Dear Shareholder:
We are pleased to bring you the semi-annual report of the Franklin Premier
Return Fund for the period ended June 30, 1995.
During this reporting period, the U.S. economy experienced moderate growth.
Gross Domestic Product (GDP) increased at an annualized rate of just 2.7% in the
first quarter of 1995, and growth in the second quarter was considerably
slower.* Financial markets responded positively to this economic slowdown, as
many investors anticipated that the Federal Reserve Board would lower interest
rates at either the July or August 1995 Federal Open Market Committee meeting.
On July 6, 1995, the Fed did lower the federal funds rate one-quarter of one
percentage point, and we now expect the economy to reach the low point of its
current cycle sometime soon, and then undergo an expansionary phase. During such
a phase of the business cycle, corporations generally begin to report earnings
growth, which investors may perceive as improved equity valuations. If inflation
remains under control, this type of economic environment should be bullish for
financial markets particularly the stock market.
The fund remained diversified, but relatively cautious, in its asset allocation
mix and industry weightings during the six months under review.
It began 1995 with a mix of 57% equities, 14% bonds, and 29% cash and
equivalents. As we saw the economy slowing, we increased our bond exposure to
17% of total net assets and reduced our cash position to 25%. Our equity
exposure increased only slightly to 58% of total net assets. We maintained this
somewhat defensive posture throughout the period because we saw few attractively
priced equities, and mixed economic data indicated a healthy industrial sector
but weak retail and housing sectors.
Believing that we would soon be entering an expansionary phase of the business
cycle, we shifted our industry exposure. Specifically, we reduced our exposure
to the Basic Industries sector, which included holdings in the chemical, paper,
and metals industries, and increased our exposure to sectors that typically
perform well in the early stages of a business cycle (financial services,
energy, and utilities). In the utilities sector, we focused on growth areas and
added to our holdings of AT&T Corp., GTE Corp., Telefonos de Mexico (Telmex),
and Southwestern Bell -- quality companies within the telephone and
telecommunications industries. We increased our previously small exposure to the
insurance industry by adding positions in The PMI Group, Inc. and American
General. We feel that these companies are well-positioned to benefit from strong
fundamentals within this industry, such as reasonable earnings predictability
and a favorable interest rate environment. In the banking sector, we purchased
shares of Wachovia Corp., a premier regional banking firm, and Deutche Bank, a
major German international money center bank.
During the period, we took advantage of initial public offerings of two
companies considered leaders within their respective industries -- Nabisco
Holdings and American Standard. Nabisco Holdings, a partial spin-off from RJR
Corp., is a worldwide leader in providing consumers with low-fat and fat-free
snacks under the "SnackWell" name. American Standard maintains either a number
one or two market share position in each segment of its business, which includes
air conditioning, plumbing products (primarily bathroom fixtures) and
transportation (anti-lock braking systems for trucks). Its businesses are
considered cyclical, and therefore should benefit from an expanding economy.
Over the years, there have only been a few times when such large,
well-recognized companies have come to the public market with an initial
offering, so we feel fortunate that we had the opportunity to add these quality
companies to the fund's portfolio.
We see a new business cycle beginning with the Fed's lowering of interest rates,
so you can expect your fund to become more fully invested in equities as market
opportunities arise. The charts on the following page illustrate how the fund's
asset allocation mix at the end of this reporting period differed from the mix
on December 31, 1992, the last time the economy experienced an expansionary
phase.
GRAPHIC MATERIAL 1 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
As you can see, the fund's equity holdings represented just 58% of the fund's
total net assets on June 30, 1995, compared with 83% in December 1992. We have
recently begun using our cash reserves to increase the fund's exposure to the
capital spending and consumer cyclical sectors, which typically benefit from an
expanding economy.
Looking forward, we continue to be optimistic about the prospects for the
financial markets and for the Franklin Premier Return Fund. In our opinion,
corporate profits should begin to improve over the next year as lower interest
rates stimulate demand for goods and services. We shall continue to search for
those sectors and securities that offer the greatest total return potential for
our shareholders.
We appreciate your participation in the Franklin Premier Return Fund and welcome
any comments or suggestions you may have.
Sincerely,
Charles B. Johnson
Chairman of the Board
Franklin Premier Return Fund
Performance Summary
The Franklin Premier Return Fund posted a total return of +11.65% for the
six-month period ended June 30, 1995. Total return measures the change in value
of an investment, assuming reinvestment of dividends and capital gains, and does
not include the initial sales charge.
The fund's share price, as measured by net asset value, increased from $6.11 on
December 31, 1994 to $6.74 on June 30, 1995. During the reporting period,
shareholders received distributions of 8.0 cents ($0.080) per share in income
dividends. Of course, dividends will vary depending on income earned by the
fund, and past performance is not indicative of future results.
Franklin Premier Return Fund
Periods ended June 30, 1995
Since
Objective
Change
One-Year (05/01/91) Five-Year Ten-Year
Cumulative
Total Return1 12.92% 63.01% 67.34% 171.11%
Average Annual
Total Return2 7.80% 11.21% 9.84% 9.98%
30-Day Standardized Yield:3 2.78%
1. Cumulative total returns show the change in value of an investment over the
periods indicated and do not include the current, maximum 4.5% initial sales
charge. See note below.
2. Average annual total returns represent the average annual change in value of
an investment over the periods indicated and have been restated to reflect the
current, maximum 4.5% initial sales charge. See note below.
3. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio during the 30 days ended June 30, 1995.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been different
than noted above. Effective May 1, 1994, the fund eliminated the sales charge on
reinvested dividends and implemented a plan of distribution under Rule 12b-1,
which will affect future performance. All total return figures assume
reinvestment of dividends and capital gains at net asset value, and take into
account the effect of the 12b-1 plan from the date of its implementation.
Investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares. Past performance cannot
guarantee future results.
Your Fund's Objective
The Franklin Premier Return Fund seeks high current return, and, secondarily,
relative stability of principal through investment in common stocks, investment
grade corporate and U.S. government bonds, short-term money market instruments
and securities of foreign issuers. Current return, also known as "total return,"
is made up of capital appreciation and income distributions. The fund's primary
emphasis is growth of capital, with income a secondary consideration. Managers
of the fund may adjust the balance of stocks, bonds and cash at any time in
their efforts to benefit from changing market opportunities.
*SOURCE: U.S. COMMERCE DEPT.
Franklin Premier Return Fund
Top 10 Sectors on June 30, 1995
Based on Total Net Assets
% of Total
Sector Net Assets
Financial Services 8.69%
Utilities 8.61%
Energy 8.07%
Consumer Services 7.51%
Basic Industries 6.29%
Capital Spending 5.19%
Health Care 4.47%
Business Services 4.23%
Consumer Staples 4.12%
Technology 4.02%
For a complete list of portfolio holdings, please see page 6 of this report.
Franklin Premier Return Fund
Top 10 Holdings on June 30, 1995
Based on Total Net Assets
Company % of Total
Industry Net Assets
Dun & Bradstreet Corp. 3.48%
Publishing
Browning-Ferris Industries, Inc. 2.39%
Pollution Control
Procter & Gamble 2.38%
Household Products
Hilton Hotels Corp. 2.33%
Hotels/Motels
Boeing Co. 2.07%
Aerospace/Defense
Upjohn Co. 1.88%
Pharmaceuticals
Air Products & Chemicals, Inc. 1.85%
Chemicals
Goodrich (B.F.) Co. 1.78%
Chemicals
AT&T Corp. 1.76%
Telecommunications/Telephone Utilities
BankAmerica Corp. 1.74%
Finance - Money Center Banks
For a complete list of portfolio holdings, please see page 6 of this report.
FRANKLIN PREMIER RETURN FUND
<TABLE>
<CAPTION>
Statement of Investments in Securities, Open Options and Net Assets, June 30, 1995 (unaudited)
Value
Shares (Note 1)
Common Stocks 57.4%
Aerospace/Defense 2.9%
<S> <C>
10,000 Boeing Co. ........................................................................ $ 626,250
5,000 Loral Corp. ....................................................................... 258,750
-------------
885,000
-------------
Chemicals 4.3%
10,000 Air Products & Chemicals, Inc. .................................................... 557,500
3,000 DuPont (E.I.) DeNemours & Co. ..................................................... 206,250
10,000 Goodrich (B.F.) Co. ............................................................... 536,250
-------------
1,300,000
-------------
Commercial Services .7%
10,000 Ogden Corp. ....................................................................... 218,750
-------------
Computer Systems/Software 1.1%
20,000 a Tandem Computers, Inc. ............................................................ 322,500
-------------
Cosmetics .8%
5,000 International Flavors & Fragrances, Inc. .......................................... 248,750
-------------
Electrical Equipment 1.9%
15,000 a American Standard Companies, Inc. ................................................. 410,625
10,000 Westinghouse Electric Corp. ....................................................... 146,250
-------------
556,875
-------------
Energy 7.3%
10,000 Anadarko Petroleum Corp. .......................................................... 431,250
5,000 Apache Corp. ...................................................................... 136,875
5,000 Burlington Resources, Inc. ........................................................ 184,375
10,000 Chevron Corp. ..................................................................... 466,250
5,000 Exxon Corp. ....................................................................... 353,125
5,000 Schlumberger, Ltd. ................................................................ 310,625
10,000 Tosco Corp. ....................................................................... 318,750
-------------
2,201,250
-------------
Entertainment/Media 2.0%
10,000 Time Warner, Inc. ................................................................. 411,250
10,000 Turner Broadcasting System, Class B ............................................... 205,000
-------------
616,250
-------------
Finance .3%
10,000 BankAmerica Corp. ................................................................. 526,250
10,000 Chemical Banking Corp. ............................................................ 472,500
7,500 Deutsche Bank, ADR ................................................................ 364,129
5,000 The PMI Group, Inc. ............................................................... 216,875
Finance (cont.)
10,000 Travelers Corp. ................................................................... $ 437,500
5,000 Wachovia Corp. .................................................................... 178,750
-------------
2,196,004
-------------
Food .9%
10,000 Nabisco Holdings Corp., Class A ................................................... 270,000
-------------
Gold/Miscellaneous Metal .9%
10,000 Placer Dome, Inc. ................................................................. 261,250
-------------
Hotels/Motels 2.3%
10,000 Hilton Hotels Corp. ............................................................... 702,500
-------------
HouseHold Products 2.4%
10,000 Procter & Gamble Co. .............................................................. 718,750
-------------
Manufacturing .9%
5,000 Illinois Tool Works, Inc. ......................................................... 275,000
-------------
Medical Products & Supplies 1.3%
15,000 Allergan, Inc. .................................................................... 406,875
-------------
Paper & Forest Products .7%
10,200 a Stone Container Corp............................................................... 216,750
-------------
Pharmaceuticals 3.1%
5,000 Glaxo Wellcome, Plc., ADR ......................................................... 121,875
5,000 Merck & Co., Inc. ................................................................. 245,000
15,000 Upjohn Co. ........................................................................ 568,125
-------------
935,000
-------------
Pollution Control 2.4%
20,000 Browning-Ferris Industries, Inc. .................................................. 722,500
-------------
Publishing 3.5%
20,000 Dun & Bradstreet Corp. 1,050,000
-------------
Retail 2.2%
10,000 Limited, Inc. ..................................................................... 220,000
6,000 a Toys R Us, Inc. ................................................................... 175,500
10,000 Wal-Mart Stores, Inc. ............................................................. 267,500
-------------
663,000
-------------
Telecommunications/Telephone Utilities 4.9%
10,000 AT&T Corp. ........................................................................ 531,250
15,000 GTE Corp. ......................................................................... 511,875
Telecommunications/Telephone Utilities (cont.)
5,000 SBC Communications, Inc. .......................................................... $ 238,125
7,000 Telefonos de Mexico, ADR .......................................................... 207,375
-------------
1,488,625
-------------
Utilities/Electric 2.1%
7,600 CINergy Corp. ..................................................................... 199,500
15,000 DPL, Inc. ......................................................................... 331,875
2,900 Texas Utilities Co. ............................................................... 99,688
-------------
631,063
-------------
Utilities/Natural Gas 1.5%
7,500 Enron Corp. ....................................................................... 263,438
7,500 Pacific Enterprises ............................................................... 183,750
-------------
447,188
-------------
TOTAL COMMON STOCKS (COST $18,103,900) ...................................... 17,333,880
-------------
Preferred Stocks 2.2%
4,000 Allstate Corp., $2.30 cvt. exch. pfd. ............................................. 163,000
10,000 American General Corp., 8.45%, pfd., Series A ..................................... 253,750
5,000 b Parker & Parsley, 6.25%, cvt. pfd. . .............................................. 223,750
-------------
TOTAL PREFERRED STOCKS (COST $632,000) ...................................... 640,500
-------------
Face
Amount
Bonds 15.1%
Corporate Bonds 1.3%
$ 250,000 Dayton Hudson Co., 8.60%, 01/15/12 ................................................ 276,718
100,000 Georgia Pacific Corp., 9.125%, 07/01/22 ........................................... 108,696
-------------
TOTAL CORPORATE BONDS (COST $347,375) ....................................... 385,414
-------------
U.S. Government Securities 13.8%
250,000 U.S. Treasury Bonds, 8.00%, 11/15/21 .............................................. 288,984
3,800,000 U.S. Treasury Notes, 5.875% - 7.25%, 06/30/96 - 05/15/04 .......................... 3,888,841
-------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $4,003,246) .......................... 4,177,825
-------------
TOTAL BONDS (COST $4,350,621) ............................................... 4,563,239
-------------
Shares Expiration Exercise Value
Optioned Date Date (Note 1)
Put Options
Energy
5,000 Exxon Corp. .............................................. October, 95 65 $ 2,032
-------------
Finance
5,000 BankAmerica Corp. ........................................ July, 95 45 938
-------------
Pharmaceuticals
5,000 Merck & Co., Inc. ........................................ July, 95 40 313
-------------
TOTAL PUT OPTIONS (COST $11,263) ............................................ 3,283
-------------
TOTAL COMMON STOCKS, PREFERRED STOCKS,
BONDS AND OPTIONS (COST $23,097,784) ..........................................22,540,902
-------------
Face
Amount
Short Term Investments
c Receivables from Repurchase Agreements 26.5%
$4,094,769 d Joint Repurchase Agreement, 6.220%, 07/03/95 (Maturity Value $4,000,460)
Collateral: U.S. Treasury Bills, 10/19/95 - 06/27/96
Collateral: U.S. Treasury Notes, 3.875% - 8.625%, 09/30/95 - 02/15/00 ................ 3,998,388
3,864,000 Nikko Securitites Co. International, Inc., 6.10%, 07/03/95 (Maturity Value $4,002,033)
Collateral: U.S Treasury Notes, 7.125%, 09/30/99 ..................................... 4,000,000
-------------
TOTAL RECEIVABLES FROM REPURCHASE AGREEMENTS (COST $7,998,388) .............. 7,998,388
-------------
TOTAL INVESTMENTS (COST $31,096,172) 101.2% ............................ 30,539,290
OPEN COVERED CALL OPTIONS WRITTEN (PREMIUMS RECEIVED $38,611)
(.1%)** (24,375)
OTHER ASSETS AND LIABILITIES, NET (1.1%) ............................... (329,240)
-------------
NET ASSETS 100.0% ...................................................... $30,185,675
=============
** Open covered call options written at June 30, 1995 were as follows:
Shares Expiration Exercise Value
Optioned Date Price (Note 1)
Hotels/Motels
5,000 Hilton Hotels Corp. ...................................... July, 95 75 $ 1,875
-------------
Household Products
5,000 Procter & Gamble Co. ..................................... July, 95 70 12,500
-------------
Pharmaceuticals
5,000 Merck & Co., Inc. ........................................ October, 95 50 10,000
-------------
TOTAL CALL OPTIONS (PREMIUMS RECEIVED $38,611) .............................. 24,375
-------------
At June 30, 1995 the net unrealized depreciation based on the cost of investments
for income tax purposes of $31,096,172 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost ................................................... $ 1,488,767
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value ................................................... (2,045,649)
Unrealized appreciation on call options ............................................ 14,236
-------------
Net unrealized depreciation ...................................................... $ (542,646)
=============
aNon-income producing.
bSee Note 6 regarding Rule 144A securities.
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(f) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these
financial statements.
</TABLE>
FRANKLIN PREMIER RETURN FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 1995 (unaudited)
Assets:
Investments in securities, at value
(identified cost $23,097,784) $22,540,902
Receivables from repurchase
agreements, at value and cost 7,998,388
Receivables:
Dividends and interest 121,925
Investment securities sold 54,862
Capital shares sold 9,280
--------------
Total assets 30,725,357
--------------
Liabilities:
Open covered call options written, at value
(premiums received $38,611) 24,375
Payables:
Investment securities purchased 402,325
Distributions to shareholders 49,932
Management fees 15,643
Capital shares repurchased 10,134
Distribution fees 9,686
Shareholder servicing costs 2,234
Accrued expenses and other liabilities 25,353
--------------
Total liabilities 539,682
--------------
Net assets, at value $30,185,675
==============
Net assets consist of:
Undistributed net investment income $ 90,589
Unrealized depreciation on investments (542,646)
Accumulated net realized loss (748,721)
Capital shares 31,386,453
--------------
Net assets, at value $30,185,675
==============
Net asset value per share:
($30,185,675 / 4,479,443
shares outstanding) $6.74
==============
Statement of Operations
for the six months ended June 30, 1995 (unaudited)
Investment income:
Dividends $214,374
Interest 386,464
-----------
Total income $ 600,838
Expenses:
Management fees (Note 5) 89,671
Distribution fees (Note 5) 28,252
Shareholder servicing costs
(Note 5) 11,412
Reports to shareholders 26,936
Professional fees 13,801
Registration fees 10,727
Directors' fees and expenses 2,208
Custodian fees 1,299
Other 2,526
-----------
Total expenses 186,832
--------------
Net investment income 414,006
--------------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) from security
transactions:
From transactions in written
options which expired or were
closed (Note 4) 41,743
From other security
transactions (78,751)
-------------
Net realized loss (37,008)
Net unrealized appreciation
during the period 2,731,793
--------------
Net realized loss and unrealized
gain on investments 2,694,785
--------------
Net increase in net assets
resulting from operations $ 3,108,791
==============
The accompanying notes are an integral part of these
financial statements.
FRANKLIN PREMIER RETURN FUND
Financial Statements (cont.)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets for the six months ended June 30, 1995
(unaudited) and the year ended December 31, 1994
Six Months
Ended Year Ended
June 30, 1995 December 31, 1994
Increase (decrease) in net assets:
Operations:
<S> <C> <C>
Net investment income........................................................ $ 414,006 $ 568,069
Net realized loss from security transactions................................. (37,008) (114,361)
Net unrealized appreciation (depreciation) during the year................... 2,731,793 (355,103)
--------------- ---------------
Net increase in net assets resulting from operations..................... 3,108,791 98,605
Distributions to shareholders from undistributed net investment income......... (357,678) (564,467)
Increase in net assets from capital share transactions (Note 3)................ 1,803,829 3,219,354
--------------- ---------------
Net increase in net assets............................................... 4,554,942 2,753,492
Net assets:
Beginning of period........................................................... 25,630,733 22,877,241
--------------- ---------------
End of period (including undistributed net investment income
of $90,589 at 06/30/95; and $34,261 at 12/31/94)............................. $30,185,675 $25,630,733
=============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN PREMIER RETURN FUND
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Premier Return Fund (the Fund) is an open-end, diversified management
investment company (mutual fund) registered under the Investment Company Act of
1940 as amended.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices. Other securities
for which market quotations are readily available are valued at current market
values, obtained from pricing services, which are based on a variety of factors,
including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific securities. Portfolio securities which are traded both in the
over-the-counter market and on a securities exchange are valued according to the
broadest and most representative market as determined by the Manager. Other
securities for which market quotations are not available, if any, are valued in
accordance with procedures established by the Board of Directors.
Open option contracts are valued at their last sales price on the relevant
exchange each day assets are valued. Lacking any sales that day, the options
will be valued at the mean between the current closing bid and ask prices.
b. Income Taxes:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code, and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatment of option transactions.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily. Bond
discounts and premiums, if any, are amortized as required by the Internal
Revenue Code.
e. Option Transactions:
The Fund writes listed put options and covered call options in which premiums
received are recorded as a liability which is marked to market to reflect the
current value of the options written. A covered call option gives the holder the
right to buy the underlying security which the Fund owns at any time during the
option period at a predetermined exercise price. The risk in writing a covered
call option is that the Fund gives up the opportunity to participate in any
increase in the price of the underlying security beyond the exercise price.
Proceeds from call options exercised are increased by the amount of premiums
received. A put option gives the holder the right to sell the underlying
security to the Fund at any time during the option period at a predetermined
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying securities declines. If
the holder of a put option written by the Fund exercises the
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
e. Option Transactions: (cont.)
option, the Fund's cost basis in the underlying security is the exercise price
reduced by the premium received. If an option expires or is cancelled in a
closing transaction, the Fund will realize a gain or loss depending on whether
the cost of the closing transaction, if any, is less than or greater than the
premium originally received.
The Fund purchases listed put options on certain securities in order to protect
the securities against a decline in market value. A listed purchased put option
gives the Fund the right to sell the underlying security at the option exercise
price at any time during the option period. The put option on a security allows
the Fund to protect the unrealized gain in an appreciated security without
actually selling the security. Any losses realized by the Fund upon expiration
of the put options are limited to the premiums paid for the purchase of such
options, plus any transaction costs.
The Fund may buy listed call options on securities which it intends to purchase
in order to limit the risk of a substantial increase in the market price of such
securities. A call option gives the Fund the right to buy the underlying
securities from the option writer at a stated exercise price. Any losses
realized by the Fund upon expiration of the call options are limited to the
premiums paid for the purchase of such options, plus any transaction costs.
f. Repurchase Agreements:
The Fund may enter into a Joint Repurchase Agreement
whereby its uninvested cash balance is deposited into a joint cash account to be
used to invest in one or more repurchase agreements with government securities
dealers recognized by the Federal Reserve Board and/or member banks of the
Federal Reserve System. The value and face amount of the Joint Repurchase
Agreement are allocated to the Fund based on its pro rata interest.
In a repurchase agreement, the Fund purchases a U.S. government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Fund to the
seller, collateralized by the underlying security. The transaction requires the
initial collateralization of the seller's obligation by U.S. government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Fund, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At June 30, 1995, all outstanding joint repurchase agreements
held by the Fund had been entered into on June 30, 1995.
2. CAPITAL LOSS CARRYOVERS
At December 31, 1994, for tax purposes, the Fund had capital loss carryovers as
follows:
Capital loss carryovers
Expiring in: 2000 $548,931
2002 161,294
-------------
$710,225
=============
For tax purposes, the aggregate cost of securities and unrealized depreciation
of the Fund are the same as for financial statement purposes at June 30, 1995.
3. CAPITAL STOCK
At June 30, 1995, there were 5,000,000,000 shares of no par value capital stock
authorized and total capital paid-in aggregated $31,386,453. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
---------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold................................................ 405,356 $2,637,585 348,334 $2,165,824
Shares issued in reinvestment of dividends and distributions 40,622 269,044 64,686 399,128
Shares redeemed............................................ (258,121) (1,668,707) (490,021) (3,056,758)
Changes from exercise of exchange privilege:
Shares sold.............................................. 432,273 2,754,193 820,741 5,156,663
Shares redeemed.......................................... (334,171) (2,188,286) (230,690) (1,445,503)
----------- ----------- ---------- ------------
Net increase........................................... 285,959 $1,803,829 513,050 $3,219,354
=========== =========== ========== ============
</TABLE>
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchased and written options and
purchases and sales of short-term securities) for the six months ended June 30,
1995 aggregated $7,730,104 and $6,138,007, respectively. At June 30, 1995, there
were no securities or other assets deposited as collateral for outstanding
options.
Transactions in purchased options for the six months ended June 30, 1995 were as
follows:
<TABLE>
<CAPTION>
Put
-------------
Number of
Shares
Cost Optioned
---------- ------------
<S> <C> <C>
Outstanding at December 31, 1994......................................................... $ 27,763 12,500
Options purchased........................................................................ 43,753 38,000
Options expired.......................................................................... (60,253) (35,500)
--------- --------
Outstanding at June 30, 1995............................................................. $ 11,263 15,000
--------- --------
--------- --------
Transactions in written options for the six months ended June 30, 1995 were as
follows:
Call
-------------
Number of
Amount of Shares
Premiums Optioned
----------- -----------
Options outstanding at December 31, 1994................................................ $34,474 17,500
Options written ........................................................................ 83,172 40,000
Options expired......................................................................... (41,743) (21,900)
Options exercised....................................................................... (37,292) (20,600)
Options outstanding at June 30, 1995.................................................... $38,611 15,000
Premiums received on expired written call options resulted in a net short-term capital gain of $41,743 for the six months
ended June 30, 1995.
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under terms of an agreement, provides investment
advice, administrative services, office space and facilities to the Fund, and
receives fees computed monthly on the net assets of the Fund on the last day of
the month at an annualized rate of 5/8 of 1% of the first $100 million of net
assets, 1/2 of 1% of net assets in excess of $100 million up to $250 million,
and 45/100 of 1% of net assets in excess of $250 million. Fees incurred by the
Fund aggregated $89,671 for the six months ended June 30, 1995. The terms of the
agreement provide that aggregate annual expenses of the Fund be limited to the
extent necessary to comply with the limitations set forth in the laws,
regulations and administrative interpretations of the states in which the Fund's
shares are registered. For the six months ended June 30, 1995, the Fund's
expenses did not exceed these limitations.
In its capacity as underwriter for the capital stock of the Fund,
Franklin/Templeton Distributors, Inc. received commissions on sales of the
Fund's capital stock for the six months ended June 30, 1995 totalling $73,498,
of which $65,139 was paid to other dealers. Commissions are deducted from the
gross proceeds received from the sale of the capital stock of the Fund, and as
such are not expenses of the Fund.
Pursuant to a shareholder service agreement with Franklin/Templeton Investor
Services, Inc., the Fund pays costs on a per shareholder account basis.
Shareholder servicing costs incurred for the six months ended June 30, 1995
aggregated $11,412, of which $10,198 was paid to Franklin/Templeton Investor
Services, Inc.
Under the terms of a Distribution Agreement pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the Fund will reimburse Franklin/Templeton
Distributors, Inc. in an amount up to 0.25% per annum of the Fund's average
daily net assets for the costs incurred in the promotion, offering and marketing
of the Fund's shares. Fees incurred by the Fund under the agreement aggregated
$28,252 for the six months ended June 30, 1995.
Certain officers and directors of the Fund are also officers and/or directors of
Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.
6. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Fund values these
securities as disclosed in Note 1. At June 30, 1995, the Fund held 144A
securities with a value aggregating $223,750 representing .74% of the Fund's net
assets. See the accompanying statement of investments in securities, open
options and net assets for specific information of such securities.
7. FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each year
are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
-----------------------------
June 30, 1995 1994 1993 1992 1991 1990
------------- ---- ---- ---- ---- ----
Per Share Operating Performance
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year......... $6.11 $6.22 $5.40 $4.88 $4.21 $5.19
------- ------- ------- ------- ------- -------
Net investment income........................ .09 .14 .13 .15 .14 .16
Net realized and unrealized gain
(loss) on securities........................ .62 (.110) .860 .530 .780 (.595)
------- ------- ------- ------- ------- -------
Total from investment operations............. .71 .030 .990 .680 .920 (.435)
------- ------- ------- ------- ------- -------
Less distributions:
Distributions from net investment income.... (.08) (.140) (.170) (.160) (.135) (.155)
Distributions from capital gains............ -- -- -- -- (.115) (.390)
------- ------- ------- ------- ------- -------
Total distributions.......................... (.08) (.140) (.170) (.160) (.250) (.545)
------- ------- ------- ------- ------- -------
Net asset value at end of year............... $6.74 $6.11 $6.22 $5.40 $4.88 $4.21
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total Return**............................... 11.65% .46% 18.38% 14.02% 22.06% (8.81)%
Ratios/Supplemental Data
Net assets at end of period (in 000's)....... $30,186 $25,631 $22,877 $22,077 $28,189 $32,878
Ratio of expenses to average net assets...... 1.32% 1.27% 1.00% .92% .93% .85%
Ratio of net investment income
to average net assets....................... 2.93% 2.29% 2.15% 2.81% 2.95% 3.27%
Portfolio turnover rate...................... 30.55% 45.18% 20.49% 23.17% 62.25% 73.12%
**Total return measures the change in value of an investment over the periods indicated. It is not annualized. It does
not include the maximum initial sales charge or the deferred contingent sales charge and assumes reinvestment of
dividends and capital gains, if any, at net asset value. Prior to May 1, 1994, dividends were reinvested at the maximum
offering price.
</TABLE>
Franklin Premier Return Fund
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) of REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie chart format the comparison of the allocation of net
assets, based on total net assets, on 12/31/92 and 6/30/95.
<TABLE>
<CAPTION>
Asset Breakdown on 6/30/95
<S> <C>
Equities 58.0%
Fixed-Income Securities 17.0%
Cash & Equivalents 25.0%
Asset Breakdown on 12/31/92
Equities 83.0%
Fixed-Income Securities 13.0%
Cash & Equivalents 4.0%
</TABLE>
