MESSAGE FROM THE
MANAGING GENERAL PARTNER
Table of Contents
Page
Message from the Managing
General Partner 1
Fund Reports
Franklin Tax-Advantaged
International Bond Fund 3
Franklin Tax-Advantaged
U.S. Government Securities Fund 8
Franklin Tax-Advantaged
High Yield Securities Fund 12
Statement of Investments 17
Financial Statements 27
Notes to Financial Statements 30
Report of Independent Auditors 36
To reduce the volume of mail shareholders receive and to reduce expenses, only
one copy of most Fund reports, such as the Fund's annual and semi-annual
reports, may be mailed to a household. Additional reports may be obtained
without charge by calling Fund Information at 1-800/DIAL BEN (1-800/342-5236).
February 15, 1996
Dear Shareholder:
It's a pleasure to bring you the annual report of the Franklin Partners Funds(R)
for the fiscal year ended December 31, 1995.
Declining interest rates, low inflation and moderate growth in most of the
world's major economies characterized the year under review. This was especially
true in the U.S., where economic growth slowed following a series of interest
rate increases in 1994 and early 1995. Inflation remained mild and corporate
earnings were strong, which contributed to impressive performance for most
financial assets.
Extremely slow growth in the second fiscal quarter of 1995 -- followed by
moderate growth in the third quarter -- prompted the U.S. Federal Reserve to
ease monetary policy in July and again in December. Bond markets anticipated the
move, as interest rates had decreased steadily since the start of 1995.
Following the July shift in policy stance, long-term bond yields, as measured by
the 30-year U.S. Treasury bond, jumped slightly to 6.86%, then resumed the
downward course they had followed since November 1994. On December 31, 1995, the
yield on the 30-year U.S. Treasury was 5.96%.*
While this stable economic environment proved beneficial to the performance of
the Franklin Partners Funds, no one can predict what lies ahead for investors.
There's no guarantee that the markets will continue to perform as well in the
months to come. Of course, market volatility is a normal part of investing and
is the reason why we have always encouraged our shareholders to focus on their
long-term investment goals. If you can remain invested for the long term, you
may be able to overlook some of the short-term volatility that accompanies stock
and bond markets. As you know, certain U.S. tax laws may, in the future, affect
the tax advantages that the fund is intended to offer to its investors. The
managing General Partners continue to evaluate this situation and alternative
means for responding to it.
The following pages contain specific information about each fund's performance.
While each fund has distinct investment objectives, the fundamental principles
remain the same: careful selection and constant professional investment
supervision.
We appreciate your continued support, welcome your comments and look forward to
serving you in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
Executive Vice President.
and Managing General Partner
*Source: Micropal, January 17, 1996.
FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
Your Fund's Objective:
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.
Investors enjoyed excellent performance from global bond markets during the
fiscal year ended December 31, 1995. Bond prices rose steadily due to a
combination of slow economic growth, low inflation, falling interest rates, and
the increased attention world governments placed on fiscal and monetary
responsibilities. In addition, most foreign currencies appreciated versus the
U.S. dollar, further increasing the value of foreign fixed-income securities.
This was certainly a welcome relief after a very difficult 1994 when interest
rates rose dramatically and bond prices fell in many global markets.
This rebound occurred partly because of the excessive investor pessimism priced
into financial markets in 1994. At the beginning of 1995, many investors
harbored fears of overheating global economies and increasing inflation, which
caused fixed-income securities markets to suffer. In March and April, however,
investors began to realize that interest rates around the world were too high
for the pace of economic growth, and by December, nearly all of the world's
major central banks had eased their monetary policies by lowering interest
rates.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The depreciating U.S. dollar was one key element that separated 1995's best and
worst performing bond markets. Those outside the U.S. offered the highest
returns, especially European markets such as Sweden, Denmark, Spain, Germany and
France. One exception was the United Kingdom, whose currency versus the dollar
remained essentially unchanged for the year. Japan's bond market performed
poorly, as the yen depreciated significantly in July and August after
appreciating in the beginning of 1995. The performance of bond markets closely
tied to the U.S. market, like Australia's and New Zealand's, also lagged because
their currencies did not appreciate against the dollar as strongly as European
currencies.
During the fiscal year, we increased our European exposure, from 54.5% to 61.3%
of total net assets, by adding significantly to our German holdings and, to a
lesser extent, our Italian holdings. This large exposure enabled the fund to
benefit from continued strength in a number of European fixed-income markets.
Seeking further diversification for the fund, we initiated a 1.4% Japanese
position. However, we continue to be very conservative in our exposure to Japan,
where interest rates are very low and, in our opinion, unlikely to decline
further. By the end of the period, we were also beginning to focus on
higher-yielding markets, such as Italy, Spain, Australia and Canada.
Franklin Tax-Advantaged
International Bond Fund
Change in Country Allocation
Based on Total Net Assets
Country 12/31/94 12/31/95
Australia 16.2% 10.8%
Canada 11.7% 10.6%
Denmark 11.0% 10.9%
France 7.2% 7.0%
Germany 2.5% 11.2%
Italy 8.2% 9.2%
Japan 0.0% 1.4%
New Zealand 10.3% 8.9%
Spain 5.7% 5.3%
Sweden 7.6% 7.4%
United Kingdom 12.3% 10.3%
United States 7.3% 7.0%
For a complete list of portfolio holdings, please see page 17 of this report.
This discussion reflects the strategies we employed for the fund during the past
fiscal year, 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
in light of new circumstances as they 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.
Looking forward, we believe that global interest rates should continue to trend
downward, which would be beneficial to financial markets. The U.S. Federal
Reserve Board may ease monetary policy further if inflation remains subdued, and
European economic conditions should be characterized by a similar mix of modest
growth and low inflation, with the added benefit of fiscal reform that is
occurring in a broad range of markets. We will continue to build and improve our
ability to serve investors while maintaining the traditional values and
principles that have served our clients well.
There are, of course, special risks involved with international investing
related to market, currency, economic, political, and other factors, as
discussed in the fund's prospectus. Also, as always, we will purchase only those
bonds issued by, 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.
Performance Summary
The Franklin Tax-Advantaged International Bond Fund's share price, as measured
by net asset value, increased to $11.96 on December 31, 1995, from $10.78 on
December 31, 1994.
The fund continued to meet its investment objective of providing high current
income to shareholders. For the one-year period under review, your fund paid
monthly income distributions totaling 93.8 cents ($0.938) per share. On December
31, 1995, your fund's distribution rate was 6.79%, based on an annualization of
the fund's distributions during the previous 30 days and the maximum offering
price of $12.49 on the same date. Dividends will vary based on the earnings of
the fund's portfolio, and past distributions are not predictive of future
trends.
The Franklin Tax-Advantaged International Bond Fund provided a total return of
+20.41% for the one-year period ended December 31, 1995. Total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains. This calculation does not include the initial sales charge, and
past performance is not indicative of future results.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The graph above compares the performance of the Franklin Tax-Advantaged
International Bond Fund, since inception, with the unmanaged Salomon Brothers
Non-U.S. World Government Bond Index. Of course, unmanaged market indices have
inherent performance differentials in comparison to any fund. For example, they
do not pay management fees to cover salaries of security analysts or portfolio
managers, or pay commissions or market spreads to buy and sell securities. In
addition, mutual funds are never 100% invested because of the need to have cash
on hand to redeem shares, and the performance shown for the fund includes the
maximum initial sales charge, all fund expenses and account fees. If operating
expenses such as the Tax-Advantaged International Bond Fund's had been applied
to this index, its performance would have been lower. The index also contains a
large weighting of Japanese bonds, whereas the fund's portfolio maintains a
broad diversification. Please remember that an index is simply a measure of
performance, and one cannot invest directly in an index. Past performance is not
predictive of future results.
Franklin Tax-Advantaged
International Bond Fund
Periods ended December 31, 1995
Since
Inception
1-Year 5-Year (6/09/90)
Cumulative
Total Return1 20.41% 50.96% 74.77%
Average Annual
Total Return2 15.27% 7.65% 9.69%
Distribution Rate3 6.79%
30-Day Standardized Yield4 6.33%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures reflect the current
maximum 4.25% initial sales charge. See note below.
3. Based on an annualization of the distributions paid over the 30 days ended
December 31, 1995, and the maximum offering price of $12.49 on the same 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, 1995.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been different
than noted above. Effective July 1, 1994, the fund eliminated the sales charge
on reinvested dividends and implemented a plan of distribution under Rule 12b-1,
which will affect future performance. All total return figures assume
reinvestment of dividends and capital gains at net asset value. Investment
return and principal value will fluctuate with market conditions, currencies and
the economic and political climates where investments are made. A
non-diversified fund involves increased susceptibility to such factors, which
are described in the fund's prospectus. Your shares, when redeemed, may be worth
more or less than their initial cost. Past performance cannot guarantee future
results.
The fund's manager has agreed in advance to waive a portion of its management
fees, which reduces operating expenses and increases yield, distribution rate
and total return to shareholders. If the manager had not taken this action, the
fund's distribution rate and total return would have been lower and yield for
the period would have been 5.97%. The fee waiver may be discontinued at any
time, upon notice to the fund's Managing General Partners.
FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
Your Fund's Objective:
Seeks to provide current income through investments in U.S. government
obligations, primarily Government National Mortgage Association securities.
The calendar year 1995 proved to be a banner year for U.S. fixed-income
investors. Declining interest rates, low inflation and moderate economic growth
characterized most of the year under review. By March 1995, the U.S. Federal
Reserve Board's previous interest rate increases realized their goal. U.S. Gross
Domestic Product (GDP) fell from an annualized rate of 5.1% in the fourth
quarter of 1994 to just 1.3% in the second quarter of 1995.* This resulted in
what is commonly referred to as a "soft landing" -- an ideal investment
environment characterized by modest growth and low inflation. However, extremely
slow growth in the second fiscal quarter prompted the Fed to lower its federal
funds rate in July 1995 and again in December 1995.
This easing of monetary policy, combined with low reported inflation, prompted a
bond market rally, sharply reversing the negative environment of 1994. Another
factor supporting the bond market was the move in Washington toward a balanced
federal budget and long-term reduction of the federal deficit. While the final
outcome of this legislative action seems likely to occur in 1996, the 1995
market anticipated the potential for lower real interest rates, pushing bond
prices higher and bond yields even lower. By December 31, 1995, the 30-year U.S.
Treasury bond yield had declined to 5.96% after starting the year at 7.71%.**
Your fund holds a portfolio of government and agency mortgage securities, with
holdings of Government National Mortgage Association (GNMA) mortgage
passthroughs as the fund's largest position. During the year, we engaged in
several transactions to take advantage of opportunities in agency securities. At
the beginning of the year, the fund's portfolio was heavily positioned with
lower coupon mortgage passthroughs (almost 64% of the fund's total net assets
were represented by securities with coupons ranging from 6.0% to 7.5%), which
were more sensitive to interest-rate movements. As rates fell, many of the
securities in the portfolio appreciated strongly and caused increased prepayment
risk for higher rate mortgages. As a result, price premiums for older, more
seasoned mortgage passthroughs increased, helping to boost these securities'
overall value and, in turn, your fund's income and price per share.
*Source: U.S. Commerce Department
**Source: Micropal, January 17, 1996
This discussion reflects the strategies we employed for the fund during the past
fiscal year, 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
in light of new circumstances as they 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.
Looking ahead, we expect the fund's mortgage passthrough holdings to benefit
from decreased interest-rate volatility as the economy seems likely to settle
into a slow growth pattern. As always, we will continue our policy of avoiding
derivative securities, as we do not manage the fund as an aggressive trading
vehicle but as an income fund. We feel our approach is an appropriate way of
investing in U.S. agency mortgage passthroughs.
Performance Summary
The Franklin Tax-Advantaged U.S. Government Securities Fund's share price, as
measured by net asset value, increased during the reporting period to $10.80 on
December 31, 1995, from $9.76 on December 31, 1994.
The fund continued to meet its investment objective of providing current income
to shareholders. For the one-year period ended December 31, 1995, your fund paid
monthly income distributions totaling 70.6 cents ($0.706) per share. At the end
of the reporting period, the distribution rate was 6.18%, based on an
annualization of the fund's distributions for the 30 days ended December 31,
1995, and the maximum offering price of $11.28 on the same date. Dividends will
vary depending on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
The Franklin Tax-Advantaged U.S. Government Securities Fund reported a total
return of +18.38% for the one-year period ended December 31, 1995. Total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, and does not include the initial sales charge.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The graph above illustrates that, since inception, your fund has generally
followed the performance of the unmanaged Lehman Brothers Intermediate
Government Bond Index. Since 1987, your fund has outpaced the Consumer Price
Index (CPI), keeping your purchasing power well ahead of inflation -- a primary
goal for any investment. Of course, unmanaged market indices have inherent
performance differentials in comparison to any fund. They don't pay management
fees to cover salaries of security analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. And, unlike unmanaged
indices, mutual funds are never 100% invested because of the need to have cash
on hand to redeem shares. In addition, the performance for the fund includes the
maximum initial sales charge, all fund expenses and account fees. If operating
expenses such as the Franklin Tax-Advantaged U.S. Government Securities Fund's
had been applied to the index, the index's performance would have been lower.
Please remember that an index is simply a measure of performance and cannot be
invested in directly. Past performance is not predictive of future results.
Franklin Tax-Advantaged
U.S. Government Securities Fund
Periods ended December 31, 1995
Since
Inception
1-Year 5-Year (05/04/87)
Cumulative
Total Return1 18.38% 51.25% 118.27%
Average Annual
Total Return2 13.39% 7.70% 8.88%
Distribution Rate3 6.18%
30-Day Standardized Yield4 6.29%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the current maximum 4.25% initial sales
charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the current maximum 4.25%
initial sales charge. See note below.
3. Based on an annualization of the distributions paid over the 30 days ended
December 31, 1995, and the maximum offering price of $11.28 on the same 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, 1995.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been somewhat
different than noted above. Effective July 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a plan of distribution
under Rule 12b-1, which will affect future performance. All total return
calculations assume reinvestment of dividends and capital gains, if any.
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.
FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
Your Fund's Objective:
Seeks to provide high current income from a portfolio of high yielding,
lower-rated corporate bonds issued by U.S. and non-U.S. corporations.
Over the past 12 months, the fund performed well as declining long-term interest
rates, moderate to slow economic growth, and strong corporate earnings proved to
be positive factors for the high yield bond market. Additionally, demand for
high yield securities remained brisk, despite a relatively heavy volume of new
issues within the sector, which caused the prices of these securities to
increase, further benefiting your fund.
During the reporting period, the fund increased its exposure to defensive
industries such as health care (12.6% of total net assets, up from 9.0%) and
decreased exposure to more cyclical industries such as chemicals (4.6% from
8.0%) and automotive (0.7% from 4.0%). This move was in response to the slow
economic growth environment of 1995. Industries such as health care provide
basic necessities to the population and, therefore, tend to perform well even in
a slow growth environment.
In addition to these industry shifts, the fund benefited from mergers and
acquisitions that occurred during the year -- especially within the health care
industry. Abbey Healthcare merged with Homedco to form Apria Healthcare, and
American Medical Holdings merged with National Medical Enterprises to form Tenet
Healthcare. Acquisitions outside this industry included Dr. Pepper/7Up (acquired
by Cadbury Schweppes), SHL Systemhouse (purchased by MCI), and Truck Components
Inc. (acquired by Johnstown). Such mergers and acquisitions were beneficial
because, in most cases, the acquiring company's debt was rated investment grade
(for example, Cadbury Scweppes and MCI). Typically, the outstanding debt of the
target company will be tendered for a high premium.
Another beneficial trend that occurred within the portfolio during the year was
the infusion of equity into companies through an initial offering of public
stock (IPO). Several companies held in the fund's portfolio announced IPOs
during the year: Sola, Bell & Howell, and American Standard.
During the last six months of the reporting period, we increased the fund's
overall credit quality by reducing its exposure to lower-rated bonds --
specifically, bonds rated B2 by Moody's. On December 31, 1995, 23% of the fund's
bonds were rated B2, compared with 32% at the start of the fiscal year. We also
increased our exposure to B1-rated bonds to 21% from 16%. The ratings
improvement occurred due to ratings upgrades of securities we currently hold, as
well as recent purchases of higher rated securities.
Franklin Tax-Advantaged
High Yield Securities Fund
Top 10 Holdings on 12/31/95
Based on Total Net Assets
Company % of Total
Industry Net Assets
Tenet Healthcare Corp. 2.77%
Healthcare Services
Abbey Healthcare Group, Inc 2.66%
Healthcare Services
Comcast Corp. 2.30%
Cable Television
Cablevision Systems Corp. 2.29%
Cable Television
Six Flags Theme Parks 1.96%
Gaming/Leisure
IVAC Corp. 1.93%
Healthcare Services
John Q. Hammons Hotels L.P. 1.89%
Lodging
Telewest PLC 1.88%
Cable Television
American Standard 1.88%
Industrial
Regency Health Services Inc. 1.87%
Healthcare Services
For a complete list of portfolio holdings, please see page 22 of this report.
This discussion reflects the strategies we employed for the fund during the past
fiscal year 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
in light of new circumstances as they 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.
If recent economic trends persist, moderate growth and subdued inflation could
continue in the months ahead which should be positive for financial markets
overall, and for the high yield market in particular. With these market
conditions, the portfolio's improved credit quality and a strong weighting in
defensive industries, we feel the fund is well-positioned for the future. Please
remember, however, that 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.
Performance Summary
The Franklin Tax-Advantaged High Yield Securities Fund's share price, as
measured by net asset value, increased during the reporting period to $8.71 on
December 31, 1995, from $7.99 on December 31, 1994.
The fund continued to meet its investment objective of providing high current
income to shareholders. During the fiscal period, your fund paid monthly income
distributions totaling 78.4 cents ($0.784) per share. The distribution rate was
7.59%, based on an annualization of your fund's distributions during the 30 days
ended December 31, 1995, and the maximum offering price of $9.10 on the same
date. Dividends will vary depending on the earnings of the fund's portfolio, and
past distributions are not predictive of future trends.
Your fund reported a total return of +19.46% for the one-year period ended
December 31, 1995. Total return measures the change in value of an investment,
assuming reinvestment of dividends and capital gains, and does not include the
initial sales charge.
The graph on page 16 compares the performance of the Franklin Tax-Advantaged
High Yield Securities Fund to the unmanaged Salomon Brothers Combined Corporate
Index and the CS First Boston High Yield Index. Of course, unmanaged market
indices have inherent performance differentials in comparison to any fund. They
don't pay management fees to cover salaries of security analysts or portfolio
managers, or pay commissions or market spreads to buy and sell securities. And,
unlike unmanaged indices, mutual funds are never 100% invested because of the
need to have cash on hand to redeem shares. In addition, the performance for the
fund includes the maximum initial sales charge, all fund expenses and account
fees. If operating expenses such as the fund's had been applied to these
indices, their performance would have been lower. Please remember that an index
is simply a measure of performance and cannot be invested in directly. Past
performance is not predictive of future results.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Tax-Advantaged
High Yield Securities Fund
Periods ended December 31, 1995
Since
Inception
1-Year 5-Year (05/04/87)
Cumulative
Total Return1 19.46% 140.63% 130.84%
Average Annual
Total Return2 14.44% 18.17% 9.59%
Distribution Rate3 7.59%
30-Day Standardized Yield4 8.14%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the current maximum 4.25% initial sales
charge. See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the current maximum 4.25%
initial sales charge. See note below.
3. Based on an annualization of the distributions paid over the 30 days ended
December 31, 1995, and the maximum offering price of $9.10 on the same 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, 1995. 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.
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 somewhat
different than noted above. Effective July 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a plan of distribution
under Rule 12b-1, which will affect future performance. All total return
calculations assume reinvestment of dividends and capital gains, if any.
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.
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1995
Face Value
Country* Amount Franklin Tax-Advantaged International Bond Fund (Note 1)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Notes, Bills, Bonds & Government Securities 93.0%
Australia 10.8%
AU 820,000 EIB Global Bond, 10.25%, 10/01/01................................ $ 674,222
AU 1,000,000 EuroFima, 9.875%, 01/17/07....................................... 810,144
AU 425,000 Queensland Treasury Corp., notes, 12.00%, 07/15/99............... 359,085
AU 1,660,000 Queensland Treasury Corp., notes, 8.00%, 05/14/03................ 1,218,498
------------
3,061,949
------------
Canada 10.6%
CA 400,000 Government of Canada, 8.50%, 04/01/02............................ 318,529
CA 945,000 Government of Canada, 10.25%, 02/01/04........................... 829,086
CA 420,000 Hydro-Quebec, Eurobonds, 11.25%, 10/10/00........................ 360,375
CA 250,000 Ontario-Hydro, Eurobonds, 10.875%, 01/08/96...................... 183,185
CA 150,000 Ontario-Hydro, Eurobonds, 9.00%, 06/24/02........................ 121,217
CA 1,500,000 Province of British Columbia, 9.00%, 01/09/02.................... 1,207,779
------------
3,020,171
------------
Denmark 10.9%
DK 3,750,000 Government of Denmark, 9.00%, 11/15/00........................... 750,769
DK 1,677,000 Nykredit, 9.00%, 10/01/12........................................ 312,808
DK 5,853,000 Nykredit, 6.00%, 10/01/26........................................ 878,456
DK 7,614,000 Real Kredit Danmark, 6.00%, 10/01/26............................. 1,141,387
------------
3,083,420
------------
France 7.0%
FR 4,250,000 Credit National, 9.25%, 10/02/01................................. 975,333
FR 2,000,000 Electricite de France, 8.30%, 02/09/99........................... 438,227
FR 4,250,000 h French OAT, Strip, 0.00%, 10/25/15............................... 197,807
FR 510,000 h French OAT, Strip, 0.00%, 10/25/16............................... 21,731
FR 1,500,000 Government of France, OAT, 8.50%, 12/26/12....................... 350,020
------------
1,983,118
------------
Germany 11.2%
DD 1,380,000 Deutscheland Republic, 8.50%, 08/21/00........................... 1,099,150
DD 1,070,000 Deutscheland Republic, 8.25%, 09/20/01........................... 851,419
DD 750,000 German Unity Fund, 8.75%, 8/20/01................................ 609,236
DD 850,000 West Japan Railway Co., 8.70%, 06/25/97.......................... 630,958
------------
3,190,763
------------
Italy 9.2%
IT 1,050,000,000 Buoni Poliennali del Tesoro, 10.50%, 07/15/00.................... 666,394
IT 2,000,000,000 Certificati di Credito del Tesoro, 12.00%, 01/20/98.............. 1,299,418
IT 1,000,000,000 Certificati di Credito del Tesoro, 11.90%, 01/01/00.............. 638,753
------------
2,604,565
------------
Japan 1.4%
JP 34,000,000 International Bank of Reconstruction and Development,
6.75%, 03/15/20................................................. $ 397,739
------------
New Zealand 8.9%
NZ 2,275,000 New Zealand Government, 8.00%, 07/15/98.......................... 1,494,938
NZ 1,500,000 New Zealand Government, 8.00%, 04/15/04.......................... 1,025,673
------------
2,520,611
------------
Spain 5.3%
ES 73,000,000 Government of Spain, 11.60%, 01/15/97............................ 616,257
ES 100,000,000 Government of Spain, 10.90%, 08/30/03............................ 875,103
------------
1,491,360
------------
Sweden 7.4%
SE 5,100,000 Staten Bostadiffinansier, 12.50%, 01/23/97....................... 799,080
SE 1,800,000 Staten Bostadiffinansier, 11.00%, 01/21/99....................... 289,335
SE 8,000,000 Government of Sweden, 6.00%, 02/09/05............................ 1,022,514
------------
2,110,929
------------
United Kingdom 10.3%
GB 300,000 Abbey National Treasury Service, 10.50%, 04/22/97................ 488,959
GB 460,000 Export-Import Bank of Japan, 10.75%, 05/15/01.................... 818,852
GB 270,000 Government of Italy, Eurobonds, 10.50%, 04/28/14................. 479,582
GB 715,000 United Kingdom Treasury, Conversion, 7.00%, 08/06/97............. 1,124,266
------------
2,911,659
------------
Total Long Term Investments (Cost $25,341,754)............ 26,376,284
------------
e,f Receivable from Repurchase Agreement 3.7%
US 1,005,476 Joint Repurchase Agreement, 5.745%, 01/02/96 (Maturity
Value $1,046,558) (Cost $1,046,391)
Bear Stearns & Co., Inc. (Maturity Value $159,300)
Collateral: U.S. Treasury Notes, 5.75% - 8.875%, 02/29/96 - 08/31/00
Daiwa Securities America, Inc. (Maturity Value $90,758)
Collateral: U.S. Treasury Bills, 08/22/96
U.S. Treasury Notes, 5.125% - 6.25%, 08/31/96 - 06/30/98
Donaldson, Lufkin & Jenrette Securities Corp.
(Maturity Value $159,300)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 03/31/97 - 11/30/99
Fuji Government Securities (Maturity Value $159,300)
Collateral: U.S. Treasury Notes, 7.50%, 12/31/96 - 10/31/99
Lehman Brothers, Inc. (Maturity Value $159,300)
Collateral: U.S. Treasury Notes, 5.75% - 8.75%, 09/30/97 - 09/30/00
SBC Capital Markets, Inc. (Maturity Value $159,300)
Collateral: U.S. Treasury Notes, 7.50%, 10/31/99
UBS Securities, Inc. (Maturity Value $159,300)
Collateral: U.S. Treasury Notes, 6.75%-7.75%, 04/30/97-01/31/00 $ 1,046,391
------------
Total Investments (Cost $26,388,145) 96.7%.......... 27,422,675
Other Assets and Liabilities, Net 3.3%.............. 929,733
------------
Net Assets 100.0%................................... $28,352,408
============
At December 31, 1995, the net unrealized appreciation based
on the cost of investments for income tax purposes of $26,388,145
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.................... $ 1,673,696
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value.................... (639,166)
------------
Net unrealized appreciation.................................... $ 1,034,530
============
PORTFOLIO ABBREVIATION:
OAT - Obligations Assumable by the Treasurer
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
FR - France
GB - United Kingdom
IT - Italy
JP - Japan
NZ - New Zealand
SE - Sweden
US - United States of America
*Securities traded in currency of country indicated.
eFace amount for repurchase agreement is for the underlying collateral.
fSee Note 1(h) regarding joint repurchase agreement.
hZero coupon bonds. Accretion rate may vary.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1995
Face Value
Amount Franklin Tax-Advantaged U.S. Government Securities Fund (Note 1)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Government National Mortgage Association (GNMA) 97.2%
$ 9,525,648 GNMA I, SF, 6.00%, 10/15/23 - 11/15/23........................................ $ 9,257,739
64,261,243 GNMA I, SF, 6.50%, 05/15/23 - 03/15/24........................................ 63,819,446
7,293,440 GNMA II, 6.50%, 09/20/23...................................................... 7,188,597
16,536,993 GNMA I, PL, 7.00%, 05/15/13 - 06/15/28........................................ 16,666,196
53,707,869 GNMA I, SF, 7.00%, 03/15/22 - 07/15/25........................................ 54,396,026
20,670,502 GNMA II, 7.00%, 11/20/16 - 11/20/23........................................... 20,793,243
35,967,482 GNMA I, SF, 7.50%, 01/15/17 - 04/15/23........................................ 37,024,026
59,601,587 GNMA II, 7.50%, 09/20/16 - 12/20/25........................................... 60,979,874
1,159,051 GNMA I, PL, 8.00%, 03/15/32................................................... 1,196,721
54,895,627 GNMA I, SF, 8.00%, 11/15/15 - 09/15/24........................................ 57,228,691
10,962,774 GNMA II, 8.00%, 11/20/16 - 08/20/22........................................... 11,346,471
7,153,307 GNMA I, PL, 8.25%, 07/15/31................................................... 7,414,853
16,492,634 GNMA I, SF, 8.50%, 06/15/16 - 05/15/22........................................ 17,327,573
5,622,506 GNMA II, 8.50%, 11/20/21 - 03/20/22........................................... 5,857,949
4,291,767 GNMA I, SF, 9.00%, 05/15/16 - 11/15/21........................................ 4,550,616
3,260,953 GNMA I, SF, 9.50%, 01/15/17 -10/15/21......................................... 3,502,468
840,000 i GNMA II, 9.50%, 04/20/25...................................................... 887,513
44,888 GNMA, GPM, 9.75%, 08/15/16.................................................... 48,163
5,898,876 GNMA I, SF, 10.00%, 10/15/11 - 08/15/21....................................... 6,485,077
804,925 GNMA II, 10.00%, 10/20/16 - 11/20/20.......................................... 868,313
150,373 GNMA, GPM, 10.25%, 02/15/16 - 09/15/20........................................ 163,860
948,988 GNMA I, SF, 10.50%, 02/15/16 - 07/15/19....................................... 1,054,563
1,698,143 GNMA II, 10.50%, 07/20/17 - 02/20/19.......................................... 1,849,914
233,868 GNMA I, SF, 11.00%, 10/15/13 - 09/15/14....................................... 264,271
1,239,574 GNMA II, 11.00%, 07/20/17 - 05/20/19.......................................... 1,372,053
150,393 GNMA I, SF, 11.50%, 08/15/16 - 12/15/17....................................... 171,824
454,403 GNMA II, 11.50%, 08/20/16 - 03/20/19.......................................... 508,221
169,756 GNMA I, SF, 12.00%, 06/15/15.................................................. 195,910
------------
Total Long Term Investments (Cost $388,653,319)............................... 392,420,171
------------
e,f Receivable from Repurchase Agreement 2.8%
10,768,625 Joint Repurchase Agreement, 5.745%, 01/02/96 (Maturity Value $11,209,931)
(Cost $11,208,143)
Bear Stearns & Co., Inc. (Maturity Value $1,706,301)
Collateral: U.S. Treasury Notes, 5.75% - 8.875%, 02/29/96 - 08/31/00
Daiwa Securities America, Inc. (Maturity Value $972,125)
Collateral: U.S. Treasury Bills, 08/22/96
U.S. Treasury Notes, 5.125% - 6.25%, 08/31/96 - 06/30/98
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,706,301)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 03/31/97 - 11/30/99
Fuji Government Securities (Maturity Value $1,706,301)
Collateral: U.S. Treasury Notes, 7.50%, 12/31/96 - 10/31/99
Lehman Brothers, Inc. (Maturity Value $1,706,301)
Collateral: U.S. Treasury Notes, 5.75% - 8.75%, 09/30/97 - 09/30/00
SBC Capital Markets, Inc. (Maturity Value $1,706,301)
Collateral: U.S. Treasury Notes, 7.50%, 10/31/99
UBS Securities, Inc. (Maturity Value $1,706,301)
Collateral: U.S. Treasury Notes, 6.75% - 7.75%, 04/30/97 - 01/31/00........ $ 11,208,143
------------
Total Investments (Cost $399,861,462) 100%...................... 403,628,314
Liabilities in Excess of Other Assets, Net....................... (63,493)
------------
Net Assets 100.0%............................................... $403,564,821
============
At December 31, 1995, the net unrealized appreciation based on the cost of
investments for income tax purposes of $399,885,254 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost.......................................... $ 5,824,238
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value.......................................... (2,081,178)
------------
Net unrealized appreciation................................................ $ 3,743,060
============
PORTFOLIO ABBREVIATIONS:
GPM - Graduated Payment Mortgage
PL - Project Loan
SF - Single Family
eFace amount for repurchase agreement is for the underlying collateral.
fSee Note 1(h) regarding joint repurchase agreement.
iSee Note 1(e) regarding securities purchased on a when-issued or delayed delivery basis.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1995
Face Value
Amount Franklin Tax-Advantaged High Yield Securities Fund (Note 1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds 89.2%
Automotive 0.7%
$ 1,100,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ................................. $ 1,182,500
------------
Cable Television 10.2%
3,500,000 Cablevision System Corp., senior sub. notes, 9.25%, 11/01/05 ................... 3,666,250
2,000,000 Comcast Corp., senior sub., 9.125%, 10/15/06 ................................... 2,090,000
1,500,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................... 1,590,000
1,900,000 Continental Cablevision, Inc., senior sub. deb., 9.00%, 09/01/08 ............... 1,995,000
1,000,000 d Diamond Cable Communication Co., senior disc. notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05.................. 590,000
1,200,000 g Rogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 ....... 770,245
800,000 Rogers Communications, Inc., deb., 10.875%, 04/15/04 ........................... 835,000
200,000 a,c Scott Cable Communications, Inc., S.F., sub. deb., 12.25%, 04/15/01 ............ 132,000
5,000,000 d Telewest PLC, deb., zero coupon to 10/01/00, (original accretion rate 11.00%),
11.00% thereafter, 10/01/07.................................................... 3,012,500
1,500,000 Time Warner, Inc., senior notes, 9.125%, 01/15/13 .............................. 1,676,250
------------
16,357,245
------------
Chemicals 4.6%
1,250,000 Applied Extrusion Technology, senior notes, 11.50%, 04/01/02 ................... 1,348,438
2,000,000 Arcadian Partners L.P., senior notes, Class B, 10.75%, 05/01/05 ................ 2,210,000
1,500,000 Harris Chemical North America, Inc., senior sub. notes, 10.75%, 10/15/03 ....... 1,357,500
2,225,000 IMC Fertilizer Group, Inc., senior notes, 10.75%, 06/15/03 ..................... 2,458,625
------------
7,374,563
------------
Consumer Goods 4.7%
1,300,000 Herff Jones, Inc., senior sub notes, 11.00%, 08/15/05 .......................... 1,391,000
2,250,000 b Hines Horticulture, Inc., senior sub notes, 11.75%, 10/15/05 ................... 2,345,625
2,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 .............. 1,770,000
2,000,000 Revlon Consumers Products Corp., senior sub. notes, 10.50%, 02/15/03 ........... 2,060,000
------------
7,566,625
------------
Financial .5%
750,000 American Reinsurance Corp., senior sub. notes, 10.875%, 09/15/04 ............... 841,172
------------
Food & Beverages 7.1%
950,000 a,c Beatrice Foods Inc., senior sub notes, 12.00%, 12/01/01 ........................ 289,750
1,500,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 ... 1,518,750
1,800,000 Curtice-Burns Foods Inc., senior sub. notes, 12.25%, 02/01/05 .................. 1,845,000
2,065,000 d Dr. Pepper Bottling Holdings, S.F., senior disc. notes, zero coupon to 02/15/98,
(original accretion rate 10.25%), 10.25% thereafter, 02/15/00.................. 2,188,900
1,800,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ..................... 1,849,500
2,250,000 Specialty Foods Corp., senior notes, 10.25%, 08/15/01 .......................... 2,126,250
1,500,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ................. 1,507,500
------------
11,325,650
------------
Food Retailing 6.9%
$ 1,400,000 Brunos, Inc., senior sub. notes, 10.50%, 08/01/05 .............................. $ 1,389,500
2,000,000 Dominick's Finer Foods, Inc., senior sub. notes, 10.875%, 05/01/05 ............. 2,115,000
2,000,000 Grand Union Co., senior notes, 12.00%, 09/01/04 ................................ 1,740,000
2,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ..................... 1,935,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ..................... 1,010,000
1,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................... 891,250
1,000,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ............................. 1,017,500
1,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ........................ 980,000
------------
11,078,250
------------
Forest & Paper Products 6.6%
1,500,000 Container Corp. of America, guaranteed, senior notes, 11.25%, 05/01/04 ......... 1,537,500
1,000,000 Fort Howard Corp., senior sub. notes, 9.00%, 02/01/06 .......................... 987,500
1,500,000 Fort Howard Corp., sub. notes, 10.00%, 03/15/03 ................................ 1,560,000
1,500,000 REPAP Wisconsin, Inc., senior notes, 9.875%, 05/01/06 .......................... 1,432,500
500,000 S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 ........................... 552,500
3,000,000 Rapp International Finance Co., company guarantee, 13.25%, 12/15/05 ............ 2,955,000
1,500,000 Tembec Finance Corp., senior notes, 9.875%, 09/30/05 ........................... 1,481,250
------------
10,506,250
------------
Gaming & Leisure 8.7%
1,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................... 1,112,500
2,000,000 Bally's Grand, first mortgage, Series B, 10.375%, 12/15/03 ..................... 2,040,000
500,000 a,c Harrah's Jazz Co., first mortgage, 14.25%, 11/15/01 ............................ 142,500
1,600,000 Grand Casinos, Inc., first mortgage, 10.125%, 12/01/03 ......................... 1,680,000
1,000,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ................... 943,750
2,500,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ................. 2,575,000
2,000,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 ............................ 2,260,000
4,000,000 d Six Flags Theme Parks, senior sub. notes, zero coupon to 06/15/98, (original accretion
rate 12.25%), 12.25% thereafter, 06/15/05 ..................................... 3,140,000
------------
13,893,750
------------
Health Care Services 12.6%
4,000,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............... 4,260,000
1,000,000 Dade International, Inc., senior sub. notes, 13.00%, 02/01/05 .................. 1,120,000
1,750,000 Integrated Health Services, Inc., senior sub. notes, 9.625%, 05/31/02 .......... 1,778,438
3,000,000 IVAC Corp., senior notes, 9.25%, 12/01/02 ...................................... 3,090,000
1,000,000 OrNda Healthcorp., S.F., senior sub deb., 12.25%, 05/15/02 ..................... 1,100,000
3,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ............. 2,992,500
1,500,000 Sola Group, Ltd., senior sub. notes, 6.00%, 12/15/03 ........................... 1,436,250
Health Care Services (cont.)
$ 250,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ......................... $ 277,500
3,000,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ......................... 3,150,000
900,000 Tenet Healthcare Corp., senior sub notes, 10.125%, 03/01/05 .................... 1,001,250
------------
20,205,938
------------
Industrial 4.2%
3,500,000 d American Standard, Inc., senior sub. deb., zero coupon to 06/01/98, (original
accretion rate 10.50%), 10.50% thereafter, 06/01/05............................ 3,010,000
1,250,000 Calmar Inc., senior sub. notes, 11.50%, 08/15/05 ............................... 1,273,438
750,000 Day International Group , senior sub. notes, 11.125%, 06/01/05 ................. 757,500
1,000,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 .......................... 1,000,000
800,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 .............................. 748,000
------------
6,788,938
------------
Lodging 5.0%
2,000,000 HMH Properties, Inc., senior notes, 9.50%, 05/15/05 ............................ 2,052,500
3,000,000 b John Q. Hammons Hotels L.P., first mortgage, 9.75%, 10/01/05 ................... 3,022,500
3,000,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 ............................ 2,947,500
------------
8,022,500
------------
Media & Broadcasting 6.7%
1,500,000 Act III Broadcasting, senior sub. notes, 10.25%, 12/15/05 ...................... 1,530,000
1,000,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ................. 1,010,000
2,700,000 Granite Broadcasting Corp., senior sub. notes, 10.375%, 05/15/05 ............... 2,794,500
1,500,000 K-III Communications Corp., S.F., senior notes, 10.25%, 06/01/04 ............... 1,612,500
500,000 News America Holdings, Inc., senior notes, 9.125%, 10/15/99 .................... 551,274
2,000,000 SCI Television, Inc., senior notes, 11.00%, 06/30/05 ........................... 2,110,000
1,100,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 ............ 1,119,250
------------
10,727,524
------------
Metals & Mining 0.9%
1,500,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 .......................... 1,361,250
------------
Restaurants 0.7%
1,500,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 ....................... 1,072,500
------------
Retail 1.0%
1,500,000 Eckerd Jack Corp., senior sub. notes, 9.25%, 02/15/04 .......................... 1,595,625
------------
Technology & Information Services 2.6%
2,000,000 ADT Operations, guaranteed senior sub. notes, 9.25%, 08/01/03 .................. 2,152,500
1,500,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ............................... 1,545,000
400,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ......................... 426,000
------------
4,123,500
------------
Textiles & Apparel 0.9%
$ 1,030,000 a,c Forstmann Textile & Co., Inc., S.F.., senior sub. notes, 14.75%, 04/15/99 ...... $ 437,750
1,000,000 Westpoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 .................... 992,500
------------
1,430,250
------------
Transportation 2.4%
1,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ......................... 1,608,750
2,000,000 Southern Pacific Transportation Co., senior notes, 9.375%, 08/15/05 ............ 2,185,000
------------
3,793,750
------------
Utilities 0.7%
1,000,000 Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 07/23/06 .. 1,105,236
------------
Wireless Communication 1.5%
2,500,000 d Dial Call Communications, units, senior disc. notes, zero coupon to 04/15/99,
(original accretion rate 12.25%), 12.25% thereafter, 04/15/04.................. 1,437,500
1,000,000 Roger Cantel Mobile Communications, Inc., senior sub. notes, 10.75%, 11/01/01... 1,058,750
------------
2,496,250
------------
Total Corporate Bonds (Cost $141,234,231)................................ 142,849,266
------------
Shares/
Warrants
Common Stocks 0.9%
50,817 a Kash N' Karry Food Stores, Inc. (Cost $1,462,392)............................... 1,333,943
------------
Warrants 0.0%
2,500 a Dial Page, Inc. ................................................................ 25
300 a Foodmaker, Inc. ................................................................ 4,451
------------
Total Warrants (Cost $1,828) 4,476
------------
Total Long Term Investments (Cost $142,698,451)............................. 144,187,685
------------
Face
Amount
--------
e,f Receivable from Repurchase Agreement 5.2%
$ 8,038,124 Joint Repurchase Agreement, 5.745%, 01/02/96 (Maturity Value $8,368,454)
(Cost $8,367,118)
Bear Sterns & Co., Inc. (Maturity Value $1,273,790)
Collateral: U.S. Treasury Notes, 5.75% - 8.875%, 02/29/96 - 08/31/00
Daiwa Securities America, Inc. (Maturity Value $725,714)
Collateral: U.S. Treasury Bills, 8/22/96
U.S. Treasury Notes, 5.125% - 6.25%, 08/31/96 - 06/30/98
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,273,790)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 03/31/97 - 11/30/99
Fuji Government Securities (Maturity Value $1,273,790)
Collateral: U.S. Treasury Notes, 7.50%, 12/31/96 - 10/31/99
Lehman Brothers, Inc. (Maturity Value $1,273,790)
Collateral: U.S. Treasury Notes, 5.75% - 8.75%, 09/30/97 - 09/30/00
SBC Capital Markets, Inc. (Maturity Value $1,273,790)
Collateral: U.S. Treasury Notes, 7.50%, 10/31/99
UBS Securities, Inc. (Maturity Value $1,273,790)
Collateral: U.S. Treasury Notes, 6.75% - 7.75%, 04/30/97 - 01/31/00 .......... $ 8,367,118
------------
Total Investments (Cost $151,065,569) 95.3%........................ 152,554,803
Other Assets and Liabilities, Net 4.7%............................. 7,525,261
------------
Net Assets 100.0%.................................................. $160,080,064
============
At December 31, 1995, the net unrealized appreciation based on the cost of
investments for income tax purposes of $151,065,569 was as follows:
Aggregate gross unrealized appreciation for all investments for which there was
an excess of value over tax cost............................................. $ 5,125,547
Aggregate gross unrealized depreciation for all investments for which there was
an excess of tax cost over value............................................. (3,636,313)
------------
Net unrealized appreciation................................................... $ 1,489,234
============
PORTFOLIO ABBREVIATION:
S.F. - Sinking Fund
aNon-Income producing.
bSee Note 5 regarding Rule 144A securities.
cSee Note 6 regarding defaulted securities.
dZero coupon/step-up bonds. The current effective yield may vary. The original accretion rate will remain constant.
eFace amount for repurchase agreement is for the underlying collateral.
fSee Note 1(h) regarding joint repurchase agreement.
gFace amount is stated in foreign currency and value is stated in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
Financial Statements
Statements of Assets and Liabilities
December 31, 1995
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........................................... $25,341,754 $388,653,319 $142,698,451
=========== =========== ===========
At value..................................................... 26,376,284 392,420,171 144,187,685
Receivable from repurchase agreement, at value and cost....... 1,046,391 11,208,143 8,367,118
Cash.......................................................... -- -- 4,829,321
Foreign currencies (Cost $497,978)............................ 496,646 -- --
Receivables:
Interest..................................................... 1,004,441 2,228,895 2,824,244
From affiliates.............................................. 21,521 -- --
----------- ----------- -----------
Total assets............................................ 28,945,283 405,857,209 160,208,368
----------- ----------- -----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery............................................ 496,645 -- --
When-issued or delayed delivery (Note 1).................... -- 889,461 --
Distributions to partners.................................... -- 521,017 10,692
Management fees.............................................. 10,234 171,866 76,768
Distribution fees............................................ 4,120 53,996 27,810
Partners' servicing costs.................................... 968 6,552 2,160
Bank overdraft................................................ 78,677 610,804 --
Accrued expenses and other payables........................... 2,231 38,692 10,874
----------- ----------- -----------
Total liabilities....................................... 592,875 2,292,388 128,304
----------- ----------- -----------
Net assets, at value.......................................... $28,352,408 $403,564,821 $160,080,064
=========== =========== ===========
Net assets consist of:
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies. $1,044,595 $3,766,852 $1,488,940
Undistributed net realized gain (loss) from investments
and foreign currency transactions........................... 648,919 (10,858,732) (3,133,305)
Partners' capital............................................ 26,658,894 410,656,701 161,724,429
----------- ----------- -----------
Net assets, at value.......................................... $28,352,408 $403,564,821 $160,080,064
=========== =========== ===========
Shares outstanding........................................... 2,370,404 37,384,174 18,377,717
=========== =========== ===========
Net asset value per share*................................... $11.96 $10.80 $8.71
=========== =========== ===========
Maximum offering price per share (100/95.75 of net asset
value per share)............................................ $12.49 $11.28 $9.10
=========== =========== ===========
*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>
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
Financial Statements (cont.)
Statements of Operations
for the year ended December 31, 1995
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>
Investment income:
Interest (Note 1)............................................ $1,987,190 $32,078,189 $10,603,694
----------- ----------- -----------
Expenses:
Management fees (Note 4)..................................... 151,345 2,173,657 678,079
Distribution fees (Note 4)................................... 21,777 310,266 114,863
Partners' servicing costs (Note 4)........................... 11,515 83,534 23,540
Custodian fees............................................... 22,317 38,409 9,595
Registration fees............................................ 12,932 14,199 19,906
Professional fees............................................ 9,439 33,208 23,578
Reports to partners.......................................... 5,782 45,805 12,486
Managing partners' fees and expenses......................... -- 6,135 6,031
Other........................................................ 4,446 46,357 7,437
Expenses waived by manager (Note 4).......................... (141,111) -- --
----------- ----------- -----------
Total expenses.......................................... 98,442 2,751,570 895,515
----------- ----------- -----------
Net investment income................................. 1,888,748 29,326,619 9,708,179
----------- ----------- -----------
Realized and unrealized gain (loss) from investments
and foreign currency:
Net realized gain (loss) from:
Investments................................................ 40,172 (2,853,964) 589,474
Foreign currency transactions.............................. 45,401 -- (765)
Net unrealized appreciation on:
Investments................................................ 2,485,612 46,981,743 7,378,235
Translation of assets and liabilities denominated
in foreign currencies..................................... 3,561 -- 666
----------- ----------- -----------
Net realized and unrealized gain from investments and
foreign currency transactions................................ 2,574,746 44,127,779 7,967,610
----------- ----------- -----------
Net increase in net assets resulting from operations.......... $4,463,494 $73,454,398 $17,675,789
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended December 31, 1995 and 1994
Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged
International Bond Fund U.S. Government Securities Fund High Yield Securities Fund
----------------------- ----------------------- -----------------------
1995 1994 1995 1994 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income.... $ 1,888,748 $ 1,719,247 $ 29,326,619 $ 36,487,364 $ 9,708,179 $ 7,159,755
Net realized gain (loss)
from investments and
foreign currency
transactions............ 85,573 (79,743) (2,853,964) (6,576,310) 588,709 410,528
Net unrealized appre-
ciation (depreciation)
on investments and
translation of assets
and liabilities denomi-
nated in foreign
currencies.............. 2,489,173 (1,184,700) 46,981,743 (54,248,227) 7,378,901 (9,329,425)
--------- --------- ---------- ---------- ---------- ---------
Net increase
(decrease) in net
assets resulting
from operations...... 4,463,494 454,804 73,454,398 (24,337,173) 17,675,789 (1,759,142)
Distributions to partners
from undistributed net
investment income........ (1,970,655) (1,626,579) (29,326,619) (36,487,364) (9,853,364) (7,005,950)
Increase (decrease)
in net assets from
partnership's capital
shares transactions
(Note 2)................. 3,134,327 4,291,465 (96,984,064) (56,761,159) 71,106,906 20,370,511
--------- --------- ---------- ---------- ---------- ---------
Net increase
(decrease) in
net assets.......... 5,627,166 3,119,690 (52,856,285) (117,585,696) 78,929,331 11,605,419
Net assets:
Beginning of year........ 22,725,242 19,605,552 456,421,106 574,006,802 81,150,733 69,545,314
--------- --------- ---------- ---------- ---------- ---------
End of year.............. $28,352,408 $22,725,242 $403,564,821 $456,421,106 $160,080,064 $81,150,733
========= ========= ========== ========== ========== =========
Undistributed net invest-
ment income included
in net assets:
Beginning of year...... $-- $ 52,452 $-- $-- $ 145,950 $--
========= ========= ========== ========== ========== =========
End of year............ $-- $-- $-- $-- $-- $ 145,950
--------- --------- ---------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------- ---------
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 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. Security Valuations:
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 Funds 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 Managing General Partners. Securities for which
market quotations are not available are valued in accordance with procedures
established by the Managing General Partners.
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 price 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
Managing General Partners.
The fair values of securities restricted as to resale are determined following
procedures established by the Managing General Partners.
b. Income Taxes:
No provision for income taxes has been made as all income and expenses are
allocated to the partners for inclusion in their individual income tax returns.
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:
Interest income and estimated expenses are accrued daily. Bond discount and
premium are amortized as required by the Internal Revenue Code. 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.
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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Investment Income, Expenses and Distributions (cont.)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of realized foreign currency transactions.
e. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Funds 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 Funds will
generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Funds have set aside sufficient investment
securities as collateral for these purchase commitments.
f. 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.
g. 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 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 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.
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 date and settlement dates on security transactions, the
difference between the amounts of dividends and 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 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.
h. Repurchase Agreement:
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 agreement are allocated to the
Funds based on their pro-rata interest. A repurchase agreement is accounted for
as a loan by the Fund to the seller, collateralized by 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 Funds, with the value
of the underlying securities marked to market daily to maintain coverage of at
least 100%. At December 31, 1995, all outstanding repurchase agreements held by
the Funds had been entered into on December 29, 1995.
<TABLE>
<CAPTION>
2. SHARES OF PARTNERSHIP INTEREST
Transactions in each of the Fund's shares for the years ended December 31, 1995 and 1994 were as follows:
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>
1995
Shares sold...................... 557,692 $6,480,608 3,205,874 $ 33,350,176 10,027,425 $86,570,022
Shares issued in reinvestment
of distributions................ 138,785 1,586,635 1,594,639 16,617,604 729,778 6,243,333
Shares redeemed.................. (410,941) (4,676,761) (13,329,334) (138,191,463) (3,054,821) (26,213,781)
Changes from exercise of
exchange privilege:
Shares sold.................... 57,269 663,732 155,431 1,628,707 618,054 5,327,591
Shares redeemed................ (80,634) (919,887) (1,002,222) (10,389,088) (96,688) (820,259)
------- --------- --------- ----------- -------- ----------
Net increase (decrease) ......... 262,171 $3,134,327 (9,375,612) $ (96,984,064) 8,223,748 $71,106,906
======= ========= ========= =========== ======== ==========
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
======= ========= ========= =========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
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, 1995, were as follows:
Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged
International Bond Fund U.S. Government Securities Fund High Yield Securities Fund
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Purchases.......................... $3,958,764 $14,352,544 $76,801,839
=============== ==================== =================
Sales.............................. $1,113,024 $91,497,002 $18,693,782
=============== ==================== =================
For tax purposes, the aggregate cost of securities is lower (and unrealized appreciation is higher) than for financial reporting
purposes for the year ended December 31, 1995 by $23,792 in the Government Fund.
</TABLE>
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Under the terms of a management agreement, Franklin Advisers, Inc., (Advisers)
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly on the net assets of each Fund
at 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), provides services to the International Bond Fund and receives from
Advisers 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 million, .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
management 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, 1995, Advisers agreed in
advance to waive $141,111 of its management fees for the International Bond
Fund.
Pursuant to a partners' service agreement with Franklin/Templeton Investor
Services, Inc., (Investor Services), the Funds pay costs on a per partner
account basis. Such costs incurred for the year ended December 31, 1995,
aggregated $11,515, $83,534 and $23,540 for the International Bond Fund, the
Government Fund, and the High Yield Fund, respectively.
Under the terms of a Distribution Plan pursuant to Rule 12b-1 of the Investment
Company Act of 1940, the Funds reimburse Franklin Templeton/Distributors, Inc.
(Distributors), in an amount up to a maximum of 0.15% per annum of the Fund's
average daily net assets for costs incurred in the promotion, offering and
marketing of the Funds' shares. The plan does not permit nor require payments of
excess costs after plan termination. Fees incurred by the International Bond
Fund, Government Fund and High Yield Fund under the agreements aggregated
$446,906 for the year ended December 31, 1995.
In its capacity as underwriter for the shares of the Funds, Distributors
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, 1995,
totaling $102,938, $632,871 and $550,638, respectively, of which $97,175,
$592,119 and $528,351 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. Distributors may also
make payments, out of its own resources, to dealers for certain sales.
Certain officers and Managing General Partners of the Funds are also officers
and/or directors of Distributors, Advisers and Investor Services, all
wholly-owned subsidiaries of Franklin Resources.
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, 1995, the High Yield Fund
held 144A securities with a value aggregating $5,368,125, representing 3.3% of
the Fund's net assets. See the accompanying Statement of Investments in
Securities and Net Assets for specific information of such securities.
6. CREDIT RISK AND DEFAULTED SECURITIES
Although the High Yield Fund has a diversified portfolio, 99.4% of its Portfolio
is invested in lower rated and comparable quality unrated high yield 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 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. At December 31, 1995, the
Fund held 4 defaulted securities with a value aggregating $1,002,000,
representing 0.63% of the Fund's net assets. For information as to specific
securities, see the accompanying Statement of Investments in Securities and Net
Assets.
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% of its total
net assets in Australian, Canadian, Danish, German and British securities.
The High Yield Fund has investments in excess of 10% in the Cable
Television and Health Care Services Industries.
7. OTHER CONSIDERATIONS
Advisers, as the High Yield Fund's Manager, may serve as a member of various
bondholders' committees, representing bondholders' interest in certain corporate
restructuring negotiations. Currently, Advisers serves on the bondholders'
committees for Beatrice Foods, Scott Cable and Forstman Textile. As a result of
this involvement in these committees, Advisers may be in possession of certain
material non-public information. The Advisers has not, nor does it intend to
sell any of its holdings in these securities while in possession of material
non-public information in contravention of the Federal Securities laws.
<TABLE>
<CAPTION>
8. FINANCIAL HIGHLIGHTS
Selected data for each share outstanding throughout the period by Fund are as follows:
Per Share Operating Performance Ratios/Supplemental Data
------------------------------------- ------------------------------
Ratio of Net
Net Asset Net Realized Dividends Net Asset Net Assets Ratio of Investment
Period Value at Net & Unrealized Total From From Net Value at End Expenses Income Portfolio
Ended Beginning Investment Gain (Loss) Investment Investment at End Total of Period to Average to Average Turnover
Dec. 31 of Period Income on Securities Operations Income of Period Return+ (in 000's) Net Assets* Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged International Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $11.95 $1.018 $ .112 $ 1.130 $(1.030) $12.05 9.86% $ 5,060 --% 9.05% 60.77%
1992 12.05 1.012 (1.110) (.098) (1.102) 10.85 (1.43) 12,662 .13 9.71 15.26
1993 10.85 .808 .505 1.313 (.823) 11.34 12.13 19,606 .25 7.31 6.80
1994 11.34 .794 (.560) .234 (.794) 10.78 2.06 22,725 .29 7.69 6.46
1995 10.78 .938 1.180 2.118 (.938) 11.96 20.41 28,352 .41 7.85 4.90
Franklin Tax-Advantaged U.S. Government Securities Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 10.23 .865 .570 1.435 (.865) 10.80 14.31 127,637 .80 8.13 12.42
1992 10.80 .785 (.050) .735 (.785) 10.75 6.80 312,645 .67 7.22 15.26
1993 10.75 .733 .160 .893 (.733) 10.91 8.19 574,007 .59 6.63 14.63
1994 10.91 .704 (1.150) (.446) (.704) 9.76 (4.26) 456,421 .61 6.92 10.20
1995 9.76 .706 1.040 1.746 (.706) 10.80 18.38 403,565 .64 6.82 3.50
Franklin Tax-Advantaged High Yield Securities Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 6.09 .982 1.890 2.872 (.982) 7.98 49.19 57,469 .87 12.96 38.35
1992 7.98 .922 .420 1.342 (.922) 8.40 16.96 39,131 .76 11.00 29.79
1993 8.40 .815 .570 1.385 (.815) 8.97 16.72 69,545 .76 9.17 32.27
1994 8.97 .770 (.990) (.220) (.760) 7.99 (2.58) 81,151 .81 9.36 18.39
1995 7.99 .770 .734 1.504 (.784) 8.71 19.46 160,080 .82 8.87 18.47
+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 any applicable deferred contingent sales charge and assumes reinvestment of dividends and
capital gains, if any, at net asset value. Prior to May 1, 1994, dividends were reinvested at the maximum offering price.
*During the periods indicated, Advisers agreed in advance to waive 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, 1991, 1992, 1993, 1994 and 1995, respectively, would have been .89%, .92%, .97%, 1.06% and 1.00%.
</TABLE>
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
three funds comprising the Franklin Partners Funds, including each Fund's
statements of investments in securities and net assets, as of December 31, 1995,
and each related statement of operations for the year then ended, 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, 1995, 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
three funds comprising the Franklin Partners Funds as of December 31, 1995, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 31, 1996
Franklin Partners Fund
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PERSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie chart format the Franklin Tax- davantaged International
Bond Fund's geographic distribution based on total net assets.
<TABLE>
<CAPTION>
Geographic Distribution on 12/31/95
<S> <C>
Europe 61.3%
Australia/New Zealand 19.7%
North America 10.0%
Asia 1.4%
Short-Term Obligations & Other Net Assets 7.6%
</TABLE>
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the 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
12/31/95.
<TABLE>
<CAPTION>
Period Ending T-Ad Int'l Bond Fund Sal Bros
<S> <C> <C>
6/9/90 $9,575 $10,000
6/30/90 $9,727 $10,153
7/31/90 $10,293 $10,652.528
8/31/90 $10,465 $10,641.875
9/30/90 $10,525 $10,767.449
10/31/90 $10,912 $11,539.475
11/30/90 $11,048 $11,680.257
12/31/90 $11,085 $11,732.818
1/31/91 $11,309 $12,185.705
2/28/91 $11,246 $12,149.148
3/31/91 $10,494 $11,234.317
4/30/91 $10,574 $11,446.645
5/31/91 $10,545 $11,379.11
6/30/91 $10,294 $11,151.528
7/31/91 $10,677 $11,489.419
8/31/91 $10,860 $11,680.144
9/30/91 $11,431 $12,342.408
10/31/91 $11,498 $12,501.625
11/30/91 $11,724 $12,760.409
12/31/91 $12,221 $13,635.773
1/31/92 $11,930 $13,369.875
2/29/92 $11,913 $13,172.001
3/31/92 $11,901 $12,977.055
4/30/92 $12,004 $13,069.192
5/31/92 $12,355 $13,642.93
6/30/92 $12,753 $14,195.469
7/31/92 $12,988 $14,504.93
8/31/92 $13,187 $15,146.048
9/30/92 $12,954 $15,242.982
10/31/92 $12,447 $14,692.711
11/30/92 $12,032 $14,315.108
12/31/92 $12,092 $14,285.046
1/31/93 $12,212 $14,480.751
2/28/93 $12,293 $14,768.918
3/31/93 $12,652 $15,135.188
4/30/93 $12,927 $15,589.243
5/31/93 $13,101 $15,872.967
6/30/93 $12,868 $15,576.143
7/31/93 $12,820 $15,587.046
8/31/93 $13,175 $16,141.945
9/30/93 $13,286 $16,414.744
10/31/93 $13,444 $16,339.236
11/30/93 $13,231 $16,264.076
12/31/93 $13,599 $16,444.607
1/31/94 $13,940 $16,515.319
2/28/94 $13,695 $16,561.562
3/31/94 $13,544 $16,763.613
4/30/94 $13,527 $16,872.576
5/31/94 $13,461 $16,644.796
6/30/94 $13,387 $17,047.6
7/31/94 $13,467 $17,091.924
8/31/94 $13,477 $16,992.791
9/30/94 $13,584 $17,329.248
10/31/94 $13,937 $17,776.343
11/30/94 $13,817 $17,419.038
12/31/94 $13,898 $17,427.748
1/31/95 $13,989 $17,807.673
2/28/95 $14,290 $18,311.63
3/31/95 $14,630 $19,943.196
4/30/95 $14,943 $20,369.981
5/31/95 $15,341 $20,814.046
6/30/95 $15,377 $20,918.116
7/31/95 $15,730 $21,028.982
8/31/95 $15,565 $19,826.125
9/30/95 $16,030 $20,410.995
10/31/95 $16,417 $20,476.311
11/30/95 $16,473 $20,654.454
12/31/95 $16,734 $20,834
</TABLE>
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the Franklin
Tax-Advantaged US Government Securities Fund to that of the Lehman Brothers
Intermediate Government Bond Index and the Consumer Price Index (CPI), based on
a $10,000 investment from 5/4/87 to 12/31/95.
<TABLE>
<CAPTION>
Period Ending T-Ad US Govt Sec Fund Leh Bros CPI
<S> <C> <C> <C>
5/4/87 $9,579 $10,000 $10,000
5/31/87 $9,714 $9,980.83871 $10,030.48
6/30/87 $9,879 $10,098.61261 $10,065.59
7/31/87 $9,977 $10,120.82955 $10,091.76
8/31/87 $9,969 $10,094.5154 $10,145.25
9/30/87 $9,748 $9,968.333955 $10,198
10/31/87 $9,971 $10,265.39031 $10,224.52
11/30/87 $10,154 $10,326.98265 $10,233.72
12/31/87 $10,239 $10,427.15438 $10,233.72
1/31/88 $10,565 $10,685.74781 $10,260.33
2/29/88 $10,648 $10,799.01674 $10,287
3/31/88 $10,641 $10,753.66087 $10,331.24
4/30/88 $10,645 $10,735.37964 $10,384.96
5/31/88 $10,617 $10,683.84982 $10,420.27
6/30/88 $10,842 $10,857.99657 $10,465.08
7/31/88 $10,824 $10,825.42258 $10,509.03
8/31/88 $10,824 $10,839.49563 $10,553.17
9/30/88 $11,052 $11,027.01891 $10,623.87
10/31/88 $11,251 $11,179.19177 $10,658.93
11/30/88 $11,134 $11,083.05072 $10,667.46
12/31/88 $11,080 $11,094.13377 $10,685.59
1/31/89 $11,226 $11,205.07511 $10,739.02
2/28/89 $11,182 $11,155.77278 $10,783.05
3/31/89 $11,183 $11,208.20491 $10,845.59
4/30/89 $11,380 $11,434.61065 $10,916.09
5/31/89 $11,671 $11,655.29863 $10,978.31
6/30/89 $11,965 $11,952.50875 $11,004.66
7/31/89 $12,118 $12,195.14467 $11,031.07
8/31/89 $12,024 $12,030.51022 $11,048.72
9/30/89 $12,083 $12,088.25667 $11,084.08
10/31/89 $12,324 $12,342.11006 $11,137.28
11/30/89 $12,456 $12,464.29695 $11,164.01
12/31/89 $12,540 $12,500.44341 $11,181.87
1/31/90 $12,467 $12,422.94066 $11,297.05
2/28/90 $12,562 $12,468.90554 $11,350.14
3/31/90 $12,594 $12,483.86823 $11,412.57
4/30/90 $12,520 $12,442.67146 $11,430.83
5/31/90 $12,848 $12,708.94463 $11,457.12
6/30/90 $12,980 $12,876.7027 $11,518.99
7/31/90 $13,186 $13,056.97654 $11,562.76
8/31/90 $13,144 $13,009.97143 $11,669.14
9/30/90 $13,224 $13,125.76017 $11,767.16
10/31/90 $13,370 $13,308.20824 $11,837.76
11/30/90 $13,629 $13,509.16218 $11,863.8
12/31/90 $13,822 $13,695.58862 $11,863.8
1/31/91 $14,018 $13,836.65318 $11,934.99
2/28/91 $14,092 $13,921.05677 $11,952.89
3/31/91 $14,184 $13,997.62258 $11,970.82
4/30/91 $14,323 $14,141.79809 $11,988.77
5/31/91 $14,434 $14,220.99216 $12,024.74
6/30/91 $14,464 $14,232.36895 $12,059.61
7/31/91 $14,700 $14,386.07854 $12,077.7
8/31/91 $14,925 $14,659.41403 $12,112.73
9/30/91 $15,174 $14,908.62407 $12,166.02
10/31/91 $15,376 $15,078.58238 $12,184.27
11/30/91 $15,443 $15,255.0018 $12,219.61
12/31/91 $15,852 $15,625.69834 $12,228.16
1/31/92 $15,611 $15,475.69164 $12,246.5
2/29/92 $15,767 $15,523.66628 $12,290.59
3/31/92 $15,678 $15,461.57162 $12,353.27
4/30/92 $15,808 $15,600.72576 $12,370.57
5/31/92 $16,082 $15,833.17658 $12,387.89
6/30/92 $16,309 $16,061.17432 $12,432.48
7/31/92 $16,529 $16,369.54887 $12,458.59
8/31/92 $16,735 $16,536.51826 $12,493.47
9/30/92 $16,882 $16,764.72222 $12,528.46
10/31/92 $16,651 $16,563.54555 $12,572.31
11/30/92 $16,707 $16,495.63501 $12,589.91
12/31/92 $16,980 $16,708.4287 $12,581.09
1/31/93 $17,310 $17,019.20548 $12,642.74
2/28/93 $17,523 $17,269.3878 $12,686.99
3/31/93 $17,599 $17,333.28453 $12,731.4
4/30/93 $17,666 $17,468.48415 $12,767.04
5/31/93 $17,771 $17,421.31925 $12,784.92
6/30/93 $18,043 $17,673.92837 $12,802.82
7/31/93 $18,172 $17,709.27623 $12,802.82
8/31/93 $18,339 $17,973.14445 $12,838.66
9/30/93 $18,307 $18,046.83434 $12,865.63
10/31/93 $18,416 $18,090.14674 $12,918.37
11/30/93 $18,221 $18,001.50502 $12,927.42
12/31/93 $18,420 $18,075.31119 $12,927.42
1/31/94 $18,619 $18,254.25677 $12,962.32
2/28/94 $18,363 $18,004.17346 $13,006.39
3/31/94 $17,695 $17,741.31252 $13,050.61
4/30/94 $17,535 $17,625.99399 $13,068.89
5/31/94 $17,588 $17,638.33219 $13,078.03
6/30/94 $17,482 $17,641.85985 $13,122.5
7/31/94 $17,874 $17,872.96822 $13,157.93
8/31/94 $17,896 $17,924.79983 $13,210.56
9/30/94 $17,541 $17,776.02399 $13,246.23
10/31/94 $17,451 $17,779.57919 $13,255.5
11/30/94 $17,432 $17,701.34904 $13,272.73
12/31/94 $17,660 $17,759.7635 $13,272.73
1/31/95 $18,078 $18,049.24764 $13,325.83
2/28/95 $18,569 $18,397.59812 $13,379.13
3/31/95 $18,640 $18,498.78491 $13,423.28
4/30/95 $18,908 $18,713.37082 $13,467.58
5/31/95 $19,673 $19,241.08787 $13,494.51
6/30/95 $19,783 $19,364.23083 $13,521.5
7/31/95 $19,744 $19,373.91295 $13,521.5
8/31/95 $19,986 $19,532.77904 $13,556.66
9/30/95 $20,169 $19,663.64866 $13,583.77
10/31/95 $20,398 $19,879.94879 $13,628.6
11/30/95 $20,646 $20,122.48417 $13,619.73
12/31/95 $20,907 $20,322 $13,637
</TABLE>
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of the Franklin
Tax-Advantaged High Yield Securities Fund to that of the CS First Boston High
Yield Index and the Salomon Brothers Combined Corporate Index, based on a
$10,000 investment from 5/4/87 to 12/31/95.
<TABLE>
<CAPTION>
Period Ending T-Ad Hi Yield CS First Bost Sal Bros
<S> <C> <C> <C>
5/4/87 $9,579 $10,000 $10,000
5/31/87 $9,579 $9,968.8 $9,968.8
6/30/87 $9,512 $10,165.18536 $10,106.3694
7/31/87 $9,515 $10,267.85373 $10,066.9546
8/31/87 $9,553 $10,373.61263 $10,045.814
9/30/87 $9,157 $10,119.45912 $9,743.43499
10/31/87 $8,810 $9,731.883832 $10,012.3538
11/30/87 $9,216 $10,108.50774 $10,140.5119
12/31/87 $9,350 $10,356.16618 $10,314.9287
1/31/88 $9,686 $10,710.34706 $10,742.9983
2/29/88 $9,948 $11,020.94712 $10,910.589
3/31/88 $9,857 $10,946.00468 $10,794.9368
4/30/88 $9,946 $11,023.72132 $10,729.0877
5/31/88 $9,940 $11,078.83992 $10,710.8482
6/30/88 $10,098 $11,313.71133 $11,001.1122
7/31/88 $10,203 $11,442.68764 $10,957.1078
8/31/88 $10,208 $11,409.50384 $10,998.7448
9/30/88 $10,299 $11,513.33033 $11,261.6148
10/31/88 $10,423 $11,671.06296 $11,459.8192
11/30/88 $10,417 $11,696.73929 $11,348.659
12/31/88 $10,500 $11,770.42875 $11,370.2214
1/31/89 $10,771 $12,007.01437 $11,554.419
2/28/89 $10,823 $12,062.24664 $11,493.1806
3/31/89 $10,765 $11,975.39846 $11,543.3073
4/30/89 $10,884 $11,946.6575 $11,737.2758
5/31/89 $11,023 $12,230.98795 $12,062.0097
6/30/89 $11,224 $12,407.11418 $12,401.9994
7/31/89 $11,248 $12,434.40983 $12,609.1128
8/31/89 $11,367 $12,433.16639 $12,448.9771
9/30/89 $11,233 $12,150.93351 $12,470.2267
10/31/89 $10,986 $11,847.16017 $12,673.4597
11/30/89 $10,912 $11,870.85449 $12,762.272
12/31/89 $10,987 $11,817.43565 $12,774.2589
1/31/90 $10,647 $11,401.46191 $12,605.3521
2/28/90 $10,298 $11,190.53487 $12,599.9035
3/31/90 $10,442 $11,512.82227 $12,640.2232
4/30/90 $10,174 $11,561.17613 $12,529.6165
5/31/90 $10,402 $11,801.64859 $12,901.7563
6/30/90 $10,651 $12,173.40052 $13,126.7838
7/31/90 $10,968 $12,566.60136 $13,301.1392
8/31/90 $10,358 $11,986.02437 $13,046.1444
9/30/90 $9,543 $11,071.49071 $13,011.2733
10/31/90 $8,984 $10,793.5963 $13,007.4593
11/30/90 $9,130 $11,010.54758 $13,265.007
12/31/90 $9,188 $11,063.39821 $13,456.7876
1/31/91 $8,998 $11,366.53532 $13,654.5614
2/28/91 $9,925 $12,347.46732 $13,990.1774
3/31/91 $10,805 $13,113.01029 $14,267.183
4/30/91 $11,436 $13,657.20022 $14,535.7994
5/31/91 $11,446 $13,725.48622 $14,642.0473
6/30/91 $11,878 $14,085.09396 $14,700.8922
7/31/91 $12,496 $14,561.17014 $14,936.2721
8/31/91 $12,781 $14,826.18343 $15,258.8298
9/30/91 $12,993 $15,162.7378 $15,552.5098
10/31/91 $13,502 $15,664.62442 $15,743.756
11/30/91 $13,603 $15,789.94142 $15,907.7592
12/31/91 $13,782 $15,905.20799 $16,364.3526
1/31/92 $14,247 $16,552.54995 $16,291.8861
2/29/92 $14,541 $16,954.77692 $16,479.3182
3/31/92 $14,806 $17,207.40309 $16,449.8958
4/30/92 $14,977 $17,221.16901 $16,559.4128
5/31/92 $15,187 $17,455.37691 $16,890.6882
6/30/92 $15,316 $17,628.18515 $17,159.8495
7/31/92 $15,528 $17,899.6592 $17,557.598
8/31/92 $15,759 $18,146.67449 $17,738.4918
9/30/92 $15,877 $18,264.62788 $17,937.366
10/31/92 $15,738 $18,074.67575 $17,660.5767
11/30/92 $15,988 $18,345.79588 $17,704.7104
12/31/92 $16,189 $18,553.10338 $17,995.0677
1/31/93 $16,537 $19,059.6031 $18,428.7494
2/28/93 $16,805 $19,436.98324 $18,821.5692
3/31/93 $17,156 $19,847.10359 $18,929.9896
4/30/93 $17,251 $19,960.23208 $19,073.8238
5/31/93 $17,394 $20,251.65147 $19,116.865
6/30/93 $17,797 $20,618.20636 $19,560.3763
7/31/93 $18,092 $20,832.6357 $19,705.1231
8/31/93 $18,157 $21,009.71311 $20,126.8127
9/30/93 $18,189 $21,129.46847 $20,205.3073
10/31/93 $18,619 $21,516.13774 $20,328.5597
11/30/93 $18,702 $21,787.24108 $20,151.7012
12/31/93 $18,967 $22,061.76032 $20,288.7328
1/31/94 $19,271 $22,454.45965 $20,662.0454
2/28/94 $19,120 $22,488.14134 $20283.93
3/31/94 $18,296 $21,826.98999 $19,669.3269
4/30/94 $18,081 $21,534.50832 $19,494.2699
5/31/94 $18,074 $21,657.25502 $19,461.1297
6/30/94 $18,176 $21,512.15141 $19,431.938
7/31/94 $18,127 $21,613.25852 $19,818.6335
8/31/94 $18,327 $21,768.87398 $19,868.1801
9/30/94 $18,424 $21,855.94948 $19,582.0783
10/31/94 $18,485 $21,871.24864 $19,550.747
11/30/94 $18,313 $21,617.54216 $19,472.544
12/31/94 $18,509 $21,846.6881 $19,649.7442
1/31/95 $18,816 $22,076.07833 $20,042.739
2/28/95 $19,628 $22,619.14986 $20,605.94
3/31/95 $19,843 $22,874.74625 $20,781.0905
4/30/95 $20,391 $23,382.56562 $21,146.8377
5/31/95 $20,871 $24,041.95397 $22,081.5279
6/30/95 $21,124 $24,200.63086 $22,253.7638
7/31/95 $21,355 $24,575.74064 $22,227.0593
8/31/95 $21,329 $24,644.55272 $22,527.1246
9/30/95 $21,549 $24,927.96507 $22,779.4284
10/31/95 $21,714 $25,204.66548 $23,064.1713
11/30/95 $21,746 $25,323.12741 $23,472.4071
12/31/95 $22,110 $25,6445 $23,841
</TABLE>
