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 4
Franklin Tax-Advantaged U.S.
Government Securities Fund 9
Franklin Tax-Advantaged High
Yield Securities Fund 12
Statement of Investments 16
Financial Statements 27
Notes to Financial Statements 30
August 15, 1996
Dear Shareholder:
We're pleased to bring you the Franklin Partners Funds(R) semi-annual report for
the fiscal period ended June 30, 1996.
A Difficult Market
Moderate U.S. economic growth and rising interest rates contributed to a
troublesome U.S. bond market. As you may recall, investment-grade bonds
performed well throughout 1995, thanks in part to a declining interest rate
environment. Unfortunately, that trend stopped in the first quarter of 1996.
A strong employment report, released March 8, 1996, caught many investors by
surprise. Fearing a rekindling of inflation, bonds sold off -- raising interest
rates -- and nervous investors threw the Dow Jones Industrial Average(R) into a
short-lived tailspin, tumbling 171.24 points (-3.04%) in a single day. By March
30, 1996, U.S. gross domestic product (GDP), a measure of the nation's economic
output, advanced at an annual 2.2% growth rate, contrasting sharply with the
0.5% annualized growth rate in the last quarter of 1995.
For most bond markets, the nation's economic expansion brought growing pains. As
interest rates rose, bond prices fell. Yields on 30-year Treasury bonds climbed
approximately 100 basis points over the six-month period to close June 30, 1996,
near 7%. Municipal and high-yield bonds generally fared a bit better. Currently,
GDP is estimated at an annualized 3.5% to 4% growth rate for the year, and
markets are looking to the Federal Reserve Board for a possible rate increase to
cool the accelerating economy.
Dealing With Ups and Downs
Since such volatility is a normal part of investing, I would like to remind you
of several ways to deal with the ups and downs of financial markets. First,
develop a long-term investment plan based on sound financial goals. Stay focused
on the plan and periodically consult with your investment representative to make
sure you are invested in funds that match your goals. If you concentrate on the
long term, you need not unduly concern yourself with short-term market
volatility.
Next, consider using an investment technique called Dollar Cost Averaging.
Investing a fixed dollar amount at regular intervals, regardless of the market's
direction, automatically buys more shares when prices are low and less when
prices are high. The net result: you reduce your average cost per share. Of
course, no investment technique can assure a profit or completely protect
against loss, but Dollar Cost Averaging provides a way to minimize the effects
of market volatility and helps make the most of your investment dollars.*
Finally, diversify your investments. Mutual funds are an easy way to diversify
your assets through a single, professionally managed vehicle. On the pages that
follow, you will find detailed discussions of the three funds included in this
report. While each fund has a distinct investment objective, keep in mind that
Franklin Templeton provides careful investment selection, broad asset
diversification and constant, professional investment supervision.
We appreciate your support, welcome your questions and look forward to serving
you in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
Executive Vice President and
Managing General Partner
*Be sure to consider your financial ability to continue share purchases through
periods of low price levels or changing economic conditions. For more
information on Dollar Cost Averaging, contact your investment representative, or
call Franklin Templeton at 1-800/DIAL BEN (1-800/342-5236).
Special Update
As you may know, after 1997 non-U.S. investors in the Franklin Partners Funds(R)
will become subject to U.S. withholding taxes. The Managing General Partners
believe that this is not consistent with the purpose of these Funds, and are
expected to recommend that Partners approve actions which would allow non-U.S.
Partners to continue to receive income free from U.S. taxation. U.S. investors
would have the opportunity to transfer holdings to other U.S. registered
Franklin Templeton funds, while non-U.S. Partners would be advised of other
options which may accommodate the tax and investment goals of those Partners.
We'll apprise you of progress as we move ahead.
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.
Recently, global fixed-income markets offered a welcome respite from this
period's twin threats of a rising U.S. dollar and rising global interest rates.
The Franklin Tax-Advantaged International Bond Fund generated a +2.11% total
return for the six-month period ended June 30, 1996, as discussed in the
Performance Summary on page 7. In contrast, the J.P. Morgan Global Government
Bond Index generated a total re-turn of -0.90% over the same period.
Dollar-Block Countries
Approximately 33% of portfolio assets are invested in the dollar-block countries
of Canada, Australia and New Zealand. Increased U.S. economic activity and
rising interest rates negatively impacted these assets during much of the
reporting period. In May, however, those markets rebounded and, by the end of
the reporting period, generated net positive returns for the year.
European Markets
About 44% of our net assets are in interme- diate bonds invested in Italy,
Spain, Sweden, Denmark and the United Kingdom. Year to date, three of the top
five performing developed market bond performers (in U.S. dollar terms) are
Italy, Spain and Sweden.
Spain experienced a brief bond sell-off follow-ing its elections in March,
during which we took advantage of lower bond prices to increase our holdings.
The Spanish market recovered quickly, reaching new highs in the equity and
fixed-income markets. As a result, bond prices rebounded, aiding the performance
of our Spanish positions.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
In Sweden, the re-election of the Social Democratic Party renewed hopes that the
government would continue its policy of disciplined fiscal management,
attempting to keep the country's economy strong. This restored investor
confidence and bond markets rallied in response.
Looking Forward
U.S. economic growth, a rebound in core European economies and the strength of
the U.S. dollar are all key factors that will influence global fixed-income
markets during the balance of the year. Although sustained global growth
probably won't occur, it's likely the U.S. economy will rebound mildly and
maintain this growth through the summer. This may help move the U.S. dollar
higher. In Europe, most economies have moved through the trough in their
business cycles. We believe that any renewed growth there will be slow to arrive
and sluggish. One significant factor affecting this growth is the degree of
constraint placed on domestic European policies relative to the European
Monetary Union.
Given this global outlook, Franklin Tax-Advantaged International Bond Fund is
positioned conservatively with respect to both currency and interest rate risk,
and we remain optimistic about our performance over the balance of the year.
Performance Summary
The Franklin Tax-Advantaged International Bond Fund reported a cumulative total
return of +2.11% for the six-month period, and +11.11% for the one-year period,
ended June 30, 1996. Of course, we maintain a long-term perspective when
managing the fund, and encourage shareholders to view their investments in a
similar manner. As shown in the table on page 8, the fund delivered a cumulative
total return of +78.45% since its inception on June 9, 1990.
The fund's share price, as measured by net asset value, decreased $0.17, from
$11.96 on December 31, 1995, to $11.79 on June 30, 1996. Over this reporting
period, shareholders received income distributions totaling 41.5 cents ($0.415)
per share. Based on the fund's maximum offering price of $12.31 and an
annualization of its distributions for the 30 days ended June 30, 1996, the
fund's distribution rate was 8.58%. Dividends will vary depending on income
earned by the fund, and past performance is not predictive of future results.
It is important to remember that there are special risks involved with foreign
investing. Fund share prices and returns will fluctuate with market conditions,
currencies and the economic and political climates where investments are made;
however, such fluctuations can provide long-term investors with opportunities to
purchase securities at prices which may be depressed due to investor pessimism
surrounding political and economic uncertainty.
<TABLE>
<CAPTION>
Franklin Tax-Advantaged International Bond Fund
Periods ended June 30, 1996
Since
Inception
One-Year Five-Year (6/9/90)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return1 11.11% 65.98% 78.45%
Average Annual Total Return2 6.36% 9.71% 9.23%
Distribution Rate3 8.58%
30-Day Standardized Yield4 6.23%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Cumulative total return shows the change in value of an investment over the
periods shown and does 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 periods shown and includes the current maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the distribution paid over
the 30 days ended June 30, 1996, and the maximum offering price of $12.31 on
that date.
4. Yield, calculated as required by the SEC, is based on earnings of the fund's
portfolio during the 30 days ended June 30, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividend 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 affects subsequent performance. All total return calculations assume
reinvestment of dividends at net asset value, and 12b-1 fees from the date of
the plan's implementation. Investment return and principal value will fluctuate,
so your shares, when redeemed, may be worth more or less than their original
cost. Past performance is not predictive of future results.
The fund's manager agreed in advance to waive a portion of its manager fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without these reductions, the fund's distribution
rate and total return would have been lower, and yield for the period would have
been 6.20%. 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 investment in U.S. government
obligations, primarily Government National Mortgage Association securities.
The Franklin Tax-Advantaged U.S. Government Securities Fund generated a -0.98%
cumulative total return for the six months ended June 30, 1996, as discussed in
the Performance Summary on page 11. During this reporting period, a growing U.S.
economy and rising interest rates negatively impacted the U.S. government
securities market in which your fund invests.
A surprisingly strong employment report, released in March 1996, marked the
start of a gradual rise in interest rates, which continued through June 1996.
This was the first sustained rate increase in nearly two years. Yields on most
Treasury securities rose approximately 100 basis points between January 1 and
June 30, 1996. It was only six months ago that the Federal Reserve Board lowered
rates in an effort to stimulate economic growth. Now, the governing board may
try to cool off an over-heated economy by raising rates sometime in the near
term.
Currently, forward-looking economists are divided into two camps -- "slower
growth" and "faster growth." Talk of a balanced budget package has been replaced
by political campaigning in this presidential election year. As you know,
elections are known events with unknown outcomes. It's difficult to say how much
of an impact this will have on market values. As the political positioning heats
up, however, the potential exists for increased volatility as candidates try to
"please everyone." We believe, nevertheless, that interest rates at current
levels adequately discount election rhetoric and reasonable economic
uncertainty.
When investing in a Government National Mortgage Association (GNMA or "Ginnie
Mae") fund, it's important to maintain a long-term outlook. Like most
fixed-income vehicles, the share price of a Ginnie Mae fund will fluctuate with
interest rate movements. Ginnie Mae values are also affected by the higher level
of mortgage prepayments that often occurs in periods of declining interest
rates. Although the fund may invest in other mortgage passthroughs, Ginnie Maes
remain the fund's primary income-generating investment. They generally provide
the price stability of an intermediate-term bond, and often more income than a
30-year bond. The fund is not managed as an aggressive trading vehicle, but as
an income fund, investing only in those issues boasting high credit quality,
moderate volatility and solid income.
Performance Summary
The Franklin Tax-Advantaged U.S. Government Securities Fund reported a
cumulative total return of -0.98% for the six-month period, and a total return
of +4.64% for the one-year period, ended June 30, 1996. We maintain a long-term
perspective when managing the fund, and encourage shareholders to view their
investments in a similar manner. As shown in the table, the fund has delivered a
cumulative total return of +116.13% since its inception on May 4, 1987.
The fund's share price, as measured by net asset value, decreased $0.46, from
$10.80 on December 31, 1995, to $10.34 on June 30, 1996. Over the reporting
period, shareholders received income distributions totaling 35.4 cents ($0.354)
per share. Based on the fund's maximum offering price of $10.80 and an
annualization of its distributions for the 30 days ended June 30, 1996, the
fund's distribution rate was 6.60%. Dividends will vary depending on income
earned by the fund, and past performance is not predictive of future results.
Franklin Tax-Advantaged
U.S. Government Securities Fund
Periods ended June 30, 1996
Since
Inception
One-Year Five-Year (5/4/87)
- --------------------------------------------------------------------------------
Cumulative
Total Return1 4.64% 43.13% 116.13%
Average Annual
Total Return2 0.18% 6.50% 8.26%
Distribution Rate3 6.60%
30-Day Standardized Yield4 6.44%
- --------------------------------------------------------------------------------
1. Cumulative total return shows the change in value of an investment over the
periods shown and does 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 periods shown and includes the current maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the distribution paid over
the 30 days ended June 30, 1996, and the maximum offering price of $10.80 on
that date.
4. Yield, calculated as required by the SEC, is based on earnings of the fund's
portfolio during the 30 days ended June 30, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividend 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 subsequent performance. All total return calculations assume
reinvestment of dividend at net asset value, and 12b-1 fees from the date of the
plan's implementation. Investment return and principal value will fluctuate, so
that shares, when redeemed, may be worth more or less than their original cost.
Past performance is not predictive 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.
Market Activity
Over the past six months, the fund generated a cumulative total return of
+2.31%, as discussed in the Performance Summary on page 15. With signs of
stronger economic growth and fears of inflation, long-term U.S. Treasury bond
interest rates rose from 6.2% on January 1, 1996, to 7.0% by June 30, 1996.
Despite these rate increases, which generally cause declines in bond values, the
high yield bond market performed very well.
The solid performance of this sector can be attributed to the hybrid nature of
these high yield instruments. They possess both debt and equity characteristics.
While the "debt" component can be negatively impacted by rising interest rates,
this is often offset by the "equity" component of the security, which gains on
expectations of economic growth. It's this growth that helps strengthen the
overall financial condition of high-yield bond issuers.
Portfolio Changes
Industry positioning and individual company selection played significant roles
in our performance over the period. We increased the fund's exposure to media
and broadcasting bonds, seeking to take advantage of new opportunities arising
from the Telecommunications Bill of 1996. The bill generally deregulated the
telecommunications industry, resulting in improved growth prospects for many
corporations.
In May, Bally's Casino agreed to be purchased by Hilton Hotels, an
investment-grade company. In general, a merger like this has a beneficial impact
on the price of the company being purchased, as its financial operations are
usually improved by the acquiring company.
The fund continued to increase its overall credit quality rating during this
reporting period. Improved ratings came as a result of two actions: first, some
of our current holdings received upgraded ratings and, second, we purchased new,
higher-rated securities, which helped raise our overall credit worthiness. The
portfolio's average maturity decreased from 9 years to 8.5 years during the
six-month reporting period.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
We are pleased that Franklin's Tax-Advantaged High Yield Securities Fund fared
well during the reporting period, but we cannot guarantee that this trend will
continue. Investing in this fund may entail a greater degree of credit risk
relative to investing in a fund of higher-rated, lower-yielding securities. The
fund should not be considered a complete investment program, and should be
carefully evaluated for its appropriateness in light of your overall investment
needs and goals. Those on fixed incomes, including retired individuals, should
consider the increased risk of loss of principal that is present with an
investment in higher risk securities such as those contained in the fund's
portfolio.
In the months ahead, moderate economic growth and low inflation should help
improve corporate earnings and benefit high yield bonds.
This discussion reflects the strategies we employed for the fund during this
fiscal period, and includes our opinions as of June 30, 1996. Since economic and
market conditions are constantly changing, our strategies, and our evaluations,
conclusions and decisions regarding portfolio holdings may change as new
circumstances arise. Although past performance of a specific investment or
sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund.
Performance Summary
The Franklin Tax-Advantaged High Yield Securities Fund reported a total return
of +2.31% for the six-month period, and a total return of +7.08% for the
one-year period, ended June 30, 1996. Of course, we maintain a long-term
perspective when managing the fund, and encourage shareholders to do the same
with regard to their own investment in the fund. As shown in the table, the fund
delivered a cumulative total return of +136.16% since its inception on May 4,
1987.
The fund's share price, as measured by net asset value, decreased $0.17, from
$8.71 on December 31, 1995, to $8.54 on June 30, 1996. Over the reporting
period, shareholders received income distributions totaling 37.0 cents ($0.370)
per share. Based on the fund's maximum offering price of $8.92 and an
annualization of its distributions for the 30 days ended June 30, 1996, the
fund's distribution rate was 8.89%. Dividends will vary depending on income
earned by the fund, and past performance is not predictive of future results.
Franklin Tax-Advantaged
High Yield Securities Fund
Periods ended June 30, 1996
Since
Inception
One-Year Five-Year (5/4/87)
- --------------------------------------------------------------------------------
Cumulative
Total Return1 7.08% 90.43% 136.16%
Average Annual
Total Return2 2.49% 12.78% 9.31%
Distribution Rate3 8.89%
30-Day Standardized Yield4 8.51%
- --------------------------------------------------------------------------------
1. Cumulative total return shows the change in value of an investment over the
periods shown and does 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 periods shown and includes the current maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the distribution paid over
the 30 days ended June 30, 1996, and the maximum offering price of $8.92 on that
date.
4. Yield, calculated as required by the SEC, is based on earnings of the fund's
portfolio during the 30 days ended June 30, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividend 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 subsequent performance. All total return calculations assume
reinvestment of dividend at net asset value, and 12b-1 fees from the date of the
plan's implementation. Investment return and principal value will fluctuate, so
that your shares, when redeemed, may be worth more or less than their original
cost. Past performance is not predictive of future results.
FRANKLIN PARTNERS FUNDS
=======================
Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Face Value
Country* Amount Franklin Tax-Advantaged International Bond Fund (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
Foreign Notes, Bills, Bonds & Government Securities 91.3%
<S> <C> <C>
Australia 11.9%
AU 820,000 EIB Global Bond, 10.25%, 10/01/01 ............................... $ 701,513
AU 1,000,000 EuroFima, 9.875%, 01/17/07 ...................................... 826,031
AU 600,000 New South Wales Treasury Corp., 7.00%, 04/01/04 ................. 420,576
AU 425,000 Queensland Treasury Corp., notes, 12.00%, 07/15/99 .............. 366,779
AU 1,660,000 Queensland Treasury Corp., notes, 8.00%, 05/14/03 ............... 1,242,531
----------
3,557,430
----------
Canada 12.8%
CA 400,000 Government of Canada, 8.50%, 04/01/02 ........................... 311,386
CA 945,000 Government of Canada, 10.25%, 02/01/04 .......................... 802,791
CA 550,000 Government of Canada, 8.75%, 12/01/05 ........................... 433,635
CA 420,000 Hydro-Quebec, Eurobonds, 11.25%, 10/10/00 ....................... 353,431
CA 150,000 Ontario-Hydro, Eurobonds, 9.00%, 06/24/02 ....................... 118,857
CA 1,500,000 Province of British Columbia, 9.00%, 01/09/02 ................... 1,188,519
CA 830,000 Province of Ontario, 7.50%, 01/19/06 ............................ 596,275
----------
3,804,894
-----------
Denmark 9.4%
DK 3,750,000 Government of Denmark, 9.00%, 11/15/00 .......................... 707,366
DK 1,393,000 Nykredit, 9.00%, 10/01/12 ....................................... 253,964
DK 5,811,000 Nykredit, 6.00%, 10/01/26 ....................................... 802,013
DK 7,536,000 Real Kredit Danmark, 6.00%, 10/01/26 ............................ 1,042,664
-----------
2,806,007
----------
France 1.9%
FR 4,250,000 French OAT, Strip, 0.00%, 10/25/15 .............................. 199,648
FR 510,000 French OAT, Strip, 0.00%, 10/25/16 .............................. 21,799
FR 1,500,000 Government of France, OAT, 8.50%, 12/26/12 ...................... 336,463
----------
557,910
----------
Germany 11.6%
DD 1,380,000 Deutscheland Republic, 8.50%, 08/21/00 .......................... 1,010,527
DD 1,070,000 Deutscheland Republic, 8.25%, 09/20/01 .......................... 782,750
DD 1,450,000 German Unity Fund, 8.75%, 08/20/01 .............................. 1,085,056
DD 850,000 West Japan Railway Co., 8.70%, 06/25/97 ......................... 584,520
-----------
3,462,853
-----------
Italy 11.4%
IT 1,050,000,000 Buoni Poliennali del Tesoro, 10.50%, 07/15/00 ................... 727,991
IT 900,000,000 Buoni Poliennali del Tesoro, 10.50%, 09/01/05 ................... 633,452
IT 2,000,000,000 Certificati di Credito del Tesoro, 12.00%, 01/20/98 ............. 1,371,895
IT 1,000,000,000 Certificati di Credito del Tesoro, 11.60%, 01/01/00 ............. 665,709
----------
3,399,047
----------
Japan 1.2%
JP 34,000,000 International Bank of Reconstruction and Development, 6.75%,
03/15/20 ....................................................... $ 363,048
----------
New Zealand 8.4%
NZ 2,275,000 New Zealand Government, 8.00%, 07/15/98 ......................... 1,530,153
NZ 1,500,000 New Zealand Government, 8.00%, 04/15/04 ......................... 984,836
----------
2,514,989
-----------
Spain 4.9%
ES 73,000,000 Government of Spain, 11.60%, 01/15/97 ........................... 582,266
ES 100,000,000 Government of Spain, 10.90%, 08/30/03 ........................... 873,794
----------
1,456,060
----------
Sweden 8.2%
SE 5,100,000 Staten Bostadiffinansier, 12.50%, 01/23/97 ...................... 797,198
SE 1,800,000 Staten Bostadiffinansier, 11.00%, 01/21/99 ...................... 297,372
SE 1,700,000 Government of Sweden, 10.25%, 05/05/03 .......................... 288,316
SE 8,000,000 Government of Sweden, 6.00%, 02/09/05 ........................... 1,051,322
----------
2,434,208
----------
United Kingdom 9.6%
GB 300,000 Abbey National Treasury Service, 10.50%, 04/22/97 ............... 481,620
GB 460,000 Export-Import Bank of Japan, 10.75%, 05/15/01 ................... 798,760
GB 270,000 Government of Italy, Eurobonds, 10.50%, 04/28/14 ................ 471,458
GB 715,000 United Kingdom Treasury, Conversion, 7.00%, 08/06/97 ............ 1,123,577
----------
2,875,415
----------
Total Long Term Investments (Cost $26,697,739)............. 27,231,861
----------
d,e Receivables from Repurchase Agreements 4.3%
US 1,266,121 Joint Repurchase Agreement, 5.439%, 07/01/96
(Maturity Value $1,272,045) (Cost $1,271,468)
Chase Securities, Inc., (Maturity Value $182,812)
Collateral: U.S. Treasury Notes, 5.375%, 11/30/97
Daiwa Securities America, Inc., (Maturity Value $182,812)
Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00
Donaldson, Lufkin & Jenrette Securities Corp.,
(Maturity Value $175,173)
Collateral: U.S. Treasury Bills, 05/29/97
U.S. Treasury Notes, 5.125% - 6.75%, 07/31/97 - 07/31/00
Fuji Securities, Inc., (Maturity Value $182,812)
Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99
Lehman Brothers, Inc., (Maturity Value $182,812)
Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01
SBC Warburg, Inc., (Maturity Value $182,812)
Collateral: U.S. Treasury Notes, 5.75%, 09/30/97
UBS Securities, L.L.C., (Maturity Value $182,812)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99
1,271,468
----------
Total Investments (Cost $27,969,207) 95.6% ........... 28,503,329
Other Assets and Liabilities, Net 4.4% ............... 1,324,045
----------
Net Assets 100.0% .................................... $29,827,374
============
At June 30, 1996, the net unrealized appreciation based on the cost of
investments for income tax purposes of $27,969,207 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................. $ 1,369,712
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................. (835,590)
-------------
Net unrealized appreciation ................................... $ 534,122
=============
</TABLE>
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 and valued in U.S. dollars.
dFace amount for repurchase agreements is for the underlying collateral.
eSee note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
================================================================================
Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited)
Face Value
Amount Franklin Tax-Advantaged U.S. Government Securities Fund (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association (GNMA) 97.2%
<C> <S> <C>
$ 9,350,293 GNMA I, SF, 6.00%, 10/15/23 - 11/15/23 ....................................... $ 8,461,964
62,319,757 GNMA I, SF, 6.50%, 05/15/23 - 03/15/24 ....................................... 58,054,323
7,110,422 GNMA II, 6.50%, 09/20/23 ..................................................... 6,588,196
16,405,126 GNMA I, PL, 7.00%, 05/15/13 - 06/15/28 ....................................... 15,671,898
51,262,021 GNMA I, SF, 7.00%, 03/15/22 - 07/15/25 ....................................... 49,227,187
25,831,184 GNMA II, 7.00%, 11/20/16 - 03/20/26 .......................................... 24,676,662
34,072,716 GNMA I, SF, 7.50%, 01/15/17 - 04/15/23 ....................................... 33,614,632
56,397,862 GNMA II, 7.50%, 09/20/16 - 12/20/25 .......................................... 55,357,605
1,156,449 GNMA I, PL, 8.00%, 03/15/32 .................................................. 1,156,442
50,254,363 GNMA I, SF, 8.00%, 11/15/15 - 09/15/24 ....................................... 50,756,616
10,063,044 GNMA II, 8.00%, 11/20/16 - 08/20/22 .......................................... 10,113,298
7,137,328 GNMA I, PL, 8.25%, 07/15/31 .................................................. 7,206,417
14,770,769 GNMA I, SF, 8.50%, 06/15/16 - 05/15/22 ....................................... 15,204,610
4,955,436 GNMA II, 8.50%, 11/20/21 - 03/20/22 .......................................... 5,069,999
3,866,158 GNMA I, SF, 9.00%, 05/15/16 - 11/15/21 ....................................... 4,049,793
2,840,547 GNMA I, SF, 9.50%, 01/15/17 - 10/15/21 ....................................... 3,038,496
530,405 GNMA II, 9.50%, 04/20/25 ..................................................... 563,388
5,181,035 GNMA I, SF, 10.00%, 10/15/11 - 08/15/21 ...................................... 5,650,556
733,902 GNMA II, 10.00%, 10/20/16 - 11/20/20 ......................................... 793,072
149,459 GNMA, GPM, 10.25%, 02/15/16 - 09/15/20 ....................................... 161,651
852,837 GNMA I, SF, 10.50%, 02/15/16 - 07/15/19 ...................................... 941,324
1,444,122 GNMA II, 10.50%, 07/20/17 - 02/20/19 ......................................... 1,579,506
203,108 GNMA I, SF, 11.00%, 10/15/13 - 09/15/14 ...................................... 227,544
1,067,400 GNMA II, 11.00%, 07/20/17 - 05/20/19 ......................................... 1,185,147
97,079 GNMA I, SF, 11.50%, 08/15/16 - 12/15/17 ...................................... 110,488
396,280 GNMA II, 11.50%, 08/20/16 - 03/20/19 ......................................... 447,053
146,912 GNMA I, SF, 12.00%, 06/15/15 ................................................. 169,224
-------------
Total Long Term Investments (Cost $372,904,379) ........................ 360,077,091
-------------
d,e Receivables from Repurchase Agreements 2.2%
8,150,829 Joint Repurchase Agreement, 5.439%, 07/01/96, (Maturity Value $8,192,154)
(Cost $8,188,442)
Chase Securities, Inc., (Maturity Value $1,177,335)
Collateral: U.S. Treasury Notes, 5.375%, 11/30/97
Daiwa Securities America, Inc., (Maturity Value $1,177,335)
Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,128,144)
Collateral: U.S. Treasury Bills, 05/29/97
U.S. Treasury Notes, 5.125% - 6.75%, 03/31/97 - 07/31/00
Fuji Securities, Inc., (Maturity Value $1,177,335)
Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99
Lehman Brothers Securities, Inc., (Maturity Value $1,177,335)
Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01
SBC Warburg, Inc., (Maturity Value $1,177,335)
Collateral: U.S. Treasury Notes, 5.75%, 09/30/97
UBS Securities, L.L.C. (Maturity Value $1,177,335)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99 ....... $ 8,188,442
-------------
Total Investments (Cost $381,092,821) 99.4%........................ 368,265,533
Other Assets and Liabilities, Net .6%.............................. 2,105,996
-------------
Net Assets 100.0%.................................................. $370,371,529
=============
At June 30, 1996, the net unrealized depreciation based on the cost of investments
for income tax purposes of $381,113,452 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................. $ 1,777,551
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value .............................................. (14,625,470)
-------------
Net unrealized depreciation................................................. $ (12,847,919)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
GPM - Graduated Payment Mortgage
PL - Project Loan
SF - Single Family
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding joint repurchase agreement
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
================================================================================
Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited)
Face Value
Amount Franklin Tax-Advantaged High Yield Securities Fund (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds 91.0%
Automotive 1.4%
<C> <S> <C>
$ 2,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............... $ 2,040,000
1,100,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ............................... 1,171,500
-------------
3,211,500
-------------
Cable Television 7.2%
3,500,000 Cablevision Systems Corp., senior sub. notes, 9.25%, 11/01/05 ................ 3,246,250
960,000 Cablevision Systems Corp., senior sub. deb., 10.50%, 05/15/16 ................ 936,000
2,000,000 Comcast Corp., senior sub., 9.125%, 10/15/06 ................................. 1,900,000
1,500,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................. 1,447,500
1,900,000 Continental Cablevision, Inc., senior sub. deb., 9.00%, 09/01/08 ............. 2,071,860
1,000,000 Diamond Cable Communication Co., senior disc. notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05 ............... 593,750
1,200,000 fRogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 ..... 767,464
800,000 Rogers Communications, Inc., deb., 10.875%, 04/15/04 ......................... 816,000
200,000 a,bScott Cable Communications, Inc., S.F., sub. deb., 12.25%, 04/15/01 .......... 121,000
5,000,000 Telewest PLC, deb., zero coupon to 10/01/00, (original accretion rate 11.00%),
11.00% thereafter, 10/01/07 ................................................. 2,975,000
1,500,000 Time Warner, Inc., senior notes, 9.125%, 01/15/13 ............................ 1,545,000
-------------
16,419,824
-------------
Chemicals 3.6%
1,250,000 Applied Extrusion Technology, senior unsecured notes, 11.50%, 04/01/02 ....... 1,268,750
2,000,000 Arcadian Partners L.P., senior notes, Series B, 10.75%, 05/01/05 ............. 2,172,500
2,500,000 Harris Chemical North America, Inc., senior sub. notes, 10.75%, 10/15/03 ..... 2,443,750
2,225,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ......... 2,386,313
-------------
8,271,313
-------------
Consumer Goods 5.5%
1,250,000 Calmar, Inc., senior sub. notes, 11.50%, 08/15/05 ............................ 1,225,000
4,000,000 cEkco Group, Inc., senior notes, 9.25%, 04/01/06 .............................. 3,840,000
1,300,000 Herff Jones, Inc., senior sub. notes, 11.00%, 08/15/05 ....................... 1,358,500
2,250,000 Hines Horticulture, Inc., senior sub. notes, Series B, 11.75%, 10/15/05 ...... 2,340,000
2,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ............ 1,880,000
2,000,000 Revlon Consumers Products Corp., senior sub. notes, Series B, 10.50%, 02/15/03 2,015,000
-------------
12,658,500
-------------
Containers & Packaging .7%
1,500,000 Container Corp. of America, guaranteed, senior notes, 11.25%, 05/01/04 ....... 1,552,500
-------------
Energy & Natural Resources 1.3%
975,000 Gulf Canada Resources, Ltd., sub. deb., 9.625%, 07/01/05 ..................... 1,001,013
700,000 gMesa Operating Co., company guarantee, 10.625%, 07/01/06 ..................... 714,875
1,400,000 Nuevo Energy Co., senior sub. notes, 9.50%, 04/15/06 ......................... 1,375,500
-------------
3,091,388
-------------
Financial .9%
$ 750,000 American Reinsurance Corp., senior sub. notes, 10.875%, 09/15/04 ............. $ 819,581
1,300,000 cHomeside, Inc., senior notes, 11.25%, 05/15/03 ............................... 1,339,000
-------------
2,158,581
-------------
Food & Beverages 5.4%
950,000 a,bBeatrice Foods, Inc., senior sub. notes, 12.00%, 12/01/01 .................... 299,250
1,500,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 . 1,462,500
1,800,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............... 1,755,000
280,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .......................... 281,400
2,065,000 Dr. Pepper Bottling Texas, senior notes, 10.25%, 02/15/00 .................... 2,152,763
1,300,000 Dr. Pepper Bottling Holdings, senior notes, zero coupon to 02/15/98, (original
accretion rate 11.625%), 11.625% thereafter, 02/15/03 ....................... 1,085,500
1,800,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ........ 1,773,000
2,250,000 Specialty Foods Corp., senior notes, Series B, 10.25%, 08/15/01 .............. 2,112,188
1,500,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ............... 1,462,500
-------------
12,384,101
-------------
Food Retailing 5.9%
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 ........... 2,125,000
2,000,000 Grand Union Co., senior notes, 12.00%, 09/01/04 .............................. 1,877,500
2,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ................... 1,887,500
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ................... 1,000,000
1,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................. 832,500
1,000,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ........................... 962,500
1,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ...................... 925,000
2,460,000 Smiths Food & Drug, senior sub. notes, 11.25%, 05/15/07 ...................... 2,503,050
-------------
13,502,550
-------------
Forest & Paper Products 6.4%
2,000,000 APP International Finance, company guarantee, 11.75%, 10/01/05 ............... 2,050,000
1,000,000 Fort Howard Corp., senior sub. notes, 9.00%, 02/01/06 ........................ 967,500
1,500,000 Fort Howard Corp., sub. notes, 10.00%, 03/15/03 .............................. 1,507,500
800,000 cFour M Corp., senior notes, 12.00%, 06/01/06 ................................. 818,000
3,000,000 Rapp International Finance Co., company guarantee, 13.25%, 12/15/05 .......... 3,225,000
1,500,000 REPAP Wisconsin, Inc., senior notes, 9.875%, 05/01/06 ........................ 1,338,750
2,450,000 Riverwood International, company guarantee, 10.25%, 04/01/06 ................. 2,443,875
500,000 S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 ......................... 532,500
2,000,000 Tembec Finance Corp., senior notes, 9.875%, 09/30/05 ......................... 1,870,000
-------------
14,753,125
-------------
Gaming & Leisure 10.0%
$ 850,000 cAMF Group, Inc., senior sub. notes, 10.875%, 03/15/06 ........................ $ 847,875
1,400,000 cAMF Group, Inc., senior disc. notes, zero coupon to 03/15/01, (original accretion
rate 12.25%), 12.25% thereafter, 03/15/06 ................................... 759,500
2,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ............................. 2,085,000
1,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................. 1,152,500
2,000,000 Bally's Grand, first mortgage, Series B, 10.375%, 12/15/03 ................... 2,202,500
1,000,000 cCobb Theatres/Financial Corp., senior notes, 10.625%, 03/01/03 ............... 1,027,500
1,000,000 Grand Casinos, Inc., first mortgage, 10.125%, 12/01/03 ....................... 1,027,500
560,000 Harvey Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 ................. 562,800
2,000,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ................. 2,035,000
2,500,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............... 2,612,500
2,000,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .......................... 2,310,000
4,000,000 Six Flags Theme Parks, senior sub. notes, zero coupon to 06/15/98, (original
accretion rate 12.25%), 12.25% thereafter, 06/15/05 ......................... 3,410,000
2,950,000 Station Casinos, Inc., senior sub. notes, 10.125%, 03/15/06 .................. 2,898,375
-------------
22,931,050
-------------
Health Care Services 11.2%
4,000,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............. 4,120,000
1,750,000 Integrated Health Services, Inc., senior sub. notes, 9.625%, 05/31/02 ........ 1,741,250
3,000,000 IVAC Corp., senior notes, 9.25%, 12/01/02 .................................... 3,000,000
3,500,000 cMariner Health Group, senior sub. notes, 9.50%, 04/01/06 ..................... 3,386,250
1,000,000 OrNda Healthcorp, Inc., S.F., senior sub. deb., 12.25%, 05/15/02 ............. 1,086,250
3,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ........... 2,887,500
1,500,000 Sola Group, Ltd., senior sub. notes, 6.00%, 12/15/03 ......................... 1,372,500
250,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ....................... 265,625
3,000,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ....................... 3,045,000
900,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ................. 954,000
3,950,000 Unilab Corp., senior notes, 11.00%, 04/01/06 ................................. 3,732,750
-------------
25,591,125
-------------
Industrial 4.2%
2,800,000 AAF-McQuay, Inc., senior notes, 8.875%, 02/15/03 ............................. 2,646,000
3,500,000 American Standard, Inc., senior sub. deb., zero coupon to 06/01/98, (original
accretion rate 10.50%), 10.50% thereafter, 06/01/05 ......................... 3,045,000
750,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ................ 768,750
1,000,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ........................ 1,010,000
2,300,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ............................ 2,196,500
-------------
9,666,250
-------------
Lodging 3.8%
$ 2,950,000 HMH Properties, Inc., senior notes, 9.50%, 05/15/05 .......................... $ 2,817,250
3,000,000 John Q. Hammons Hotels L.P., first mortgage, 9.75%, 10/01/05 ................. 2,906,250
3,000,000 Red Roof Inns, senior notes, 9.625%, 12/15/03 ................................ 2,872,500
-------------
8,596,000
-------------
Media & Broadcasting 9.0%
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 ............. 2,625,750
3,000,000 Heritage Media Corp., senior sub. notes, 8.75%, 02/15/06 ..................... 2,805,000
2,500,000 Hollinger International Publishing, company guarantee, 9.25%, 02/01/06 ....... 2,290,625
1,500,000 cK-III Communications Corp., senior notes, 8.50%, 02/01/06 .................... 1,376,250
1,500,000 K-III Communications Corp., S.F., senior notes, 10.25%, 06/01/04 ............. 1,522,500
500,000 News America Holdings, Inc., senior notes, 9.125%, 10/15/99 .................. 532,845
2,000,000 SCI Television, Inc., senior notes, 11.00%, 06/30/05 ......................... 2,090,000
3,800,000 cSFX Broadcasting, senior sub. notes, 10.75%, 05/15/06 ........................ 3,752,500
1,100,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .......... 1,072,500
1,500,000 Sullivan Broadcasting, senior sub. notes, 10.25%, 12/15/05 ................... 1,436,250
-------------
20,514,220
-------------
Metals & Mining 1.1%
1,500,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ........................ 1,470,000
1,100,000 Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 .................. 1,031,250
-------------
2,501,250
-------------
Retail .7%
1,500,000 Eckerd Jack Corp., senior sub. notes, 9.25%, 02/15/04 ........................ 1,531,875
-------------
Technology & Information Services 2.1%
2,000,000 ADT Operations, guaranteed senior sub. notes, 9.25%, 08/01/03 ................ 2,070,000
1,500,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ............................. 1,481,250
400,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ....................... 428,000
900,000 Exide Electronics Group, senior sub. notes, 11.50%, 03/15/06 ................. 900,000
-------------
4,879,250
-------------
Textiles & Apparel 1.9%
3,000,000 cClark-Schwebel, Inc., senior notes, 10.50%, 04/15/06 ......................... 3,105,000
1,030,000 a,bForstmann Textile & Co., Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ..... 293,550
1,000,000 Westpoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 .................. 975,000
-------------
4,373,550
-------------
Transportation 1.6%
$ 1,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ....................... $ 1,582,500
2,000,000 Southern Pacific Transportation Co., senior notes, 9.375%, 08/15/05 .......... 2,090,000
-------------
3,672,500
-------------
Utilities 1.6%
2,500,000 El Paso Electric Co., first mortgage, Series D, 8.90%, 02/01/06 .............. 2,481,250
1,000,000 Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 07/23/06 1,117,500
-------------
3,598,750
-------------
Wireless Communication 5.5%
4,170,000 Arch Communications Group, senior disc. notes, zero coupon to 03/15/01,
(original accretion rate 10.875%), 10.875% thereafter, 03/15/08 ............. 2,168,400
2,500,000 Dial Call Communications, units, senior disc. notes, zero coupon to 04/15/99,
(original accretion rate 12.25%), 12.25% thereafter, 04/15/04 ............... 1,600,000
5,000,000 Intelcom Group (USA), Inc., senior disc. notes, zero coupon to 05/01/01,
(original accretion rate 12.50%), 12.50% thereafter, 05/01/06 ............... 2,725,000
5,000,000 MFS Communication Co., Inc., senior disc. notes, zero coupon to 01/15/01,
(original accretion rate 8.875%), 8.875% thereafter, 01/15/06 ............... 3,037,500
5,000,000 Teleport Communications, senior disc. notes, zero coupon to 07/01/01,
(original accretion rate 11.125%), 11.125% thereafter, 07/01/07 ............. 2,937,500
-------------
12,468,400
-------------
Total Corporate Bonds (Cost $210,494,405) .............................. 208,327,602
-------------
Shares/
Warrants
- ----------
Common Stock .6%
50,817 aKash N' Karry Food Stores, Inc. (Cost $1,462,392)............................. 1,321,242
-------------
Preferred Stock .9%
2,044 cTime Warner, Inc., Series K, PIK, 10.25%, 07/01/16 (Cost $2,043,897).......... 2,003,674
-------------
Warrants 0%
900 a,cExide Electronics Group ...................................................... 18,000
300 aFoodmaker, Inc. .............................................................. 6,926
2,500 aNextel Communications, Inc. .................................................. 25
-------------
Total Warrants (Cost $38,843) .......................................... 24,951
-------------
Total Long Term Investments (Cost $214,039,537) ........................ 211,677,469
-------------
$ 11,522,534 d,eJoint Repurchase Agreement, 5.439%, 07/01/96, (Maturity Value $11,581,182)
(Cost $11,575,935)
Chase Securities, Inc., (Maturity Value $1,664,388)
Collateral: U.S. Treasury Notes, 5.375%, 11/30/97
Daiwa Securities America, Inc., (Maturity Value $1,664,388)
Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,594,854)
Collateral: U.S. Treasury Bills, 05/29/97
Collateral: U.S. Treasury Notes, 5.125% - 6.75%, 07/31/97 - 07/31/00
Fuji Securities, Inc., (Maturity Value $1,664,388)
Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99
Lehman Brothers, Inc., (Maturity Value $1,664,388)
Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01
SBC Warburg, Inc., (Maturity Value $1,664,388)
Collateral: U.S. Treasury Notes, 5.75%, 09/30/97
UBS Securities, L.L.C., (Maturity Value $1,664,388)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99 ....... $ 11,575,935
-------------
Total Investments (Cost $225,615,472) 97.6%........................ 223,253,404
Other Assets and Liabilities, Net 2.4%............................. 5,510,410
-------------
Net Assets 100.0%.................................................. $228,763,814
=============
At June 30, 1996, the net unrealized depreciation based on the
cost of investments for income tax purposes of $225,615,472 was as follows:
Aggregate gross unrealized appreciation for all investments for which there was an
excess of value over tax cost ............................................ $ 4,044,035
Aggregate gross unrealized depreciation for all investments for which there was an
excess of tax cost over value ............................................ (6,406,103)
-------------
Net unrealized depreciation ................................................ $ (2,362,068)
=============
</TABLE>
PORTFOLIO ABBREVIATION:
L.P. - Limited Partnership
PIK - Payment-in-Kind
S.F. - Sinking Fund
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-Income producing.
bSee Note 5 regarding defaulted securities.
cPurchased in a private placement transaction; resale may only be to qualified
insititutional buyers.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding joint repurchase agreement.
fFace amount is stated in foreign currency and value is stated in U.S. dollars.
gSee Note 1(i) regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
================================================================================
Financial Statements
Statements of Assets and Liabilities
June 30, 1996 (unaudited)
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 ......................................... $26,697,739 $372,904,379 $214,039,537
=========== =========== ==========
At value.................................................... 27,231,861 360,077,091 211,677,469
Receivables from repurchase agreements, at value and cost.... 1,271,468 8,188,442 11,575,935
Cash......................................................... 423,025 192,081 5,014,143
Foreign currencies (Cost $55)................................ 55 -- --
Receivables:
Dividends and interest...................................... 956,333 2,125,967 4,272,930
Prepaid expenses............................................. -- 32,027 --
----------- ----------- ----------
Total assets............................................ 29,882,742 370,615,608 232,540,477
----------- ----------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery........................................... -- -- 2,910,750
When-issued basis (Note 1)................................. -- -- 700,000
Distributions to partners................................... -- 23,386 4,898
Management fees............................................. 10,260 159,255 94,501
Distribution fees........................................... 4,653 49,928 39,642
Partners' servicing costs................................... 1,006 5,677 426
Accrued expenses and other liabilities....................... 39,449 5,833 26,446
----------- ----------- ----------
Total liabilities....................................... 55,368 244,079 3,776,663
----------- ----------- ----------
Net assets, at value.......................................... $29,827,374 $370,371,529 $228,763,814
=========== =========== ==========
Net assets consist of:
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies........................... $ 527,301 $ (12,827,288) $ (2,362,006)
Undistributed net realized gain (loss) from
investments and foreign currency transactions............... 750,060 (11,189,041) (3,952,124)
Partners' capital............................................ 28,550,013 394,387,858 235,077,944
----------- ----------- ----------
Net assets, at value.......................................... $29,827,374 $370,371,529 $228,763,814
=========== =========== ==========
Shares outstanding............................................ 2,528,898 35,812,492 26,795,604
=========== =========== ==========
Net asset value per share*.................................... $11.79 $10.34 $8.54
=========== =========== ==========
Maximum offering price per share
(100/95.75 of net asset value per share)..................... $12.31 $10.80 $8.92
=========== =========== ==========
*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.
FRANKLIN PARTNERS FUNDS
================================================================================
Financial Statements (cont.)
Statements of Operations
for the six months ended June 30, 1996 (unaudited)
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:
Dividends.................................................... $ -- $ -- $ 43,897
Interest (Note 1)............................................ 1,148,434 14,272,116 9,342,417
----------- ----------- ----------
Total income ........................................... 1,148,434 14,272,116 9,386,314
----------- ----------- ----------
Expenses:
Management fees (Note 4)..................................... 93,365 992,250 570,157
Distribution fees (Note 4)................................... 16,168 162,583 131,368
Partners' servicing costs (Note 4)........................... 6,265 26,629 12,790
Custodian fees............................................... 16,352 7,717 2,805
Registration fees............................................ 10,750 6,040 11,097
Professional fees............................................ 7,361 16,572 10,052
Reports to partners.......................................... 4,190 5,748 8,881
Managing partners' fees and expenses......................... -- 1,973 2,755
Other........................................................ 21,864 19,086 33,709
Management fees waived by manager (Note 4)................... (54,862) -- --
----------- ----------- ----------
Total expenses.......................................... 121,453 1,238,598 783,614
----------- ----------- ----------
Net investment income................................. 1,026,981 13,033,518 8,602,700
----------- ----------- ----------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) from:
Investments................................................ 127,723 (330,309) (818,393)
Foreign currency transactions.............................. (9,783) -- (426)
Net unrealized appreciation (depreciation) on:
Investments................................................ (500,408) (16,594,140) (3,851,302)
Translation of assets and liabilities
denominated in foreign currencies......................... (13,551) -- 356
----------- ----------- ----------
Net realized and unrealized loss from investments
and foreign currency transactions............................ (396,019) (16,924,449) (4,669,765)
----------- ----------- ----------
Net increase (decrease) in net assets resulting from operations $ 630,962 $ (3,890,931) $ 3,932,935
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
FRANKLIN PARTNERS FUNDS
===========================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets for the six months ended June 30, 1996
(unaudited) and the year ended December 31, 1995
Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged
International Bond Fund U.S. Government Securities Fund High Yield Securities Fund
-------------------- ---------------------- ---------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income.. $ 1,026,981 $ 1,888,748 $ 13,033,518 $ 29,326,619 $ 8,602,700 $ 9,708,179
Net realized gain (loss)
from investments and
foreign currency
transactions.......... 117,940 85,573 (330,309) (2,853,964) (818,819) 588,709
Net unrealized apprecia-
tion (depreciation) on
investments and trans-
lation of assets and
liabilities denominated
in foreign currencies. (513,959) 2,489,173 (16,594,140) 46,981,743 (3,850,946) 7,378,901
---------- ---------- ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting
from operations..... 630,962 4,463,494 (3,890,931) 73,454,398 3,932,935 17,675,789
Distributions to partners
from undistributed net
investment income...... (1,047,115) (1,970,655) (13,033,518) (29,326,619) (8,602,700) (9,853,364)
Increase (decrease) in net
assets from partnership's
capital share transactions
(Note 2)............... 1,891,119 3,134,327 (16,268,843) (96,984,064) 73,353,515 71,106,906
---------- ---------- ----------- ----------- ----------- ----------
Net increase
(decrease)
in net assets....... 1,474,966 5,627,166 (33,193,292) (52,856,285) 68,683,750 78,929,331
Net assets:
Beginning of period...... 28,352,408 22,725,242 403,564,821 456,421,106 160,080,064 81,150,733
---------- ---------- ----------- ----------- ----------- ----------
End of period............ $29,827,374 $28,352,408 $370,371,529 $403,564,821 $228,763,814 $160,080,064
========== ========== =========== =========== =========== ==========
Undistributed net invest-
ment income included in
net assets:
Beginning of period..... $-- $-- $-- $-- $-- $ 145,950
========== ========== =========== =========== =========== ==========
End of period........... $-- $-- $-- $-- $-- $ --
========== ========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN PARTNERS FUNDS
================================================================================
Notes to Financial Statements (unaudited)
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), registered
under the Investment Company Act of 1940, as amended. Each Fund issues one class
of shares in the form of partnership interests, and purchasers of shares of any
of the Funds become limited partners of such Fund. Each Fund maintains a totally
separate investment portfolio. The investment objective of the Funds is current
income.
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. The 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.
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:
Dividend income and distributions to shareholders are recorded on ex-dividend
date. Interest income and estimated expenses are accrued daily. Original issue
discount is amortized as required by the Internal Revenue Code.
Net capital gains (or losses) realized by the Funds on transactions in their
respective portfolio securities will be allocated proportionately to each
partner and will not be distributed. Thus, they will be reflected in the value
of a partner's shares.
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. Net
realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sale and foreign currency
transactions.
e. Accounting Estimates:
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the amounts of income and expense during
the reporting period. Actual results could differ from those estimates.
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 such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
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 Agreements:
The Funds may enter into a joint repurchase agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers recognized by
the Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the joint repurchase 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 June 30, 1996, all
outstanding repurchase agreements held by the Funds had been entered into on
June 28, 1996.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
i. 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.
2. SHARES OF PARTNERSHIP INTEREST
At June 30, 1996, there were an unlimited number of shares authorized.
Transactions in each of the Fund's shares for the six months ended June 30, 1996
and the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged
International Bond FundU.S. Government Securities FundHigh Yield Securities Fund
----------------- --------------------- --------------------
Shares Amount Shares Amount Shares Amount
------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 1996
Shares sold .................... 604,538 $ 7,138,698 3,367,388 $ 35,422,263 12,761,380 $110,874,728
Shares issued in reinvestment
of distributions ............... 66,755 786,100 739,111 7,745,513 591,752 5,120,561
Shares redeemed ................ (512,799) (6,033,679) (5,678,181) (59,436,619) (4,935,245) (42,641,774)
------- --------- --------- ----------- --------- -----------
Net increase (decrease) ......... 158,494 $ 1,891,119 (1,571,682) $ (16,268,843) 8,417,887 $ 73,353,515
======= ========= ========= =========== ========= ===========
Year ended December 31, 1995
Shares sold .................... 614,961 $ 7,144,340 3,361,305 $ 34,978,883 10,645,479 $ 91,897,613
Shares issued in reinvestment
of distributions ............... 138,785 1,586,635 1,594,639 16,617,604 729,778 6,243,333
Shares redeemed ................ (491,575) (5,596,648) (14,331,556) (148,580,551) (3,151,509) (27,034,040)
------- --------- --------- ----------- --------- -----------
Net increase (decrease) ......... 262,171 $ 3,134,327 (9,375,612) $ (96,984,064) 8,223,748 $ 71,106,906
======= ========= ========= =========== ========= ===========
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the period ended June 30, 1996 were as follows:
Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged
International Bond FundU.S. Government Securities FundHigh Yield Securities Fund
----------------- --------------------- --------------------
<S> <C> <C> <C>
Purchases.......................... $2,889,187 $ 5,917,146 $82,079,155
Sales.............................. $1,614,439 $21,335,777 $10,805,063
</TABLE>
3. PURCHASES AND SALES OF SECURITIES (cont.)
For tax purposes, the aggregate cost of securities is higher (and unrealized
depreciation is higher) than for financial reporting purposes at June 30, 1996
by $20,631 in the Government Fund.
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Fund and receives fees computed monthly on the net assets of each Fund
on the last day of the month as follows:
Annualized Fee Rate Month End Net Assets
- ------------------ -------------------------------------------------
0.625% First $100 million
0.50% Over $100 million up to and including $250 million
0.45% Over $250 million
Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI)
provides services to the International Bond Fund, and receives from Advisers
fees computed monthly on the net assets at the last day of the month as follows:
International Bond Fund
Annualized Fee Rate Month End Net Assets
--------------------- -------------------------------------------------
0.026% First $100 million
0.021% Over $100 million up to and including $250 million
0.019% Over $250 million
The terms of the management agreement provide that annual aggregate 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 each Fund's shares are registered. For the six months ended June 30,
1996, the Funds' expenses did not exceed these limitations. However, Advisers
agreed in advance to waive management fees for the International Bond Fund as
noted in the Statement of Operations.
b. Partner Services Agreement:
Under the terms of a partner services agreement with Franklin/Templeton Investor
Services, Inc. (Investor Services), the Funds pay costs on a per partner account
basis. Partner servicing costs incurred by the Funds for the six months ended
June 30, 1996, aggregated $45,684, all of which was paid to Investor Services.
c. Distribution Plan and Underwriting Agreement:
Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Funds reimburse Franklin
Templeton/Distributors, Inc. (Distributors), in an amount up to 0.15% per annum
of the Funds' average daily net assets for costs incurred in the promotion,
offering and marketing of each Fund's shares. The Plans do not permit nor
require payments of excess costs after termination
In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' shares of partnership interest.
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Funds, and as such are not expenses of the Funds. Distributors may
also make payments, out of its own resources, to dealers for certain sales of
the Funds' shares. Commissions received by Distributors and the amounts paid to
other dealers for the six months ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
International U.S. Government High Yield
Bond Fund Securities Fund Securities Fund
--------- ----------- ----------
<S> <C> <C> <C>
Total commission received......................................... $87,063 $449,473 $485,221
Paid to other dealers............................................. $81,639 $418,910 $466,856
</TABLE>
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
d. Other Affiliates and Related Party Transactions:
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, Inc.
5. CREDIT RISK AND DEFAULTED SECURITIES
The High Yield Fund's portfolio is primarily invested in lower rated and
comparable quality unrated high yield securities. Investments in high yield
securities are accompanied by a greater degree of credit risk and such lower
rated 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 June 30, 1996, the Fund held three defaulted securities issued
by three companies with a value aggregating $713,800, representing .31% of the
Fund's net assets. For information as to specific securities, see the
accompanying Statement of Investments in Securities and Net Assets.
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, German an Italian Securities.
The High Yield Fund has investments in excess of 10% in the Health Care
Services Industry.
6. OTHER CONSIDERATIONS
Advisers, as the High Yield Fund's Manager, may serve as a member of various
credit committees, representing credit interests in certain corporate
restructuring negotiations. Currently, Advisers serves on the credit committees
for Beatrice Foods, Scott Cable and Forstmann Textile. As a result of this
involvement in these committees, Advisers may be in possession of certain
material non-public information. Advisers has not sold nor does it intend to
sell any of its holdings in these securitites while in possession of material
non-public information in contravention of the Federal Securities laws.
. FINANCIAL HIGHLIGHTS
Selected data for each share of partnership interest outstanding throughout each
period by Fund are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
- --------------------------------------------------------------------------- ----------------------------------------
Ratio of Net
Net Asset Net Realized Dividends Net Asset Net Assets Ratio of Investment
Year Value at Net & Unrealized Total From From Net Value at End Expenses Income Portfolio
Ended Beginning Investment Gains (Loss) Investment Investment at End Total of Period to Average to Average Turnover
June 30, of Period Income on Securities Operations Income of Period Return+ (in 000's) Net Assets*Net Assets Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged International Bond Fund
<C> <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
19961 11.96 .480 (.235) .245 (.415) 11.79 2.11 29,827 .822 6.932 5.78
Franklin Tax-Advantaged U.S. Government Securities Fund
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
19961 10.80 .354 (.456) (.102) (.354) 10.34 (.98) 370,372 .642 6.722 1.57
Franklin Tax-Advantaged High Yield Securities Fund
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
19961 8.71 .370 (.170) .200 (.370) 8.54 2.31 228,764 .782 8.592 5.91
</TABLE>
1For the six months ended June 30, 1996.
2Annualized.
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the deferred contingent sales charge and assumes reinvestment of
dividend and capital gains at net asset value. Prior to May 1, 1994, dividends
were reinvested at the maximum offering price, and capital gains at net asset
value. Effective May 1, 1994, with the implementation of the Rule 12b-1
distribution plan for shares of partnership interest, the sales charge on
reinvested dividends was eliminated.
*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, 1995 and the period ended June 30, 1996, respectively, would have
been .89%, .92%, .97%, 1.06%, 1.00% and 1.19%2. #
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
Franklin Partners Funds Semi-Annual Report June 30, 1996.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in bar format the geographic distribution of the fund's
portfolio based on total net assets.
Geographic Distribution on 6/30/96
Canada 12.8%
Australia 11.9%
Germany 11.6%
Italy 11.4%
United Kingdom 9.6%
Denmark 9.4%
United States 8.7%
New Zealand 8.4%
Sweden 8.2%
Spain 4.9%
France 1.9%
Japan 1.2%
GRAPHIC MATERIAL (2)
This chart shows in pie format the bond quality breakdown of the fund's
securities based on total net assets.
Bond Quality Breakdown on 6/30/96
Baa2 0.4%
Ba1 0.7%
Ba2 2.0%
Ba3 16.1%
B1 17.3%
B2 29.0%
B3 23.1%
Caa 2.0%
Ca 0.1%
Other 2.5%
