FRANKLIN TAX ADVANTAGED INTERNATIONAL BOND FUND, N-30D, 1995-02-27

FRANKLIN TAX ADVANTAGED INTERNATIONAL BOND FUND
N-30D, 1995-02-27

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<PAGE>
February 15, 1995

Dear Shareholder:

This is the annual report of the Franklin Partners Funds(R) for the fiscal year
ended December 31, 1994. Franklin Partners Funds are three separate mutual
funds created to provide non-U.S. investors with high current income exempt
from U.S. withholding taxes.

We are pleased to report that all of the Franklin Partners Funds continued to
provide high current monthly income. Nonetheless, volatility in the securities
markets proved to be unsettling to some investors. Although this is
understandable, in times like these it is important to remember that financial
markets always have been, and always will be, subject to fluctuation. As a
matter of fact, down-market cycles can often unveil outstanding buying
opportunities. We therefore urge you to exercise patience and concentrate not
on short-term market cycles, but on your long-term investment goals.

The following pages contain detailed discussions about each of the Franklin
Partners Funds. While each fund has a distinct investment objective, all of our
managers are dedicated to providing shareholders with careful selection and
constant professional supervision.

We appreciate your continued support, welcome your comments and look forward to
serving your investment needs in the years to come.

Sincerely,

Rupert H. Johnson, Jr.
Executive Vice President and
Managing General Partner

TABLE OF CONTENTS

<TABLE>
<S> <C>
FRANKLIN TAX-ADVANTAGED
INTERNATIONAL BOND FUND................... page 2

FRANKLIN TAX-ADVANTAGED
U.S. GOVERNMENT
SECURITIES FUND........................... page 6

FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND................ page 9
</TABLE>

<PAGE>
FRANKLIN PARTNERS FUNDS

FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND

The Franklin Tax-Advantaged International Bond Fund seeks to provide current
income through investments in debt securities of non-U.S. issuers and foreign
currency denominated debt securities of U.S. issuers.*

The primary factor impacting worldwide financial markets in 1994 was rising
U.S. interest rates. Following stronger than expected economic growth in the
fourth quarter of 1993, the Federal Reserve Board raised short-term interest
rates, hoping to prevent a resurgence in inflation. Specifically, the federal
funds rate was increased six times in 1994, to 5.5% from 3.0% at the beginning
of the period. This action set off a chain reaction in other countries as rates
adjusted upward throughout the world. Economic growth in Europe during this
period was also stronger than expected, led by increased export demand and
strong business activity; strong growth heightened nervousness in the European
bond markets and resulted in added volatility.

Higher rates triggered some of the largest bond market declines in decades. In
spite of the very difficult investment environment, we are pleased to report
that the Franklin Tax-Advantaged International Bond Fund posted a cumulative
total return of +2.20% for the one-year period ended December 31, 1994, earning
the fund a #8 ranking for total return out of 106 global/world income funds.**
In comparison, the average global/world income fund recorded a total return of
- -6.49% for the same period, as measured by Lipper Analytical Services, Inc.+

Some of the fund's heaviest weightings are currently in Australia (16.2%) and
Canada (11.7%). During the reporting period, the fund benefited from holdings
in Australia and New Zealand, where improving commodities prices boosted market
performance. The fund was also aided by its Canadian bonds, which -- after a
tough first half of 1994 -- rebounded following the elections in Quebec.

[GRAPHIC MATERIAL (1) OMITTED - SEE APPENDIX]

*Fund share prices and returns will fluctuate with market conditions,
currencies and the economic and political climates where investments are made.
These special risk considerations are discussed in the prospectus.
**Cumulative total return measures the change in value of an investment over
the periods indicated, assuming reinvestment of dividends and capital gains at
net asset value. This figure does not include the maximum 4.25% initial sales
charge.
+The fund was ranked #8 out of 106 global/world income funds for total return
for the one-year period ended December 31, 1994, and #16 out of 44 funds for
the three-year period ended December 31, 1994, as measured by Lipper Analytical
Services, Inc., a nationally recognized mutual fund rating organization. Lipper
rankings do not include sales charges; past and present expense limitations
increased the fund's total returns. Rankings may have been different if these
factors had been considered. Past performance cannot guarantee future results.

<PAGE>
During the past six months, the fund benefited from the strengthening European
currencies. The U.S. dollar fell relative to European currencies and, as a
result, the European bonds owned by the fund increased in value for the fund's
investors.

The upward trends in economic growth and interest rates come at a time when
many European countries are operating under large budget deficits. Because of
the potential effects of these budgetary problems in the current interest-rate
environment, the fund has been fairly conservative, focusing on "core" European
markets -- Germany, the United Kingdom, France, the Netherlands, the European
Commission (ECU) and, on occasion, Denmark. We will maintain a conservative
policy as we seek to provide non-U.S. investors with high current income while
minimizing risk. Please remember, however, that international investing is
subject to certain risks, including fluctuation of currency rates, as discussed
in the fund's prospectus.

Looking forward, global bond markets appear to be stabilizing, with moderate
inflationary pressures due to low wage growth and improved economic growth.
Higher levels of economic growth could lead to reduced unemployment and higher
tax revenues, helping foreign governments shrink their budget deficits. Given
stronger than expected growth rates and the market's continuing fears of
inflation, we will continue to exercise a cautionary investment policy. As
always, we will purchase only those bonds issued or backed by the full faith
and credit of foreign governments.*

*The fund's shares are not guaranteed by any government and will fluctuate with
market conditions.

<PAGE>
PERFORMANCE SUMMARY

The Franklin Tax-Advantaged International Bond Fund's share price, as measured
by net asset value, declined to $10.78 on December 31, 1994, from $11.34 on
December 31, 1993. As noted in the preceding discussion, this decline was due
largely to rising interest rates throughout global markets.

The fund continued to meet its investment objective of providing high current
income to shareholders. For the one-year period ended December 31, 1994, your
fund paid monthly income distributions totaling 79.4 cents ($0.794) per share.
At the end of the reporting period, your fund's distribution rate was 7.89%,
based on an annualization of the fund's distributions for the 30 days ended
December 31, 1994, and the maximum offering price of $11.26 on that date.
Dividends will vary based on the earnings of the fund's portfolio and past
distributions are not necessarily predictive of future results.

The Franklin Tax-Advantaged International Bond Fund provided a total return of
+2.20% for the one-year period ended December 31, 1994. Total return measures
the change in value of an investment over the periods indicated, assuming
reinvestment of dividends and capital gains. This calculation does not include
the initial sales charge. Past performance is not predictive of future results.

We have always maintained a long-term investment perspective and we encourage
our shareholders to do the same. While the fund may experience some volatility
from time to time, we believe that its performance will be rewarding over the
long term. In fact, your fund delivered cumulative and average annual total
returns of over 45% and 7%, respectively, since its inception on June 9, 1990.
For a definition of total return, please refer to the table on page 5.

The graph on page 5 compares the performance of the Franklin Tax-Advantaged
International Bond Fund, since inception, to the unmanaged Salomon Brothers
Non-U.S. World Government Bond Index. The index has inherent performance
differentials over any fund as it contains no cash in its portfolio and
includes no management fees or sales charges. The fund generally holds a
percentage of cash at any time. Additionally, the index contains a large
weighting of Japanese bonds, whereas the fund's portfolio maintains a broad
diversification. Japanese bonds have offered excellent returns through a
combination of price appreciation and currency gains; however, your fund
generally avoids these securities due to the lower yields they offer. Please
note, one cannot invest in an index and past performance is not predictive of
future results.

<PAGE>
FRANKLIN TAX-ADVANTAGED
INTERNATIONAL BOND FUND
Periods ended December 31, 1994

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (06/09/90)
------ ------- ----------
<S> <C> <C> <C> <C>
Cumulative
Total Return(1) 2.20% 13.72% 45.14%

Average Annual
Total Return(2) -2.12% 2.89% 7.47%

Distribution Rate(3) 7.89%

30-Day Standardized Yield(4) 8.54%
</TABLE>

(2) Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures have been restated to
reflect the maximum 4.25% initial sales charge stated in the prospectus. See
note below.

(3) Based on an annualization of the distributions paid over the 30 days ended
December 31, 1994, and the maximum offering price of $11.26 on that date.

(4) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended December 31, 1994.

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 July 1, 1994, the fund implemented a plan of
distribution under Rule 12b-1 and eliminated the sales charge on reinvested
dividends, which will affect future performance. All total return calculations
assume reinvestment of dividends and capital gains at net asset value.
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.

The fund's manager is waiving a portion of the management fees, which reduces
operating expenses and increases distribution rate, yield and total return to
shareholders. Without these reductions, the fund's distribution rate and total
return would have been lower, and yield for the period would have been 7.77%.
The fee waiver may be discontinued at any time.

[GRAPHIC MATERIAL (2) OMIITED - SEE APPENDIX]

*Includes all sales charges, fund expenses and account fees. It also assumes
that your dividends and capital gains were reinvested at net asset value. The
Salomon Brothers Non-U.S. World Government Bond Index includes price
appreciation or depreciation and distributions as a percentage of the original
investment. Past performance is not predictive of future results.

<PAGE>
FRANKLIN PARTNERS FUNDS

FRANKLIN TAX-ADVANTAGED U.S.GOVERNMENT SECURITIES FUND

The Franklin Tax-Advantaged U.S. Government Securities Fund is managed to
provide current income through investment in U.S. government obligations,
primarily Government National Mortgage Association securities.

Rising interest rates made 1994 one of the most difficult years in decades for
fixed-income securities. Attempting to keep potential inflationary pressures
under control, the Federal Reserve Board raised the federal funds rate -- the
interest rate banks charge each other for overnight loans -- six times during
the reporting period, from 3.0% to 5.5%. Although the Federal Reserve Board
raised only short-term rates, long-term rates followed suit. By the end of '94,
10-year U.S. government bond yields had increased over 200 basis points to
7.84%, from 5.83% a year earlier, and 30-year Treasury bonds increased over 150
basis points to 7.89%.* Rising interest rates caused bond prices to fall, since
previously issued bonds, with their lower yields, became less attractive than
newer issues that reflected current rates. For example, prices of 10-year
Treasuries fell over 14%, while prices of 30-year Treasuries declined over
18%.(T)

These rate increases resulted in negative total returns for intermediate and
long-term bond investments, as income levels were not high enough to offset the
price depreciation.

The Government National Mortgage Association (GNMA or Ginnie Mae) securities in
which your fund primarily invests have not escaped the declines caused by the
increases in interest rates this past year. In January of 1994, 7% Ginnie Mae
30-year pass-throughs (mortgage-backed certificates in which income is passed
directly to the investor) were trading slightly above par at $101.25. By
December, these securities were down 11%, trading at $89.75.

The fund's managers maintain a very straightforward investment approach and do
not actively trade portfolio holdings. Instead, we invest in high quality
Ginnie Maes, seeking to provide shareholders with high current income and a
relatively stable share value. We have never invested in derivative securities
such as collateralized mortgage obligations (CMOs), real estate mortgage
investment conduits (REMICs), futures or other similar potentially vola-tile
securities, and we have no intention of doing so in the future. However, price
fluctuations are unavoidable and your account's value will vary with market
conditions.

Looking forward, we anticipate that the interest rate escalations of 1994 will
increasingly have a real economic effect. To date, higher rates have
apparently had only a financial effect -- lower bond prices and portfolio
difficulties. (You may have heard about losses experienced by Orange County, CA
and Procter & Gamble, among others, which were greatly impacted by declines in
derivative securities). Hopefully, the actions of the Federal Reserve Board
will moderate growth, keep inflation low and allow rates to stabilize --
providing the proverbial "soft landing." Should the Federal Reserve Board's
actions have their intended effect, we should see bond prices begin to recover.
We believe this is a reasonable outlook for 1995.

*Source: Micropal
+Source: Merrill Lynch Treasury Indices

<PAGE>
PERFORMANCE SUMMARY

The Franklin Tax-Advantaged U.S. Government Securities Fund's share price, as
measured by net asset value, declined during the reporting period to $9.76 on
December 31, 1994, from $10.91 on December 31, 1993. As noted in the preceding
discussion, this decline was largely due to rising interest rates throughout
fixed-income markets.

The fund continued to meet its investment objective of providing high current
income to shareholders. For the one-year period ended December 31, 1994, your
fund paid monthly income distributions totaling 70.4 cents ($0.704) per share.
At the end of the reporting period, your fund's distribution rate was 6.83%,
based on an annualization of the fund's distributions for the 30 days ended
December 31, 1994, and the maximum offering price of $10.19 on that date.
Dividends will vary based on the earnings of the fund's portfolio and past
distributions are not necessarily predictive of future results.

The Franklin Tax-Advantaged U.S. Government Securities Fund reported a total
return of -4.13% for the one-year period ended December 31, 1994. Total return
measures the change in value of an investment over the period indicated,
assuming reinvestment of dividends and capital gains. This calculation does not
include the initial sales charge. Past performance is not indicative of future
trends.

We have always maintained a long-term investment perspective and encourage
shareholders to do the same. While the fund may experience some volatility from
time to time, we believe that its performance will be satisfactory over the
long term. In fact, your fund delivered cumulative and average annual total
returns of over 40% and 6%, respectively, for the five years ended December 31,
1994. For a definition of total return, please refer to the table on page 8.

The graph on the following page illustrates that, since inception, the Franklin
Tax-Advantaged U.S. Government Securities Fund has generally followed the
performance of the unmanaged Lehman Brothers Intermediate Government Bond
Index. Additionally, since 1987, your fund has outpaced inflation, as measured
by the Consumer Price Index (CPI), which is a primary goal for any investment.
It is important to understand that the index has inherent performance
differentials over any fund, as it has no cash in its portfolio, involves no
fund expenses, and does not contain a mortgage component. Of course, you
cannot invest directly in an index.

<PAGE>
FRANKLIN TAX-ADVANTAGED
U.S. GOVERNMENT SECURITIES FUND
Periods ended December 31, 1994

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (05/04/87)
----- ------ ----------
<S> <C> <C> <C> <C>
Cumulative
Total Return(1) -4.13% 40.83% 84.37%

Average Annual
Total Return(2) -8.17% 6.16% 7.70%

Distribution Rate(3) 6.83%

30-Day Standardized Yield(4) 7.05%
</TABLE>

(3) Based on an annualization of the distributions paid over the 30 days ended
December 31, 1994, and the maximum offering price of $10.19 on that date.

(4) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended December 31, 1994.

Past expense limitations increased the fund's total returns.

[GRAPHIC MATERIAL (3) OMITTED - SEE APPENDIX]

*Includes all sales charges, fund expenses and account fees. It also assumes
that your dividends and capital gains were reinvested at net asset value. The
Lehman Brothers Intermediate Government Bond Index includes price appreciation
or depreciation and distributions as a percentage of the original investment.
Past performance is not predictive of future results.

<PAGE>
FRANKLIN PARTNERS FUNDS

FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND

The Franklin Tax-Advantaged High Yield Securities Fund seeks to provide high
current income by investing in a portfolio consisting of high yielding,
lower-rated corporate bonds issued by U.S. and non-U.S. corporations.*

During the period under review, the U.S. economy grew rapidly, with the Gross
Domestic Product (GDP) increasing at an annualized rate of 3.62% for the first
three quarters of 1994.** In addition, the nation's unemployment rate declined
to 5.8% and the nation's factories were operating at roughly 85% of total
capacity by the end of the reporting period, up from 82% in December of
1993.(T) Although reported economic data did not show significant increases in
inflationary pressures, the Federal Reserve Board raised short-term interest
rates in an effort to control the expected higher inflation that normally
accompanies economic recoveries. Since early February, the Federal Reserve has
increased the federal funds rate -- the interest rates banks charge each other
for overnight loans -- on six occasions, to 5.5% from 3.0%.

Both the equity and fixed income markets experienced high levels of volatility
as expectations of a more robust economy sparked inflationary fears. Although
higher interest rates negatively impacted bond prices in general, high yield
bonds fared better due to expectations of increased business activity, which
generally translates into higher revenues and improved profitability. It is
important to understand, however, that an investment in high yield, lower rated
securities is also accompanied by a greater degree of credit risk than an
investment in higher rated securities.

FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND
Top 10 Holdings on 12/31/94
Based on Total Net Assets

<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- ------------------------------------------
<S> <C>
Healthtrust, Inc. 3.68%
Healthcare
- ------------------------------------------
Dr. Pepper Bottling, Inc. 3.64%
Food & Beverage
- ------------------------------------------
Pathmark Stores, Inc. 3.37%
Food Retailing
- ------------------------------------------
IMC Fertilizer Group, Inc. 2.85%
Chemicals
- ------------------------------------------
Fort Howard, Corp. 2.80%
Forest & Paper Products
- ------------------------------------------
Abbey Healthcare Group, Inc. 2.80%
Healthcare
- ------------------------------------------
Truck Components, Inc. 2.59%
Automotive
- ------------------------------------------
Aztar Corp. 2.50%
Gaming/Leisure
- ------------------------------------------
Specialty Foods Corp. 2.48%
Food & Beverage
- ------------------------------------------
New World Television, Inc. 2.46%
Media/Broadcasting
</TABLE>

FOR A DETAILED LISTING OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 13 OF THIS
REPORT.

*High yields reflect the higher credit risk associated with certain lower rated
securities in the fund's portfolio and, in some cases, the lower market prices
for these instruments.

**Source: U.S. Commerce Dept.

+Source: U.S. Federal Reserve Board of Governors

<PAGE>
The fund continued to diversify its investments throughout the reporting
period. We added new industry groups such as wireless communication, and we
reduced our exposure to certain sectors such as food retailing, which fell to
6.3% of total net assets on December 31, 1994, from 16.77% on December 31,
1993.

The fund strategically underweighted sectors that we believed would
underperform the market, and subsequently overweighted sectors that were
expected to outperform the market. For example, we chose to underweight our
holdings in the gaming and leisure sector, which underperformed the high yield
corporate group, while increasing our holdings in the healthcare sector, which
performed better than the high yield group as a whole.

It should be noted, however, that we increased our holdings in the gaming and
leisure sector in the last month of the reporting period, due largely to our
perception that this sector appeared undervalued.

Lastly, we continued to purchase "senior" bonds, as they have a higher claim on
a corporation's assets than subordinated, or "junior," securities.

In 1995, we will continue to seek out attractive sectors as well as individual
securities with improving fundamental values. Further interest rate increases
appear likely, given continued strong economic growth. Although the Federal
Reserve Board's actions to control inflation hurt prices of fixed-income
investments over the short term, we consider these actions to be positive from
a long-term perspective.

<PAGE>
PERFORMANCE SUMMARY

The Franklin Tax-Advantaged High Yield Securities Fund's share price, as
measured by net asset value, declined during the reporting period to $7.99 on
December 31, 1994, from $8.97 on December 31, 1993. As noted in the preceding
discussion, this decline was largely due to rising interest rates.

The fund continued to meet its investment objective of providing high current
income to shareholders. For the one-year period ended December 31, 1994, your
fund paid monthly income distributions totaling 76 cents ($0.760) per share. At
the end of the reporting period, your fund's distribution rate was 9.52%, based
on an annualization of the fund's distributions for the 30 days ended
December 31, 1994, and the maximum offering price of $8.34 on that date.
Dividends will vary based on the earnings of the fund's portfolio and past
distributions are not necessarily predictive of future results.

The Franklin Tax-Advantaged High Yield Securities Fund reported a total return
of -2.41% for the one-year period ended December 31, 1994. Total return
measures the change in value of an investment over the period indicated,
assuming reinvestment of dividends and capital gains. This calculation does not
include the initial sales charge. Past performance is not indicative of future
trends.

We have always maintained a long-term investment perspective and encourage
shareholders to do the same. While the fund may experience some volatility from
time to time, we believe that its performance will be satisfactory over the
long term. In fact, your fund delivered cumulative and average annual total
returns of over 68% and 10%, respectively, for the five years ended
December 31, 1994. For a definition of total return, please refer to the table
on page 12.

Based on a $10,000 investment, the graph on page 12 compares the performance of
the Franklin Tax-Advantaged High Yield Securities Fund to the unmanaged Salomon
Brothers Combined Corporate Index, which is a composite of investment grade and
non-investment grade, high yielding corporate bonds. This broad index has
inherent performance differentials over the fund, as it contains a different
mix of securities and incurs no sales charges or management expenses.
Additionally, the index does not contain cash, while the fund must maintain a
minimum level of liquidity. Of course, you cannot invest directly in an index.

<PAGE>
FRANKLIN TAX-ADVANTAGED
HIGH YIELD SECURITIES FUND
Periods ended December 31, 1994
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (05/04/87)
------ ------ ----------
<S> <C> <C> <C>
Cumulative
Total Return(1) -2.41% 68.47% 93.24%

Average Annual
Total Return(2) -6.58% 10.03% 8.36%

Distribution Rate(3) 9.52%
30-Day Standardized Yield(4) 10.15%
</TABLE>

(1) Cumulative total return reflects the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge stated in the prospectus. See note below.
(2) Average annual total return represents the average annual change in value
of an investment over the specified periods. The figures have been restated to
reflect the maximum 4.25% initial sales charge stated in the prospectus. See
note below.
(3) Based on an annualization of the distributions paid over the 30 days ended
December 31, 1994, and the maximum offering price of $8.34 on that date.
(4) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended December 31, 1994.
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 July 1, 1994, the fund implemented a plan of
distribution under Rule 12b-1 and eliminated the sales charges on reinvested
dividends, which will affect future performance. All total return calculations
assume reinvestment of dividends and capital gains at net asset value.
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 indicative of future results.
Past expense limitations increased the fund's total returns.

[GRAPHIC MATERIAL (4) OMITTED - SEE APPENDIX]

*Includes all sales charges, fund expenses and account fees. It also assumes
that your dividends and capital gains were reinvested at net asset value. The
Salomon Brothers Combined Corporate Index includes price appreciation or
depreciation and distributions as a percentage of the original investment. Past
performance is not predictive of future results.

<PAGE>

FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN NOTES, BILLS, BONDS & GOVERNMENTS SECURITIES 89.1%
AUSTRALIA 12.6%
AU 820,000 EIB Global Bond, 10.25%, 10/01/01................................... $ 644,445
AU 1,000,000 Euro FIMA, 9.875%, 01/17/07......................................... 751,990
AU 425,000 Queensland Treasury Corp., notes, 12.00%, 07/15/99.................. 351,516
AU 1,660,000 Queensland Treasury Corp., notes, 8.00%, 05/14/03................... 1,120,643
-----------
2,868,594
-----------
CANADA 11.7%
CA 400,000 Government of Canada, 8.50%, 04/01/02............................... 276,600
CA 945,000 Government of Canada, 10.25%, 02/01/04.............................. 720,160
CA 420,000 Hydro-Quebec, Eurobonds, 11.25%, 10/10/00........................... 320,520
CA 250,000 Ontario-Hydro, Eurobonds, 10.875%, 01/08/96......................... 182,445
CA 150,000 Ontario-Hydro, Eurobonds, 9.00%, 06/24/02........................... 103,992
CA 1,500,000 Province of British Columbia, 9.00%, 01/09/02....................... 1,051,684
-----------
2,655,401
-----------
DENMARK 11.0%
DK 3,750,000 Government of Denmark, 9.00%, 11/15/00.............................. 616,442
DK 1,746,000 Nykredit, 9.00%, 10/01/12........................................... 280,414
DK 5,935,000 Nykredit, 6.00%, 10/01/26........................................... 704,106
DK 7,723,000 Real Kredit Danmark, 6.00%, 10/01/26................................ 916,228
-----------
2,517,190
-----------
FRANCE 7.2%
FR 4,250,000 Credit National, 9.25%, 10/02/01.................................... 831,539
FR 2,000,000 Electricite de France, 8.30%, 02/09/99.............................. 377,457
FR 4,250,000 (c)French OAT, Bond, 0.00%, 10/25/15................................... 137,821
FR 510,000 (c)French OAT, Strip, 0.00%, 10/25/16.................................. 14,829
FR 1,500,000 Government of France, OAT, 8.50%, 12/26/12.......................... 281,829
-----------
1,643,475
-----------
GERMANY 2.5%
DD 850,000 West Japan Railway Co., 8.70%, 06/25/97............................. 564,436
-----------

ITALY 8.2%
IT 2,000,000,000 Certificati di Credito del Tesoro, 12.00%, 01/20/98................. 1,239,704
IT 1,000,000,000 Certificati di Credito del Tesoro, 9.30%, 01/01/00.................. 616,769
-----------
1,856,473
-----------
NEW ZEALAND 10.3%
NZ 2,275,000 New Zealand Government, 8.00%, 07/15/98............................. 1,410,761
NZ 1,500,000 New Zealand Government, 8.00%, 04/15/04............................. 930,220
-----------
2,340,981
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN NOTES, BILLS, BONDS & GOVERNMENT SECURITIES (CONT.)
SPAIN 5.7%
ES 73,000,000 Government of Spain, 11.60%, 01/15/97............................... $ 563,591
ES 100,000,000 Government of Spain, 10.90%, 08/30/03............................... 720,798
-----------
1,284,389
-----------
SWEDEN 7.6%
SE 8,000,000 Government of Sweden, 6.00%, 02/09/05............................... 762,582
SE 5,100,000 Staten Bostadiffinansier, 12.50%, 01/23/97.......................... 713,604
SE 1,800,000 Staten Bostadiffinansier, 11.00%, 01/21/99.......................... 243,527
-----------
1,719,713
-----------
UNITED KINGDOM 12.3%
GB 300,000 Abbey National Treasury Service, 10.50%, 04/22/97................... 485,638
GB 460,000 Export-Import Bank of Japan, 10.75%, 05/15/01....................... 770,049
GB 270,000 Government of Italy, Eurobonds, 10.50%, 04/28/14.................... 454,097
GB 715,000 United Kingdom Treasury, Conversion, 7.00%, 08/06/97................ 1,087,859
-----------
2,797,643
-----------

TOTAL FOREIGN NOTES, BILLS, BONDS & GOVERNMENT SECURITIES
(COST $21,773,675).......................................... 20,248,295
-----------
SHORT TERM INVESTMENTS 6.8%
AUSTRALIA 3.6%
AU 1,050,000 New South Wales Treasury Corp., Eurobonds, 12.10%, 04/01/95
(COST $746,704)............................................ 821,003
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $22,520,379).................................. 21,069,298
-----------
(d),(e) RECEIVABLES FROM REPURCHASE AGREEMENTS 3.2%
US 756,682 Joint Repurchase Agreement, 5.838%, 01/03/95
(Maturity Value $733,782) (COST $733,306)
Collateral: U.S. Treasury Notes, 3.875% - 11.50%,
02/15/95 - 09/30/99............................................... 733,306
-----------
TOTAL INVESTMENTS (COST $23,253,685) 95.9% ............... 21,802,604
OTHER ASSETS AND LIABILITIES, NET 4.1% ................... 922,638
-----------
NET ASSETS 100.0% ........................................ $22,725,242
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
At December 31, 1994, the net unrealized depreciation based on
the cost of investments for income tax purposes of $23,253,685
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.......................... $ 194,729
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value......................... (1,645,810)
-----------
Net unrealized depreciation......................................... $(1,451,081)
===========
</TABLE>

PORTFOLIO ABBREVIATION:
OAT - Obligations Assumable by the Treasurer

<TABLE>
<CAPTION>
COUNTRY LEGEND:
<S> <C>
AU - Australia GB - United Kingdom
CA - Canada IT - Italy
DD - Germany NZ - New Zealand
DK - Denmark SE - Sweden
ES - Spain US - United States of America
FR - France
</TABLE>

* Securities traded in currency of country indicated.
(c)Zero coupon bonds. Accretion rate may vary.
(d)Face amount for repurchase agreements is for the underlying collateral.
(e)See Note 1(g) regarding Joint Repurchase Agreement.

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 93.2%
$ 9,956,635 GNMA I, SF, 6.00%, 10/15/23 - 11/15/23...................................... $ 8,310,684
71,985,493 GNMA I, SF, 6.50%, 05/15/23 - 03/15/24...................................... 62,424,955
7,872,246 GNMA II, M, 6.50%, 09/20/23................................................. 6,767,676
21,507,267 GNMA I, PL, 7.00%, 05/15/13 - 06/15/28...................................... 18,832,300
65,017,281 GNMA I, SF, 7.00%, 03/15/22 - 09/15/23...................................... 58,393,645
21,966,985 GNMA II, 7.00%, 11/20/16 - 11/20/23......................................... 19,591,806
61,354,722 GNMA I, SF, 7.50%, 01/15/17 - 04/15/23...................................... 56,964,055
63,984,228 GNMA II, 7.50%, 09/20/16 - 09/20/23......................................... 59,045,477
1,163,945 GNMA I, PL, 8.00%, 03/15/32................................................. 1,087,561
74,492,701 GNMA I, SF, 8.00%, 11/15/15 - 05/15/24...................................... 71,280,202
12,033,017 GNMA II, 8.00%, 11/20/16 - 08/20/22......................................... 11,468,969
7,183,303 GNMA I, PL, 8.25%, 07/15/31................................................. 6,806,180
18,723,453 GNMA I, SF, 8.50%, 06/15/16 - 05/15/22...................................... 18,407,494
6,531,236 GNMA II, M, 8.50%, 11/20/21 - 03/20/22...................................... 6,380,201
4,802,099 GNMA I, SF, 9.00%, 05/15/16 - 11/15/21...................................... 4,850,120
3,857,852 GNMA I, SF, 9.50%, 01/15/17 -10/15/21....................................... 3,986,851
175,151 GNMA, GPM , 9.75%, 08/15/16................................................. 178,654
2,570,269 GNMA I, SF, 10.00%, 01/15/16 - 06/15/19..................................... 2,706,012
1,076,008 GNMA II, 10.00%, 10/20/16 - 11/20/20........................................ 1,118,041
342,908 GNMA, GPM , 10.25%, 02/15/16 - 09/15/20..................................... 354,482
1,160,716 GNMA I, SF, 10.50%, 02/15/16 - 07/15/19..................................... 1,240,153
2,254,290 GNMA II, 10.50%, 07/20/17 - 02/20/19........................................ 2,371,938
239,348 GNMA I, SF, 11.00%, 10/15/13 - 09/15/14..................................... 260,516
1,539,795 GNMA II, 11.00%, 07/20/17 - 05/20/19........................................ 1,649,025
176,384 GNMA I, SF, 11.50%, 08/15/16 - 12/15/17..................................... 193,747
515,628 GNMA II, M, 11.50%, 08/20/16 - 03/20/19..................................... 556,073
189,164 GNMA I, SF, 12.00%, 06/15/15................................................ 210,031
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $468,651,739)..... 425,436,848
------------
(d),(e) RECEIVABLES FROM REPURCHASE AGREEMENTS 3.9%
18,529,227 Joint Repurchase Agreement, 5.838%, 01/03/95 (Maturity Value $17,960,175)
(COST $17,948,532)
Collateral: U.S. Treasury Notes, 3.875% - 11.50%, 02/15/95 - 09/30/99..... 17,948,532
------------
TOTAL INVESTMENTS (COST $486,600,271) 97.1% ................. 443,385,380
OTHER ASSETS AND LIABILITIES, NET 2.9% ...................... 13,035,726
------------
NET ASSETS 100.0% .......................................... $456,421,106
============
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
At December 31, 1994, the net unrealized depreciation
based on the cost of investments for income tax
purposes of $486,642,763 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ...................................................................... $ 663,075
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value .................................................................... (43,920,458)
------------
Net unrealized depreciation .......................................................... $(43,257,383)
============
</TABLE>

PORTFOLIO ABBREVIATIONS:
GPM - Graduated Payment Mortgage
M - Multi-Issuers
PL - Project Loan
SF - Single Family

(d) Face amount for repurchase agreements is for the underlying collateral.
(e) See Note 1(g) regarding Joint Repurchase Agreement.

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS 95.2%
AUTOMOTIVE 4.0%
$1,100,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 .......................................... $ 1,101,375
2,000,000 Truck Components, Inc., senior notes, 12.25%, 06/30/01 .................................. 2,100,000
-----------
3,201,375
-----------
CABLE TELEVISION 8.0%
1,500,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ........................................ 1,365,000
1,900,000 Continental Cablevision, Inc., senior sub. deb., 9.00%, 09/01/08 ........................ 1,729,000
2,500,000 (c)Diamond Cable Communication Co., senior disc. notes, zero coupon to 09/30/99,
(original accretion rate 13.25%), 13.25% thereafter, 09/30/04 .......................... 1,221,875
1,200,000 (f)Rogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 ................ 701,479
200,000 Scott Cable Communications, Inc., S.F., sub. deb., 12.25%, 04/15/01 ..................... 130,000
1,500,000 Time Warner, Inc., senior notes, 9.125%, 01/15/13 ....................................... 1,357,500
-----------
6,504,854
-----------
CHEMICALS 8.0%
1,250,000 Applied Extrusion Technology, senior notes, 11.50%, 04/01/02 ............................ 1,225,000
1,500,000 Harris Chemical North America, Inc., senior sub. notes, 10.75%, 10/15/03 ................ 1,402,500
1,500,000 Huntsman Corp., first mortgage, 11.00%, 04/15/04 ........................................ 1,563,750
2,225,000 IMC Fertilizer Group, Inc., senior notes, 10.75%, 06/15/03 .............................. 2,314,000
-----------
6,505,250
-----------
CONSUMER GOODS 2.2%
1,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ....................... 877,500
1,000,000 Revlon Consumers Products Corp., senior sub. notes, 10.50%, 02/15/03 .................... 900,000
-----------
1,777,500
-----------
FINANCIAL 1.0%
750,000 American Reinsurance Corp., senior sub. notes, 10.875%, 09/15/04 ........................ 808,360
-----------
FOOD & BEVERAGES 13.0%
950,000 Beatrice Foods, Inc., senior sub. notes, 12.00%, 12/01/01 ............................... 935,750
1,500,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 ............ 1,320,000
300,000 (b)Curtice-Burns Foods, Inc., senior sub. notes, 12.75%, 02/01/05 .......................... 303,750
2,065,000 (c)Dr Pepper Bottling Holdings, S.F., senior disc. notes, zero coupon to 02/15/98,
(original accretion rate10.25%), 10.25% thereafter, 02/15/00 ........................... 2,059,838
1,129,000 (c)Dr Pepper/Seven-Up Cos., Inc., S.F., senior sub. disc. notes, zero coupon to 11/01/97,
(original accretion rate 11.50%), 11.50% thereafter, 11/01/02 .......................... 891,910
1,800,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 .............................. 1,710,000
2,250,000 Specialty Foods Corp., senior notes, 10.25%, 08/15/01 ................................... 2,013,750
1,500,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 .......................... 1,323,750
-----------
10,558,748
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994 (CONT.)

<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS (CONT.)
FOOD RETAILING 5.7%
$1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 .............................. $ 962,500
2,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 .............................. 1,775,000
1,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ........................................ 877,500
1,000,000 Ralphs Grocery Co., senior sub. notes, 10.25%, 07/15/02 ................................. 982,500
----------
4,597,500
----------
FOREST & PAPER PRODUCTS 7.0%
1,500,000 Container Corp. of America, guaranteed senior notes, 11.25%, 05/01/04 ................... 1,545,000
1,000,000 Fort Howard Corp., senior sub. notes, 9.00%, 02/01/06 ................................... 860,000
1,500,000 Fort Howard Corp., sub. notes., 10.00%, 03/15/03 ........................................ 1,410,000
1,500,000 REPAP Wisconsin, Inc., senior notes, 9.875%, 05/01/06 ................................... 1,320,000
500,000 (b)S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 .................................... 512,500
----------
5,647,500
----------
GAMING & LEISURE 8.0%
2,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ........................................ 2,030,000
2,000,000 Bally's Grand, first mortgage, Series B, 10.375%, 12/15/03 .............................. 1,740,000
500,000 Harrah's Jazz Co., first mortgage, 14.25%, 11/15/01 ..................................... 526,250
500,000 MGM Grand Hotels Finance Corp., guaranteed first mortgage, 11.75%, 05/01/99 ............. 530,000
2,000,000 Showboat, Inc., senior notes, 9.25%, 05/01/08 ........................................... 1,690,000
----------
6,516,250
----------
HEALTH CARE SERVICES 9.0%
2,500,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ........................ 2,268,750
1,000,000 (b)Dade International, Inc., senior sub. notes, 13.00%, 02/01/05 ........................... 1,005,000
1,000,000 Healthtrust, Inc.-The Hospital Co., sub. notes, 10.25%, 04/15/04 ........................ 1,063,750
2,000,000 Healthtrust, Inc.-The Hospital Co., sub. notes, 8.75%, 03/15/05 ......................... 1,920,000
1,000,000 OrNda Healthcorp., S.F., senior sub. deb., 12.25%, 05/15/02 ............................. 1,065,000
----------
7,322,500
----------
INDUSTRIAL 1.7%
1,500,000 (c)American Standard, Inc., senior sub. deb., zero coupon to 06/01/98,
(original accretion rate 11.50%), 11.50% thereafter, 06/01/05 .......................... 975,000
450,000 American Standard, Inc., sub. disc. deb., 9.875%, 06/01/01 .............................. 439,875
----------
1,414,875
----------
MEDIA & BROADCASTING 6.1%
1,000,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 .......................... 1,025,000
1,500,000 K-III Communications Corp., S.F., senior notes, 10.25%, 06/01/04 ........................ 1,425,000
2,000,000 New World Group, Inc., S.F., senior notes, 11.00%, 06/30/05 ............................. 2,000,000
500,000 News America Holdings, Inc., senior notes, 9.125%, 10/15/99 ............................. 505,152
----------
4,955,152
----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994 (CONT.)

SHARES/
WARRANTS
- ----------
COMMON STOCKS .6%
33,878 (a)Kash N' Karry Food Stores, Inc. (Cost $1,462,392) ....................................... 491,235
-----------
WARRANTS
2,500 (a)Dial Page, Inc. ......................................................................... 625
300 (a)Foodmaker, Inc. ......................................................................... 2,988
-----------
TOTAL WARRANTS (COST $1,828) ...................................................... 3,613
-----------
TOTAL BONDS, COMMON STOCKS AND WARRANTS (COST $83,612,975) ........................ 77,723,974
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, DECEMBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(d),(e) RECEIVABLES FROM REPURCHASE AGREEMENTS 1.5%
$1,250,914 Joint Repurchase Agreement, 5.838%, 01/03/95 (Maturity Value $1,212,488)
(COST $1,211,702)
Collateral: U.S. Treasury Notes, 3.875% - 11.50%, 02/15/95 - 09/30/99............. $ 1,211,702
-----------
TOTAL INVESTMENTS (COST $84,824,677) 97.3%........................... 78,935,676
OTHER ASSETS AND LIABILITIES, NET 2.7%................................ 2,215,057
-----------
NET ASSETS 100.0%..................................................... $81,150,733
===========

At December 31, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $84,824,677 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost..................................................... $ 862,297
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value..................................................... (6,751,298)
-----------
Net unrealized depreciation........................................................ $(5,889,001)
===========
</TABLE>

PORTFOLIO ABBREVIATION:
S.F. - Sinking Fund

(a) Non-income producing.
(b) See Note 5 regarding Rule 144A securities.
(c) Zero coupon/step-up bonds. The current effective yield may vary. The
original accretion rate will remain constant.
(d) Face amount for repurchase agreements is for the underlying collateral.
(e) See Note 1(g) regarding Joint Repurchase Agreement.
(f) Face amount stated in foreign currencies, value in U.S. dollars.

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1994

<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
TAX-ADVANTAGED TAX-ADVANTAGED TAX-ADVANTAGED
INTERNATIONAL U.S. GOVERNMENT HIGH YIELD
BOND FUND SECURITIES FUND SECURITIES FUND
-------------- --------------- ---------------
<S> <C> <C> <C>
Assets:
Investments in securities:
At identified cost.............................................. $ 22,520,379 $ 468,651,739 $ 83,612,975
============== ============== =============
At value........................................................ 21,069,298 425,436,848 77,723,974
Receivables from repurchase agreements, at value and cost 733,306 17,948,532 1,211,702
Cash............................................................. -- -- 340,524
Foreign currencies (Cost $59,929)................................ 59,142 -- --
Receivables:
Interest........................................................ 871,747 2,810,050 1,936,050
Investment securities sold...................................... -- 13,447,031 --
From affiliates................................................. 31,755 -- --
-------------- -------------- -------------
Total assets................................................ 22,765,248 459,642,461 81,212,250
-------------- -------------- -------------
Liabilities:
Payables:
Distributions to partners....................................... 27,608 31,275 --
Management fees................................................. -- 192,130 42,200
Distribution fees............................................... 2,673 62,273 10,628
Partners' servicing costs....................................... 1,006 7,800 1,900
Bank overdraft................................................... -- 2,895,733 --
Accrued expenses and other payables.............................. 8,719 32,144 6,789
-------------- -------------- -------------
Total liabilities........................................... 40,006 3,221,355 61,517
-------------- -------------- -------------
Net assets, at value.............................................. $ 22, 725,242 $ 456,421,106 $ 81,150,733
============== ============== =============
Net assets consist of:...........
Undistributed net investment income.............................. $ -- $ -- 145,950
Unrealized depreciation on investments and translation
of assets and liabilities denominated in foreign currencies..... (1,444,578) (43,214,891) (5,889,961)
Net realized gain (loss) from investments........................
and foreign currency transactions............................... 645,253 (8,004,768) (3,722,779)
Partners' capital................................................ 23,524,567 507,640,765 90,617,523
-------------- -------------- -------------
Net assets, at value.............................................. $ 22,725,242 $ 456,421,106 $ 81,150,733
============== ============== =============
Shares outstanding................................................ 2,108,233 46,759,786 10,153,969
============== ============== =============
Net asset value per share......................................... $ 10.78 $ 9.76 $ 7.99
============== ============== =============
Representative computation of net asset value and
offering price per share:
Net asset value and redemption price per share
(International Bond Fund) ($22,725,242 -- 2,108,233)........... $ 10.78
==============
Maximum offering price (100/95.75 of $10.78).................... $ 11.26
==============
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994

Realized and unrealized gain (loss) from investments
and foreign currency:
Net realized gain (loss) from:
Investments......................................... (72,159) (6,576,310) 418,383
Foreign currency transactions....................... (7,584) -- (7,855)
Net unrealized appreciation (depreciation) on:
Investments......................................... (1,215,053) (54,248,227) (9,328,465)
Translation of assets and liabilities in foreign
currencies......................................... 30,353 -- (960)
--------------- --------------- ----------------
Net realized and unrealized loss from investments
and foreign currency transactions.................. (1,264,443) (60,824,537) (8,918,897)
--------------- --------------- ----------------
Net increase (decrease) in net assets resulting from
operations......................................... $ 454,804 $ (24,337,173) $ (1,759,142)
=============== =============== ================
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

FRANKLIN PARTNERS FUNDS

FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993

<TABLE>
<CAPTION>
FRANKLIN TAX-ADVANTAGED FRANKLIN TAX-ADVANTAGED U.S. FRANKLIN TAX-ADVANTAGED
INTERNATIONAL BOND FUND GOVERNMENT SECURITIES FUND HIGH YIELD SECURITIES FUND
------------------------ ---------------------------- --------------------------
1994 1993 1994 1993 1994 1993
----------- --------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................ $ 1,719,247 $ 1,151,914+ $ 36,487,364 $ 29,897,079 $ 7,159,755 $ 4,885,294
Net realized gain (loss) from
investments and foreign
currency transactions............... (79,743) 17,057 (6,576,310) (748,210) 410,528 827,429
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies................... (1,184,700) 663,249 (54,248,227) 3,288,640 (9,329,425) 2,429,269
------------ ----------- ------------ ------------ ----------- -----------
Net increase (decrease) in
net assets resulting
from operations................. 454,804 1,832,220 (24,337,173) 32,437,509 (1,759,142) 8,141,992
Distributions to partners from
undistributed net investment
income................................ (1,626,579) (1,151,914) (36,487,364) (29,897,079) (7,005,950) (4,885,294)
Increase (decrease) in net assets
from partnership's capital shares
transactions (Note 2)................. 4,291,465 6,262,922 (56,761,159) 258,821,610 20,370,511 27,157,621
------------ ----------- ------------ ------------ ----------- -----------
Net increase (decrease)
in net assets................... 3,119,690 6,943,228 (117,585,696) 261,362,040 11,605,419 30,414,319
Net assets:
Beginning of year..................... 19,605,552 12,662,324 574,006,802 312,644,762 69,545,314 39,130,995
------------ ----------- ------------ ------------ ----------- -----------
End of year........................... $ 22,725,242 $19,605,552 $456,421,106 $574,006,802 $81,150,733 $69,545,314
============ =========== ============ ============ =========== ===========
Undistributed net investment
income included in net assets:
Beginning of year.................... $ 52,452 $ 52,452 $ -- $ -- $ -- $ --
============ =========== ============ ============ =========== ===========
End of year.......................... $ -- $ 52,452 $ -- $ -- $ 145,950 $ --
============ =========== ============ ============ =========== ===========
</TABLE>

(+) Includes realized loss of $19,835 from foreign currency transactions.

The accompanying notes are an integral part of these financial statements.

<PAGE>
FRANKLIN PARTNERS FUNDS

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Franklin Partners Funds (the "Funds") consist of three separate and distinct
Funds (each organized as a California Limited Partnership): Franklin
Tax-Advantaged International Bond Fund (the "International Bond Fund"),
Franklin Tax-Advantaged U.S. Government Securities Fund (the "Government
Fund"), and Franklin Tax-Advantaged High Yield Securities Fund (the "High
Yield Fund"). Each Fund is an open-end diversified management investment
company (mutual fund). Each Fund issues one class of shares in the form of
partnership interests, and purchasers of shares of any of the Funds become
limited partners of such Fund. Each Fund maintains a totally separate
investment portfolio.

The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

A. SECURITIES VALUATIONS:

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 asked 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 Managing
General Partners. Short-term securities and similar investments with remaining
maturities of 60 days or less are valued at amortized cost, which approximates
value.

Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets are valued in a similar manner and these values are
translated into U.S. dollars at current market quotations of their respective
currency against U.S. dollars last quoted by a major bank or, if no such
quotation is available, at the rate of exchange determined in accordance with
procedures established by the Managing General Partners.

B. INCOME TAXES:

No provision for income taxes has been made since all income and expenses are
allocated to the partners for inclusion in their income tax returns, if any.

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.

D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Net investment income includes income, calculated on an accrual basis,
amortization of discount, if any, and expenses as incurred on an accrual basis.
A proportionate share of each Fund's net investment income is allocated to the
partners daily and distributed monthly. Daily allocations of net investment
income will commence on the first business day after receipt of a partner's
investment, or settlement of a partner's wire order trade. Bond premium and
discount are amortized as required by the Internal Revenue Code.

Net capital gains (or losses) realized by the Funds on transactions in their
respective portfolio securities will be allocated proportionately to each
partner and will not be distributed. Thus, they will be reflected in the value
of a partner's shares.

Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of realized foreign currency
transactions.

<PAGE>
FRANKLIN PARTNERS FUNDS

NOTES TO FINANCIAL STATEMENTS (CONT.)

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)

Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sale transactions.

E. EXPENSE ALLOCATION:

Common expenses incurred by the Funds are allocated among the Funds based on
the ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.

F. FOREIGN CURRENCY TRANSLATION:

The accounting records of the Funds 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 such currencies against U.S. dollars on the
date of the valuation. Purchases and sales of securities, income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recognized when reported by the custodian
bank.

The Funds do 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.

Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized between the trade date and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in exchange rates.

G. REPURCHASE AGREEMENTS:

The Funds 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 Agreements are allocated to
the Funds based on their pro-rata interest. In a repurchase agreement, the
Funds purchase 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 Funds, with the value of the underlying security marked to
market daily to maintain coverage of at least 100%. The collateral is delivered
to the Funds' custodian and held until resold to the dealer or bank. At
December 31, 1994, all outstanding joint repurchase agreements held by the
Funds had been entered into on December 30, 1994.

H. CHANGE IN ACCOUNTING POLICY FOR FOREIGN CURRENCY PRESENTATION

Effective December 31, 1994, the International Bond Fund adopted AICPA
Statement of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result, components of net assets have been
reclassified to better present financial statement amounts and distributions in
accordance with Statement of Position 93-2. Accordingly, amounts as of December
31, 1994 have been restated to reflect an increase in Partners' capital of
$52,452 and a corresponding decrease in undistributed net investment income.

<PAGE>
FRANKLIN PARTNERS FUNDS

NOTES TO FINANCIAL STATEMENTS (CONT.)

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

H. CHANGE IN ACCOUNTING POLICY FOR FOREIGN CURRENCY PRESENTATION (CONT.)

During the year ended December 31, 1994, the Funds adopted AICPA Statement of
Position 93-4: Foreign Currency Accounting and Financial Statement Presentation
for Investment Companies. The adoption of SOP 93-4 had no effect on net assets
for the fiscal year ended December 31, 1994, but affected the classification of
foreign currency transactions from assets and liabilities other than
investments on the income statement.

2. SHARES OF PARTNERSHIP INTEREST

At December 31, 1994, the Partners' capital for the International Bond Fund,
the Government Fund and the High Yield Fund aggregated $23,472,115,
$507,640,765 and $90,617,523, respectively. Transactions in each of the Fund's
shares were as follows:

<TABLE>
<CAPTION>
FRANKLIN TAX-ADVANTAGED FRANKLIN TAX-ADVANTAGED FRANKLIN TAX-ADVANTAGED
INTERNATIONAL BOND FUND U.S. GOVERNMENT SECURITIES FUND HIGH YIELD SECURITIES FUND
----------------------- ------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold ..................... 681,584 $ 7,568,224 9,376,014 $ 97,542,462 3,788,180 $ 31,774,475
Shares issued in reinvestment
of distributions ............... 116,915 1,275,908 2,227,965 22,612,334 550,742 4,553,397
Shares redeemed ................. (508,697) (5,542,452) (16,916,846) (171,346,081) (2,120,443) (17,531,363)
Changes from exercise
of exchange privilege:
Shares sold ................... 140,119 1,545,467 543,055 5,719,211 511,117 4,375,839
Shares redeemed ............... (50,657) (555,682) (1,097,168) (11,289,085) (331,962) (2,801,837)
-------- ----------- ----------- ------------- ---------- ------------
Net increase (decrease) ......... 379,264 $ 4,291,465 (5,866,980) $ (56,761,159) 2,397,634 $ 20,370,511
======== =========== =========== ============= ========== ============
1993
Shares sold ..................... 760,047 $ 8,523,058 30,841,608 $ 338,759,242 3,115,991 $ 27,332,506
Shares issued in reinvestment
of distributions ............... 73,355 822,307 1,704,225 18,704,892 307,662 2,703,677
Shares redeemed ................. (222,516) (2,515,622) (8,003,493) (87,855,328) (947,430) (8,315,371)
Changes from exercise of
exchange privilege:
Shares sold ................... 78,571 878,546 333,004 3,662,335 743,976 6,495,754
Shares redeemed ............... (127,797) (1,445,367) (1,321,300) (14,449,531) (120,241) (1,058,945)
-------- ----------- ----------- ------------- ---------- ------------
Net increase .................... 561,660 $ 6,262,922 23,554,044 $ 258,821,610 3,099,958 $ 27,157,621
======== =========== =========== ============= ========== ============
</TABLE>

3. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended December 31, 1994 were as follows:

<PAGE>
FRANKLIN PARTNERS FUNDS

NOTES TO FINANCIAL STATEMENTS (CONT.)

3. PURCHASES AND SALES OF SECURITIES (CONT.)

For tax purposes, the aggregate cost of securities is higher (and unrealized
depreciation is higher) than for financial reporting purposes at December 31,
1994 by $42,492 in the Government Fund.

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Franklin Advisers, Inc., under the terms of an agreement, provides investment
advice, administrative services, office space and facilities to each Fund, and
receives fees computed monthly on the net assets of each 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. Under a
subadvisory agreement effective June 28, 1994, Templeton Investment Counsel,
Inc. ("TICI" or the "Subadvisor"), an indirect subsidiary of Templeton
Worldwide, Inc., which is a direct, wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), TICI provides services to the International
Bond Fund and receives from Franklin Advisers, Inc. a monthly fee computed
at an annual rate of .026 of 1% of the value of the International Bond Fund's
net assets up to and including $100 milion; .021 of 1% of net assets in excess
of $100 million up to and including $250 million; and .019 of 1% of net assets
in excess of $250 million. The terms of the agreement provide that aggregate
annual expenses of each 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 Funds' shares are registered.
The Funds' expenses did not exceed these limitations; however, for the year
ended December 31, 1994, Franklin Advisers, Inc. agreed in advance to waive
its management fees by $141,108 and made payments of other expenses of
$31,755 for the International Bond Fund.

In its capacity as underwriter for the shares of the Funds, Franklin/Templeton
Distributors, Inc. received commissions on sales of such shares of the
International Bond Fund, the Government Fund and the High Yield Fund for the
year ended December 31, 1994, totalling $219,143, $2,067,833 and $400,528,
respectively, of which $206,380, $1,917,765 and $376,426, respectively, were
subsequently paid to other dealers. Commissions are deducted from the gross
proceeds received from the sale of the Funds' shares, and as such are not
expenses of the Funds.

Pursuant to a partners' service agreement with Franklin/Templeton Investor
Services, Inc., the Funds pay costs on a per partner account basis. Such costs
incurred for the year ended December 31, 1994, aggregated $11,767, $98,180 and
$22,282 for the International Bond Fund, the Government Fund and the High Yield
Fund, respectively.

Effective July 1, 1994, the Funds implemented a plan of distribution under Rule
12b-1 of the Investment Company Act of 1940, pursuant to which the Funds will
reimburse Franklin/Templeton Distributors, Inc. in an amount up to a maximum of
0.15% per annum of the Funds' average daily net assets for costs incurred in
the promotion, offering and marketing of the Funds' shares. Costs incurred by
the International Bond Fund, Government Fund and High Yield Fund under the
agreement aggregated $8,166, $174,620 and $29,926 respectively, for the year
ended December 31, 1994.

Certain officers and Managing General Partners of the Funds 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.

5. 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 Funds value these
securities as disclosed in Note 1. At December 31, 1994, the High Yield Fund
held 144A securities with a value aggregating $1,821,250, representing 2.2% of
the Fund's net assets. See the accompanying statement of investments in
securities and net assets for specific information on such securities.

6. CREDIT RISK

Although the High Yield Fund has a diversified portfolio, 94.3% of its
Portfolio is invested in lower rated and unrated securities. Investments in
higher yield securities are accompanied by a greater degree of credit risk and
such lower quality securities tend to be more sensitive to economic conditions
than higher rated securities. The risk of loss due to default

<PAGE>
FRANKLIN PARTNERS FUNDS

NOTES TO FINANCIAL STATEMENTS (CONT.)

6. CREDIT RISK (CONT.)

by the issuer may be significantly greater for the holders of high yielding
securities, because such securities are generally unsecured and are often
subordinated to other creditors of the issuer.

Although each of the Funds has a diversified investment portfolio, there are
certain credit risks and foreign currency exchange risks due to the manner in
which the Funds are invested, which may subject the Funds more significantly to
economic changes occurring in certain industries, sectors or countries as
follows:

The International Bond Fund has investments in excess of 10% in Australian,
Canadian, Danish, New Zealand and British Securities.

The High Yield Fund has investments in excess of 10% in the Food &
Beverages Industry.

7. FINANCIAL HIGHLIGHTS

Selected data for each share outstanding throughout each year by Fund are as
follows:

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DIVIDENDS NET ASSET
YEAR VALUE NET & UNREALIZED TOTAL FROM FROM NET VALUE
ENDED BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT INVESTMENT AT END TOTAL
DEC. 31 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME OF YEAR RETURN++
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
1990 $11.20 $1.133 $ .819 $ 1.952 $(1.202) $11.95 $15.46%+
1991 11.95 1.018 .112 1.130 (1.030) 12.05 9.86
1992 12.05 1.012 (1.110) (.098) (1.102) 10.85 (1.43)
1993 10.85 .808 .505 1.313 (.823) 11.34 12.13
1994 11.34 .794 (.560) .234 (.794) 10.78 2.06
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
1990 10.17 .922 .060 .982 (.922) 10.23 9.82
1991 10.23 .865 .570 1.435 (.865) 10.80 14.31
1992 10.80 .785 (.050) .735 (.785) 10.75 6.80
1993 10.75 .733 .160 .893 (.733) 10.91 8.19
1994 10.91 .704 (1.150) (.446) (.704) 9.76 (4.26)
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
1990 8.52 1.132 (2.430) (1.298) (1.132) 6.09 (16.89)
1991 6.09 .982 1.890 2.872 (.982) 7.98 49.19
1992 7.98 .922 .420 1.342 (.922) 8.40 16.96
1993 8.40 .815 .570 1.385 (.815) 8.97 16.72
1994 8.97 .770 (.990) (.220) (.760) 7.99 (2.58)

<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS EXPENSES INVESTMENT
YEAR AT END TO AVERAGE INCOME PORTFOLIO
ENDED OF YEAR NET ASSETS TO AVERAGE TURNOVER
DEC. 31 (IN 000'S) (SEE NOTE 4)* NET ASSETS RATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
1990 $ 4,236 .95% 9.75% 18.40%
1991 5,060 -- 9.05 60.77
1992 12,662 .13 9.71 15.26
1993 19,606 .25 7.31 6.80
1994 22,725 .29 7.69 6.46
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
1990 86,967 .60 9.16 9.36
1991 127,637 .80 8.13 12.42
1992 312,645 .67 7.22 15.26
1993 574,007 .59 6.63 14.63
1994 456,421 .61 6.92 10.20
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
1990 27,155 .55 15.51 13.29
1991 57,469 .87 12.96 38.35
1992 39,131 .76 11.00 29.79
1993 69,545 .76 9.17 32.27
1994 81,151 .81 9.36 18.39
</TABLE>

+For the period June 9, 1990 (transfer of management) to December 31, 1990.
++Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends at the offering price and capital gains, if any, at
net asset value and are not annualized. Effective July 1, 1994, with the
implementation of the Rule 12b-1 distribution plan, as disclosed in Note 4, the
existing sales charge on reinvested dividends has been eliminated.
*During the periods indicated, the Manager agreed to waive in advance its
management fees and made payments of other expenses incurred by the
International Bond Fund. Had such action not been taken, the ratio of operating
expenses to average net assets for the years ended December 31, 1990, 1991,
1992, 1993 and 1994, respectively, would have been 1.42%, .89%, .92%, .97% and
1.06%.

<PAGE>
FRANKLIN PARTNERS FUNDS

REPORT OF INDEPENDENT AUDITORS

To the Limited Partners and Managing General Partners of
Franklin Tax-Advantaged International Bond Fund (A California Limited
Partnership),
Franklin Tax-Advantaged U.S. Government Securities Fund (A California Limited
Partnership), and
Franklin Tax-Advantaged High Yield Securities Fund (A California Limited
Partnership):

We have audited the accompanying statements of assets and liabilities of the
various funds comprising the Franklin Partners Funds, including each Fund's
statement of investments in securities and net assets, as of December 31, 1994,
and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
various funds comprising Franklin Partners Funds as of December 31, 1994, the
results of each Fund's operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.
San Francisco, California
February 01, 1995

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 fund's securities
breakdown by geographic distribution as a percentage of the
fund's total net assets.
<TABLE>
<CAPTION>
Geographic Breakdown on 12/31/94
<S> <C>
Australia 16.2%
Germany 2.5%
Spain 5.7%
France 7.2%
United States 7.3%
United Kingdom 12.3%
Sweden 7.6%
Italy 8.2%
New Zealand 10.3%
Denmark 11.0%
Canada 11.7%
</TABLE>

GRAPHIC MATERIAL (2)

The following line graph hypothetically compares the
performance of Franklin Tax-Advantaged International
Bond Fund to that of the Salomon Brothers Non-U.S.
World Government Bond Index, based on a $10,000
investment from 6/9/90 to 12/31/94.*
<TABLE>
<CAPTION>
Period Ending TAIB SBNON-U.S. WLDGOV
<S> <C> <C>
$9,575 $10,000
6/90 $9,662 $10,145
7/90 $10,224 $10,644
8/90 $10,395 $10,633
9/90 $10,455 $10,759
10/90 $10,839 $11,530
11/90 $10,974 $11,671
12/90 $11,011 $11,724
1/91 $11,234 $12,176
2/91 $11,171 $12,141
3/91 $10,424 $11,226
4/91 $10,503 $11,439
5/91 $10,475 $11,371
6/91 $10,225 $11,144
7/91 $10,606 $11,481
8/91 $10,787 $11,673
9/91 $11,354 $12,335
10/91 $11,421 $12,494
11/91 $11,646 $12,753
12/91 $12,139 $13,628
1/92 $11,850 $13,362
2/92 $11,834 $13,164
3/92 $11,822 $12,969
4/92 $11,924 $13,061
5/92 $12,273 $13,634
6/92 $12,668 $14,187
7/92 $12,901 $14,496
8/92 $13,098 $15,138
9/92 $12,867 $15,235
10/92 $12,364 $14,685
11/92 $11,951 $14,308
12/92 $12,011 $14,278
1/93 $12,130 $14,471
2/93 $12,211 $14,758
3/93 $12,567 $15,125
4/93 $12,841 $15,579
5/93 $13,014 $15,863
6/93 $12,782 $15,566
7/93 $12,734 $15,577
8/93 $13,087 $16,131
9/93 $13,197 $16,404
10/93 $13,354 $16,329
11/93 $13,143 $16,254
12/93 $13,508 $16,434
1/94 $13,846 $16,506
2/94 $13,603 $16,552
3/94 $13,453 $16,754
4/94 $13,437 $16,863
5/94 $13,371 $16,636
6/94 $13,384 $17,039
7/94 $13,464 $17,082
8/94 $13,474 $16,984
9/94 $13,581 $17,320
10/94 $13,934 $17,767
11/94 $13,814 $17,410
12/94 $13,894 $16,395
</TABLE>

GRAPHIC MATERIAL (3)

The following line graph hypothetically compares
the performance of Franklin Tax-Advantaged U.S.
Government Securities Fund to that of the Lehman
Brothers Intermediate Government Bond Index and the
Consumer Price Index, based on a $10,000 investment
from 5/4/87 to 12/31/94.*
<TABLE>
<CAPTION>
Period Ending TAUSG LBInt.Gov CPI
<S> <C> <C> <C>
5/4/87 $9,579 $10,000 $10,000
5/31/87 9,714 9,978 10,035
6/30/87 9,879 10,096 10,071
7/31/87 9,977 10,118 10,098
8/31/87 9,969 10,092 10,151
9/30/87 9,748 9,966 10,204
10/31/87 9,971 10,262 10,231
11/30/87 10,154 10,324 10,240
12/31/87 10,239 10,424 10,240
1/31/88 10,565 10,683 10,266
2/29/88 10,648 10,796 10,293
3/31/88 10,641 10,751 10,337
4/30/88 10,645 10,732 10,390
5/31/88 10,617 10,681 10,426
6/30/88 10,842 10,855 10,470
7/31/88 10,824 10,822 10,515
8/31/88 10,824 10,836 10,559
9/30/88 11,052 11,024 10,630
10/31/88 11,251 11,176 10,665
11/30/88 11,134 11,080 10,674
12/31/88 11,080 11,091 10,692
1/31/89 11,226 11,202 10,745
2/28/89 11,182 11,153 10,790
3/31/89 11,183 11,205 10,852
4/30/89 11,380 11,431 10,923
5/31/89 11,671 11,652 10,985
6/30/89 11,965 11,949 11,012
7/31/89 12,118 12,192 11,038
8/31/89 12,024 12,027 11,056
9/30/89 12,083 12,085 11,091
10/31/89 12,324 12,339 11,145
11/30/89 12,456 12,461 11,171
12/31/89 12,540 12,497 11,189
1/31/90 12,467 12,419 11,304
2/28/90 12,562 12,465 11,358
3/31/90 12,594 12,480 11,420
4/30/90 12,520 12,439 11,437
5/31/90 12,848 12,705 11,464
6/30/90 12,980 12,873 11,526
7/31/90 13,186 13,053 11,571
8/31/90 13,144 13,006 11,677
9/30/90 13,224 13,122 11,775
10/31/90 13,370 13,304 11,846
11/30/90 13,629 13,505 11,872
12/31/90 14,018 13,833 11,943
2/28/91 14,092 13,917 11,961
3/31/91 14,184 13,994 11,979
4/30/91 14,323 14,138 11,996
5/31/91 14,434 14,217 12,032
6/30/91 14,464 14,228 12,067
7/31/91 14,700 14,382 12,085
8/31/91 14,925 14,655 12,121
9/30/91 15,174 14,904 12,174
10/31/91 15,376 15,074 12,192
11/30/91 15,443 15,251 12,227
12/31/91 15,852 15,621 12,236
1/31/92 15,611 15,471 12,254
2/29/92 15,767 15,519 12,298
3/31/92 15,678 15,457 12,360
4/30/92 15,808 15,596 12,378
5/31/92 16,082 15,829 12,396
6/30/92 16,309 16,056 12,440
7/31/92 16,529 16,365 12,467
8/31/92 16,735 16,532 12,502
9/30/92 16,882 16,760 12,538
10/31/92 16,651 16,559 12,582
11/30/92 16,707 16,491 12,600
12/31/92 16,980 16,704 12,591
1/31/93 17,310 17,014 12,653
2/28/93 17,523 17,264 12,697
3/31/93 17,599 17,328 12,742
4/30/93 17,666 17,463 12,777
5/31/93 17,771 17,416 12,795
6/30/93 18,043 17,669 12,813
8/31/93 18,339 17,968 12,848
9/30/93 18,307 18,042 12,875
10/31/93 18,416 18,085 12,928
11/30/93 18,221 17,996 12,937
12/31/93 18,420 18,070 12,937
1/31/94 18,619 18,249 12,973
2/28/94 18,363 17,999 13,017
3/31/94 17,695 17,736 13,061
4/30/94 17,535 17,621 13,079
5/31/94 17,588 17,633 13,088
6/30/94 17,874 17,868 13,168
8/31/94 17,896 17,920 13,221
9/30/94 17,541 17,771 13,257
10/31/94 17,451 17,774 13,266
11/30/94 17,432 17,696 13,283
12/31/94 17,660 17,755 13,283
</TABLE>

GRAPHIC MATERIAL (4)

The following line graph hypothetically compares the
performance of Franklin Tax-Advantaged High Yield Securities
Fund to that of the Salomon Brothers Combined Corporate
Index, based on a $10,000 investment from 5/4/87 to 12/31/94.*
<TABLE>
<CAPTION>
Period Ending T/A High Yld SB Comb. Corp
<S> <C> <C>
5/4/87 $9,579 $10,000
5/31/87 $9,579 $9,964
6/30/87 $9,512 $10,102
7/31/87 $9,515 $10,062
8/31/87 $9,553 $10,041
9/30/87 $9,157 $9,739
10/31/87 $8,810 $10,008
11/30/87 $9,216 $10,136
12/31/87 $9,350 $10,310
1/31/88 $9,686 $10,738
2/29/88 $9,948 $10,905
3/31/88 $9,857 $10,790
4/30/88 $9,946 $10,724
5/31/88 $9,940 $10,706
6/30/88 $10,098 $10,996
7/31/88 $10,203 $10,952
8/31/88 $10,208 $10,993
9/30/88 $10,299 $11,256
10/31/88 $10,423 $11,454
11/30/88 $10,417 $11,343
12/31/88 $10,500 $11,365
1/31/89 $10,771 $11,549
2/28/89 $10,823 $11,488
3/31/89 $10,765 $11,538
4/30/89 $10,884 $11,732
5/31/89 $11,023 $12,056
6/30/89 $11,224 $12,396
7/31/89 $11,248 $12,603
8/31/89 $11,367 $12,443
9/30/89 $11,233 $12,464
10/31/89 $10,986 $12,667
11/30/89 $10,912 $12,756
12/31/89 $10,987 $12,768
1/31/90 $10,647 $12,599
2/28/90 $10,298 $12,594
3/31/90 $10,442 $12,634
4/30/90 $10,174 $12,524
5/31/90 $10,402 $12,896
6/30/90 $10,651 $13,120
7/31/90 $10,968 $13,295
8/31/90 $10,358 $13,040
9/30/90 $9,543 $13,005
10/31/90 $8,984 $13,001
11/30/90 $9,130 $13,259
12/31/90 $9,188 $13,450
1/31/91 $8,998 $13,648
2/28/91 $9,925 $13,983
3/31/91 $10,805 $14,260
4/30/91 $11,436 $14,529
5/31/91 $11,446 $14,635
6/30/91 $11,878 $14,694
7/31/91 $12,496 $14,929
8/31/91 $12,781 $15,251
9/30/91 $12,993 $15,545
10/31/91 $13,502 $15,736
11/30/91 $13,603 $15,900
12/31/91 $13,782 $16,356
1/31/92 $14,247 $16,284
2/29/92 $14,541 $16,471
3/31/92 $14,806 $16,442
4/30/92 $14,977 $16,551
5/31/92 $15,187 $16,883
6/30/92 $15,316 $17,152
7/31/92 $15,528 $17,549
8/31/92 $15,759 $17,730
9/30/92 $15,877 $17,929
10/31/92 $15,738 $17,652
11/30/92 $15,988 $17,696
12/31/92 $16,189 $17,986
1/31/93 $16,537 $18,420
2/28/93 $16,805 $18,813
3/31/93 $17,156 $18,921
4/30/93 $17,251 $19,065
5/31/93 $17,394 $19,108
6/30/93 $17,797 $19,551
7/31/93 $18,092 $19,696
8/31/93 $18,157 $20,117
9/30/93 $18,189 $20,196
10/31/93 $18,619 $20,319
11/30/93 $18,702 $20,142
12/31/93 $18,967 $20,279
1/31/94 $19,271 $20,652
2/28/94 $19,120 $20,274
3/31/94 $18,296 $19,660
4/30/94 $18,081 $19,485
5/31/94 $18,074 $19,452
6/30/94 $18,176 $19,423
7/31/94 $18,127 $19,809
8/31/94 $18,327 $19,859
9/30/94 $18,424 $19,573
10/31/94 $18,485 $19,541
11/30/94 $18,313 $19,463
12/31/94 $18,509 $19,640
</TABLE>