Your Fund's Objective:
As of August 1, 1996, the Franklin Premier Return Fund's primary objective is
total return through investment in common stocks, investment grade corporate and
U.S. government bonds, short-term money market instruments, securities of
foreign issuers and real estate securities. This is a fundamental policy of the
fund and may not be changed without shareholder approval. The fund places
secondary emphasis on reduced risk over time.
August 15, 1996
Dear Shareholder:
We are pleased to bring you this semi-annual report of the Franklin Premier
Return Fund for the six months ended June 30, 1996. During this time, the U.S.
economy continued to grow at a moderate rate. Low inflation, healthy corporate
earnings, and record cash inflows into mutual funds caused U.S. stock markets to
rise, but domestic bond markets declined due to concerns about accelerating
economic growth and rising interest rates. Within this environment, the fund
delivered a total return of +9.34% for the six months under review, as discussed
in the Performance Summary on page 6.
As you know, on July 3, 1996, the fund's shareholders voted to change the fund's
name to the Franklin Asset Allocation Fund in order to better reflect its
investment strategy and philosophy. At the same time, the fund's shareholders
voted to change the fund's investment objective from high current return, and,
secondarily, relative stability of principal to total return with a secondary
emphasis on reduced risk over time. The report that follows reflects management
of the fund based upon the prior objective.
Business cycle analysis is an integral part of the fund's investment strategy,
and during the reporting period, we continued analyzing economic factors to
determine the business cycle's stage. We allocated our assets among stocks,
bonds, and cash, positioning the stock portion in sectors, industries, and
companies that appeared to offer the strongest prospects for capital
appreciation and income.
Believing that the business cycle had moved from the early stage of expansion
experienced a year ago to the middle stage, we looked for attractively priced
stocks in basic industries (chemicals, gold and other metals), technology, and
energy sectors, which typically perform well during this stage. At the same
time, we reduced holdings and realized profits in early business cycle
industries that most likely would be affected by rising interest rates, such as
financial services and utilities. We sold shares of General Re Corp., SBC
Communications, Inc., Ameritech Corp., DPL, Inc., and Telefonos de Mexico
(Telmex), but remain optimistic about the long-term potential of GTE Corp. and
AT&T Corp. In our opinion, GTE should benefit from the telecommunica- tions bill
that was approved by Congress in February 1996, since the company will be able
to offer its customers one-stop shopping for all their communications needs.
During the reporting period, AT&T announced it would split into three separate
companies: AT&T Capital Corp., Lucent Technology, Inc., and AT&T. Since many
investors will now be able to ascertain the value of each of these companies,
their stock prices should begin to reflect their positive future growth
prospects.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Believing that the technology sector should continue to exhibit strong growth in
the future, we increased our exposure in this area from 9.71% of total net
assets on December 31, 1995 to 11.99% on June 30, 1996. We added to our
positions in Intel Corp., a major manufacturer of microprocessors, and Microsoft
Corp., a leading supplier of computer software products. At the time we
purchased these shares, they were selling at prices near their 52-week lows, as
well as at a price-to-earnings multiple below their anticipated future growth
rate. By June 30, 1996, the value of these stocks had increased substantially.
In addition, the share price of Boeing Co., one of the fund's top 10 equity
holdings, appreciated 9.08% during the reporting period.
FRANKLIN PREMIER RETURN FUND
Top 10 Sectors on June 30, 1996
Based on Total Net Assets
% of Total
Sector Net Assets
Technology 11.99%
Energy 10.93%
Consumer Cyclicals 10.29%
Basic Materials 9.39%
Consumer Staples 6.74%
Health Care 5.63%
Capital Goods 5.62%
Utilities 4.84%
Miscellaneous 3.34%
Financial Services 2.29
We also discovered attractive growth opportunities in the basic industries
sector, particularly the chemical industry. We added to our holdings of Du Pont
(E.I.) DeNemours & Co., the largest chemical company in the U.S., and Air
Products and Chemicals, Inc., which supplies industrial gases to a wide variety
of industries such as electronics, oil, food, and health care. We also initiated
a position in Betz Laboratories, Inc., a leading provider of specialty chemical
products with a variety of industrial and commercial applications in the
treatment of water.
Expecting global demand for oil to rise, particularly in developing countries,
we continued to focus on the energy sector. Over the period, your fund benefited
from the rising share prices of Exxon Corp. (+7.75%), Schlumberger Ltd.
(+21.66%), and Chevron Corp. (+11.58%), which profited from higher prices of
crude oil and refined petroleum products earlier in the year.
Based on rising consumer confidence, we overweighted our exposure (5.93%) to the
retail industry relative to the Standard & Poor's 500 Stock Index(R) (4.93%).
For example, we added to our position in Federated Department Stores, Inc.,
which operates major U.S. stores such as Macy's and Bloomingdale's. In our
opinion, Federated should benefit from its recent acquisition of Emporium
Capwell because this will expand its customer base and increase revenues.
FRANKLIN PREMIER RETURN FUND
Top 10 Equity Holdings on June 30, 1996
Based on Total Net Assets
Company % of Total
Industry Net Assets
Air Products & Chemicals, Inc. 2.14%
Chemicals
GTE Corp. 1.90%
Telephone Utilities
Boeing Co. 1.84%
Aerospace & Defense Electronics
Exxon Corp. 1.84%
Oil - International
Allergan, Inc. 1.66%
Healthcare Diversified
AT&T Corp. 1.64%
Telecommunications - Long Distance
Chevron Corp. 1.56%
Oil - International
Intel Corp. 1.55%
Electronic Semiconductors
Browning-Ferris Industries, Inc. 1.53%
Pollution Control
Enron Corp. 1.51%
Utilities/Natural Gas
For a complete listing of portfolio holdings, please see page 7 of this report.
Looking forward, we remain committed to our strategy of focusing on companies
which offer attractive growth opportunities, as we search for equities within
sectors and industries that will benefit during the late business cycle phase.
In our opinion, lower unemployment rates, moderate economic growth, and positive
corporate earnings should be favorable for the financial markets. However, if
economic growth rises faster than its current pace, the Federal Reserve Board
might raise short-term interest rates as it seeks to prevent potential inflation
from getting out of control. This potential increase in interest rates could
temporarily have a negative effect on these markets, which could provide
investors with exceptional buying opportunities.
This discussion reflects the strategies we employed for the fund during the six
months under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings, may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing securities we purchase or sell for the fund.
We appreciate your participation in the Franklin Premier Return Fund and welcome
your comments and suggestions.
Sincerely,
Charles B. Johnson
Chairman of the Board
Franklin Premier Return Fund
PERFORMANCE SUMMARY
The Franklin Premier Return Fund posted a total return of +9.34% for the
six-month period ended June 30, 1996. 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. Of course, we always maintain a long-term
perspective when managing the fund, and we encourage our shareholders to view
their investments in a similar manner. As you can see from the table to the
right, the fund delivered a cumulative total return of +93.62% for the five-year
period ended June 30, 1996.
The fund's share price, as measured by the net asset value, increased $0.59 per
share, from $7.25 on December 31, 1995 to $7.84 on June 30, 1996. During the
reporting period, shareholders received distributions of 8.5 cents ($0.085) per
share in income dividends. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
fund, as well as any profits realized from the sale of securities in the
portfolio.
FRANKLIN PREMIER RETURN FUND
Periods ended June 30, 1996
One- Five- Ten-
Year Year Year
- --------------------------------------------------------------------------------
Cumulative
Total Return1 19.27% 93.62% 170.11%
Average Annual
Total Return2 13.87% 13.08% 9.93%
Value of $10,000
Investment3 $11,387 $18,489 $25,783
30-Day Standardized Yield4: 1.51%
- --------------------------------------------------------------------------------
1. Cumulative total returns show the change in value of an investment over the
periods indicated and do not include the 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 include the current, maximum 4.5%
initial sales charge. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include reinvestment of dividends and
capital gains distributions and the maximum 4.5% initial sales charge.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio during the 30 days ended June 30, 1996.
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 affects subsequent performance. All total return figures assume
reinvestment of dividends and capital gains at net asset value and reflect 12b-1
fees from the date of the plan's 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 is not
predictive of future results.
<TABLE>
<CAPTION>
FRANKLIN PREMIER RETURN FUND
Statement of Investments in Securities, Open Options and Net Assets, June 30,
1996 (unaudited)
Value
Shares (Note 1)
- -------------------------------------------------------------------------------------------------------------------
Common Stocks 67.4%
Aerospace & Defense Electronics 1.8%
<S> <C> <C>
10,000 Boeing Co. ..................................................................... $ 871,250
-------------
Auto Parts 1.0%
10,000 Genuine Parts Co. .............................................................. 457,500
-------------
Chemicals 6.1%
17,500 Air Products & Chemicals, Inc................................................... 1,010,625
20,000 Arcadian Corp. ................................................................. 395,000
15,000 Betz Laboratories, Inc. ........................................................ 658,125
6,000 Du Pont (E.I.) De Nemours & Co. ................................................ 474,750
10,000 Goodrich (B.F.) Co. ............................................................ 373,750
-------------
2,912,250
-------------
Communication Equipment Manufacturers 1.3%
6,000 a Cisco Systems, Inc.............................................................. 339,750
12,100 Ericsson (LM), Sponsored ADR.................................................... 260,150
-------------
599,900
-------------
Computer Software 1.8%
5,000 Electronic Data Systems Corp. .................................................. 268,750
5,000 a Microsoft Corp. ................................................................ 600,625
-------------
869,375
-------------
Computer Systems 1.0%
10,000 a Silicon Graphics, Inc........................................................... 240,000
20,000 a Tandem Computers, Inc........................................................... 247,500
-------------
487,500
-------------
Conglomerates 1.4%
15,000 a Litton Industries, Inc. ........................................................ 652,500
-------------
Cosmetics 1.3%
15,000 a Estee Lauder Cos., Class A ..................................................... 633,750
-------------
Electrical Equipment 2.7%
15,000 a American Standard Cos., Inc..................................................... 495,000
15,000 AMP, Inc........................................................................ 601,875
10,000 Westinghouse Electric Corp. .................................................... 187,500
-------------
1,284,375
-------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PREMIER RETURN FUND
Statement of Investments in Securities, Open Options and Net Assets, June 30,
1996 (unaudited)(cont.)
Value
Shares (Note 1)
- ------------------------------------------------------------------------------------------------------------------
Common Stocks (cont.)
Electronic Semiconductors 2.7%
<S> <C> <C>
10,000 Intel Corp. .................................................................... $ 734,375
10,000 Linear Technology Corp. ........................................................ 300,000
4,000 Motorola, Inc................................................................... 251,500
-------------
1,285,875
-------------
Entertainment/Media 1.4%
17,500 Time Warner, Inc................................................................ 686,875
-------------
Finance 1.7%
5,000 BankAmerica Corp. .............................................................. 378,750
10,000 Wachovia Corp. ................................................................. 437,500
-------------
816,250
-------------
Food/Beverages 3.4%
20,000 Nabisco Holdings Corp., Class A................................................. 707,500
10,000 Panamerican Beverages, Inc., Class A............................................ 447,500
15,000 Sara Lee Corp. ................................................................. 485,625
-------------
1,640,625
-------------
Gold/Miscellaneous Metals 2.6%
15,000 Placer Dome, Inc................................................................ 358,125
10,000 RTZ Corp. Plc. ................................................................. 602,500
20,000 Santa Fe Pacific Gold Corp. .................................................... 282,500
-------------
1,243,125
-------------
Healthcare Diversified 1.7%
20,000 Allergan, Inc................................................................... 785,000
-------------
Healthcare/HMO's 1.3%
12,500 United Healthcare Corp. ........................................................ 631,250
-------------
Hotels/Motels 1.2%
5,000 Hilton Hotels Corp. ............................................................ 562,500
-------------
Household Furniture & Appliance .8%
15,000 a Ethan Allen Interiors, Inc. .................................................... 371,250
-------------
Household Products 1.4%
7,500 Procter & Gamble Co. ........................................................... 679,688
-------------
Insurance .6%
9,600 a Travelers/Aetna Property Casualty Corp. ........................................ 272,400
-------------
Manufacturing 1.0%
15,000 a Waters Corp. ................................................................... 495,000
-------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PREMIER RETURN FUND
Statement of Investments in Securities, Open Options and Net Assets, June 30,
1996 (unaudited)(cont.)
Value
Shares (Note 1)
- ------------------------------------------------------------------------------------------------------------------
Common Stocks (cont.)
Oil - Domestic 2.2%
<S> <C> <C>
15,000 Occidental Petroleum Corp. ..................................................... $ 371,250
16,000 Phillips Petroleum Co. ......................................................... 670,000
-------------
1,041,250
-------------
Oil - Exploration & Production 2.3%
20,000 Enron Oil & Gas Co. ............................................................ 557,500
21,000 Union Pacific Resources Group, Inc.............................................. 561,750
-------------
1,119,250
-------------
Oil & Gas Drilling 1.2%
15,000 Helmerich & Payne, Inc.......................................................... 549,375
-------------
Oil - International 3.4%
12,500 Chevron Corp. .................................................................. 737,500
10,000 Exxon Corp. .................................................................... 868,750
-------------
1,606,250
-------------
Oil Well Equipment & Services 1.3%
7,500 Schlumberger, Ltd............................................................... 631,875
-------------
Pharmaceuticals 2.6%
5,000 e Astra, AB (Sweden).............................................................. 218,245
14,500 Pharmacia & Upjohn, Inc......................................................... 643,438
350 e Sandoz, AG (Switzerland)........................................................ 400,600
-------------
1,262,283
-------------
Pollution Control 1.5%
25,000 Browning-Ferris Industries, Inc................................................. 725,000
-------------
Real Estate Investment Trusts 2.0%
10,000 Equity Residential Properties Trust ............................................ 328,750
20,000 FelCor Suite Hotels, Inc. ...................................................... 610,000
-------------
938,750
-------------
Retail - Apparel .2%
3,500 a,f Donna Karan International, Inc.................................................. 98,000
-------------
Retail - General Merchandise 2.2 %
20,000 a Federated Department Stores, Inc................................................ 682,500
15,000 Wal-Mart Stores, Inc............................................................ 380,625
-------------
1,063,125
-------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PREMIER RETURN FUND
Statement of Investments in Securities, Open Options and Net Assets, June 30,
1996 (unaudited)(cont.)
Value
Shares (Note 1)
- ------------------------------------------------------------------------------------------------------------------
Common Stocks (cont.)
Retail - Specialty 2.9%
<S> <C> <C>
10,000 Home Depot, Inc................................................................. $ 540,000
26,100 a Price/Costco, Inc. ............................................................. 564,413
10,000 a Toys R Us, Inc.................................................................. 285,000
-------------
1,389,413
-------------
Telecommunications - Long Distance 1.6%
12,500 AT&T Corp. ..................................................................... 775,000
-------------
Telephone Utilities 3.8%
20,000 GTE Corp. ...................................................................... 895,000
20,000 a,b,e NetCom, ASA (Norway)............................................................ 211,092
10,000 Telecomunicacoes Brasileiras, SA -Telebras, Sponsored ADR....................... 696,250
-------------
1,802,342
-------------
Transportation .5%
7,500 a Fritz Cos., Inc. ............................................................... 241,875
-------------
Utilities/Natural Gas 1.5%
17,500 Enron Corp. .................................................................... 715,313
-------------
Total Common Stocks (Cost $28,049,014).................................... 32,197,339
-------------
Convertible Preferred Stocks .9%
10,000 Enron Corp., 6.25% cvt. pfd. ................................................... 258,750
10,000 b Westinghouse Electric Co., $1.30 cvt. pfd., Series C ........................... 176,250
-------------
Total Convertible Preferred Stocks (Cost $390,500)........................ 435,000
-------------
Face
Amount
- ---------
Bonds 13.6%
Convertible Bonds 1.8%
$ 225,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ............................. 213,750
500,000 b Thermo Electron Corp., cvt. sub. deb., 4.25%, 01/01/03 ......................... 615,000
-------------
Total Convertible Bonds (Cost $726,250)................................... 828,750
-------------
Corporate Bonds 1.3%
250,000 Dayton Hudson Co., deb., 8.60%, 01/15/12 ....................................... 270,650
100,000 Georgia Pacific Corp., deb., 9.125%, 07/01/22 .................................. 104,360
250,000 Panamerican Beverages, Inc., senior notes, 8.125%, 04/01/03 .................... 251,941
-------------
Total Corporate Bonds (Cost $596,005)..................................... 626,951
-------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PREMIER RETURN FUND
Statement of Investments in Securities, Open Options and Net Assets, June 30,
1996 (unaudited)(cont.)
Face Value
Amount (Note 1)
- ------------------------------------------------------------------------------------------------------------------
Bonds (cont.)
U.S. Government Securities 10.5%
<C> <C> <C>
$ 1,750,000 U.S. Treasury Bonds, 6.25% - 8.00%, 11/15/21 - 08/15/25 ........................ $ 1,679,374
3,300,000 U.S. Treasury Notes, 5.625% - 7.25%, 10/31/97 - 05/15/44 ....................... 3,331,780
-------------
Total U.S. Government Securities (Cost $4,975,721)...................... 5,011,154
-------------
Total Bonds (Cost $6,297,976)........................................... 6,466,855
-------------
Shares Expiration Exercise
Optioned Date Price
-------- ---------- --------
Put Options
Telecommunications
5,000 Telecomunicacoes Brasileiras, SA
Telebras, Sponsored ADR (Cost $7,650)................. August, 96 65 7,188
-------------
Total Long Term Investments (Cost $34,745,140)........................... 39,106,382
-------------
Face
Amount
--------
c Short Term Investments 4.2%
Commercial Paper
$2,000,000 Westpac Capital Corp., 5.33%, 07/08/96 (Cost $1,997,927)........................ 1,996,980
-------------
Total Investments Before Repurchase Agreements (Cost $36,743,067) ........ 41,103,362
-------------
d Receivables from Repurchase Agreements 12.5%
5,969,055 Joint Repurchase Agreement, 5.439%, 07/01/96 (Maturity Value $5,999,648)
(Cost $5,996,930)
Chase Securities, Inc., (Maturity Value $862,239)
Collateral: U. S. Treasury Notes, 5.375%, 11/30/97
Daiwa Securities America, Inc., (Maturity Value $862,239)
Collateral: U. S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $826,214)
Collateral: U. S. Treasury Bills, 05/29/97
U. S. Treasury Notes, 5.125% - 6.75%, 07/31/97 - 07/31/00
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PREMIER RETURN FUND
Statement of Investments in Securities, Open Options and Net Assets, June 30,
1996 (unaudited)(cont.)
Value
(Note 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
d Receivables from Repurchase Agreements (cont.)
Joint Repurchase Agreement,(cont.)
Fuji Securities, Inc., (Maturity Value $862,239)
Collateral: U. S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99
Lehman Government Securities, Inc., (Maturity Value $862,239)
Collateral: U. S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01
SBC Capital Markets, Inc., (Maturity Value $862,239)
Collateral: U. S. Treasury Notes, 5.75%, 09/30/97
UBS Securities, Inc., (Maturity Value $862,239)
Collateral: U. S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99 ........ $ 5,996,930
-------------
Total Investments (Cost $42,739,997) 98.6% ......................... 47,100,292
Other Assets and Liabilities, Net 1.4% ............................. 690,419
-------------
Net Assets 100.0% .................................................. $47,790,711
-------------
At June 30, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $42,739,997 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................ $ 5,690,003
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................ (1,329,708)
-------------
Net unrealized appreciation ................................................... $ 4,360,295
=============
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
cCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
dFace amount for repurchase agreements is for the underlying collateral. See
Note 1(i) regarding joint repurchase agreement.
eSecurities traded in foreign currency and valued in U.S. dollars.
fSee Note 1(f) regarding securities purchased on a when-issued basis.
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, 1996 (unaudited)
Assets:
Investments in securities, at value
(identified cost $36,743,067) $41,103,362
Receivables from repurchase agreements,
at value and cost 5,996,930
Cash 20,999
Receivables:
Investment securities sold 651,877
Dividends and interest 172,276
Capital shares sold 10,779
Prepaid expenses 3,709
-----------
Total assets 47,959,932
-----------
Liabilities:
Payables:
Investment securities purchased on
when-issued basis (Note 1) 84,000
Distributions to shareholders 41,909
Management fees 24,800
Distribution fees 15,600
Shareholder servicing costs 2,912
-----------
Total liabilities 169,221
-----------
Net assets, at value $47,790,711
===========
Net assets consist of:
Accumulated distributions in excess of
net investment income $ (6,801)
Net unrealized appreciation on investments 4,360,295
Undistributed net realized gain 257,124
Capital shares 43,180,093
-----------
Net assets, at value $47,790,711
===========
Net asset value per share:
($47,790,711 / 6,092,653
shares outstanding)* $7.84
===========
Statement of Operations
for the six months ended June 30, 1996 (unaudited)
Investment income:
Dividends $281,324
Interest (Note 1) 363,182
--------
Total income $ 644,506
Expenses:
Management fees (Note 5) 135,317
Distribution fees (Note 5) 41,334
Shareholder servicing costs (Note 5) 18,778
Reports to shareholders 12,166
Professional fees 11,923
Registration and filing fees 9,174
Directors' fees and expenses 3,124
Custodian fees 1,146
Other 1,271
--------
Total expenses 234,233
---------
Net investment income 410,273
---------
Realized and unrealized gain (loss)
from investments and foreign
currency:
Net realized gain (loss) from:
Transactions in written options
which expired or were closed
(Note 4) 17,606
Other investments 598,509
Foreign currency transactions (2,889)
--------
Net realized gain 613,226
Net unrealized appreciation 2,723,218
----------
Net realized and unrealized
gain from investments and
foreign currency 3,336,444
----------
Net increase in net assets
resulting from operations $3,746,717
==========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FRANKLIN PREMIER RETURN FUND
FINANCIAL STATEMENTS (CONT.)
Statements of Changes in Net Assets
for the six months ended June 30, 1996 (unaudited)
and the year ended December 31, 1995
Six Months
Ended Year Ended
June 30, 1996 December 31, 1995
-------------- -----------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C>
Net investment income........................................................ $ 410,273 $ 894,020
Net realized gain from investments and foreign currency transactions......... 613,226 355,611
Net unrealized appreciation on investments................................... 2,723,218 4,911,516
--------- ------------
Net increase in net assets resulting from operations..................... 3,746,717 6,161,147
Distributions to shareholders from undistributed net investment income......... (487,788) (857,567)
Increase in net assets from capital share transactions (Note 3)................ 5,213,139 8,384,330
---------- ------------
Net increase in net assets............................................... 8,472,068 13,687,910
Net assets:
Beginning of period........................................................... 39,318,643 25,630,733
---------- ------------
End of period (including accumulated distribution in excess of net investment
income of $6,801 - 06/30/96; and undistributed net investment income of
$70,714 - 12/31/95)........................................................... $47,790,711 $39,318,643
=========== ============
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 Fund seeks to provide a high level of total return while
seeking relative stability of principal.
The Board of Directors (the Board) and shareholders have approved a proposal to
change the Fund's name to Franklin Asset Allocation Fund, effective August 1,
1996, to better reflect its investment strategy and philosophy.
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 for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. The Fund may utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board. Securities for which market quotations are not
available, and securities restricted as to resale, are valued in accordance with
procedures established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked prices is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
Board.
Open option contracts are valued at their last sales price on the relevant
exchange. If there is no sale price, the options will be valued at the mean
between the current closing bid and asked 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.
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.
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.
Original issue discount is amortized as required by the Internal Revenue Code.
FRANKLIN PREMIER RETURN FUND
Notes to Financial Statements (unaudited) (cont.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. Investment Income, Expenses and Distributions:(cont.)
A portion of the distributions received by the Fund from investments in real
estate investment trust (REIT) securities may be characterized as tax basis
return of capital (ROC) distributions, which are not recorded as dividend
income, but reduce the cost basis of the REIT securities. ROC distributions
exceeding the cost basis for the REIT security are recognized by the Fund as
capital gain.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions. Net realized
capital gains and losses may differ for financial statement and tax purposes
primarily due to differing treatment of foreign currency and option
transactions.
e. Accounting Estimates:
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
f. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Fund may trade securities on a when-issued or delayed delivery 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 Fund will
generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities, Open Options and Net Assets. The Fund has set aside sufficient
investment securities as collateral for these purchase commitments.
g. Foreign Currency Translation:
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade and settlement dates on security transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies arises
from changes in the value of assets and liabilities, other than investments in
securities at the end of the reporting period, resulting from changes in
exchange rates.
FRANKLIN PREMIER RETURN FUND
Notes to Financial Statements (unaudited) (cont.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
h. 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 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 canceled 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.
i. 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.
A repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by underlying U.S. government 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 Fund, with the value of the underlying security marked to market
daily to maintain coverage of at least 100%. At June 30, 1996, all outstanding
repurchase agreements held by the Fund had been entered into on June 28, 1996.
2. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At December 31, 1995, for tax purposes, the Fund had capital loss carryovers as
follows:
Expiring in: 2000 $194,808
2002 161,294
--------
$356,102
========
For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Fund are the same as for financial statement purposes at June 30, 1996.
FRANKLIN PREMIER RETURN FUND
Notes to Financial Statements (unaudited) (cont.)
<TABLE>
<CAPTION>
3. CAPITAL STOCK
At June 30, 1996, there were 5,000,000,000 shares of no par value capital stock
authorized. Transactions in the Fund's shares were as follows:
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
------------------ -------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares sold ............................................. 1,125,011 $8,632,472 2,254,336 $15,312,713
Shares issued in reinvestment of distributions .......... 50,517 388,570 96,003 662,619
Shares redeemed ......................................... (506,392) (3,807,903) (1,120,306) (7,591,002)
---------- ---------- ---------- ----------
Net increase ............................................ 669,136 $5,213,139 1,230,033 $ 8,384,330
========== ========== ========== ==========
</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,
1996 aggregated $11,970,274 and $10,052,246, respectively. At June 30, 1996,
there were no securities or other assets deposited as collateral for outstanding
options.
Transactions in written options for the six months ended June 30, 1996 were as
follows:
Call
--------
Number of
Amount of Shares
Premiums Optioned
--------- ---------
Options outstanding at December 31, 1995.......... $ -- --
Options written .................................. 107,081 49,000
Options expired................................... (5,100) (6,000)
Options exercised................................. (46,923) (20,000)
Options closed.................................... (55,058) (23,000)
--------- ---------
Options outstanding at June 30, 1996.............. $ -- --
========= =========
The cost of canceling written call options in closing purchase transactions was
$42,552 resulting in a net short-term capital gain of $12,506 for the six months
ended June 30, 1996. Premiums received on expired written call and put options
resulted in a net short-term capital gain of $5,100 for the six months ended
June 30, 1996.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
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 as follows:
Annualized Fee Rate Average Daily Net Assets
------------------- ---------------------------------------------------
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% In excess of $250 million
FRANKLIN PREMIER RETURN FUND
Notes to Financial Statements (unaudited) (cont.)
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.
a. Management Agreement(cont.)
The terms of the management 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,
1996, the Fund's expenses did not exceed these limitations.
b. Shareholder Services Agreement
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc., (Investor Services), the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred for the six
months ended June 30, 1996 aggregated $18,778, of which $18,263 was paid to
Investor Services.
c. Distribution Plan and Underwriting Agreement
Under the terms of a distribution plan pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plan), the Fund will reimburses Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to a maximum of .25% per
annum of the Fund's average daily net assets for costs incurred in the
promotion, offering and marketing of the fund's shares. The Plan does not permit
nor require payments of excess costs after termination. Fees incurred by the
Fund under the Plan aggregated $41,334 for the six months ended June 30, 1996.
In its capacity as underwriter for the capital stock of the Fund, Distributors
receives commissions on sales of the Fund's capital stock. 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. Distributors may also make
payments, out of its own resources, to dealers for certain sales of the Fund's
capital stock. Commissions received by Distributors and the amount paid to other
dealers for the six months ended June 30, 1996, amounted to $142,469 and
$148,176 respectively.
d. Other Affiliated and Related Party Transactions
Certain officers and directors of the Fund are also officers and/or directors of
Distributors, Advisers, and Investor Services, all wholly-owned subsidiaries of
Franklin Resources, Inc.
FRANKLIN PREMIER RETURN FUND
Notes to Financial Statements (unaudited) (cont.)
<TABLE>
<CAPTION>
6. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period
are as follows:
Six Months
Ended Year Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- -------- -------- -------- -------- --------
Per Share Operating Performance
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $7.25 $6.11 $6.22 $5.40 $4.88 $4.21
-------- -------- -------- -------- -------- --------
Net investment income............................... 0.07 0.18 0.14 0.13 0.15 0.14
Net realized and unrealized gain (loss) on securities 0.605 1.14 (0.11) 0.86 0.53 0.78
-------- -------- -------- -------- -------- --------
Total from investment operations.................... 0.675 1.32 0.03 0.99 0.68 0.92
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income.............................. (0.085) (0.18) (0.14) (0.17) (0.16) (0.135)
Capital gains...................................... -- -- -- -- -- (0.115)
-------- -------- -------- -------- -------- --------
Total distributions................................. (0.085) (0.18) (0.14) (0.17) (0.16) (0.250)
-------- -------- -------- -------- -------- --------
Net asset value at end of period.................... $7.84 $7.25 $6.11 $6.22 $5.40 $4.88
======== ======== ======== ======== ======== ========
Total Return*....................................... 9.34% 21.79% 0.46% 18.38% 14.02% 22.06%
Ratios/Supplemental Data
Net assets at end of period (in 000's).............. $47,791 $39,319 $25,631 $22,877 $22,077 $28,189
Ratio of expenses to average net assets............. 1.10%+ 1.17% 1.27% 1.00% .92% .93%
Ratio of net investment income to average net assets 1.92%+ 2.86% 2.29% 2.15% 2.81% 2.95%
Portfolio turnover rate............................. 27.56 62.01% 45.18% 20.49% 23.17% 62.25%
Average commission rate**........................... 0.0668 0.0640 -- -- -- --
</TABLE>
+Annualized.
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the contingent deferred sales charge, and assumes reinvestment of
dividends and capital gains at net asset value. Prior to May 1, 1994, dividends
were reinvested at the maximum offering price, and capital gains at net asset
value.
**Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.
FRANKLIN PREMIER RETURN FUND SEMI-ANNUAL REPORT DATED 6/30/96
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304
(a) of REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the asset allocation of the fund's securities
based on total net assets.
<TABLE>
<CAPTION>
Asset Allocation on 6/30/96
<S> <C>
Equity 67.4%
Fixed-Income Securities 14.5%
Cash & Equivalents 18.1%
</TABLE>
