216,324
senior note, 5.875%, 5/30/22 ........................ South Africa 3,115,000 3,225,972
122 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
Government of Sri Lanka, A,
12.00%, 7/15/11 ..................................... Sri Lanka 17,450,000 LKR $ 157,224
8.50%, 1/15/13 ...................................... Sri Lanka 61,500,000 LKR 516,186
13.50%, 2/01/13 ..................................... Sri Lanka 71,700,000 LKR 677,890
11.25%, 7/15/14 ..................................... Sri Lanka 212,700,000 LKR 1,879,266
11.00%, 8/01/15 ..................................... Sri Lanka 241,800,000 LKR 2,090,373
Government of Sweden,
5.25%, 3/15/11 ...................................... Sweden 86,320,000 SEK 12,390,402
5.50%, 10/08/12 ..................................... Sweden 213,440,000 SEK 32,351,758
Government of Venezuela,
10.75%, 9/19/13 ..................................... Venezuela 715,000 696,267
(j) senior bond, Reg S, 5.375%, 8/07/10 ................. Venezuela 1,150,000 1,143,077
(f) Government of Vietnam, 144A,
6.875%, 1/15/16 ..................................... Vietnam 150,000 161,250
6.75%, 1/29/20 ...................................... Vietnam 5,120,000 5,344,000
Korea Treasury Bond,
0400-1206, 4.00%, 6/10/12 ........................... South Korea 77,250,010,000 KRW 70,470,819
0475-1112, 4.75%, 12/10/11 .......................... South Korea 1,087,790,000 KRW 1,004,559
0525-1209, 5.25%, 9/10/12 ........................... South Korea 1,800,000,000 KRW 1,684,737
0525-1303, 5.25%, 3/10/13 ........................... South Korea 168,330,000 KRW 157,783
0550-1106, 5.50%, 6/10/11 ........................... South Korea 1,734,150,000 KRW 1,611,168
senior note, 7.125%, 4/16/19 ........................ South Korea 3,090,000 3,699,292
New South Wales Treasury Corp., 6.00%, 5/01/12 ............ Australia 26,810,000 AUD 25,110,597
Nota Do Tesouro Nacional,
10.00%, 1/01/12 ..................................... Brazil 36,200(q) BRL 20,131,530
10.00%, 1/01/13 ..................................... Brazil 23,250(q) BRL 12,619,489
(r) Index Linked, 6.00%, 5/15/15 ........................ Brazil 840(q) BRL 901,169
Province of Ontario, 6.25%, 6/16/15 ....................... Canada 305,000 NZD 228,287
(f) Peru Enhanced Pass-Through Finance Ltd., senior secured
bond, A-1, 144A, zero cpn., 5/31/18 ..................... Peru 1,210,570 960,396
Queensland Treasury Corp.,
13, 6.00%, 8/14/13 .................................. Australia 7,410,000 AUD 6,924,882
(f) 144A, 7.125%, 9/18/17 ............................... Australia 1,860,000 NZD 1,439,260
--------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $376,226,313) 399,942,717
--------------
U.S. GOVERNMENT AND AGENCY SECURITIES 15.1%
FHLB, 1.625%, 7/27/11 ..................................... United States 8,000,000 8,091,168
FHLMC,
5.125%, 11/17/17 .................................... United States 400,000 440,809
senior note, 5.00%, 4/18/17 ......................... United States 5,400,000 5,923,082
FNMA,
3.25%, 8/12/10 ...................................... United States 150,000 151,259
6.625%, 11/15/30 .................................... United States 18,800,000 23,093,920
Morgan Stanley, senior note, FDIC Guaranteed, 1.95%,
6/20/12 ................................................ United States 500,000 507,874
Semiannual Report | 123
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
U.S. GOVERNMENT AND AGENCY SECURITIES (CONTINUED)
U.S. Treasury Bond,
3.875%, 2/15/13 ..................................... United States 30,000,000 $ 32,078,910
5.50%, 8/15/28 ...................................... United States 10,500,000 12,043,825
5.00%, 5/15/37 ...................................... United States 1,685,000 1,826,909
4.50%, 8/15/39 ...................................... United States 29,700,000 29,565,429
4.375%, 11/15/39 .................................... United States 24,000,000 23,411,256
(s) Index Linked, 2.375%, 1/15/25 ....................... United States 8,048,811 8,782,638
U.S. Treasury Note,
1.50%, 7/15/12 ...................................... United States 8,000,000 8,083,128
2.75%, 2/28/13 ...................................... United States 35,000,000 36,323,455
3.375%, 7/31/13 ..................................... United States 185,000 195,319
2.75%, 10/31/13 ..................................... United States 44,000,000 45,478,136
1.75%, 3/31/14 ...................................... United States 67,000,000 66,445,173
1.875%, 4/30/14 ..................................... United States 650,000 646,750
2.625%, 6/30/14 ..................................... United States 3,680,000 3,760,213
2.375%, 1/31/15 ..................................... United States 58,000,000 57,791,780
3.25%, 12/31/16 ..................................... United States 36,000,000 36,444,384
3.875%, 5/15/18 ..................................... United States 45,000 46,737
4.00%, 8/15/18 ...................................... United States 715,000 746,170
3.125%, 5/15/19 ..................................... United States 2,000,000 1,932,812
(s) Index Linked, 2.00%, 1/15/16 ........................ United States 7,589,465 8,190,695
--------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $412,353,790) 412,001,831
--------------
(i, t) SENIOR FLOATING RATE INTERESTS 4.6%
AUTOMOBILES & COMPONENTS 0.0%(e)
Federal-Mogul Corp.,
Term Loan B, 2.188% - 2.198%, 12/27/14 .............. United States 902,481 827,275
Term Loan C, 4.19%, 12/27/15 ........................ United States 455 417
--------------
827,692
--------------
CAPITAL GOODS 0.3%
BE Aerospace Inc., Term Loan B, 5.75%, 7/28/14 ............ United States 681,985 688,521
RBS Global Inc. (Rexnord),
Incremental Tranche B-2, 2.563%, 7/22/13 ............ United States 587,723 567,704
Tranche B-1 Term Loan B, 2.813%, 7/22/13 ............ United States 3,863,246 3,781,152
TransDigm Inc., Term Loan B, 2.278%, 6/23/13 .............. United States 2,283,891 2,254,390
--------------
7,291,767
--------------
COMMERCIAL & PROFESSIONAL SERVICES 0.3%
ARAMARK Corp.,
Extended Synthetic L/C, 0.142%, 7/26/16 ............. United States 141,175 140,549
Synthetic L/C, 2.167%, 1/26/14 ...................... United States 78,373 77,126
Term Loan B, 2.165%, 1/26/14 ........................ United States 1,191,708 1,172,752
Term Loan B Extended, 3.54%, 7/26/16 ................ United States 2,146,652 2,137,121
Diversey Inc., Tranche B Dollar Term Loan, 5.50%,
11/24/15 ............................................... United States 1,883,611 1,900,093
Duratek Inc. (EnergySolutions), Term Loan B, 4.03%,
6/07/13 ................................................ United States 405,061 400,166
124 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
(i, t) SENIOR FLOATING RATE INTERESTS (CONTINUED)
COMMERCIAL & PROFESSIONAL SERVICES (CONTINUED)
EnergySolutions LLC,
Synthetic A Deposit, 4.02%, 6/07/13 ................. United States 11,827 $ 11,684
Synthetic L/C, 4.02%, 6/07/13 ....................... United States 60,167 59,440
Term Loan B, 4.03%, 6/07/13 ............................... United States 844,271 834,070
(k, l) EnviroSolutions Inc., Initial Term Loan, PIK, 3.75%,
7/07/12 ................................................ United States 966,470 786,062
--------------
7,519,063
--------------
CONSUMER DURABLES & APPAREL 0.1%
Jarden Corp.,
Term Loan B1, 2.04%, 1/24/12 ........................ United States 517,429 515,950
Term Loan B2, 2.04%, 1/24/12 ........................ United States 130,094 129,639
Term Loan B4, 3.54%, 1/26/15 ........................ United States 2,249,073 2,259,507
Jostens IH Corp. (Visant Holding Corp.), Term Loan C,
2.251%, 10/04/11 ....................................... United States 1,172,568 1,165,973
(b, k, m) Sleep Innovations Inc., Term Loan, PIK, 10.25%,
3/05/15 ................................................ United States 92,233 68,252
--------------
4,139,321
--------------
CONSUMER SERVICES 0.4%
CCM Merger Inc. (MotorCity Casino), Term Loan B, 8.50%,
7/13/12 ................................................ United States 153,199 152,018
Education Management LLC, Term Loan C, 2.063%, 6/01/13 .... United States 3,772,240 3,698,130
Penn National Gaming Inc., Term Loan B, 2.00% - 2.07%,
10/03/12 ............................................... United States 3,294,215 3,266,070
(c) Turtle Bay Holdings LLC,
Term Loan A, 10.25%, 3/01/13 ....................... United States 1,507,364 1,454,606
(b, k) Term Loan B, PIK, 3.00%, 2/09/15 ................... United States 3,144,314 2,458,225
--------------
11,029,049
--------------
FOOD & STAPLES RETAILING 0.3%
SUPERVALU Inc.,
Term Loan B, 1.523%, 6/02/12 ........................ United States 1,094,355 1,080,850
Term Loan B-2, 3.023%, 10/15/15 ..................... United States 1,938,434 1,934,185
Wm. Wrigley Jr. Co.,
Term Loan B1, 3.063%, 12/17/12 ...................... United States 1,666,227 1,678,718
Term Loan B2, 3.313%, 10/06/14 ...................... United States 3,346,912 3,372,004
--------------
8,065,757
--------------
FOOD, BEVERAGE & TOBACCO 0.1%
Constellation Brands Inc.,
Extended Term Loan B, 3.00%, 6/05/15 ................ United States 340,158 343,241
Term Loan B, 1.75%, 6/05/13 ......................... United States 1,122,275 1,114,159
Dean Foods Co., Term Loan B, 1.675%, 4/02/14 .............. United States 1,756,364 1,722,331
--------------
3,179,731
--------------
HEALTH CARE EQUIPMENT & SERVICES 0.8%
Carestream Health Inc., Second Lien Term Loan, 5.523%,
10/30/13 ............................................... United States 47,138 44,742
Community Health Systems Inc.,
Delayed Draw Term Loan, 2.502%, 7/25/14 ............. United States 315,429 307,049
Term Loan, 2.502%, 7/25/14 .......................... United States 6,164,776 6,001,009
Semiannual Report | 125
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
(i, t) SENIOR FLOATING RATE INTERESTS (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES (CONTINUED)
DaVita Inc., Term Loan B-1, 1.75% - 1.80%, 10/05/12 ....... United States 2,673,304 $ 2,648,798
DJO Finance LLC, Term Loan B, 3.273%, 5/20/14 ............. United States 3,020,278 2,946,030
Fresenius Medical Care Holdings Inc., Term Loan B,
1.631% - 1.665%, 3/31/13 ............................... Germany 1,434,013 1,415,191
HCA Inc.,
Term Loan B-1, 2.54%, 11/18/13 ......................... United States 1,448,843 1,411,808
Tranche B-2 Term Loan, 3.541%, 3/31/17 ................. United States 3,474,613 3,456,518
LifePoint Hospitals Inc., Term B-2 Loan, 3.01%, 4/15/15 ... United States 3,089,277 3,081,072
--------------
21,312,217
--------------
MATERIALS 0.6%
Anchor Glass Container Corp., Second Lien Term Loan,
10.00%, 9/02/16 ........................................ United States 678,200 674,809
(m) Ashland Inc., Term Loan B, 3.65%, 5/13/14 ................. United States 30,815 31,146
Celanese U.S. Holdings LLC, Dollar Term Loan, 2.042%,
4/02/14 ................................................ United States 2,317,653 2,275,514
Georgia-Pacific LLC,
Term Loan B, 2.254% - 2.338%, 12/20/12 ................. United States 435,890 433,983
Term Loan C, 3.504% - 3.588%, 12/23/14 ................. United States 2,562,770 2,571,781
Hexion Specialty Chemicals BV, Tranche C-2B Term Loan,
4.063%, 5/03/15 ........................................ Netherlands 83,741 80,844
Hexion Specialty Chemicals Inc., Tranche C-1B Term Loan,
4.063%, 5/03/15 ........................................ United States 185,038 178,639
Nalco Co.,
Term Loan, 6.50%, 5/13/16 .............................. United States 3,084,477 3,114,680
Term Loan B, 2.063%, 11/04/10 .......................... United States 358,616 359,176
Novelis Corp., U.S. Term Loan, 2.28% - 2.30%, 7/07/14 ..... United States 552,920 536,506
Rockwood Specialties Group Inc., Term Loan H, 6.00%,
5/15/14 ................................................ United States 5,692,705 5,741,924
--------------
15,999,002
--------------
MEDIA 0.7%
Cinemark USA Inc., Extended Term Loan, 3.50% - 3.56%,
4/30/16 ................................................ United States 2,501,337 2,504,764
(m) CSC Holdings Inc. (Cablevision), Incremental Term Loan B-2,
2.004%, 3/29/16 ........................................ United States 5,527,261 5,536,243
DIRECTV Holdings LLC, Term Loan B, 1.773%, 4/13/13 ........ United States 1,089,301 1,091,113
Discovery Communications Inc.,
Term Loan B, 2.29%, 5/14/14 ......................... United States 1,398,960 1,400,053
(m) Term Loan C, 5.25%, 5/14/14 ......................... United States 341,802 345,273
(l) Metro-Goldwyn-Mayer Inc., Term Loan B, 20.50%, 4/08/12 .... United States 1,435,969 666,828
R.H. Donnelley Inc., Term Loan B, 9.25%, 10/24/14 ......... United States 829,221 809,527
Regal Cinemas Corp., Term Loan, 3.79%, 11/17/16 ........... United States 2,160,373 2,168,366
Univision Communications Inc., Initial Term Loan, 2.54%,
9/29/14 ................................................ United States 817,942 747,190
UPC Financing Partnership, Term Loan T, 3.93%, 12/31/16 ... Netherlands 3,913,326 3,871,258
--------------
19,140,615
--------------
126 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
(i, t) SENIOR FLOATING RATE INTERESTS (CONTINUED)
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.2%
Mylan Inc., Term Loan B, 3.563%, 10/02/14 ................. United States 5,063,591 $ 5,065,332
--------------
RETAILING 0.1%
Dollar General Corp., Tranche B-1 Term Loan, 3.006% -
3.088%, 7/07/14 ........................................ United States 2,844,247 2,808,210
--------------
SOFTWARE & SERVICES 0.1%
First Data Corp.,
Term Loan B-1, 3.013% - 3.04%, 9/24/14 ................. United States 323,077 291,273
Term Loan B-2, 3.032% - 3.04%, 9/24/14 ................. United States 117,845 106,073
Term Loan B-3, 3.032% - 3.04%, 9/24/14 ................. United States 117,845 106,105
Lender Processing Services Inc., Term Loan B, 2.773%,
7/02/14 ................................................ United States 1,051,678 1,056,060
SunGard Data Systems Inc., Tranche B U.S. Term Loan,
3.874% - 3.895%, 2/28/16 ............................... United States 1,215,519 1,210,635
--------------
2,770,146
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 0.1%
Flextronics International USA Inc.,
A Closing Date Loan, 2.541% - 2.554%, 10/01/14 ......... United States 839,843 811,183
A-1-A Delayed Draw Term Loan, 2.553%, 10/01/14 ......... United States 88,628 85,604
A-1-B Delayed Draw Term Loan, 2.54%, 10/01/14 .......... United States 402,953 389,203
A-3 Delayed Draw Term Loan, 2.523%, 10/01/14 ........... United States 563,606 541,061
--------------
1,827,051
--------------
TELECOMMUNICATION SERVICES 0.3%
Intelsat Corp. (PanAmSat),
Incremental Term Loan B-2-A, 2.792%, 1/03/14 ........... United States 25,718 25,262
Incremental Term Loan B-2-B, 2.792%, 1/03/14 ........... United States 25,710 25,254
Incremental Term Loan B-2-C, 2.792%, 1/03/14 ........... United States 25,710 25,254
Tranche B-2-A, 2.792%, 1/03/14 ......................... United States 1,476,872 1,450,681
Tranche B-2-B, 2.792%, 1/03/14 ......................... United States 1,476,419 1,450,236
Tranche B-2-C, 2.792%, 1/03/14 ......................... United States 1,476,419 1,450,236
NTELOS Inc., Term Loan B, 5.75%, 8/07/15 .................. United States 1,358,803 1,368,145
Windstream Corp., Tranche B-2 Term Loan, 3.06%, 12/17/15 .. United States 1,445,423 1,447,230
--------------
7,242,298
--------------
UTILITIES 0.2%
(m) NRG Energy Inc.,
Credit Link, 2.04%, 2/01/13 ............................ United States 2,216,427 2,177,010
Term Loan, 2.023% - 2.04%, 2/01/13 ..................... United States 3,360,301 3,300,541
Texas Competitive Electric Holdings Co. LLC, Term Loan B-2,
3.751% - 3.79%, 10/10/14 ............................... United States 894,164 735,450
--------------
6,213,001
--------------
TOTAL SENIOR FLOATING RATE INTERESTS
(COST $121,282,362) .................................... 124,430,252
--------------
Semiannual Report | 127
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION PRINCIPAL AMOUNT(g) VALUE
----------------------------------------------------------- -------------- -------------------- --------------
MUNICIPAL BONDS 2.8%
Bay Area Toll Authority Toll Bridge Revenue, San Francisco
Bay Area, Refunding, Series F-1, 5.00%, 4/01/39 ........ United States 990,000 $ 1,030,600
California State GO, Various Purpose,
6.00%, 4/01/38 ......................................... United States 15,000,000 16,313,850
Refunding, 6.00%, 3/01/33 .............................. United States 15,500,000 17,095,105
Chicago Transit Authority Transfer Tax Receipts Revenue,
Series A, 6.899%, 12/01/40 ............................. United States 800,000 897,640
Citizens Property Insurance Corp. Revenue, Senior Secured,
High-Risk Account, Series A-1, Assured Guaranty, 4.50%,
6/01/14 ................................................ United States 16,000,000 16,812,960
Connecticut State GO, Series B, 5.00%, 4/15/18 ............ United States 650,000 749,216
Kentucky State Municipal Power Agency Power System Revenue,
Prairie State Project, Series A, BHAC Insured, 5.25%,
9/01/42 ................................................ United States 1,015,000 1,053,002
Lewisville ISD, GO, School Building, 5.00%, 8/15/26 ....... United States 890,000 978,092
Los Angeles USD, GO,
Build America Bonds, 6.758%, 7/01/34 ................... United States 4,600,000 4,982,858
Series KRY, 5.25%, 7/01/26 ............................. United States 565,000 615,070
MTA Revenue,
Series B, Assured Guaranty, 5.25%, 11/15/20 ............ United States 705,000 796,276
Transportation, Series A, FSA Insured, 5.50%,
11/15/21 ............................................... United States 665,000 770,402
(f) New York City IDA, 144A, 11.00%, 3/01/29 .................. United States 700,000 799,771
Palomar Pomerado Health GO, Election of 2004, Series A,
NATL Insured, 5.125%, 8/01/37 .......................... United States 3,395,000 3,304,795
Poway USD, GO, Election of 2008, ID 07-1-A, zero cpn.,
8/01/27 ................................................ United States 1,150,000 432,067
8/01/30 ................................................ United States 1,150,000 348,968
8/01/32 ................................................ United States 1,440,000 380,088
8/01/33 ................................................ United States 760,000 187,249
Regional Transportation District Sales Tax Revenue,
FasTracks Project, Series A, AMBAC Insured, 5.00%,
11/01/27 ............................................... United States 960,000 1,022,851
San Diego County Water Authority Financing Agency Water
Revenue, Build America Bonds, San Diego Water, Series B,
6.138%, 5/01/49 ........................................ United States 5,450,000 5,860,439
Tulare Sewer Revenue, Building America Bonds, Series B,
FSA Insured, 8.75%, 11/15/44 ........................... United States 2,895,000 2,909,678
--------------
TOTAL MUNICIPAL BONDS (COST $72,552,954) .................. 77,340,977
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $2,618,820,473) 2,706,280,325
--------------
SHORT TERM INVESTMENTS 6.8%
FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $16,588,987)
0.6%
(u) Israel Treasury Bills, 10/06/10 - 4/06/11 ................. Israel 62,530,000 ILS 16,480,628
--------------
U.S. GOVERNMENT AND AGENCY SECURITIES (COST $13,348,871)
0.5%
(u, v) U.S. Treasury Bill, 5/27/10 ............................... United States 13,350,000 13,348,892
--------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS
(COST $2,648,758,331) .................................. 2,736,109,845
--------------
128 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
COUNTRY/
FRANKLIN TOTAL RETURN FUND ORGANIZATION SHARES VALUE
----------------------------------------------------------- -------------- -------------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MONEY MARKET FUNDS (COST $155,093,752) 5.7%
(w) Institutional Fiduciary Trust Money Market Portfolio ...... United States 155,093,752 $ 155,093,752
--------------
TOTAL INVESTMENTS (COST $2,803,852,083) 106.1% ............ 2,891,203,597
OTHER ASSETS, LESS LIABILITIES (6.1)% ..................... (166,943,816)
--------------
NET ASSETS 100.0% ......................................... $2,724,259,781
==============
(a) Non-income producing.
(b) Security has been deemed illiquid because it may not be able to be sold
within seven days. At April 30, 2010, the aggregate value of these
securities was $2,551,776, representing 0.09% of net assets.
(c) See Note 13 regarding other considerations.
(d) See Note 9 regarding restricted securities.
(e) Rounds to less than 0.1% of net assets.
(f) Security 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 April 30, 2010,
the aggregate value of these securities was $236,853,879, representing
8.69% of net assets.
(g) The principal amount is stated in U.S. dollars unless otherwise indicated.
(h) Perpetual security with no stated maturity date.
(i) The coupon rate shown represents the rate at period end.
(j) Security 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 April 30, 2010, the aggregate value of these
securities was $17,169,308, representing 0.63% of net assets.
(k) Income may be received in additional securities and/or cash.
(l) See Note 8 regarding defaulted securities.
(m) A portion or all of the security purchased on a delayed delivery or TBA
basis. See Note 1(d).
(n) A supranational organization is an entity formed by two or more central
governments through international treaties.
(o) The principal amount is stated in original face, and scheduled paydowns are
reflected in the market price on ex-date.
(p) Principal amount is stated in 100 Mexican Peso Units.
(q) Principal amount is stated in 1,000 Brazilian Real Units.
(r) Redemption price at maturity is adjusted for inflation. See Note 1(i).
(s) Principal amount of security is adjusted for inflation. See Note 1(i).
(t) See Note 1(g) regarding senior floating rate interests.
(u) The security is traded on a discount basis with no stated coupon rate.
(v) Security or a portion of the security has been segregated as collateral for
open futures, forward or swap contracts. At April 30, 2010, the value of
this security was $11,562,085.
(w) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
Semiannual Report | 129
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN TOTAL RETURN FUND
At April 30, 2010, the fund had the following financial futures contracts
outstanding. See Note 1(e).
FINANCIAL FUTURES CONTRACTS
NUMBER OF NOTIONAL DELIVERY UNREALIZED UNREALIZED
DESCRIPTION TYPE CONTRACTS AMOUNT DATE APPRECIATION DEPRECIATION
- ----------- ----- --------- ------------ -------- ------------ ------------
U.S. Treasury Bond ........... Long 550 $ 55,000,000 6/21/10 $2,288,859 $ --
U.S. Treasury 2 Year Note .... Long 885 177,000,000 6/30/10 679,600 --
U.S. Treasury 5 Year Note .... Long 1,360 136,000,000 6/30/10 1,303,475 --
U.S. Treasury 10 Year Note ... Short 620 62,000,000 6/21/10 -- (292,175)
---------- ---------
Unrealized appreciation
(depreciation) ....................................................... 4,271,934 (292,175)
---------- ---------
Net unrealized appreciation
(depreciation) .................................................... $3,979,759
==========
At April 30, 2010, the fund had the following forward exchange contracts
outstanding. See Note 1(e).
FORWARD EXCHANGE CONTRACTS
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT(A) DATE APPRECIATION DEPRECIATION
- -------- ------------ ---- -------------- ----------- ---------- ------------ ------------
Euro ......................... DBAB Sell 585,912 875,645 5/20/10 $ 95,527 $ --
Indian Rupee ................. DBAB Buy 21,978,000 447,809 6/01/10 47,051 --
Indian Rupee ................. HSBC Buy 652,000 13,443 6/02/10 1,236 --
Indian Rupee ................. HSBC Buy 3,224,000 67,167 6/03/10 5,411 --
Indian Rupee ................. HSBC Buy 21,522,000 447,815 6/04/10 36,633 --
Indian Rupee ................. DBAB Buy 10,761,000 223,908 6/07/10 18,244 --
Indian Rupee ................. DBAB Buy 5,428,000 112,614 6/08/10 9,518 --
Indian Rupee ................. HSBC Buy 4,321,000 89,554 6/08/10 7,670 --
Indian Rupee ................. DBAB Buy 4,383,000 90,093 6/10/10 8,508 --
Indian Rupee ................. BZWS Buy 6,554,000 135,134 6/11/10 12,290 --
Indian Rupee ................. HSBC Buy 4,392,000 90,092 6/11/10 8,700 --
Indian Rupee ................. DBAB Buy 10,971,000 225,231 6/16/10 21,426 --
Indian Rupee ................. DBAB Buy 9,993,000 202,698 6/21/10 21,859 --
New Zealand Dollar ........... DBAB Buy 20,030,204 14,656,100 7/06/10 -- (161,013)
New Zealand Dollar ........... DBAB Sell 20,030,204 12,600,000 7/06/10 -- (1,895,088)
New Zealand Dollar ........... DBAB Buy 2,698,125 1,969,631 7/30/10 -- (20,303)
New Zealand Dollar ........... DBAB Sell 2,698,125 1,736,243 7/30/10 -- (213,085)
New Zealand Dollar ........... BZWS Sell 1,052,185 675,503 8/03/10 -- (84,429)
New Zealand Dollar ........... DBAB Sell 2,687,860 1,726,547 8/03/10 -- (214,738)
New Zealand Dollar ........... BZWS Buy 1,052,185 764,518 8/03/10 -- (4,585)
New Zealand Dollar ........... DBAB Buy 2,687,860 1,961,331 8/03/10 -- (20,046)
New Zealand Dollar ........... BZWS Buy 530,156 385,174 8/04/10 -- (2,304)
New Zealand Dollar ........... BZWS Sell 530,156 340,360 8/04/10 -- (42,510)
New Zealand Dollar ........... DBAB Buy 1,064,903 777,060 8/04/10 -- (8,004)
New Zealand Dollar ........... DBAB Sell 1,064,903 680,367 8/04/10 -- (88,689)
New Zealand Dollar ........... CITI Buy 2,669,265 1,938,420 8/05/10 -- (10,876)
New Zealand Dollar ........... CITI Sell 2,669,265 1,743,097 8/05/10 -- (184,447)
New Zealand Dollar ........... DBAB Buy 791,840 577,726 8/05/10 -- (5,919)
New Zealand Dollar ........... DBAB Sell 791,840 516,121 8/05/10 -- (55,686)
130 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN TOTAL RETURN FUND
FORWARD EXCHANGE CONTRACTS (CONTINUED)
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT(a) DATE APPRECIATION DEPRECIATION
- -------- ------------ ---- -------------- ----------- ---------- ------------ ------------
New Zealand Dollar ........... HSBC Buy 3,277,000 2,389,588 8/05/10 $ -- $ (23,184)
New Zealand Dollar ........... HSBC Sell 3,277,000 2,119,564 8/05/10 -- (246,841)
New Zealand Dollar ........... CITI Buy 1,045,341 759,022 8/06/10 -- (4,216)
New Zealand Dollar ........... CITI Sell 1,045,341 683,146 8/06/10 -- (71,660)
New Zealand Dollar ........... FBCO Buy 521,704 379,018 8/06/10 -- (2,313)
New Zealand Dollar ........... FBCO Sell 521,704 339,759 8/06/10 -- (36,946)
New Zealand Dollar ........... CITI Buy 1,031,453 748,732 8/09/10 -- (4,134)
New Zealand Dollar ........... CITI Sell 1,031,453 678,139 8/09/10 -- (66,459)
New Zealand Dollar ........... DBAB Buy 1,036,107 755,633 8/09/10 -- (7,675)
New Zealand Dollar ........... DBAB Sell 1,036,107 681,551 8/09/10 -- (66,407)
New Zealand Dollar ........... FBCO Sell 1,019,688 671,923 8/09/10 -- (64,182)
New Zealand Dollar ........... FBCO Sell 1,021,476 678,393 8/11/10 -- (58,884)
New Zealand Dollar ........... DBAB Buy 2,171,853 1,532,459 8/12/10 35,005 --
New Zealand Dollar ........... DBAB Sell 2,171,853 1,415,259 8/12/10 -- (152,206)
New Zealand Dollar ........... DBAB Buy 500,000 352,775 8/13/10 8,055 --
New Zealand Dollar ........... DBAB Sell 1,142,000 741,272 8/13/10 -- (82,863)
New Zealand Dollar ........... DBAB Buy 1,205,000 862,057 8/16/10 7,332 --
New Zealand Dollar ........... DBAB Sell 1,205,000 795,421 8/16/10 -- (73,969)
New Israeli Shekel ........... CITI Buy 2,375,000 626,748 8/17/10 9,630 --
New Israeli Shekel ........... CITI Buy 2,376,000 625,964 8/19/10 10,663 --
New Israeli Shekel ........... DBAB Buy 238,000 62,698 8/19/10 1,072 --
New Israeli Shekel ........... CITI Buy 911,600 238,508 8/20/10 5,744 --
New Israeli Shekel ........... CITI Buy 1,555,600 407,951 8/23/10 8,833 --
New Zealand Dollar ........... FBCO Sell 937,138 617,930 8/24/10 -- (57,765)
New Zealand Dollar ........... DBAB Buy 800,000 572,160 8/27/10 4,516 --
New Zealand Dollar ........... DBAB Sell 933,000 623,711 8/27/10 -- (48,838)
Euro ......................... BZWS Sell 101,400 149,296 9/20/10 14,268 --
Euro ......................... UBSW Buy 661,411 982,281 9/23/10 -- (101,523)
Euro ......................... UBSW Sell 661,411 969,781 9/23/10 89,022 --
Euro ......................... JPHQ Sell 290,999 430,853 9/24/10 43,349 --
Malaysian Ringgit ............ JPHQ Buy 12,560,000 2,463,760 EUR 9/28/10 627,902 --
Euro ......................... DBAB Buy 994,762 1,348,997 10/04/10 -- (24,340)
Euro ......................... DBAB Sell 19,250,000 28,161,403 10/04/10 2,527,487 --
Philippine Peso .............. DBAB Buy 44,751,000 927,559 10/04/10 61,109 --
Philippine Peso .............. HSBC Buy 35,897,000 742,057 10/04/10 51,003 --
Philippine Peso .............. DBAB Buy 53,504,000 1,113,067 10/05/10 68,858 --
Philippine Peso .............. HSBC Buy 53,517,000 1,113,067 10/05/10 69,144 --
Indian Rupee ................. DBAB Buy 622,168,250 12,815,000 10/06/10 1,036,509 --
Philippine Peso .............. JPHQ Buy 14,135,000 296,829 10/06/10 15,387 --
Philippine Peso .............. DBAB Buy 43,922,000 927,564 10/07/10 42,493 --
Philippine Peso .............. CITI Buy 17,580,000 371,011 10/08/10 17,219 --
Philippine Peso .............. DBAB Buy 35,146,000 742,040 10/08/10 34,111 --
Philippine Peso .............. HSBC Buy 35,213,000 742,053 10/08/10 35,578 --
Philippine Peso .............. JPHQ Buy 17,535,000 371,025 10/08/10 16,212 --
Semiannual Report | 131
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN TOTAL RETURN FUND
FORWARD EXCHANGE CONTRACTS (CONTINUED)
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
CURRENCY COUNTERPARTY TYPE QUANTITY AMOUNT(a) DATE APPRECIATION DEPRECIATION
- -------- ------------ ---- -------------- ----------- ---------- ------------ ------------
Philippine Peso .............. DBAB Buy 10,465,000 222,612 10/12/10 $ 8,399 $ --
Philippine Peso .............. HSBC Buy 17,449,000 371,019 10/13/10 14,123 --
Philippine Peso .............. JPHQ Buy 39,005,000 833,446 10/13/10 27,488 --
Chinese Yuan ................. HSBC Buy 2,487,166 252,568 EUR 10/15/10 31,682 --
Chinese Yuan ................. HSBC Buy 3,007,421 456,791 10/25/10 -- (11,519)
Chinese Yuan ................. HSBC Buy 5,097,153 772,039 10/26/10 -- (17,317)
Chinese Yuan ................. HSBC Buy 3,049,528 460,967 10/27/10 -- (9,403)
Japanese Yen ................. DBAB Sell 879,763,200 9,600,000 10/28/10 215,233 --
Euro ......................... DBAB Sell 14,185,000 20,973,941 10/29/10 2,084,801 --
Japanese Yen ................. BZWS Sell 857,065,000 9,569,997 11/10/10 425,009 --
Euro ......................... UBSW Sell 888,264 1,320,440 11/17/10 137,579 --
Japanese Yen ................. UBSW Sell 2,236,935,360 25,080,000 11/17/10 1,208,323 --
Euro ......................... DBAB Sell 1,552,686 2,314,278 11/29/10 246,610 --
Mexican Peso ................. CITI Sell 8,714,000 641,632 12/02/10 -- (48,690)
British Pound ................ DBAB Sell 300,000 485,850 12/15/10 27,363 --
Euro ......................... DBAB Sell 1,460,625 2,129,445 12/15/10 184,338 --
Philippine Peso .............. JPHQ Buy 76,351,000 1,641,718 1/13/11 29,165 --
Euro ......................... BZWS Sell 6,429,000 9,328,479 1/14/11 766,737 --
Philippine Peso .............. HSBC Buy 12,250,000 261,920 1/14/11 6,137 --
Mexican Peso ................. DBAB Sell 97,158,402 7,260,000 1/18/11 -- (392,236)
Euro ......................... CITI Sell 5,184,200 7,318,794 1/27/11 414,642 --
Euro ......................... DBAB Sell 2,367,500 3,342,792 1/27/11 189,831 --
Japanese Yen ................. DBAB Sell 1,337,253,120 14,832,000 2/02/11 538,737 --
Euro ......................... DBAB Sell 961,785 1,312,644 2/16/11 31,629 --
Malaysian Ringgit ............ DBAB Buy 21,721,000 6,326,751 2/17/11 382,542 --
Indian Rupee ................. DBAB Buy 16,152,000 355,889 4/11/11 -- (1,632)
Indian Rupee ................. DBAB Buy 34,636,000 763,076 4/12/11 -- (3,476)
Indian Rupee ................. JPHQ Buy 23,264,000 514,008 4/13/11 -- (3,847)
Indian Rupee ................. JPHQ Buy 22,836,000 504,551 4/15/11 -- (3,857)
Indian Rupee ................. DBAB Buy 8,029,000 176,850 4/19/11 -- (865)
Indian Rupee ................. JPHQ Buy 11,408,000 251,001 4/19/11 -- (953)
Chilean Peso ................. MSCO Buy 1,195,400,000 2,275,825 4/25/11 8,961 --
Indian Rupee ................. DBAB Buy 16,221,000 358,159 4/26/11 -- (2,814)
Chilean Peso ................. JPHQ Buy 562,321,000 1,070,578 4/27/11 4,087 --
Euro ......................... UBSW Sell 11,680,000 15,622,000 4/27/11 59,281 --
Indian Rupee ................. JPHQ Buy 2,314,000 51,059 4/27/11 -- (372)
Chilean Peso ................. CITI Buy 906,403,000 1,736,404 4/28/11 -- (4,242)
Indian Rupee ................. JPHQ Buy 11,481,000 253,332 4/28/11 -- (1,863)
Indian Rupee ................. JPHQ Buy 11,492,000 253,687 4/29/11 -- (1,997)
Indian Rupee ................. JPHQ Buy 366,363,000 8,100,000 5/04/11 -- (100,952)
----------- -----------
Unrealized appreciation
(depreciation) .............................................................................. 12,177,271 (4,812,162)
----------- -----------
Net unrealized appreciation
(depreciation) ........................................................................... $ 7,365,109
===========
(a) In U.S. dollars unless otherwise indicated.
132 | Semiannual Report
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN TOTAL RETURN FUND
At April 30, 2010, the fund had the following credit default swap contracts
outstanding. See Note 1(e).
CREDIT DEFAULT SWAP CONTRACTS
PERIODIC
NOTIONAL PAYMENT EXPIRATION UNREALIZED UNREALIZED
DESCRIPTION COUNTERPARTY(a) AMOUNT(b) RATE DATE APPRECIATION DEPRECIATION RATING(c)
- ----------- --------------- ----------- -------- ---------- ------------ ------------ ----------
CONTRACTS TO BUY PROTECTION
SINGLE NAME
Bank of America Corp. ......... DBAB $ 5,000,000 1.00% 6/20/15 $ 35,173 $ --
Bank of America Corp. ......... FBCO 9,000,000 1.00% 6/20/15 84,206 --
Belo Corp. .................... BOFA 1,000,000 5.00% 6/20/13 -- (26,240)
Belo Corp. .................... CITI 8,000,000 5.00% 6/20/13 -- (294,095)
Belo Corp. .................... GSCO 1,000,000 5.00% 6/20/13 -- (16,625)
Centex Corp. .................. GSCO 3,750,000 4.00% 3/20/12 -- (233,963)
Centex Corp. .................. GSCO 5,000,000 4.70% 9/20/12 -- (465,413)
GMAC Inc. ..................... FBCO 9,000,000 5.00% 9/20/11 -- (78,446)
HCA Inc. ...................... GSCO 4,000,000 5.00% 6/20/12 -- (68,930)
Hertz Corp. ................... FBCO 2,950,000 5.00% 6/20/12 -- (115,956)
International Lease Finance
Corp. ...................... DBAB 5,000,000 5.00% 6/20/13 38,558 --
Kinder Morgan Inc. ............ JPHQ 5,000,000 1.00% 3/20/15 -- (11,239)
Kinder Morgan Inc. ............ MSCO 5,000,000 1.00% 3/20/15 6,375 --
Meritage Homes Corp. .......... FBCO 5,000,000 5.00% 3/20/15 -- (239,764)
Starwood Hotels & Resorts
Worldwide Inc. ............. FBCO 3,000,000 5.00% 3/20/13 -- (57,873)
Wendy's International Inc. .... DBAB 4,000,000 5.00% 12/20/11 9,032 --
Wendy's International Inc. .... MSCO 18,401,000 5.00% 6/20/14 7,823 --
CONTRACTS TO SELL
PROTECTION(d)
SINGLE NAME
Dynegy Holdings Inc. .......... FBCO 2,500,000 5.00% 3/20/16 -- (173,199) B-
Freescale Semiconductor Inc. .. FBCO 3,000,000 5.00% 12/20/14 170,257 -- CCC
Merrill Lynch & Co. Inc. ...... DBAB 5,000,000 1.00% 6/20/15 -- (50,612) A
Merrill Lynch & Co. Inc. ...... FBCO 9,000,000 1.00% 6/20/15 -- (119,654) A
Sungard Data Systems Inc. ..... FBCO 2,500,000 5.00% 6/20/15 47,032 -- B
Non
TRADED INDEX Investment
LCDX.NA.13 .................... FBCO 10,000,000 5.00% 12/20/14 491,255 -- Grade
-------- -----------
Unrealized appreciation
(depreciation) .................................................................. 889,711 (1,952,009)
-------- -----------
Net unrealized appreciation
(depreciation) .................................................................. $(1,062,298)
===========
Semiannual Report | 133
Franklin Investors Securities Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2010 (UNAUDITED) (CONTINUED)
FRANKLIN TOTAL RETURN FUND
(a) Positions are generally not collateralized if the unrealized appreciation
(depreciation) is under $250,000. Collateral requirements may be net of
current positions at the individual counterparty for the fund. The table
below summarizes the cash and/or securities held as collateral for each
applicable counterparty at period end:
COLLATERAL
POSTED
COUNTERPARTY (RECEIVED)
- ------------ ----------
CITI $ 607,550
DBAB 299,975
FBCO 1,990,835
GSCO 960,320
JPHQ 37,237
MLCO (99,000)
MSCO 2,499,792
----------
Total collateral
for credit default
swaps $6,296,709
==========
(b) 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.
(c) Based 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.
(d) The fund enters contracts to sell protection to create a long credit
position. Performance triggers include default, bankruptcy or restructuring
for single name swaps, and failure to pay or bankruptcy for traded index
swaps.
See Abbreviations on page 163.
The accompanying notes are an integral part of these financial statements.
134 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 2010 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING RATE LOW DURATION FRANKLIN
U.S. GOVERNMENT DAILY ACCESS TOTAL RETURN TOTAL RETURN
SECURITIES FUND FUND FUND FUND
--------------- -------------- ------------- ---------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................. $2,621,501,445 $1,451,258,717 $234,000,185 $2,648,758,331
Cost - Sweep Money Fund (Note 7) ............ 139,827,181 161,406,777 11,908,693 155,093,752
Cost - Repurchase agreements ................ 27,864,263 -- -- --
-------------- -------------- ------------ --------------
Total cost of investments ................... $2,789,192,889 $1,612,665,494 $245,908,878 $2,803,852,083
-------------- -------------- ------------ --------------
Value - Unaffiliated issuers ................ $2,642,871,463 $1,486,093,269 $239,010,008 $2,736,109,845
Value - Sweep Money Fund (Note 7) ........... 139,827,181 161,406,777 11,908,693 155,093,752
Value - Repurchase agreements ............... 27,864,263 -- -- --
-------------- -------------- ------------ --------------
Total value of investments .................. 2,810,562,907 1,647,500,046 250,918,701 2,891,203,597
Cash ........................................... 226,641 4,960,635 1,745,207 19,252,301
Foreign currency, at value (cost $ --, $ --,
$78,215 and $1,533,434) ..................... -- -- 83,854 1,507,333
Receivables:
Investment securities sold .................. 17,686,509 37,493,999 382,601 25,524,724
Capital shares sold ......................... 33,560,315 7,883,022 3,591,250 15,116,711
Dividends and interest ...................... 10,685,958 4,971,721 2,050,705 29,057,995
Variation margin ............................ -- -- -- 785,632
Swaps (premiums paid $ --, $ --, $22,931
and $442,603) ............................... -- -- 67,076 805,138
Unrealized appreciation on forward exchange
contracts ................................... -- -- 943,568 12,177,271
Unrealized appreciation on swap contracts ...... -- -- 494,129 889,711
Unrealized appreciation on unfunded loan
commitments ................................. -- 199,489 -- 13,040
Other assets ................................... 7,595 347 934 3,089
-------------- -------------- ------------ --------------
Total assets ............................. 2,872,729,925 1,703,009,259 260,278,025 2,996,336,542
-------------- -------------- ------------ --------------
Liabilities:
Payables:
Investment securities purchased ............. 38,871,761 144,673,308 5,219,826 246,951,280
Capital shares redeemed ..................... 14,730,949 4,108,100 801,498 7,902,238
Affiliates .................................. 2,002,885 1,100,799 152,371 1,685,510
Allocator Funds (Note 12) ................... -- -- -- 27,536
Distributions to shareholders ............... 1,026,474 981,687 96,107 1,509,320
Variation margin ............................ -- -- 28,313 --
Swaps (premiums received $ --, $ --, $786,630
and $6,196,921) ............................. -- -- 785,330 6,412,243
Due to brokers ................................. -- -- 20,000 99,000
Unrealized depreciation on forward exchange
contracts ................................... -- -- 260,723 4,812,162
Unrealized depreciation on swap contracts ...... -- -- 94,149 1,952,009
Accrued expenses and other liabilities ......... 109,208 410,226 46,625 725,463
-------------- -------------- ------------ --------------
Total liabilities ........................ 56,741,277 151,274,120 7,504,942 272,076,761
-------------- -------------- ------------ --------------
Net assets, at value .................. $2,815,988,648 $1,551,735,139 $252,773,083 $2,724,259,781
-------------- -------------- ------------ --------------
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 135
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2010 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING RATE LOW DURATION FRANKLIN
U.S. GOVERNMENT DAILY ACCESS TOTAL RETURN TOTAL RETURN
SECURITIES FUND FUND FUND FUND
--------------- -------------- ------------ --------------
Net assets consist of:
Paid-in capital ................................ $2,824,732,275 $2,112,033,329 $246,200,973 $2,651,027,100
Undistributed net investment income
(distributions in excess
of net investment income) ................... (13,825,256) 882,957 (243,338) 9,146,147
Net unrealized appreciation (depreciation) ..... 21,370,018 35,034,041 6,138,261 97,686,367
Accumulated net realized gain (loss) ........... (16,288,389) (596,215,188) 677,187 (33,599,833)
-------------- -------------- ------------ --------------
Net assets, at value ........................ $2,815,988,648 $1,551,735,139 $252,773,083 $2,724,259,781
-------------- -------------- ------------ --------------
CLASS A:
Net assets, at value ........................... $1,638,562,855 $1,037,482,892 $243,319,262 $1,504,172,690
-------------- -------------- ------------ --------------
Shares outstanding ............................. 183,065,611 114,145,014 23,593,800 151,378,133
-------------- -------------- ------------ --------------
Net asset value per share(a) ................... $ 8.95 $ 9.09 $ 10.31 $ 9.94
-------------- -------------- ------------ --------------
Maximum offering price per share (net asset
value per share / 97.75%, 97.75%, 97.75% and
95.75%, respectively) ....................... $ 9.16 $ 9.30 $ 10.55 $ 10.38
-------------- -------------- ------------ --------------
CLASS B:
Net assets, at value ........................... -- $ 12,688,372 -- $ 20,899,740
-------------- -------------- ------------ --------------
Shares outstanding ............................. -- 1,397,227 -- 2,104,234
-------------- -------------- ------------ --------------
Net asset value and maximum offering price
per share(a) ................................ -- $ 9.08 -- $ 9.93
-------------- -------------- ------------ --------------
CLASS C:
Net assets, at value ........................... $ 925,371,696 $ 255,536,609 -- $ 289,783,926
-------------- -------------- ------------ --------------
Shares outstanding ............................. 103,451,571 28,109,954 -- 29,187,069
-------------- -------------- ------------ --------------
Net asset value and maximum offering price
per share(a) ................................ $ 8.94 $ 9.09 -- $ 9.93
-------------- -------------- ------------ --------------
CLASS R:
Net assets, at value ........................... -- -- -- $ 90,810,298
-------------- -------------- ------------ --------------
Shares outstanding ............................. -- -- -- 9,140,768
-------------- -------------- ------------ --------------
Net asset value and maximum offering price
per share ................................... -- -- -- $ 9.93
-------------- -------------- ------------ --------------
ADVISOR CLASS:
Net assets, at value ........................... $ 252,054,097 $ 246,027,266 $ 9,453,821 $ 818,593,127
-------------- -------------- ------------ --------------
Shares outstanding ............................. 28,132,743 27,055,834 915,499 82,263,853
-------------- -------------- ------------ --------------
Net asset value and maximum offering price
per share ................................... $ 8.96 $ 9.09 $ 10.33 $ 9.95
-------------- -------------- ------------ --------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
136 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended April 30, 2010 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING RATE LOW DURATION FRANKLIN
U.S. GOVERNMENT DAILY ACCESS TOTAL RETURN TOTAL RETURN
SECURITIES FUND FUND FUND FUND
--------------- -------------- ------------ --------------
Investment income:
Dividends ...................................... $ -- $ -- $ -- $ 16,262
Interest ....................................... 31,812,275 32,774,143 3,359,105 65,349,130
----------- ----------- ---------- ------------
Total investment income .................. 31,812,275 32,774,143 3,359,105 65,365,392
----------- ----------- ---------- ------------
Expenses:
Management fees (Note 3a) ...................... 4,795,033 2,452,495 399,623 3,598,198
Administrative fees (Note 3b) .................. 1,225,996 1,398,183 194,332 2,448,970
Distribution fees: (Note 3c)
Class A ..................................... 1,933,609 1,210,389 237,686 1,689,131
Class B ..................................... -- 65,348 -- 68,979
Class C ..................................... 2,496,041 715,670 -- 848,954
Class R ..................................... -- -- -- 217,422
Transfer agent fees (Note 3e) .................. 858,712 794,653 79,888 1,856,569
Special servicing agreement fees (Note 12) ..... -- -- -- 176,085
Custodian fees (Note 4) ........................ 24,709 10,825 4,419 77,063
Reports to shareholders ........................ 100,632 99,389 9,805 145,558
Registration and filing fees ................... 154,821 86,688 29,760 87,525
Professional fees .............................. 29,902 78,681 45,246 71,999
Trustees' fees and expenses .................... 33,680 23,518 2,320 33,920
Other .......................................... 31,963 34,620 21,481 58,088
----------- ----------- ---------- ------------
Total expenses ........................... 11,685,098 6,970,459 1,024,560 11,378,461
----------- ----------- ---------- ------------
Expense reductions (Note 4) .............. -- (54) (17) (86)
Expenses waived/paid by affiliates
(Note 3f) ............................. -- -- (155,233) (1,075,330)
----------- ----------- ---------- ------------
Net expenses .......................... 11,685,098 6,970,405 869,310 10,303,045
----------- ----------- ---------- ------------
Net investment income .............. 20,127,177 25,803,738 2,489,795 55,062,347
----------- ----------- ---------- ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................. 456,441 2,704,149 1,221,435 22,631,931
Foreign currency transactions ............... -- -- (198,213) (4,595,168)
Futures contracts ........................... -- -- (5,926) 1,054,411
Swap contracts .............................. -- -- (194,138) (5,545,068)
----------- ----------- ---------- ------------
Net realized gain (loss) ........... 456,441 2,704,149 823,158 13,546,106
----------- ----------- ---------- ------------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................. 8,737,505 52,925,099 1,739,300 47,834,381
Translation of other assets and liabilities
denominated in foreign currencies ........ -- -- 1,077,922 16,921,850
----------- ----------- ---------- ------------
Net change in unrealized appreciation
(depreciation) .............................. 8,737,505 52,925,099 2,817,222 64,756,231
----------- ----------- ---------- ------------
Net realized and unrealized gain (loss) ........... 9,193,946 55,629,248 3,640,380 78,302,337
----------- ----------- ---------- ------------
Net increase (decrease) in net assets resulting
from operations ................................ $29,321,123 $81,432,986 $6,130,175 $133,364,684
----------- ----------- ---------- ------------
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 137
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN ADJUSTABLE FRANKLIN FLOATING RATE
U.S. GOVERNMENT SECURITIES FUND DAILY ACCESS FUND
----------------------------------- ---------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2010 YEAR ENDED APRIL 30, 2010 OCTOBER 31,
(UNAUDITED) OCTOBER 31, 2009 (UNAUDITED) 2009
---------------- ---------------- ---------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 20,127,177 $ 29,930,761 $ 25,803,738 $ 42,063,980
Net realized gain (loss) from
investments and swap contracts ........... 456,441 -- 2,704,149 (114,208,955)
Net change in unrealized appreciation
(depreciation) on investments ............ 8,737,505 15,129,003 52,925,099 270,394,269
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations .......... 29,321,123 45,059,764 81,432,986 198,249,294
-------------- -------------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A .................................. (22,386,868) (26,172,009) (17,559,988) (30,411,405)
Class B .................................. -- -- (195,027) (470,076)
Class C .................................. (9,493,780) (7,108,205) (3,554,105) (6,116,252)
Advisor Class ............................ (2,221,684) (897,961) (3,805,519) (5,261,032)
-------------- -------------- -------------- --------------
Total distributions to shareholders ............ (34,102,332) (34,178,175) (25,114,639) (42,258,765)
-------------- -------------- -------------- --------------
Capital share transactions: (Note 2)
Class A .................................. 266,336,157 779,962,601 42,465,250 50,019,305
Class B .................................. -- -- (2,596,904) (4,711,706)
Class C .................................. 330,261,085 462,179,098 36,728,808 (2,250,763)
Advisor Class ............................ 165,002,252 83,073,721 51,416,048 74,420,345
-------------- -------------- -------------- --------------
Total capital share transactions ............... 761,599,494 1,325,215,420 128,013,202 117,477,181
-------------- -------------- -------------- --------------
Net increase (decrease) in net
assets ............................. 756,818,285 1,336,097,009 184,331,549 273,467,710
Net assets:
Beginning of period ............................ 2,059,170,363 723,073,354 1,367,403,590 1,093,935,880
-------------- -------------- -------------- --------------
End of period .................................. $2,815,988,648 $2,059,170,363 $1,551,735,139 $1,367,403,590
============== ============== ============== ==============
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of period .................................. $ (13,825,256) $ 149,899 $ 882,957 $ 193,858
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
138 | Semiannual Report
Franklin Investors Securities Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN LOW DURATION FRANKLIN
TOTAL RETURN FUND TOTAL RETURN FUND
----------------------------------- ---------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2010 YEAR ENDED APRIL 30, 2010 OCTOBER 31,
(UNAUDITED) OCTOBER 31, 2009 (UNAUDITED) 2009
---------------- ---------------- ---------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 2,489,795 $ 2,642,987 $ 55,062,347 $ 80,781,373
Net realized gain (loss) from investments,
foreign currency transactions, futures
contracts and swap contracts ............. 823,158 1,305,390 13,546,106 44,122,623
Net change in unrealized appreciation
(depreciation) on investments and
translation of other assets and
liabilities denominated in foreign
currencies ............................... 2,817,222 4,211,289 64,756,231 191,244,684
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
resulting from operations .......... 6,130,175 8,159,666 133,364,684 316,148,680
------------ ------------ -------------- --------------
Distributions to shareholders from:
Net investment income and net foreign
currency gains:
Class A .................................. (2,995,969) (2,848,608) (32,390,229) (62,015,836)
Class B .................................. -- -- (478,392) (1,362,970)
Class C .................................. -- -- (5,752,798) (9,144,126)
Class R .................................. -- -- (1,989,970) (4,895,622)
Advisor Class ............................ (78,090) (19,838) (18,404,155) (32,020,159)
Net realized gains:
Class A .................................. (558,104) -- -- --
Advisor Class ............................ (5,148) -- -- --
------------ ------------ -------------- --------------
Total distributions to shareholders ............ (3,637,311) (2,868,446) (59,015,544) (109,438,713)
------------ ------------ -------------- --------------
Capital share transactions: (Note 2)
Class A ................................... 88,227,035 112,240,477 219,059,276 346,871,524
Class B ................................... -- -- (2,207,366) 837,046
Class C ................................... -- -- 44,284,322 113,752,969
Class R ................................... -- -- 3,210,765 7,444,788
Advisor Class ............................. 7,487,068 1,778,258 127,341,044 265,284,034
------------ ------------ -------------- --------------
Total capital share transactions ............... 95,714,103 114,018,735 391,688,041 734,190,361
------------ ------------ -------------- --------------
Net increase (decrease) in
net assets ......................... 98,206,967 119,309,955 466,037,181 940,900,328
Net assets:
Beginning of period ............................ 154,566,116 35,256,161 2,258,222,600 1,317,322,272
------------ ------------ -------------- --------------
End of period .................................. $252,773,083 $154,566,116 $2,724,259,781 $2,258,222,600
============ ============ ============== ==============
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of period .................................. $ (243,338) $ 340,926 $ 9,146,147 $ 13,099,344
============ ============ ============== ==============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 139
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Investors Securities Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as an open-end investment company,
consisting of nine separate funds, four of which are included in this report
(Funds). The financial statements of the remaining funds in the Trust are
presented separately. The classes of shares offered within each of the Funds are
indicated below. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
CLASS A & ADVISOR CLASS CLASS A, CLASS C & ADVISOR CLASS
- ----------------------- ---------------------------------------------------
Franklin Low Duration Total Return Fund Franklin Adjustable U.S. Government Securities Fund
CLASS A, CLASS B, CLASS C, & ADVISOR CLASS CLASS A, CLASS B, CLASS C, CLASS R & ADVISOR CLASS
- ------------------------------------------ --------------------------------------------------
Franklin Floating Rate Daily Access Fund Franklin Total Return Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Equity and other securities listed on a securities 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. Over-the-counter securities and listed
securities for which there is no reported sale 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. Investments
in open-end mutual funds are valued at the closing net asset value.
Corporate debt securities, government securities, municipal securities, mortgage
backed securities, asset-backed securities, collateralized debt obligations and
other debt securities generally trade in the over-the-counter market rather than
on a securities exchange. The Funds may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Funds' pricing services may use valuation models or matrix pricing which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers, or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, option adjusted spread models, prepayment projections, interest
rate spreads and yield curves, to determine current value. Debt securities
denominated in a foreign currency are converted into their U.S. dollar
equivalent at the foreign exchange rate in effect at the close of the NYSE on
the date that the values of the foreign debt securities are determined.
Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Funds may utilize independent
140 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
pricing services, quotations from loan dealers and other financial institutions,
and information with respect to bond and note transactions, to assist in
determining a current market value for each security. The Funds' pricing
services use independent market quotations from loan dealers or financial
institutions and may incorporate valuation methodologies that consider multiple
bond characteristics such as dealer quotes, issuer type, coupon, maturity,
weighted average maturity, interest rate spreads and yield curves, cash flow and
credit risk/quality analysis, to determine current value.
The Funds have procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, matrix pricing, discounts from market prices of similar securities,
or discounts applied due to the nature and duration of restrictions on the
disposition of the securities. Due to the inherent uncertainty of valuations of
such securities, the fair values may differ significantly from the values that
would have been used had a ready market for such investments existed.
Occasionally, events occur between the time at which trading in a security is
completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a portfolio security
held by the fund. If such an event occurs, the securities may be valued using
fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Funds' Board of
Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. 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. 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
Funds' Board of Trustees.
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 on the
Statements of Operations.
Semiannual Report | 141
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
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
The Funds may 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 agreement is accounted for as a loan by the fund to the
seller, collateralized by securities which are delivered to the fund's
custodian. The market value, including accrued interest, of the initial
collateralization is required to be at least 102% of 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%. The joint repurchase agreement held by
the Franklin Adjustable U.S. Government Securities Fund at period end had been
entered into on April 30, 2010. The joint repurchase agreement is valued at cost
which approximates market value.
D. SECURITIES PURCHASED ON A DELAYED DELIVERY AND TBA BASIS
The Funds may purchase securities on a 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.
E. DERIVATIVE FINANCIAL INSTRUMENTS
Certain funds may invest in derivative financial instruments (derivatives) 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 may 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 the potential for market movements which may expose the
fund to gains or losses in excess of the amounts shown on the Statements of
Assets and Liabilities.
142 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Derivatives are marked to market daily based upon quotations from market makers
or the fund's independent pricing services and the fund's net benefit or
obligation under the contract, as measured by the fair market value of the
contract, is included in net assets. Realized gain and loss and unrealized
appreciation and depreciation on these contracts for the period are included in
the Statements of Operations.
Certain funds generally enter into financial futures contracts in order to
manage interest rate risk. A futures contract is an agreement between the fund
and a counterparty to buy or sell a security for a specific price on a future
date. Required initial margin deposits of cash or securities are pledged or
received by the fund. Subsequent payments, known as variation margin, are made
or received by the fund, depending on fluctuations in the value of the
underlying security. Such variation margin is accounted for as unrealized
appreciation or depreciation until the contract is closed, at which time the
gains or losses are realized.
Certain funds generally enter into forward exchange contracts in order 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 for a specific exchange rate on a future date. Pursuant to the terms of
the forward exchange contracts, cash or securities may be required to be
deposited as collateral. Unrestricted cash received may be invested according to
the fund's investment objectives.
Certain funds generally enter into credit default swap contracts in order to
manage or gain exposure to credit risk. A credit default swap is an agreement
between the fund and a counter-party whereby the buyer of the contract receives
credit protection and the seller of the contract guarantees the credit
worthiness of a referenced debt obligation. 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 (or other agreed upon
amount) from the seller. 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.
Payments received or paid to initiate a credit default swap contract are
recorded as a liability or asset, and amortized over the term of the contract as
a realized gain or loss. Pursuant to the terms of the credit default swap
contract, cash or securities may be required to be deposited as collateral.
Unrestricted cash received may be invested according to the fund's investment
objectives.
At April 30, 2010, the Franklin Low Duration Total Return Fund and the Franklin
Total Return Fund hold $20,000 and $99,000, respectively, in cash as collateral
for derivatives.
See Note 11 regarding other derivative information.
Semiannual Report | 143
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. MORTGAGE DOLLAR ROLLS
The funds may enter into mortgage dollar rolls, typically on a TBA basis.
Mortgage dollar rolls are agreements between the fund and a financial
institution to simultaneously sell and repurchase mortgage-backed securities at
a future date. 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 funds 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. The
risks of mortgage dollar roll transactions include the potential inability of
the counterparty to fulfill its obligations.
G. SENIOR FLOATING RATE INTERESTS
Senior secured corporate loans 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 some restrictions on resale.
H. INCOME TAXES
It is each Fund's policy to qualify as a regulated investment company under the
Internal Revenue Code and to distribute to shareholders substantially all of its
taxable income and net realized gains. As a result, no provision for federal
income taxes is required. The Funds file U.S. income tax returns as well as tax
returns in certain other jurisdictions. As of April 30, 2010, and for all open
tax years, the Funds have determined that no provision for income tax is
required in the Funds' financial statements. Open tax years are those that
remain subject to examination by such taxing authorities, which in the case of
the U.S. is three years after the filing of a fund's tax return.
I. 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. Dividends from net
investment income are normally declared daily; these dividends are reinvested
and paid monthly to shareholders.
144 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
Distributions from realized capital gains and other distributions, if any, are
recorded on the ex-dividend date. Distributions to shareholders are determined
according to income tax regulations (tax basis). Distributable earnings
determined on a tax basis may differ from earnings recorded in accordance with
accounting principles generally accepted in the United States of America. 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.
Net investment income, not including 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 provide an inflation hedge through periodic increases or
decreases in the security's interest accruals and principal redemption value, by
amounts corresponding to the current rate of inflation. Any such adjustments,
including adjustments to principal redemption value, are recorded as interest
income.
J. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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.
K. 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.
Semiannual Report | 145
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At April 30, 2010, there were an unlimited number of shares authorized (without
par value). Transactions in the Funds' shares were as follows:
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT FRANKLIN FLOATING RATE
SECURITIES FUND DAILY ACCESS FUND
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- -------------
CLASS A SHARES:
Six Months ended April 30, 2010
Shares sold .................... 79,713,233 $ 714,725,598 25,358,321 $ 226,725,567
Shares issued in reinvestment of
distributions ............... 2,155,529 19,314,715 1,597,765 14,263,443
Shares redeemed ................ (52,222,311) (467,704,156) (22,306,046) (198,523,760)
----------- -------------- ----------- -------------
Net increase (decrease) ........ 29,646,451 $ 266,336,157 4,650,040 $ 42,465,250
=========== ============== =========== =============
Year ended October 31, 2009
Shares sold .................... 153,658,811 $1,373,899,677 43,871,800 $ 349,936,925
Shares issued in reinvestment of
distributions ............... 2,396,268 21,436,555 2,799,741 22,053,766
Shares redeemed ................ (68,837,915) (615,373,631) (41,105,493) (321,971,386)
----------- -------------- ----------- -------------
Net increase (decrease) ........ 87,217,164 $ 779,962,601 5,566,048 $ 50,019,305
=========== ============== =========== =============
CLASS B SHARES:
Six Months ended April 30, 2010
Shares sold .................... 160,839 $ 1,436,059
Shares issued in reinvestment of
distributions ............... 18,014 160,451
Shares redeemed ................ (472,401) (4,193,414)
----------- -------------
Net increase (decrease) ........ (293,548) $ (2,596,904)
=========== =============
Year ended October 31, 2009
Shares sold .................... 340,990 $ 2,692,011
Shares issued in reinvestment of
distributions ............... 47,255 366,600
Shares redeemed ................ (980,351) (7,770,317)
----------- -------------
Net increase (decrease) ........ (592,106) $ (4,711,706)
=========== =============
CLASS C SHARES:
Six Months ended April 30, 2010
Shares sold .................... 50,629,857 $ 453,596,082 7,406,814 $ 66,338,514
Shares issued in reinvestment of
distributions ............... 888,400 7,953,265 305,644 2,729,083
Shares redeemed ................ (14,672,156) (131,288,262) (3,640,602) (32,338,789)
----------- -------------- ----------- -------------
Net increase (decrease) ........ 36,846,101 $ 330,261,085 4,071,856 $ 36,728,808
=========== ============== =========== =============
Year ended October 31, 2009
Shares sold .................... 63,926,720 $ 571,646,893 7,379,125 $ 59,104,680
Shares issued in reinvestment of
distributions ............... 628,661 5,623,492 572,753 4,487,978
Shares redeemed ................ (12,882,462) (115,091,287) (8,472,107) (65,843,421)
----------- -------------- ----------- -------------
Net increase (decrease) ........ 51,672,919 $ 462,179,098 (520,229) $ (2,250,763)
=========== ============== =========== =============
146 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN ADJUSTABLE
U.S. GOVERNMENT FRANKLIN FLOATING RATE
SECURITIES FUND DAILY ACCESS FUND
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
ADVISOR CLASS SHARES:
Six Months ended April 30, 2010
Shares sold .................... 28,389,807 $254,580,357 9,935,420 $ 89,181,963
Shares issued in reinvestment of
distributions ............... 168,053 1,506,547 318,868 2,847,047
Shares redeemed ................ (10,155,720) (91,084,652) (4,586,653) (40,612,962)
----------- ------------ ---------- ------------
Net increase (decrease) ........ 18,402,140 $165,002,252 5,667,635 $ 51,416,048
=========== ============ ========== ============
Year ended October 31, 2009
Shares sold .................... 11,341,421 $101,662,527 13,995,010 $112,378,288
Shares issued in reinvestment of
distributions ............... 54,593 489,659 574,069 4,546,779
Shares redeemed ................ (2,130,256) (19,078,465) (5,166,287) (42,504,722)
----------- ------------ ---------- ------------
Net increase (decrease) ........ 9,265,758 $ 83,073,721 9,402,792 $ 74,420,345
=========== ============ ========== ============
FRANKLIN LOW DURATION
TOTAL RETURN FUND FRANKLIN TOTAL RETURN FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
CLASS A SHARES:
Six Months ended April 30, 2010
Shares sold .................... 12,287,435 $125,899,642 39,138,110 $ 381,536,860
Shares issued in reinvestment of
distributions ............... 300,911 3,079,072 2,792,854 27,213,393
Shares redeemed ................ (3,977,801) (40,751,679) (19,449,270) (189,690,977)
---------- ------------ ----------- -------------
Net increase (decrease) ........ 8,610,545 $ 88,227,035 22,481,694 $ 219,059,276
========== ============ =========== =============
Year ended October 31, 2009
Shares sold .................... 15,628,787 $155,180,522 69,739,925 $ 630,431,263
Shares issued on reorganization
(Note 14) ................... -- -- 1,237,985 11,798,001
Shares issued in reinvestment of
distributions ............... 233,837 2,329,421 5,502,855 49,231,209
Shares redeemed ................ (4,550,880) (45,269,466) (38,320,456) (344,588,949)
---------- ------------ ----------- -------------
Net increase (decrease) ........ 11,311,744 $112,240,477 38,160,309 $ 346,871,524
========== ============ =========== =============
CLASS B SHARES:
Six Months ended April 30, 2010
Shares sold .................... 268,212 $ 2,608,110
Shares issued in reinvestment of
distributions ............... 39,426 383,706
Shares redeemed ................ (534,538) (5,199,182)
----------- -------------
Net increase (decrease) ........ (226,900) $ (2,207,366)
=========== =============
Year ended October 31, 2009
Shares sold .................... 1,524,364 $ 13,537,850
Shares issued in reinvestment of
distributions ............... 117,688 1,047,569
Shares redeemed ................ (1,540,552) (13,748,373)
----------- -------------
Net increase (decrease) ........ 101,500 $ 837,046
=========== =============
Semiannual Report | 147
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN LOW DURATION
TOTAL RETURN FUND FRANKLIN TOTAL RETURN FUND
---------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ----------- -------------
CLASS C SHARES:
Six Months ended April 30, 2010
Shares sold .................... 7,779,690 $ 75,734,457
Shares issued in reinvestment of
distributions ............... 476,790 4,643,143
Shares redeemed ................ (3,702,904) (36,093,278)
----------- -------------
Net increase (decrease) ........ 4,553,576 $ 44,284,322
=========== =============
Year ended October 31, 2009
Shares sold .................... 17,497,919 $ 157,787,278
Shares issued on reorganization
(Note 14) ................... 30,897 294,142
Shares issued in reinvestment of
distributions ............... 791,999 7,105,251
Shares redeemed ................ (5,732,519) (51,433,702)
----------- -------------
Net increase (decrease) ........ 12,588,296 $ 113,752,969
=========== =============
CLASS R SHARES:
Six Months ended April 30, 2010
Shares sold .................... 1,648,097 $ 16,037,748
Shares issued in reinvestment of
distributions ............... 178,087 1,734,225
Shares redeemed ................ (1,495,380) (14,561,208)
----------- -------------
Net increase (decrease) ........ 330,804 $ 3,210,765
=========== =============
Year ended October 31, 2009
Shares sold .................... 3,499,337 $ 31,496,822
Shares issued in reinvestment of
distributions ............... 468,725 4,176,856
Shares redeemed ................ (3,153,089) (28,228,890)
----------- -------------
Net increase (decrease) ........ 814,973 $ 7,444,788
=========== =============
ADVISOR CLASS SHARES:
Six Months ended April 30, 2010
Shares sold .................... 855,266 $ 8,771,148 19,871,387 $ 193,845,915
Shares issued in reinvestment of
distributions ............... 966 9,912 1,597,078 15,590,841
Shares redeemed ................ (126,349) (1,293,992) (8,413,306) (82,095,712)
-------- ----------- ----------- -------------
Net increase (decrease) ........ 729,883 $ 7,487,068 13,055,159 $ 127,341,044
======== =========== =========== =============
Year ended October 31, 2009
Shares sold .................... 254,582 $ 2,556,843 46,507,982 $ 422,923,427
Shares issued on reorganization
(Note 14) ................... -- -- 5,402,812 51,542,827
Shares issued in reinvestment of
distributions ............... 600 5,987 2,983,790 26,725,786
Shares redeemed ................ (77,375) (784,572) (25,764,557) (235,908,006)
-------- ----------- ----------- -------------
Net increase (decrease) ........ 177,807 $ 1,778,258 29,130,027 $ 265,284,034
======== =========== =========== =============
148 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 Advisers, Inc. (Advisers) Administrative 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
The Franklin Adjustable U.S. Government 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
- ------------------- -------------------------------------------------
0.400% Up to and including $5 billion
0.350% Over $5 billion, up to and including $10 billion
0.330% Over $10 billion, up to and including $15 billion
0.300% In excess of $15 billion
The 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
- ------------------- -----------------------------------------------------
0.450% Up to and including $500 million
0.350% Over $500 million, up to and including $1 billion
0.300% Over $1 billion, up to and including $1.5 billion
0.250% Over $1.5 billion, up to and including $6.5 billion
0.225% Over $6.5 billion, up to and including $11.5 billion
0.200% Over $11.5 billion, up to and including $16.5 billion
0.190% Over $16.5 billion, up to and including $19 billion
0.180% Over $19 billion, up to and including $21.5 billion
0.170% Inexcess of $21.5 billion
Semiannual Report | 149
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES (CONTINUED)
The Franklin Low Duration Total Return Fund and the 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
- ------------------- -----------------------------------------------------
0.425% Up to and including $500 million
0.325% Over $500 million, up to and including $1 billion
0.280% Over $1 billion, up to and including $1.5 billion
0.235% Over $1.5 billion, up to and including $6.5 billion
0.215% Over $6.5 billion, up to and including $11.5 billion
0.200% Over $11.5 billion, up to and including $16.5 billion
0.190% Over $16.5 billion, up to and including $19 billion
0.180% Over $19 billion, up to and including $21.5 billion
0.170% Inexcess of $21.5 billion
Under a subadvisory agreement, FT Institutional, an affiliate of Advisers,
provides subadvisory services to the Franklin Total Return Fund and receives
from Advisers fees based on the average daily net assets of the fund.
B. ADMINISTRATIVE FEES
The Franklin Adjustable U.S. Government Fund pays an administrative fee to
Advisers based on the fund's average daily net assets as follows:
ANNUALIZED FEE RATE NET ASSETS
- ------------------- ------------------------------------------------
0.100% Up to and including $5 billion
0.090% Over $5 billion, up to and including $10 billion
0.080% In excess of $10 billion
The Franklin Floating Rate Daily Access Fund, the Franklin Low Duration Total
Return Fund and the Franklin Total Return Fund pay an administrative fee to FT
Services of 0.20% per year of the average daily net assets of each of the funds.
C. DISTRIBUTION FEES
The Funds' Board of Trustees has adopted distribution plans for each share
class, with the exception of 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. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
150 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
In addition, under the funds' Class B, 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 maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING LOW DURATION FRANKLIN
U.S. GOVERNMENT RATE DAILY TOTAL RETURN TOTAL RETURN
SECURITIES FUND ACCESS FUND FUND FUND
--------------- ----------- ------------ ------------
Reimbursement Plans:
Class A .............................. 0.25% 0.25% 0.25% 0.25%
Compensation Plans:
Class B .............................. -- 1.00% -- 0.65%
Class C .............................. 0.65% 0.65% -- 0.65%
Class R .............................. -- -- -- 0.50%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING LOW DURATION FRANKLIN
U.S. GOVERNMENT RATE DAILY TOTAL RETURN TOTAL RETURN
SECURITIES FUND ACCESS FUND FUND FUND
--------------- ----------- ------------ ------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers .. $334,856 $55,650 $92,444 $1,025,135
Contingent deferred sales charges
retained ............................. $312,040 $33,496 $ 6,046 $ 45,934
E. TRANSFER AGENT FEES
For the period ended April 30, 2010, the Funds paid transfer agent fees as noted
in the Statements of Operations of which the following amounts were retained by
Investor Services:
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING LOW DURATION FRANKLIN
U.S. GOVERNMENT RATE DAILY TOTAL RETURN TOTAL RETURN
SECURITIES FUND ACCESS FUND FUND FUND
--------------- ----------- ------------ ------------
Transfer agent fees ..................... $498,204 $470,585 $49,032 $943,459
Semiannual Report | 151
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
F. WAIVER AND EXPENSE REIMBURSEMENTS
For the Franklin Low Duration Total Return Fund and the Franklin Total Return
Fund, Advisers and FT 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 the funds so that the common expenses (i.e. a combination
of management fees, administrative fees, and other expenses, but excluding
distribution fees, and acquired fund fees and expenses) for each class of the
funds do not exceed 0.65% and 0.63%, respectively (other than certain
non-routine expenses or costs, including those relating to litigation,
indemnification, reorganizations, and liquidations) until February 28, 2011.
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 period ended April 30, 2010, 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, if any. At October 31, 2009, the capital loss carryforwards were as
follows:
FRANKLIN FRANKLIN
ADJUSTABLE FLOATING FRANKLIN
U.S. GOVERNMENT RATE DAILY TOTAL RETURN
SECURITIES FUND ACCESS FUND FUND
--------------- ------------ ------------
Capital loss carryforwards expiring in:
2010................................. $ -- $192,099,191 $ --
2011................................. 585,362 108,452,146 137,613
2012................................. 1,039,514 74,147,691 --
2013................................. 2,782,773 -- 372,525
2014................................. 3,962,538 -- --
2015................................. 2,492,027 17,905,138 1,395,879
2016................................. 1,492,446 91,562,953 42,938,101
2017................................. 4,390,170 113,325,108 --
----------- ------------ -----------
$16,744,830 $597,492,227 $44,844,118(a)
=========== ============ ===========
(a) Includes $9,556,622 from the reorganized HSBC Investor Core Plus Fixed
Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and HSBC
Investor Intermediate Duration Fixed Income Fund, which may be carried over
to offset future capital gains, subject to certain limitations.
152 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES (CONTINUED)
At April 30, 2010, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING LOW DURATION FRANKLIN
U.S. GOVERNMENT RATE DAILY TOTAL RETURN TOTAL RETURN
SECURITIES FUND ACCESS FUND FUND FUND
--------------- -------------- ------------ --------------
Cost of investments ....... $2,789,192,889 $1,613,734,385 $246,717,627 $2,807,996,785
============== ============== ============ ==============
Unrealized appreciation ... $ 25,941,954 $ 43,463,627 $ 5,205,617 $ 132,264,785
Unrealized depreciation ... (4,571,936) (9,697,966) (1,004,543) (49,057,973)
-------------- -------------- ------------ --------------
Net unrealized appreciation
(depreciation) ......... $ 21,370,018 $ 33,765,661 $ 4,201,074 $ 83,206,812
============== ============== ============ ==============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, mortgage dollar rolls, paydown losses, payments-in-kind, bond
discounts and premiums, swaps, tax straddles and inflation related adjustments
on foreign securities.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, mortgage dollar rolls, financial futures transactions, paydown
losses, payments-in-kind, bond discounts and premiums, swaps, tax straddles, and
inflation related adjustments on foreign securities.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended April 30, 2010, were as follows:
FRANKLIN FRANKLIN FRANKLIN
ADJUSTABLE FLOATING LOW DURATION FRANKLIN
U.S. GOVERNMENT RATE DAILY TOTAL RETURN TOTAL RETURN
SECURITIES FUND ACCESS FUND FUND FUND
--------------- ------------ ------------ --------------
Purchases ................. $1,152,784,472 $639,007,303 $114,276,141 $1,777,678,889
Sales ..................... $ 435,295,464 $456,179,379 $ 22,522,582 $1,545,688,013
7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the Institutional Fiduciary Trust Money Market Portfolio
(Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant
to a SEC exemptive order specific to the Funds' investment in the Sweep Money
Fund, management fees paid by the Funds are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management and administrative
fees paid by the Sweep Money Fund.
Semiannual Report | 153
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. CREDIT RISK AND DEFAULTED SECURITIES
At April 30, 2010, the Franklin Floating Rate Daily Access Fund, the Franklin
Low Duration Total Return Fund and the Franklin Total Return Fund had 83.42%,
16.18% and 19.86%, respectively, of their portfolio invested in high yield,
senior secured floating rate notes, or other securities rated below investment
grade. 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.
The funds held defaulted securities and/or other securities for which the income
has been deemed uncollectible. At April 30, 2010, the aggregate value of these
securities for the Franklin Floating Rate Daily Access Fund, the Franklin Low
Duration Total Return Fund, and the Franklin Total Return Fund was $34,530,572,
$50,312, and $3,009,328, respectively, representing 2.23%, 0.02%, and 0.11%,
respectively, of each fund's net assets. The funds discontinue accruing income
on securities for which income has been deemed uncollectible and provide an
estimate for losses on interest receivable. The securities have been identified
on the accompanying Statements of Investments.
9. RESTRICTED SECURITIES
The funds may invest in securities that are restricted under the Securities Act
of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed
upon restrictions on resale. 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 April 30, 2010, the Franklin Total Return Fund held investments in restricted
securities, excluding 144A securities deemed to be liquid, as follows:
ACQUISITION
SHARES ISSUER DATES COST VALUE
- ------ ----------------------------------------------- ----------------- ---------- ----------
1,550,568(a) Turtle Bay Resort (0.06% of Net Assets)........ 8/18/08 - 6/24/09 $1,513,874 $1,550,568
----------
(a) The Fund also invests in unrestricted securities or other investments in
the issuer, valued at $3,912,831 as of April 30, 2010.
10. UNFUNDED LOAN COMMITMENTS
The funds may 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. Funded portions of credit agreements are presented on the
Statements of Investments.
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Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. UNFUNDED LOAN COMMITMENTS (CONTINUED)
At April 30, 2010, unfunded commitments were as follows:
UNFUNDED
BORROWER COMMITMENT
- -------- -----------
FRANKLIN FLOATING RATE DAILY ACCESS FUND
EnviroSolutions Real Property Holdings Inc., DIP Revolver .. $ 966,612
Smurfit-Stone Container Enterprises, Term Loan ............. 9,690,000
-----------
$10,656,612
===========
FRANKLIN TOTAL RETURN FUND
EnviroSolutions Real Property Holdings Inc., DIP Revolver .. $ 417,977
===========
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 Statements of Operations.
11. OTHER DERIVATIVE INFORMATION
At April 30, 2010, the funds have invested in derivative contracts which are
reflected on the Statements of Assets and Liabilities as follows:
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------------- ----------------------------------------------
DERIVATIVE CONTRACTS
NOT ACCOUNTED FOR AS STATEMENT OF ASSETS AND FAIR VALUE STATEMENT OF ASSETS AND FAIR VALUE
HEDGING INSTRUMENTS LIABILITIES LOCATION AMOUNT LIABILITIES LOCATION AMOUNT
- -------------------- ----------------------------- ----------- -------------------------------- -----------
FRANKLIN LOW DURATION TOTAL RETURN FUND
Interest rate
contracts ........ Variation margin/Net
assets consist of - net Variation margin/Net assets
unrealized appreciation consist of - net unrealized
(depreciation) $ 52,351(a) appreciation (depreciation) $ (19,321)(a)
Foreign exchange
contracts ........ Unrealized appreciation on Unrealized depreciation
forward exchange contracts 943,568 on forward exchange contracts (260,723)
Credit contracts .... Unrealized appreciation on Unrealized depreciation on
swap contracts 494,129 swap contracts (94,149)
FRANKLIN TOTAL RETURN FUND
Interest rate
contracts ........ Variation margin/Net
assets consist of - net Variation margin/Net assets
unrealized appreciation consist of - net unrealized
(depreciation) 4,271,934(a) appreciation (depreciation) (292,175)(a)
Foreign exchange
contracts ........ Unrealized appreciation on Unrealized depreciation on
forward exchange contracts 12,177,271 forward exchange contracts (4,812,162)
Credit contracts .... Unrealized appreciation Unrealized depreciation on
on swap contracts 889,711 swap contracts (1,952,009)
(a) Includes cumulative appreciation (depreciation) of futures contracts as
reported in the Statements on Investments. Only current day's variation
margin is reported within the Statements of Assets and Liabilities.
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Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. OTHER DERIVATIVE INFORMATION (CONTINUED)
For the period ended April 30, 2010, the effect of derivative contracts on the
funds' Statements of Operations was as follows:
CHANGE IN AVERAGE
UNREALIZED AMOUNT
DERIVATIVE CONTRACTS REALIZED APPRECIATION OUTSTANDING
NOT ACCOUNTED FOR AS STATEMENT OF GAIN (LOSS) (DEPRECIATION) DURING THE
HEDGING INSTRUMENTS OPERATIONS LOCATIONS FOR THE PERIOD FOR THE PERIOD PERIOD(a)
- -------------------- ----------------------------------------- -------------- -------------- ------------
FRANKLIN LOW DURATION TOTAL RETURN FUND
Interest rate
contracts ........ Net realized gain (loss) from futures
contracts/Net change in unrealized
appreciation (depreciation) on
investments $ (5,926) $ 32,022 $ 38,750,116
Foreign exchange
contracts ........ Net realized gain (loss) from foreign
currency transactions/Net change in
unrealized appreciation (depreciation)
on translation of other assets and
liabilities denominated in foreign
currencies (198,213) 1,067,402 18,093,794
Credit contracts .... Net realized gain (loss) from swap
contracts/Net change in unrealized
appreciation (depreciation) on
investments (194,138) 454,422 16,630,676
FRANKLIN TOTAL RETURN FUND
Interest rate
contracts ........ Net realized gain (loss) from futures
contracts/Net change in unrealized
appreciation (depreciation) on
investments 1,054,411 3,153,622 460,915,778
Foreign exchange
contracts ........ Net realized gain (loss) from foreign
currency transactions/Net change in
unrealized appreciation (depreciation)
on translation of other assets and
liabilities denominated in foreign
currencies (4,595,168) 17,448,691 308,308,536
Credit contracts .... Net realized gain (loss) from swap
contracts/Net change in unrealized
appreciation (depreciation) on
investments (5,545,068) 427,892 132,915,088
(a) Represents the average notional amount for other derivative contracts
outstanding during the period. For derivative contracts denominated in
foreign currencies, notional amounts are converted into U.S. dollars.
See Note 1(e) regarding derivative financial instruments.
156 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
12. SPECIAL SERVICING AGREEMENT
The Franklin Floating Rate Daily Access Fund and the Franklin Total Return Fund,
which are eligible underlying investments of one or more of the Franklin
Templeton Fund Allocator Series Funds (Allocator Funds), participate in a
Special Servicing Agreement (SSA) with the Allocator Funds and certain service
providers of the funds and the Allocator Funds. Under the SSA, the funds may pay
a portion of the Allocator Funds' expenses (other than any asset allocation,
administrative and distribution fees), to the extent such payments are less than
the amount of the benefits realized or expected to be realized by the funds
(e.g., due to reduced costs associated with servicing accounts) from the
investment in the funds by the Allocator Funds. The Allocator Funds are either
managed by Advisers or administered by FT Services. For the period ended April
30, 2010, the Franklin Total Return Fund was held by one or more of the
Allocator Funds and was allocated expenses as noted in the Statements of
Operations. At April 30, 2010, 8.62% of the fund's outstanding shares was held
by one or more of the Allocator Funds.
13. OTHER CONSIDERATIONS
Officers, directors or employees of the Franklin Total Return Fund's Investment
Manager, may serve from time to time as members of boards of directors of
companies in which the fund invests. Such participation may result in the
possession by the Investment Manager of material non-public information which,
pursuant to the fund's policies and the requirements of applicable securities
laws, could prevent the fund from trading in the securities of such companies
for limited or extended periods of time.
14. REORGANIZATION
On September 18, 2009, the Franklin Total Return Fund acquired the net assets of
the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed
Income Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund
(HSBC Funds) pursuant to a plan of reorganization approved by the HSBC Funds'
shareholders. The reorganization was accomplished by a tax free exchange, and
the net assets acquired and shares issued were as follows:
SHARES ISSUED BY UNREALIZED
FRANKLIN TOTAL APPRECIATION
FUND NAME NET ASSETS RETURN FUND (DEPRECIATION)
- --------- ----------- ---------------- --------------
HSBC Investor Core Plus Fixed Income Fund .................. $ 9,077,390 952,516 $ 224,054
HSBC Investor Core Plus Fixed Income Fund (Advisor) ........ 44,020,021 4,614,257 1,126,957
HSBC Investor Intermediate Duration Fixed Income Fund ...... 10,537,559 1,104,921 159,093
----------- --------- ----------
Total $63,634,970 6,671,694 $1,510,104
=========== ========= ==========
The combined net assets of the fund immediately after the reorganization were
$2,123,047,911.
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Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
15. 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 $750
million (Global Credit Facility) which matures on January 21, 2011. 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 its
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee of 0.10% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statements of
Operations. During the period ended April 30, 2010, the Funds did not utilize
the Global Credit Facility.
16. FUND LITIGATION
On July 6, 2003, Adelphia Communications Corp. ("Adelphia") and related parties,
along with its Official Committee of Unsecured Creditors, (collectively
"Plaintiffs") filed an adversary proceeding in the then-pending Adelphia
bankruptcy case in the U.S. Bankruptcy Court for the Southern District of New
York against more than 400 banks, financial services companies, insurance
companies, investment banks, mutual funds and other parties that had arranged
for the sale of, or purchased the bank debt of, Adelphia or its related parties.
Named defendants included Franklin Floating Rate Daily Access Fund (individually
and as successor to the Franklin Floating Rate Trust's interests in the credit
facilities at issue), Franklin Floating Rate Trust, and Franklin Floating Rate
Master Series (collectively the "Franklin Defendants"), and Franklin CLOs I-III,
among other defendants. In addition, Advisers was originally named as a
defendant, but later dismissed from the lawsuit. The complaint alleged that the
purchasers of this bank debt knew, or should have known, that the loan proceeds
would not benefit Adelphia, but instead would be used to enrich Adelphia
insiders and sought avoidance of the loans and recovery of fraudulent transfers
(the "Complaint"). The agent bank and investment bank defendants moved to
dismiss the Complaint, which the Bankruptcy Court granted in part and denied in
part, with leave to amend the Complaint. The reference to the bankruptcy was
withdrawn and the matter was transferred to the U.S. District Court for the
Southern District of New York.
On October 22, 2007, Plaintiffs filed an amended complaint, largely duplicating
the allegations in the original Complaint, and adding hundreds of additional
syndicate lender defendants (the "Amended Complaint"). The Franklin Defendants,
among others, moved to dismiss the Amended Complaint on December 20, 2007. On
June 17, 2008, the court granted the motions and dismissed all of the claims
against certain defendants, including the Franklin Defendants, while
158 | Semiannual Report
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
16. FUND LITIGATION (CONTINUED)
leaving other claims against other defendants outstanding. On December 8, 2008,
the court entered a stipulated order of final judgment with respect to the
dismissed claims, and Plaintiffs filed a notice of appeal from that judgment to
the U.S. Court of Appeals for the Second Circuit on January 6, 2009. The Court
of Appeals heard oral argument on the appeal on May 18, 2010, and on May 26,
2010, issued a unanimous summary order adopting the reasoning of the lower court
and affirming dismissal. Plaintiffs can now seek a rehearing or petition the
U.S. Supreme Court for review.
17. 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' investments and are summarized in the following fair value
hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Funds' own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
Semiannual Report | 159
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
17. FAIR VALUE MEASUREMENTS (CONTINUED)
The following is a summary of the inputs used as of April 30, 2010, in valuing
the Funds' assets and liabilities carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ -------------- ---------- --------------
FRANKLIN ADJUSTABLE U.S. GOVERNMENT
SECURITIES FUND
ASSETS:
Investments in Securities:
Asset-Backed Securities and
Commercial Mortgage-Backed
Securities ..................... $ -- $ 42,926 $ -- $ 42,926
Mortgage-Backed Securities ........ -- 2,642,828,537 -- 2,642,828,537
Short Term Investments ............ 139,827,181 27,864,263 -- 167,691,444
------------ -------------- ---------- --------------
Total Investments in
Securities .................. $139,827,181 $2,670,735,726 $ -- $2,810,562,907
============ ============== ========== ==============
FRANKLIN FLOATING RATE DAILY ACCESS FUND
ASSETS:
Investments in Securities:
Equity Investments(a) ............. $ -- $ -- $ 181,360 $ 181,360
Senior Floating Rate
Interests ...................... -- 1,478,921,710 -- 1,478,921,710
Asset-Backed Securities and
Commercial Mortgage-Backed
Securities ..................... -- 3,559,144 -- 3,559,144
Short Term Investments ............ 161,406,777 3,431,055 -- 164,837,832
------------ -------------- ---------- --------------
Total Investments in
Securities .................. $161,406,777 $1,485,911,909 $ 181,360 $1,647,500,046
============ ============== ========== ==============
Unfunded Loan Commitments ............ -- 199,489 -- 199,489
FRANKLIN LOW DURATION TOTAL RETURN FUND
ASSETS:
Investments in Securities:
Equity Investments(a) ............. $ 6,440 $ -- $ -- $ 6,440
Corporate Bonds ................... -- 55,868,087 -- 55,868,087
Convertible Bonds ................. -- 34,200 -- 34,200
Asset-Backed Securities and
Commercial Mortgage-Backed
Securities ..................... -- 9,685,325 -- 9,685,325
Mortgage-Backed Securities ........ -- 22,892,266 -- 22,892,266
Foreign Government and
Agency Securities .............. -- 26,432,638 -- 26,432,638
U.S. Government and Agency
Securities ..................... -- 114,288,528 -- 114,288,528
Senior Floating Rate Interests .... -- 5,890,921 -- 5,890,921
Municipal Bonds ................... -- 1,633,563 -- 1,633,563
Short Term Investments ............ 12,578,637 1,608,096 -- 14,186,733
------------ -------------- ---------- --------------
Total Investments in
Securities .................. $ 12,585,077 $ 238,333,624 $ -- $ 250,918,701
============ ============== ========== ==============
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Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
17. FAIR VALUE MEASUREMENTS (CONTINUED)
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ -------------- ---------- --------------
FRANKLIN LOW DURATION TOTAL RETURN FUND (CONTINUED)
ASSETS: (CONTINUED)
Forward Exchange Contracts ........... $ -- $ 943,568 $ -- $ 943,568
Futures Contracts .................... 52,351 -- -- 52,351
Swaps ................................ -- 494,129 -- 494,129
Liabilities:
Forward Exchange Contracts ........... -- 260,723 -- 260,723
Futures Contracts .................... 19,321 -- -- 19,321
Swaps ................................ -- 94,149 -- 94,149
FRANKLIN TOTAL RETURN FUND
ASSETS:
Investments in Securities
Equity Investments:(b)
Consumer Services .............. $ -- $ -- $1,550,568 $ 1,550,568
Diversified Financials ......... -- 392,397 -- 392,397
Other Equity Investments(a) .... 1,167,524 -- --(c) 1,167,524
Corporate Bonds ................... -- 872,167,576 -- 872,167,576
Convertible Bonds ................. -- 4,126,875 -- 4,126,875
Asset-Backed Securities and
Commercial Mortgage-Backed
Securities ..................... -- 252,947,842 25,299 252,973,141
Mortgage-Backed Securities ........ -- 560,186,467 -- 560,186,467
Foreign Government and
Agency Securities .............. -- 399,942,717 -- 399,942,717
U.S. Government and Agency
Securities ..................... -- 412,001,831 -- 412,001,831
Senior Floating Rate Interests .... -- 121,903,775 2,526,477 124,430,252
Municipal Bonds ................... -- 77,340,977 -- 77,340,977
Short Term Investments ............ 168,442,644 16,480,628 -- 184,923,272
------------ -------------- ---------- --------------
Total Investments in
Securities .................. $169,610,168 $2,717,491,085 $4,102,344 $2,891,203,597
============ ============== ========== ==============
Forward Exchange Contracts ........... -- 12,177,271 -- 12,177,271
Futures Contracts .................... 4,271,934 -- -- 4,271,934
Swaps ................................ -- 889,711 -- 889,711
Unfunded Loan Commitments ............ -- 13,040 -- 13,040
Liabilities:
Forward Exchange Contracts ........... -- 4,812,162 -- 4,812,162
Futures Contracts .................... 292,175 -- -- 292,175
Swaps ................................ -- 1,952,009 -- 1,952,009
(a) For detailed industry descriptions, see the accompanying Statements of
Investments.
(b) Includes common, preferred, and convertible preferred stock as well as
other equity investments.
(c) Includes securities determined to have no value at April 30, 2010.
Semiannual Report | 161
Franklin Investors Securities Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
17. FAIR VALUE MEASUREMENTS (CONTINUED)
At April 30, 2010, the reconciliation of assets in which significant
unobservable inputs (Level 3) were used in determining the funds' fair value,
were as follows:
NET CHANGE
IN UNREALIZED
NET CHANGE IN TRANSFER APPRECIATION
BALANCE AT NET UNREALIZED NET IN (OUT) BALANCE AT (DEPRECIATION)
BEGINNING REALIZED APPRECIATION PURCHASES OF END OF ON ASSETS HELD
OF PERIOD GAIN (LOSS) (DEPRECIATION) (SALES) LEVEL 3 PERIOD AT PERIOD END
---------- ----------- -------------- ---------- -------- ---------- --------------
FRANKLIN FLOATING RATE DAILY
ACCESS FUND
ASSETS
Equity Investments -
Steel .................... $181,360 $-- $ -- $ -- $-- $ 181,360 $ --
-------- --- -------- ---------- --- ---------- --------
FRANKLIN TOTAL RETURN FUND
ASSETS
Equity Investments -
Consumer Services ........ $ -- $-- $ 36,694 $1,513,874 $-- $1,550,568 $ 36,694
Asset-Backed Securities and
Commercial Mortgage-Backed
Securities ............... 25,299 -- -- -- -- 25,299 --
Senior Floating Rate
Interests ................ -- -- 181,538 2,344,939 -- 2,526,477 181,538
-------- --- -------- ---------- --- ---------- --------
Total ....................... $ 25,299 $-- $218,232 $3,858,813 $-- $4,102,344 $218,232
-------- --- -------- ---------- --- ---------- --------
18. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued an Accounting
Standards Update which enhances and clarifies existing fair value measurement
disclosure requirements and is effective for interim and annual periods
beginning after December 15, 2009. The Funds believe the adoption of this
Accounting Standards Update will not have a material impact on their financial
statements.
19. 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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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
ABBREVIATIONS
COUNTERPARTY
BOFA - Bank of America Corp.
BZWS - Barclays Bank PLC
CITI - Citibank, Inc.
DBAB - Deutsche Bank AG
FBCO - Credit Suisse Group AG
GSCO - The Goldman Sachs Group, Inc.
HSBC - HSBC Bank USA, N.A.
JPHQ - JPMorgan Chase & Co.
MLCO - Merrill Lynch & Co., Inc.
MSCO - Morgan Stanley
UBSW - UBS AG
CURRENCY
AUD - Australian Dollar
BRL - Brazilian Real
EUR - Euro
GBP - British Pound
IDR - Indonesian Rupiah
ILS - New Israeli Shekel
KRW - South Korean Won
LKR - Sri Lankan Rupee
MXN - Mexican Peso
MYR - Malaysian Ringgit
NOK - Norwegian Krone
NZD - New Zealand Dollar
PEN - Peruvian Nuevo Sol
PLN - Polish Zloty
SEK - Swedish Krona
SELECTED PORTFOLIO
AMBAC - American Municipal Bond Assurance Corp.
BHAC - Berkshire Hathaway Assurance Corp.
CDO - Collateralized Debt Obligation
CLO - Collateralized Loan Obligation
DIP - Debtor-In-Possession
FDIC - Federal Deposit Insurance Corp.
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
ID - Improvement District
IDA - Industrial Development Authority/Agency
IO - Interest Only
ISD - Independent School District
L/C - Letter of Credit
MTA - Metropolitan Transit Authority
NATL - National Public Financial Guarantee Corp.
PIK - Payment-In-Kind
SF - Single Family
USD - Unified/Union School District
Semiannual Report | 163
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 23, 2010, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Investors Securities Trust (Fund(s)). In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as additional material, including a Fund
profitability analysis report prepared by management. The Lipper reports
compared each Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates to U.S. mutual funds and other accounts, including
management's explanation of differences where relevant and a three-year expense
analysis with an explanation for any increase in expense ratios. Additional
material accompanying such report was a memorandum prepared by management
describing project initiatives and capital investments relating to the services
provided to the Funds by the Franklin Templeton Investments organization, as
well as a memorandum relating to economies of scale and a comparative analysis
concerning transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
164 | Semiannual Report
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the right to combine holdings in other funds
to obtain a reduced sales charge. Favorable consideration was given to
management's continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted by the Board that such systems and procedures had functioned smoothly
during the Florida hurricanes and blackouts experienced in recent years. Among
other factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of each
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, and the continuous enhancements to and
high industry ranking given the Franklin Templeton website. Particular attention
was given to management's conservative approach and diligent risk management
procedures, including continuous monitoring of counterparty credit risk and
attention given to derivative and other complex instruments. The Board also took
into account, among other things, management's efforts in establishing a global
credit facility for the benefit of the Funds and other accounts managed by
Franklin Templeton Investments to provide a source of cash for temporary and
emergency purposes or to meet unusual redemption requests as well as the strong
financial position of the Manager's parent company and its commitment to the
mutual fund business, as evidenced by its subsidization of money market funds.
The Board also noted management's efforts to minimize any negative impact on the
nature and quality of services provided the Funds arising from Franklin
Templeton Investments' implementation of a hiring freeze and employee reductions
in response to market conditions during the latter part of 2008 and early 2009.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement
renewals. The Lipper reports prepared for each individual Fund showed the
investment performance of its Class A shares in comparison with its selected
performance universe during 2009 and during the previous 10 years ended December
31, 2009, unless otherwise noted.
Semiannual Report | 165
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Performance on a total return basis was shown by Lipper for all Funds with
performance on an income return basis being shown for those Funds having income
return as an element of their investment objective. The following summarizes the
performance results for each Fund.
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND - The Fund's investment
performance was shown in comparison with a performance universe consisting of
all retail and institutional general bond funds as selected by Lipper. The
Lipper report showed the Fund's 2.95% income return in 2009 to be in the lowest
quintile of such performance universe, while its 4.35% total return in 2009 to
be in the second-highest quintile of such universe. On an annualized basis, the
Lipper report showed the Fund's income return for the previous three- and
five-year periods to be in the second-lowest quintile of its performance
universe and to be in the lowest quintile of such universe for the previous
10-year period, and its total return to be in the middle quintile,
second-highest quintile, and second-lowest quintile for the previous three-,
five- and 10-year periods, respectively. The Board believed such performance
reflected the nature of the Fund's investments in plain vanilla, adjustable-rate
mortgages and conservative investment strategy and found such performance to be
acceptable, noting that the general bond category comprising the performance
universe invested in different asset types.
FRANKLIN FLOATING RATE DAILY ACCESS FUND - The Fund's investment performance was
shown in comparison with a performance universe consisting of all retail and
institutional loan participation funds as selected by Lipper. This Fund has been
in existence for less than 10 full years and the Lipper report showed its income
return during 2009 to be in the lowest quintile of its performance universe, and
its income return on an annualized basis during the previous three- and
five-year periods to be in the lowest quintile and middle quintiles of its
performance universe, respectively. The Lipper report showed the Fund's total
return during 2009 to be in the lowest quintile of its performance universe and
on an annualized basis for the previous three- and five-year periods to be in
the second-highest and middle quintiles of such universe, respectively. In
discussing such performance, management pointed out that during 2009 the Fund's
performance was hurt by its higher credit quality focus and overall defensive
posture, including higher cash balances. Management further noted that these
factors helped the Fund perform better during the market turmoil and credit
crisis that existed in 2008, noting its total return during such year was in the
second-highest quintile of its performance universe, and further that its total
return had been in either the highest, second-highest, or middle quintile of
such universe during each year of the Fund's operation, other than 2009. The
Board found the Fund's comparative performance as shown in the Lipper report to
be acceptable in view of such explanation.
FRANKLIN LOW DURATION TOTAL RETURN FUND - This Fund has been in operation for
five full calendar years and its investment performance was shown in comparison
to a performance universe consisting of all retail and institutional short
investment-grade debt funds as selected by Lipper. The Lipper report showed the
Fund's income return to be in the second-lowest quintile of the performance
universe for 2009, and on an annualized basis to be in the middle quintile of
such performance universe for each of the previous three- and five-year periods.
The Lipper report showed the Fund's
166 | Semiannual Report
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
total return during 2009 to be in the second-lowest quintile of such universe,
but on an annualized basis to be in the highest or best performing quintile for
each of the previous three- and five-year periods. In discussing performance,
management pointed out that in 2009 the Fund had lesser exposure to riskier
assets, which generally performed better that year as they recovered from the
prior year's market turmoil, and discussed steps being taken to improve the
Fund's performance, while noting its more favorable longer term comparative
results as set forth in the Lipper report. The Board found such comparative
performance to be acceptable, noting management's explanation.
FRANKLIN TOTAL RETURN FUND - The Fund's investment performance was shown in
comparison to a performance universe consisting of all retail and institutional
intermediate investment-grade debt funds as selected by Lipper. The Lipper
report showed the Fund's income return to be in the second-highest quintile of
its performance universe during 2009 and to be in the highest quintile of such
universe for the previous three-, five- and 10-year periods on an annualized
basis. The Lipper report showed the Fund's total return during 2009 to be in the
second-highest quintile of its performance universe, and to be in the
second-lowest quintile, middle quintile, and highest quintile of such universe
in the previous three-, five- and 10-year periods, respectively, on an
annualized basis. The Board found the Fund's comparative performance as set
forth in the Lipper report to be acceptable.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of each Fund compared with those of a
group of other funds selected by Lipper as constituting its appropriate Lipper
expense group. Lipper expense data is based upon information taken from each
fund's most recent annual report, which reflects historical asset levels that
may be quite different from those currently existing, particularly in a period
of market volatility. While recognizing such inherent limitation and the fact
that expense ratios generally increase as assets decline and decrease as assets
grow, the Board believed the independent analysis conducted by Lipper to be an
appropriate measure of comparative expenses. In reviewing comparative costs,
Lipper provides information on each Fund's contractual investment management fee
in comparison with the contractual investment management fee that would have
been charged by other funds within its Lipper expense group assuming they were
similar in size to the Fund, as well as the actual total expense ratio of the
Fund in comparison with those of its expense group. The Lipper contractual
investment management fee analysis includes within such fee any separate
administrative fees, and the Lipper total expenses, for comparative consistency,
are shown by Lipper for Fund Class A shares. The results of such expense
comparisons showed that the contractual investment management fee rate and
actual total expense ratio for each of Franklin Adjustable U.S. Government
Securities Fund and Franklin Floating Rate Daily Access Fund were in either the
least expensive or second least expensive quintile of its respective Lipper
expense group. The Board was satisfied with the comparative contractual
investment management fee rate and actual total expense ratios of these Funds as
shown in the Lipper reports. The contractual investment management fee rates and
actual total expense ratios for Franklin Total Return Fund and Franklin Low
Duration Total Return Fund were above the medians of their respective Lipper
expense groups, but in each case the actual total expense ratio was within less
than seven basis points above the median for
Semiannual Report | 167
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
such expense group. The Board found the contractual management fees and total
expense ratios of each of these Funds to be acceptable, noting that their
expenses were subsidized through management fee waivers and reimbursements.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds during the 12-month period ended September 30,
2009, being the most recent fiscal year-end for Franklin Resources, Inc., the
Manager's parent. In reviewing the analysis, attention was given to the
methodology followed in allocating costs to each Fund, it being recognized that
allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that, while being continuously refined and reflecting
changes in the Manager's own cost accounting, the cost allocation methodology
was consistent with that followed in profitability report presentations for the
Funds made in prior years and that the Funds' independent registered public
accounting firm had been engaged by the Manager to review the reasonableness of
the allocation methodologies solely for use by the Funds' Board in reference to
the profitability analysis. In reviewing and discussing such analysis,
management discussed with the Board its belief that costs incurred in
establishing the infrastructure necessary for the type of mutual fund operations
conducted by the Manager and its affiliates may not be fully reflected in the
expenses allocated to each Fund in determining its profitability, as well as the
fact that the level of profits, to a certain extent, reflected operational cost
savings and efficiencies initiated by management. The Board also took into
account management's expenditures in improving shareholder services provided the
Funds, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC and other
regulatory requirements. In addition, the Board considered a third-party study
comparing the profitability of the Manager's parent on an overall basis to other
publicly held managers broken down to show profitability from management
operations exclusive of distribution expenses, as well as profitability
including distribution expenses. The Board also considered the extent to which
the Manager and its affiliates might derive ancillary benefits from fund
operations, including its interest in a joint venture entity that financed
up-front commissions paid to brokers/dealers who sold fund Class B shares prior
to February 2005 when the offering of such shares was discontinued, as well as
potential benefits resulting from allocation of fund brokerage and the use of
commission dollars to pay for research. Based upon its consideration of all
these factors, the Board determined that the level of profits realized by the
Manager and its affiliates from providing services to each Fund was not
excessive in view of the nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get
168 | Semiannual Report
Franklin Investors Securities Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
larger, at some point economies of scale do result in the Manager realizing a
larger profit margin on management services provided such a fund. The Board also
noted that economies of scale are shared with each Fund and its shareholders
through management fee breakpoints so that as a Fund grows in size, its
effective management fee rate declines. The management fee structure including a
separate fixed administrative fee for each of Franklin Floating Rate Daily
Access Fund and Franklin Total Return Fund provides for breakpoints in stages
going to the $21.5 billion asset level, which far exceeded the sizes of these
Funds, which at year-end were approximately $1.4 billion and $2.4 billion,
respectively. The Board believed that to the extent economies of scale may be
realized by the Manager of these Funds and its affiliates, that this schedule of
fees provided a sharing of benefits with each of these Funds and its
shareholders, and noted also that the expenses of Franklin Total Return Fund
were partially subsidized by management. The fee structure, including a separate
administrative fee, for Franklin Adjustable U.S. Government Securities Fund,
provides a management fee of 0.50% on the first $5 billion of assets, with
breakpoints continuing at stages thereafter. In discussing such fee, management
expressed the view that this initial rate anticipated economies of scale. In
support of this position, management pointed to the favorable management fee and
expense comparison of this Fund, which had assets of approximately $2.3 billion
at year-end, with those of its Lipper expense group. The Board believed that to
the extent economies of scale may be realized by the Manager and its affiliates,
there was a sharing of benefits with this Fund and its shareholders. The Board
did not believe the asset size of Franklin Low Duration Total Return Fund, whose
expenses were partially subsidized by management, afforded any economies of
scale.
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, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
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 U.S. 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.
Semiannual Report | 169
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Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A SUMMARY PROSPECTUS AND/OR PROSPECTUS, PLEASE
CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com.
INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES
AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER
INFORMATION. PLEASE CAREFULLY READ A PROSPECTUS BEFORE INVESTING. TO ENSURE THE
HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO
OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE
OF A REGULAR BEEPING TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds
Allocation Fund
Franklin Templeton Conservative Allocation Fund(3)
Franklin Templeton Growth Allocation Fund(3)
Franklin Templeton Moderate Allocation Fund(3)
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(4)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(4)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(4)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(5)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(7)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(8)
Michigan(8)
Minnesota(8)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(8)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(3.) Effective 5/1/10, the Franklin Templeton Target Funds changed their name to
the Franklin Templeton Allocation Funds. The funds' investment goals and
principal investment strategies remained unchanged.
(4.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(6.) The fund invests primarily in insured municipal securities.
(7.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(8.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
07/10 Not part of the semiannual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN INVESTORS SECURITIES TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
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 ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
(C) 2010 Franklin Templeton Investments. All rights reserved.
FIST2 S 06/10
ITEM 2. CODE OF ETHICS.
(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. N/A
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 significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Laura F. Fergerson, 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
Laura F. Fergerson, 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.
FRANKLIN INVESTORS SECURITIES TRUST
By /S/Laura F. Fergerson
------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date June 25, 2010
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.
By /S/Laura F. Fergerson
------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date June 25, 2010
By /S/Gaston Gardey
-------------------
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date June 25, 2010