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 9
Franklin Tax-Advantaged
High Yield Securities Fund 14
Glossary 20
Statement of Investments 21
Financial Statements 33
Notes to Financial Statements 36
Report of Independent Auditors 42
February 17, 1997
Dear Shareholder:
It is a pleasure to bring you the annual report of the Franklin Partners
Funds(R) for the period ended December 31, 1996.
It has been nearly a year since the U.S. Federal Reserve Board (the Fed)
adjusted short-term interest rates. At the end of 1995, the U.S. economy was
growing at a meager annual rate of only .3% -- near a recessionary level.
Employment reports in February and March showed signs of improvement following
the Fed's rate reduction in late January -- the Fed's only adjustment in 1996.
Surprisingly strong growth in the second quarter brought some fears of higher
inflation; but investors' fears eased off in the third quarter, pushing interest
rates -- and yields on most debt instruments -- lower. In fact, interest rates
continued to drop until reports revealed that activity in some key sectors (such
as manufacturing) picked up during the fourth quarter. At the end of the
reporting period, the 30-year Treasury's yield was 6.60%.*
*Micropal.
Looking forward, we expect moderate U.S. economic growth and continued mild
inflation. However, several factors may impact the bond market in 1997,
including ongoing reforms of entitlement programs and their effect on the
federal budget. Additionally, if stronger economic growth in Europe and Asia
causes rising interest rates in these regions, investors may move their debt
investment from the U.S. to foreign markets. Such a movement of assets may force
U.S. interest rates to rise.
The following pages contain specific information regarding the performance of
your investment and the other Franklin Partners Funds(R) over the fiscal year.
You will also find we have added a glossary at the back of the report that
contains definitions of certain investment terms for your reference. As always,
we appreciate your continued support and welcome your comments.
Sincerely,
Rupert H. Johnson, Jr.
Executive Vice President and
Managing General Partner
Special Update
As you may know, due to a change in U.S. tax laws which occurred after the
Franklin Partners Funds(R) were first offered to investors, after 1997, non-U.S.
investors in Partners Funds will become subject to U.S. withholding taxes. The
Managing General Partners believe that this is not consistent with the purpose
of the Funds, and have determined 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 will have the opportunity to exchange their investments
into other U.S.-registered Franklin Templeton Funds, while non-U.S. Partners
will 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.*
We are pleased to report that the Franklin Tax-Advantaged International Bond
Fund generated a cumulative total return of +11.41% for the 12-month period
ended December 31, 1996, as discussed in the Performance Summary on page 6.
During the period, we slightly increased the fund's exposure to the dollar-bloc
countries of Australia, Canada and New Zealand. We implemented this strategy in
the belief that U.S. interest rates would remain relatively stable compared with
those in other parts of the world, which would allow for more stable bond prices
in the dollar-bloc countries. Since U.S. interest rates did remain relatively
stable, this strategy was successful and benefited the fund's performance.
Additionally, because the dollar rose relative to other currencies during the
period, the fund's heavy emphasis on dollar-denominated securities increased
returns.
We also reallocated our European assets, shifting investments away from core
markets, including Germany and France, to higher-yielding markets such as Italy,
Spain and Sweden. This was in accordance with our belief that improved domestic
policies adopted in the higher-yielding markets would generate the strongest
returns. This strategy also proved successful, ultimately benefiting
shareholders.
The major asset-allocation changes over the fiscal year reflected the fund's
investment strategies.
*The risks of investing in a global fund, such as currency fluctuation and
increased vulnerability to adverse economic, political or regulatory
developments, are described in the fund's prospectus.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
For a complete list of portfolio holdings, please see page 21 of this report.
At the beginning of the period, exposure to the German and French bond markets,
totaling 11.2% and 7.0% of total net assets, was reduced by December 31, 1996,
to 10.6% and 1.8%, respectively. Allocations in Italy, Spain and Sweden,
totaling 9.2%, 5.3% and 7.4% at the beginning of the period, were increased to
10.8%, 7.6%, and 7.6%, respectively. In addition, Australian holdings were
increased, from 10.8% to 11.8%, while an 8.9% holding in New Zealand remained
relatively constant, ending the year at 8.3%.
Looking Forward
We feel that U.S. inflation should not pose a major threat to interest rates
during the next year, while the continuing deflationary trends in Europe and
Japan should help lower the overall level of interest rates globally.
However, we do anticipate continued volatility in bond and currency markets
around the world.
We believe a diversified, global bond portfolio can be an attractive vehicle to
help soften such volatility, and we search for attractive total return
opportunities wherever they may appear. In particular, we see opportunities for
improved returns in slower-growth European economies and in selective
emerging-market countries.
This discussion reflects our strategies for the fund and includes our opinions
at the close of the reporting period. Since economic and market conditions are
constantly changing, our strategies, evaluations, conclusions and decisions
regarding the portfolio holdings discussed in this report may change as new
circumstances arise. Although past performance of a specific investment or
sector cannot guarantee future performance, such information can help illustrate
how we analyze the securities we purchase for the fund.
Performance Summary
The Franklin Tax-Advantaged International Bond Fund's share price, as measured
by net asset value, increased 48.0 cents during the reporting period, from
$11.96 on December 31, 1995, to $12.44 on December 31, 1996. During the period,
the fund paid distributions totaling 82.75 cents ($0.8275) per share.
At the end of the reporting period, your fund's distribution rate was 6.20%,
based on an annualization of the fund's distributions during the previous 30
days and the maximum offering price of $12.99 on December 31, 1996.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
The fund posted a cumulative total return of +11.41% for the 12-month period
ended December 31, 1996. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
initial sales charge. Past performance is not predictive of future results.
Franklin Tax-Advantaged
International Bond Fund
Dividend Distributions (1/1/96-12/31/96)
Dividend
Month per Share
- --------------------------------------------------------------------------------
January 6.30 cents
February 6.55 cents
March 6.49 cents
April 7.16 cents
May 6.83 cents
June 8.31 cents
July 6.42 cents
August 6.62 cents
September 6.73 cents
October 7.38 cents
November 6.86 cents
December 7.10 cents
Total 82.75 cents
The graph to the right compares the performance of the fund's shares since
inception with that of the Salomon Brothers Non-U.S. World Government Bond
Index. Although the fund's shares underperformed the index, an unmanaged market
index has inherent performance differentials in comparison with any fund.
Indices do not pay management fees to cover salaries of security analysts or
portfolio managers, nor do they pay commissions or market spreads to buy and
sell bonds. Unlike unmanaged indices, mutual funds can never be 100% invested
since they need to keep some cash on hand to redeem shares. The fund's
performance figures also include the maximum initial sales charge, all fund
expenses and account fees. If operating expenses such as the fund's had been
applied to the index, the index's performance would have been lower. Please
remember, an index is simply a measure of performance, and one cannot invest
directly in an index.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Tax-Advantaged International Bond Fund
Periods Ended December 31, 1996
Since
Inception
1-Year 5-Year (6/9/90)
- --------------------------------------------------------------------------------
Cumulative Total Return1 11.41% 52.53% 94.69%
Average Annual Total Return2 6.68% 7.88% 9.95%
Distribution Rate3 6.20%
30-Day Standardized Yield4 5.20%
- --------------------------------------------------------------------------------
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge. See Note below.
2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and reflect the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the distributions paid over
the 30 days ended December 31, 1996, and the maximum offering price of $12.99 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, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been 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 affects subsequent performance. All total return
calculations assume reinvestment of dividends and capital gains, if any, at net
asset value, and 12b-1 fees from the date of the plan's implementation. Your
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
The fund's manager has agreed in advance to waive a portion of its management
fees, which reduces operating expenses and increases yield, distribution rate
and total returns. 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 5.09%. 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 Franklin Tax-Advantaged U.S. Government Securities Fund generated a
cumulative total return of +4.22% for the 12-month period ended December 31,
1996, as discussed in the Performance Summary on page 11.
During the reporting period, the agency mortgage pass-through market experienced
lower prepayment risk because interest rates rose during much of the year and
mortgage refinancing slowed. Interest rate movements in 1996 were generally less
volatile than during 1994 and 1995, leading to more predictable estimates of
average life of GNMA securities. Although the higher yields of mortgage
pass-through securities improved their performance relative to other government
bonds, rising interest rates during part of the period limited the fund's
returns.
Portfolio Update
Over the past 12 months, the fund's manager employed a consistent, disciplined
and conservative approach to investing in the U.S. government bond market. The
fund also continued to experience low portfolio turnover, which reduced
transaction costs and ultimately benefited shareholders.
During the 12-month period, the fund made additional purchases of current coupon
GNMA securities, which slightly reduced the portfolio's "barbelled" position
among coupon sectors. In addition, we sought to enhance the fund's performance
by selecting those mortgage pools with the financial attributes that appeared to
be most attractive for the fund. Our increased ability to select specific
securities resulted from the agency pass-through market's increased division
into sectors based on attributes of the underlying loans.
For example, within the universe of mortgage-backed securities, mortgage pools
have varying degrees of interest rates and dates of issuance, and therefore
exhibit divergent prepayment patterns. The emergence of these more pronounced
sectors helped us to anticipate certain prepayment patterns and to purchase the
securities we believed were most appropriate.
Looking forward, we anticipate that the trend toward lower interest rate
volatility will help the fund provide competitive returns with superior credit
quality.
This discussion reflects our strategies for the fund and includes our opinions
at the close of the reporting period. Since economic and market conditions are
constantly changing, our strategies, evaluations, conclusions and decisions
regarding the portfolio holdings discussed in this report may change as new
circumstances arise. Although past performance of a specific investment or
sector cannot guarantee future performance, such information can help illustrate
how we analyze the securities we purchase for the fund.
Performance Summary
The Franklin Tax-Advantaged U.S. Government Securities Fund's share price, as
measured by net asset value, decreased 28.0 cents during the reporting period,
from $10.80 on December 31, 1995, to $10.52 on December 31, 1996. During the
reporting period, the fund paid distributions totaling 70.85 cents ($0.7085) per
share.
At the end of this reporting period, your fund's distribution rate was 6.23%,
based on an annualization of the fund's distributions during the previous 30
days and the maximum offering price of $10.99 on December 31, 1996.
Distributions will vary based on the earnings of the fund's portfolio, and past
distributions are not predictive of future trends.
The fund posted a cumulative total return of +4.22% for the 12-month period
ended December 31, 1996. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charge. Past performance is not predictive of future results.
Franklin Tax-Advantaged
U.S. Government Securities Fund
Dividend Distributions (1/1/96-12/31/96)
Dividend
Month per Share
- --------------------------------------------------------------------------------
January 6.30 cents
February 5.97 cents
March 5.53 cents
April 6.22 cents
May 5.89 cents
June 5.47 cents
July 6.25 cents
August 5.71 cents
September 6.05 cents
October 5.86 cents
November 5.59 cents
December 6.01 cents
Total 70.85 cents
The graph to the right compares the performance of the fund's shares since
inception with that of the Lehman Brothers Intermediate Government Bond Index.
As you can see, the fund's shares have outperformed this benchmark index. Of
course, an unmanaged market index has inherent performance differentials in
comparison with any fund. Indices do not pay management fees to cover salaries
of security analysts or portfolio managers, nor do they pay commissions or
market spreads to buy and sell bonds. Unlike unmanaged indices, mutual funds can
never be 100% invested since they need to keep some cash on hand to redeem
shares. The fund's performance figures also include the maximum initial sales
charge, all fund expenses and account fees. If operating expenses such as the
fund's had been applied to the index, the index's performance would have been
lower. Please remember, an index is simply a measure of performance, and one
cannot invest directly in an index.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Tax-Advantaged U.S. Government Securities Fund
Periods ended December 31, 1996
Since
Inception
1-Year 5-Year (5/4/87)
- --------------------------------------------------------------------------------
Cumulative Total Return1 4.22% 37.45% 127.47%
Average Annual Total Return2 -.22% 5.65% 8.39%
Distribution Rate3 6.23%
30-Day Standardized Yield4 6.24%
- --------------------------------------------------------------------------------
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge. See Note below.
2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and reflect the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the distributions paid over
the 30 days ended December 31, 1996, and the maximum offering price of $10.99 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, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been 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 affects subsequent performance. All total return
calculations assume reinvestment of dividends and capital gains, if any, at net
asset value, and 12b-1 fees from the date of the plan's implementation. Your
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
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.
Fund Overview
We are pleased to report that the Franklin Tax-Advantaged High Yield Securities
Fund performed very well in meeting its investment objective. Moderate economic
growth, low inflation and declining interest rates contributed to the fund's
strong performance relative to other fixed-income investments for the fiscal
year ended December 31, 1996. The high-yield market outperformed U.S. Treasury
securities of similar maturities, and improving corporate profits and strong
demand for high-yield securities helped the fund provide a one-year total return
of +12.55%, as discussed in the Performance Summary on page 17.
Portfolio Update
During the reporting period, the fund made several industry-allocation changes.
We decreased our investments in transportation and forest/paper products after
profit-taking in certain of these companies. We also pared back our investments
in food retailing due to changing competitive dynamics, and reduced our
investments in health care because of the uncertain legislative outlook for
1997.
We increased our exposure to telecommunications and wireless communications in
light of the more favorable competitive outlook resulting from the
Telecommunications Act of 1996. Essentially, this law allows regional telephone
companies to offer long-distance and cable services, TV networks to own more TV
and radio stations, and cable companies to set their own prices. These
industries performed well during the year due to economies of scale and
increased market penetration. Some of the fund's bonds that exhibited
exceptional performance during the reporting period included those from Sprint
Spectrum, IntelCom Group, and Teleport Communications.
Other companies whose securities helped the fund's performance included IMC
Global, REPAP Wisconsin, MFS Communications and Bally's Grand. IMC Global, an
international fertilizer company, was upgraded to investment-grade status by
Moody's and Standard & Poor's(R) (two national credit-rating agencies) as a
result of improving fundamentals. REPAP, MFS and Bally's benefited from mergers
with larger, well-capitalized companies.
With an eye toward the future, we improved the average credit quality of the
portfolio during the year, from B3 to B2, as rated by Moody's. We made this
strategic move toward higher quality issues, recognizing that the U.S. economy
is in its sixth year of expansion, and thus may be unable to sustain the strong
growth in corporate profits experienced over the last few years. We also believe
that acquiring higher-quality issues is a prudent investment strategy for the
long term. Looking forward, we anticipate an environment of moderate growth and
low inflation, which should be favorable for the high-yield bond market.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
This discussion reflects our strategies for the fund and includes our opinions
at the close of the reporting period. Since economic and market conditions are
constantly changing, our strategies, evaluations, conclusions and decisions
regarding the portfolio holdings discussed in this report may change as new
circumstances arise. Although past performance of a specific investment or
sector cannot guarantee future performance, such information can help illustrate
how we analyze the securities we purchase for the fund.
Franklin Tax-Advantaged
High Yield Securities Fund
Top 10 Holdings on December 31, 1996
Based on Total Net Assets
Company % of Total
Industry Net Assets
- --------------------------------------------------------------------------------
MFS Communications Co., Inc. 2.09%
Telecommunications
Sprint Spectrum L.P. 1.92%
Wireless Communications
IMC Global, Inc. 1.78%
Chemicals
Cablevision Systems Corp. 1.77%
Cable Television
Paging Network, Inc. 1.72%
Wireless Communications
Arcadian Partners L.P. 1.66%
Chemicals
Four M Corp. 1.50%
Forest and Paper Products
Sygnet Wireless, Inc. 1.49%
Wireless Communications
Tenet Healthcare Corp. 1.33%
Health Care Services
Abbey Healthcare Group, Inc. 1.25%
Health Care Services
For a complete list of portfolio holdings, please see page 26 of this report.
Performance Summary
The Franklin Tax-Advantaged High Yield Securities Fund's share price, as
measured by net asset value, increased 27.0 cents during the reporting period,
from $8.71 on December 31, 1995, to $8.98 on December 31, 1996. During the
reporting period, the fund also paid distributions totaling 76.74 cents
($0.7674) per share.
At the end of the reporting period, your fund's distribution rate was 8.61%,
based on an annualization of the fund's distributions during the previous 30
days and the maximum offering price of $9.38 on December 31, 1996. Distributions
will vary based on the earnings of the fund's portfolio, and past distributions
are not predictive of future trends.
The fund posted a cumulative total return of +12.55% for the 12-month period
ended December 31, 1996. Total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charge. Past performance is not predictive of future results.
The graph to the right compares the performance of the fund's shares since
inception with that of CS First Boston High Yield Index and the Salomon Brothers
Combined Corporate Index. We believe that the CS First Boston High Yield Index
of approximately 1,500 high-yield corporate securities rated BBB and lower by
Standard & Poor's(R) bond rating service provides the more appropriate
comparison given the fund's current portfolio. For this reason, the Salomon
Brothers Combined Corporate Index will be removed in the 1997 annual report.
Franklin Tax-Advantaged
High Yield Securities Fund
Dividend Distributions (1/1/96-12/31/96)
Dividend
Month per Share
-----------------------------------------------------------------------------
January 6.73 cents
February 5.80 cents
March 5.56 cents
April 6.49 cents
May 6.31 cents
June 6.08 cents
July 6.71 cents
August 6.09 cents
September 6.44 cents
October 6.89 cents
November 6.59 cents
December 7.05 cents
Total 76.74 cents
Although the fund's shares have slightly underperformed the indices, an
unmanaged market index has inherent performance differentials in comparison with
any fund. Indices do not pay management fees to cover salaries of security
analysts or portfolio managers, nor do they pay commissions or market spreads to
buy and sell bonds. Unlike unmanaged indices, mutual funds can never be 100%
invested because they need to keep some cash on hand to redeem shares. The
fund's performance figures also include the maximum initial sales charge, all
fund expenses and account fees. If operating expenses such as the fund's had
been applied to the index, the index's performance would have been lower. Please
remember, an index is simply a measure of performance, and one cannot invest
directly in an index.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Tax-Advantaged High Yield Securities Fund
Periods ended December 31, 1996
Since
Inception
1-Year 5-Year (5/4/87)
- --------------------------------------------------------------------------------
Cumulative Total Return1 12.55% 80.56% 59.80%
Average Annual Total Return2 7.72% 11.58% 9.90%
Distribution Rate3 8.61%
30-Day Standardized Yield4 8.39%
- --------------------------------------------------------------------------------
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include the sales charge. See Note below.
2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and reflect the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the distributions paid over
the 30 days ended December 31, 1996, and the maximum offering price of $9.38 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, 1996. High yields reflect
the higher credit risk associated with certain lower-rated securities in the
fund's portfolio and, in some cases, the 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 affects subsequent performance. All total return
calculations assume reinvestment of dividends and capital gains, if any, at net
asset value, and 12b-1 fees from the date of the plan's implementation. Your
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
Glossary
Terms:
Average Life: Average length of time before the principal (face value) of a debt
issue is scheduled to be repaid.
Barbell Strategy: Holding a portfolio of bonds whose interest rates are
distributed like the shape of a barbell, with most of the portfolio invested in
higher-coupon and lower-coupon bonds.
Coupon: Interest rate on a debt security that the issuer promises to pay to the
holder until maturity, expressed as an annual percentage of face value (usually
per $1,000). For example, a $1,000 bond with a 10% coupon will pay $100 per year
in interest.
Credit Quality: An evaluation of the potential for a bond issuer to default on
interest or principal payments. Standard & Poor's(R), Moody's Investors Service,
and Fitch's Investors Service analyze the financial strength of a bond's issuer,
and assign ratings ranging from AAA (unlikely to default) to D (in default).
Bonds rated AAA to BBB are called "investment grade."
Current Coupon Bond: Corporate, federal or municipal bond with a coupon that's
within a half a percentage point of current market rates.
GNMA Security: GNMAs are guaranteed by the Government National Mortgage
Association as to the timely payment of principal and interest, even if
homeowners don't make mortgage payments on time.
Interest Rate Risk: Risk that changes in interest rates will adversely affect
the value of investments. For example, an investor with large holdings in
long-term bonds has considerable interest rate risk, because the value of those
bonds will fall if interest rates rise.
Mortgaged-Backed Security: Security backed by a pool of mortgages. Such
securities are issued by the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association, while others are guaranteed by the
Government National Mortgage Association. Most mortgaged-backed securities are
pass-through securities, which means they provide investors with monthly
payments consisting of a prorated share of both regular interest and principal
payments -- as well as unscheduled early prepayments -- on the underlying
mortgage pool.
Prepayment/Reinvestment Risk: Risk that falling interest rates will prompt
homeowners to refinance their mortgage loans. When homeowners refinance,
investors in mortgage pass-through securities receive a return of principal that
must be reinvested at a lower rate.
Indices:
CS First Boston High Yield Index: Unmanaged, trader-priced portfolio constructed
to mirror the public high-yield debt market. The Index has several modules
representing different sectors of the high-yield market, including cash-paying,
zero-fix, defaulted and pay-in-kind modules.
Lehman Brothers Intermediate Government Bond Index: Includes fixed-rate debt
that is rated investment grade or higher by Moody's, Standard & Poor's, or
Fitch's. Debt is issued by the U.S. government and its agencies, and has a
maturity of one to 10 years.
Salomon Brothers Combined Corporate Index: Includes all corporate issues, rated
from AAA to CCC, from the High-Yield Market Index and the corporate component of
the Salomon Brothers Broad Investment Grade Bond Index.
Salomon Brothers Non-U.S. World Government Bond Index: Covers the available
market for domestic government bonds. Contains an all-inclusive universe of
institutionally traded bonds, including all fixed-rate bonds with remaining
maturities of one year or longer and amounts outstanding of at least the U.S.
equivalent of $25 million.
<TABLE>
<CAPTION>
FRANKLIN PARTNERS FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
Face Value
Country* Amount Franklin Tax-Advantaged International Bond Fund (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Notes, Bills, Bonds & Government Securities 92.6%
Australia 11.8%
AU 820,000 EIB Global Bond, 10.25%, 10/01/01 ................................. $ 744,251
AU 1,000,000 EuroFima, 9.875%, 01/17/07 ........................................ 918,051
AU 600,000 New South Wales Treasury Corp., 7.00%, 04/01/04.................... 463,811
AU 425,000 Queensland Treasury Corp., notes, 12.00%, 07/15/99 ................ 380,409
AU 1,660,000 Queensland Treasury Corp., notes, 8.00%, 05/14/03 ................. 1,364,232
------------
3,870,754
------------
Canada 12.3%
CA 400,000 Government of Canada, 8.50%, 04/01/02 ............................. 329,568
CA 945,000 Government of Canada, 10.25%, 02/01/04 ............................ 853,263
CA 550,000 Government of Canada, 8.75%, 12/01/05.............................. 466,971
CA 420,000 Hydro-Quebec, Eurobonds, 11.25%, 10/10/00 ......................... 368,706
CA 150,000 Ontario-Hydro, Eurobonds, 9.00%, 06/24/02 ......................... 125,713
CA 1,500,000 Province of British Columbia, 9.00%, 01/09/02 ..................... 1,249,692
CA 830,000 Province of Ontario, 7.50%, 01/19/06............................... 645,370
------------
4,039,283
------------
Denmark 11.1%
DK 7,750,000 Government of Denmark, 9.00%, 11/15/00 ............................ 1,499,597
DK 1,176,000 Nykredit, 9.00%, 10/01/12 ......................................... 216,269
DK 5,780,000 Nykredit, 6.00%, 10/01/26 ......................................... 850,953
DK 7,473,000 Realkredit Danmark, 6.00%, 10/01/26 ............................... 1,104,644
------------
3,671,463
------------
France 1.8%
FR 4,250,000 French OAT, Strip, 0.00%, 10/25/15 ................................ 226,901
FR 510,000 French OAT, Strip, 0.00%, 10/25/16 ................................ 24,869
FR 1,500,000 Government of France, OAT, 8.50%, 12/26/12 ........................ 352,565
------------
604,335
------------
Germany 10.6%
DD 1,380,000 Deutschland Republic, 8.50%, 08/21/00.............................. 1,019,415
DD 1,070,000 Deutschland Republic, 8.25%, 09/20/01.............................. 796,258
DD 1,450,000 German Unity Fund, 8.75%, 8/20/01.................................. 1,096,760
DD 850,000 West Japan Railway Co., 8.70%, 06/25/97 ........................... 564,365
------------
3,476,798
------------
Italy 10.8%
IT 1,050,000,000 Buoni Poliennali del Tesoro, 10.50%, 07/15/00...................... 776,003
IT 900,000,000 Buoni Poliennali del Tesoro, 10.50%, 09/01/05...................... 709,433
Italy (cont.)
IT 2,000,000,000 Certificati di Credito del Tesoro, 12.00%, 01/20/98 ............... $ 1,390,237
IT 1,000,000,000 Certificati di Credito del Tesoro, 9.60%, 01/01/00 ................ 672,757
------------
3,548,430
------------
Japan 1.0%
JP 34,000,000 International Bank of Reconstruction and Development,
6.75%, 03/15/00................................................... 344,878
------------
New Zealand 8.3%
NZ 2,275,000 New Zealand Government, 8.00%, 07/15/98 ........................... 1,630,342
NZ 1,500,000 New Zealand Government, 8.00%, 04/15/04 ........................... 1,107,675
------------
2,738,017
------------
Spain 7.6%
ES 73,000,000 Government of Spain, 11.60%, 01/15/97 ............................. 563,420
ES 107,880,000 Government of Spain, 12.25%, 03/25/00.............................. 985,026
ES 100,000,000 Government of Spain, 10.90%, 08/30/03 ............................. 947,814
------------
2,496,260
------------
Sweden 7.6%
SE 5,100,000 Staten Bostadiffinansier, 12.50%, 01/23/97 ........................ 750,591
SE 1,800,000 Staten Bostadiffinansier, 11.00%, 01/21/99 ........................ 295,667
SE 1,700,000 Government of Sweden, 10.25%, 05/05/03............................. 304,149
SE 8,000,000 Government of Sweden, 6.00%, 02/09/05 ............................. 1,136,799
------------
2,487,206
------------
United Kingdom 9.7%
GB 300,000 Abbey National Treasury Service, 10.50%, 04/22/97 ................. 519,709
GB 460,000 Export-Import Bank of Japan, 10.75%, 05/15/01 ..................... 876,675
GB 270,000 Government of Italy, Eurobonds, 10.50%, 04/28/14 .................. 561,691
GB 715,000 United Kingdom Treasury, Conversion, 7.00%, 08/06/97 .............. 1,229,071
------------
3,187,146
------------
Total Long Term Investments (Cost $28,302,455) 30,464,570
------------
dReceivables from Repurchase Agreements 4.0%
US 1,303,741 Joint Repurchase Agreements, 6.59%, 01/02/97
(Maturity Value $1,327,393) (Cost $1,326,907)
Aubrey G. Lanston & Co., Inc., (Maturity Value $166,345)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $166,345)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $166,345)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $166,345)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $166,345)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $162,978)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $166,345)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $166,345)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 $ 1,326,907
------------
Total Investments (Cost $29,629,362) 96.6% 31,791,477
Other Assets and Liabilities, Net 3.4% 1,103,102
------------
Net Assets 100.0% $32,894,579
============
At December 31, 1996, the net unrealized appreciation based on the cost
of investments for income tax purposes of $29,629,362 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost.................. $ 2,799,936
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value.................. (637,821)
------------
Net unrealized appreciation........................................ $ 2,162,115
============
PORTFOLIO ABBREVIATIONS:
OAT - Obligations Assumable by the Treasurer
L.L.C. - Limited Liability Corp.
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
*Securities traded in currency of country indicated and valued in U.S. dollars.
dFace amount for repurchase agreements is for the underlying collateral. See
note 1(h) regarding joint repurchase agreement.
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, 1996
Face Value
Amount Franklin Tax-Advantaged U.S. Government Securities Fund (Note 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Government National Mortgage Association (GNMA) 98.5%
$ 9,103,545 GNMA I, SF, 6.00%, 10/15/23 - 11/15/23 ....................................... $ 8,460,619
59,573,605 GNMA I, SF, 6.50%, 05/15/23 - 03/15/24 ....................................... 56,911,484
6,964,342 GNMA II, 6.50%, 09/20/23 ..................................................... 6,609,599
16,268,407 GNMA I, PL, 7.00%, 05/15/13 - 06/15/28 ....................................... 15,856,623
49,229,738 GNMA I, SF, 7.00%, 03/15/22 - 07/15/25 ....................................... 48,229,799
20,162,338 GNMA II, 7.00%, 11/20/16 - 08/20/25........................................... 19,626,793
32,051,570 GNMA I, SF, 7.50%, 01/15/17 - 04/15/23 ....................................... 32,111,701
53,649,783 GNMA II, 7.50%, 09/20/16 - 12/20/25 .......................................... 53,415,073
42,185,491 GNMA I, SF, 8.00%, 11/15/15 - 09/15/24 ....................................... 43,081,992
9,357,066 GNMA II, 8.00%, 11/20/16 - 08/20/22 .......................................... 9,485,735
13,913,730 GNMA I, SF, 8.50%, 06/15/16 - 05/15/22 ....................................... 14,426,848
4,577,180 GNMA II, 8.50%, 11/20/21 - 03/20/22 .......................................... 4,711,636
3,516,083 GNMA I, SF, 9.00%, 05/15/16 - 11/15/21 ....................................... 3,709,486
2,511,440 GNMA I, SF, 9.50%, 01/15/17 - 10/15/21 ....................................... 2,716,289
445,599 GNMA II, 9.50%, 04/20/25 ..................................................... 477,488
4,769,905 GNMA I, SF, 10.00%, 10/15/11 - 08/15/21 ...................................... 5,236,458
673,712 GNMA II, 10.00%, 10/20/16 - 11/20/20 ......................................... 732,871
133,256 GNMA, GPM, 10.25%, 02/15/16 - 09/15/20 ....................................... 144,833
747,054 GNMA I, SF, 10.50%, 02/15/16 - 07/15/19 ...................................... 827,135
1,273,874 GNMA II, 10.50%, 07/20/17 - 02/20/19 ......................................... 1,397,678
182,935 GNMA I, SF, 11.00%, 10/15/13 - 09/15/14 ...................................... 204,545
936,685 GNMA II, 11.00%, 07/20/17 - 05/20/19 ......................................... 1,036,792
79,298 GNMA I, SF, 11.50%, 08/15/16.................................................. 90,103
324,697 GNMA II, 11.50%, 08/20/16 - 03/20/19 ......................................... 365,285
133,816 GNMA I, SF, 12.00%, 06/15/15 ................................................. 153,882
------------
Total Long Term Investments (Cost $336,537,790) 330,020,747
------------
dReceivables from Repurchase Agreements 1.8%
6,082,556 Joint Repurchase Agreements, 6.59%, 01/02/97, (Maturity Value $6,189,349)
(Cost $6,187,084)
Aubrey G. Lanston & Co., Inc., (Maturity Value $775,629)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $775,629)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $775,629)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $775,629)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $775,629)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $759,946)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $775,629)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $775,629)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ....... $ 6,187,084
------------
Total Investments (Cost $342,724,874) 100.3% 336,207,831
Liabilities in Excess of Other Assets (0.3)% (1,125,775)
------------
Net Assets 100.0% $335,082,056
============
At December 31, 1996, the net unrealized depreciation based on the cost of
investments for income tax purposes of $342,744,458 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost..................................... $ 2,306,860
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value..................................... (8,843,487)
------------
Net unrealized depreciation............................................... $ (6,536,627)
============
PORTFOLIO ABBREVIATIONS:
GPM - Graduated Payment Mortgage
L.L.C. - Limited Liability Corp.
PL - Project Loan
SF - Single Family
dFace amount for repurchase agreements is for the underlying collateral. See
Note 1(h) regarding joint repurchase agreement.
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, 1996
Face Value
Amount Franklin Tax-Advantaged High Yield Securities Fund (Note 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds 88.8%
Automotive 2.3%
$ 2,500,000 Aetna Industries, Inc., senior notes, 11.875%, 10/01/06....................... $ 2,693,750
3,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06................ 3,281,250
1,100,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ............................... 1,232,000
500,000 cSafelite Glass Corp., senior sub. notes, 9.875%, 12/15/06..................... 515,000
------------
7,722,000
------------
Cable Television 7.9%
960,000 Cablevision Systems Corp., senior sub. deb., 10.50%, 05/15/16 ................ 998,400
1,500,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23................. 1,470,000
3,500,000 Cablevision Systems Corp., senior sub. notes, 9.25%, 11/01/05 ................ 3,473,750
3,000,000 Century Communications, senior notes, 9.50%, 03/01/05......................... 3,075,000
2,000,000 Comcast Corp., senior sub., 9.125%, 10/15/06 ................................. 2,055,000
1,500,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................. 1,560,000
1,900,000 Continental Cablevision, Inc., senior sub. deb., 9.00%, 09/01/08 ............. 2,146,789
4,600,000 Diamond Cable Communications, Plc., senior disc. notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05 ............... 3,294,750
1,200,000 eRogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 ..... 858,673
800,000 Rogers Communications, Inc., senior deb., 10.875%, 04/15/04 .................. 846,000
200,000 a,bScott Cable Communications, Inc., S.F., sub. deb., 12.25%, 04/15/01 .......... 141,000
5,000,000 Telewest, Plc., senior disc. deb., zero coupon to 10/01/00, (original accretion
rate 11.00%), 11.00% thereafter, 10/01/07 ................................... 3,500,000
1,500,000 Time Warner, Inc., deb., 9.125%, 01/15/13 .................................... 1,635,000
3,000,000 Wireless One, Inc., units, senior disc. notes, zero coupon to 08/01/01, (original
accretion rate 13.50%), 13.50% thereafter, 08/01/06.......................... 1,470,000
------------
26,524,362
------------
Chemicals 5.4%
1,250,000 Applied Extrusion Technology, senior notes, Series B, 11.50%, 04/01/02........ 1,321,875
5,000,000 Arcadian Partners L.P., senior notes, Series B, 10.75%, 05/01/05 ............. 5,575,000
2,500,000 Harris Chemical of North America, senior sub. notes, 10.75%, 10/15/03 ........ 2,600,000
3,000,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11................................ 3,552,147
2,225,000 IMC Global, Inc., senior notes, Series B, 10.75%, 06/15/03 ................... 2,443,722
3,000,000 UCC Investors, discount notes, zero coupon to 05/01/98, (original accretion
rate 12.00%), 12.00% thereafter, 05/01/05.................................... 2,610,000
------------
18,102,744
------------
Consumer Goods 4.1%
1,250,000 Calmar, Inc., senior sub. notes, 11.50%, 08/15/05 ............................ 1,296,875
400,000 cE&S Holdings Corp., senior sub. notes, 10.375%, 10/01/06 ..................... 420,000
4,000,000 Ekco Group, Inc., senior notes, 9.25%, 04/01/06 .............................. 3,970,000
1,300,000 Herff Jones, Inc., senior sub notes, 11.00%, 08/15/05 ........................ 1,397,500
2,250,000 Hines Horticulture, Inc., senior sub notes, 11.75%, 10/15/05 ................. 2,407,500
Consumer Goods (cont.)
$ 2,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ............ $ 2,005,000
2,000,000 Revlon Consumers Products Corp., senior sub. notes, Series B, 10.50%, 02/15/03 2,105,000
------------
13,601,875
------------
Containers & Packaging 2.4%
1,500,000 Container Corp. of America, guaranteed senior notes, Series A, 11.25%, 05/01/04 1,631,250
2,000,000 cPlastic Containers, Inc., senior notes, 10.00%, 12/15/06...................... 2,060,000
3,750,000 cRadnor Holdings, senior notes, 10.00%, 12/01/03............................... 3,825,000
600,000 cU.S. Can Corp., senior sub. notes, 10.125%, 10/15/06.......................... 630,000
------------
8,146,250
------------
Energy & Natural Resources 4.3%
2,800,000 cAbraxas Petroleum Corp., senior notes, 11.50%, 11/01/04....................... 3,010,000
3,000,000 Empire Gas Corp., senior secured notes, 7.00% coupon to 07/15/99, 12.875%
thereafter, 07/15/04 ........................................................ 2,550,000
1,200,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06.......................... 1,251,000
2,975,000 Gulf Canada Resources, Ltd., sub. deb., 9.625%, 07/01/05 ..................... 3,235,313
700,000 Mesa Operating Co., company guarantee, 10.625%, 07/01/06 ..................... 761,250
3,500,000 Nuevo Energy Co., senior sub. notes, 9.50%, 04/15/06 ......................... 3,692,500
------------
14,500,063
------------
Financial 1.9%
750,000 American Reinsurance Corp., senior sub. deb., 10.875%, 09/15/04 .............. 808,038
3,750,000 cFirst Nationwide Escrow Corp., senior sub. notes, 10.625%, 10/01/03 .......... 4,068,750
1,300,000 Homeside, Inc., senior notes, 11.25%, 05/15/03 ............................... 1,454,375
------------
6,331,163
------------
Food & Beverages 4.7%
1,500,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 . 1,530,000
1,800,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............... 1,872,000
600,000 cDelta Beverage Group, senior notes, 9.75%, 12/15/03........................... 615,750
2,830,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .......................... 2,999,800
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 ....................... 1,222,000
2,065,000 Dr. Pepper Bottling of Texas, senior notes, 10.25%, 02/15/00.................. 2,152,763
2,000,000 cInternational Home Foods, senior sub. notes, 10.375%, 11/01/06 ............... 2,085,000
1,800,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ........ 1,867,500
1,500,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ............... 1,522,500
------------
15,867,313
------------
Food Retailing 3.6%
2,000,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ................. 2,230,000
2,000,000 Grand Union Co., senior notes, 12.00%, 09/01/04 .............................. 2,130,000
Food Retailing (cont.)
$ 2,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ................... $ 1,925,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ................... 1,025,000
1,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................. 827,500
1,000,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ........................... 1,067,500
2,460,000 Smiths Food & Drug, senior sub. notes, 11.25%, 05/15/07 ...................... 2,730,600
------------
11,935,600
------------
Forest & Paper Products 5.0%
2,000,000 APP International Finance, company guarantee, 11.75%, 10/01/05 ............... 2,142,500
4,800,000 Four M Corp., senior notes, 12.00%, 06/01/06 ................................. 5,040,000
3,000,000 Rapp International Finance Co., company guarantee, 13.25%, 12/15/05........... 3,315,000
1,500,000 REPAP Wisconsin, Inc., senior notes, 9.875%, 05/01/06 ........................ 1,518,750
2,450,000 Riverwood International, company guarantee, 10.25%, 04/01/06 ................. 2,425,500
500,000 S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ............... 542,500
2,000,000 Tembec Finance Corp., senior notes, 9.875%, 09/30/05 ......................... 1,895,000
------------
16,879,250
------------
Gaming & Leisure 5.5%
1,400,000 AMF Group, Inc., senior disc. notes, zero coupon to 03/15/01, (original accretion
rate 12.25%), 12.25% thereafter, 03/15/06 ................................... 924,000
2,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ............................. 1,940,000
1,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................. 1,070,000
500,000 cEldorado Resorts L.L.C., senior sub. notes, 10.50%, 08/15/06.................. 530,000
560,000 Harvey Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 ................. 590,800
2,000,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ................. 1,997,500
2,500,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............... 2,637,500
2,000,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .......................... 2,210,000
4,000,000 Six Flags Theme Parks, senior sub. notes, Series A, zero coupon to 06/15/98,
(original accretion rate 12.25%), 12.25% thereafter, 06/15/05 ............... 3,750,000
2,950,000 Station Casinos, Inc., senior sub. notes, 10.125%, 03/15/06 .................. 2,972,125
------------
18,621,925
------------
Health Care Services 6.9%
4,000,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............. 4,200,000
1,750,000 Integrated Health Services, Inc., senior sub. notes, Series A, 9.625%, 05/31/02 1,811,250
3,500,000 Mariner Health Group, senior sub. notes, 9.50%, 04/01/06 ..................... 3,447,500
3,000,000 Maxxim Medical, Inc., company guarantee, 10.50%, 08/01/06..................... 3,135,000
1,000,000 OrNda Healthcorp., Inc., S.F., senior sub. deb., 12.25%, 05/15/02 ............ 1,067,500
3,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ........... 3,037,500
Health Care Services (cont.)
$ 1,500,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625%
thereafter, 12/15/03 ........................................................ $ 1,447,500
250,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ....................... 275,000
3,000,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ....................... 3,187,500
900,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ................. 999,000
1,000,000 Unilab Corp., senior notes, 11.00%, 04/01/06 ................................. 685,000
------------
23,292,750
------------
Industrial 5.4%
2,800,000 AAF-McQuay, Inc., senior notes, 8.875%, 02/15/03 ............................. 2,814,000
2,000,000 cAllied Waste North America, senior sub. notes, 10.25%, 12/01/06............... 2,115,750
3,500,000 American Standard, Inc., S.F., senior sub. deb., zero coupon to 06/01/98, (original
accretion rate 10.50%), 10.50% thereafter, 06/01/05 ......................... 3,298,750
750,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ................ 791,250
3,000,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ........................ 3,045,000
2,400,000 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06............... 2,484,000
1,200,000 cIntertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06................... 1,254,000
2,300,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ............................ 2,328,750
------------
18,131,500
------------
Lodging 2.7%
2,950,000 HMH Properties, Inc., senior notes, 9.50%, 05/15/05 .......................... 3,093,813
3,000,000 John Q. Hammons Hotels L.P., first mortgage, 9.75%, 10/01/05 ................. 3,060,000
3,000,000 Red Roof Inns, senior notes, 9.625%, 12/15/03 ................................ 3,045,000
------------
9,198,813
------------
Media & Broadcasting 6.3%
1,000,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ............... 1,065,000
1,000,000 Cobb Theatres/Financial Corp., senior notes, 10.625%, 03/01/03 ............... 1,057,500
2,700,000 Granite Broadcasting Corp., senior sub. notes, 10.375%, 05/15/05 ............. 2,787,750
2,500,000 Hollinger International Publishing, company guarantee, 9.25%, 02/01/06 ....... 2,481,250
1,000,000 Jacor Communications Co., company guarantee, 9.75%, 12/15/06.................. 1,026,250
1,500,000 K-III Communications Corp., senior notes, 10.25%, 06/01/04 ................... 1,578,750
1,500,000 K-III Communications Corp., senior notes, 8.50%, 02/01/06 .................... 1,481,250
1,000,000 cPetersen Publishing, senior sub. notes, 11.125%, 11/15/06.................... 1,045,000
2,000,000 SCI Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ................... 2,150,000
3,800,000 SFX Broadcasting, senior sub. notes, Series B, 10.75%, 05/15/06 .............. 4,009,000
1,100,000 Sinclair Broadcast Group, senior sub. notes, 10.00%, 09/30/05 ................ 1,126,125
1,500,000 Sullivan Broadcasting, senior sub. notes, 10.25%, 12/15/05 ................... 1,511,250
------------
21,319,125
------------
Metals & Mining 0.8%
$ 1,500,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ........................ $ 1,620,000
1,100,000 Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 .................. 1,036,750
------------
2,656,750
------------
Retail 0.5%
1,500,000 Eckerd Jack Corp., senior sub. notes, 9.25%, 02/15/04 ........................ 1,616,250
------------
Technology & Information Services 2.0%
2,000,000 ADT Operations, guaranteed senior sub. notes, 9.25%, 08/01/03 ................ 2,142,500
1,500,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ............................. 1,526,250
400,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ....................... 425,000
1,200,000 cCelestica International, senior sub. notes, 10.50%, 12/31/06.................. 1,260,000
1,400,000 Exide Electronics Group, senior sub. notes, 11.50%, 03/15/06 ................. 1,491,000
------------
6,844,750
------------
Telecommunications 4.1%
5,000,000 Intelcom Group, Inc., senior disc. notes, zero coupon to 05/01/01, (original
accretion rate 12.50%), 12.50% thereafter, 05/01/06.......................... 3,278,650
9,500,000 MFS Communications Co., Inc., senior disc. notes, zero coupon to 01/15/01,
(original accretion rate 8.875%), 8.875% thereafter, 01/15/06................ 7,041,875
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........................ 3,450,000
------------
13,770,525
------------
Textiles & Apparel 1.1%
3,000,000 Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 04/15/06 ............... 3,180,000
1,030,000 a,bForstmann Textile, S.F., senior sub. notes, 14.75%, 04/15/99 ................. 520,150
------------
3,700,150
------------
Transportation 0.5%
1,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ....................... 1,642,500
------------
Utilities 1.6%
1,500,000 AES China Generating Co., senior notes, 10.125%, 12/15/06..................... 1,530,000
2,500,000 El Paso Electric Co., first mortgage, Series D, 8.90%, 02/01/06 .............. 2,650,000
1,000,000 Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 07/23/06 1,185,000
------------
5,365,000
------------
Wireless Communication 9.8%
6,670,000 Arch Communications Group, senior disc. notes, zero coupon to 03/15/01,
(original accretion rate 10.875%), 10.875% thereafter, 03/15/08.............. 3,843,588
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 ............... 1,793,750
Wireless Communication (cont.)
$ 5,000,000 International Wireless Communications, senior disc. notes, 0.00%, 08/15/01.... $ 2,750,000
5,700,000 Millicom International Cellular, SA, senior disc. notes, zero coupon to 06/01/01,
(original accretion rate 13.50%), 13.50% thereafter, 06/01/06................ 3,534,000
2,300,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07.................... 2,366,125
3,350,000 Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08..................... 3,408,625
3,600,000 Rogers Cantel, Inc., senior deb., 9.75%, 06/01/16............................. 3,807,000
9,550,000 Sprint Spectrum L.P., senior disc. notes, zero coupon to 08/15/01, (original
accretion rate 12.50%), 12.50% thereafter, 08/15/06.......................... 6,470,125
4,850,000 Synget Wireless, Inc., senior notes, 11.50%, 10/01/06......................... 4,995,500
------------
32,968,713
------------
Total Corporate Bonds (Cost $286,603,636) ............................. 298,739,371
------------
Shares/
Warrants
----------
Preferred Stock 1.3%
2,000 Fresenius Medical Care, 9.00%................................................. 2,035,000
2,150 cTime Warner, Inc., Series M, PIK, 10.25% ..................................... 2,344,302
------------
Total Preferred Stock (Cost $4,150,894) ...................................... 4,379,302
------------
Warrants
4,140 aEmpire Gas Corp. ............................................................. 12,420
900 a,cExide Electronics Group....................................................... 27,000
300 aFoodmaker, Inc. .............................................................. 7,151
5,000 aInternational Wireless Communications ........................................ 45
2,500 aNextel Communications ........................................................ 25
------------
Total Warrants (Cost $51,309) ......................................... 46,641
------------
Total Long Term Investments (Cost $290,805,839) ....................... 303,165,314
------------
Face
Amount
- ---------------------------------------------------------------------------------------------------------------------------
$ 25,963,428 dReceivables from Repurchase Agreements 7.9%
Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $26,421,665)
(Cost $26,411,995)
Aubrey G. Lanston & Co., Inc., (Maturity Value $3,311,078)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear Stearns & Co., Inc., (Maturity Value $3,311,078)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $3,311,078)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $3,311,078)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,311,078)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $3,244,119)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $3,311,078)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $3,311,078)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01.......... $ 26,411,995
------------
Total Investments (Cost $317,217,834) 98.0% ....................... 329,577,309
Other Assets and Liabilities, Net 2.0% ............................ 6,801,369
------------
Net Assets 100.0%.................................................. $336,378,678
============
At December 31, 1996, the net unrealized appreciation based on the cost of
investments for income tax purposes of $317,217,834 was as follows:
Aggregate gross unrealized appreciation for all investments for which there was
an excess of value over tax cost............................................. $ 14,452,690
Aggregate gross unrealized depreciation for all investments for which there was
an excess of tax cost over value............................................. (2,093,215)
------------
Net unrealized appreciation................................................... $ 12,359,475
============
PORTFOLIO ABBREVIATIONS:
L.L.C - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment in Kind
S.F. - Sinking Fund
aNon-income producing.
bSee Note 5 regarding defaulted securities.
cPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dFace amount for repurchase agreement is for the underlying collateral. See Note
1(h) regarding joint repurchase agreement.
eFace 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, 1996
Franklin Franklin Franklin
Tax-Advantaged Tax-Advantaged Tax-Advantaged
International U.S. Government High Yield
Bond Fund Securities Fund Securities Fund
----------- ----------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C>
At identified cost............................................ $28,302,455 $336,537,790 $290,805,839
=========== =========== ==========
At value...................................................... 30,464,570 330,020,747 303,165,314
Receivables from repurchase agreements, at value and cost.... 1,326,907 6,187,084 26,411,995
Cash......................................................... 33,408 -- 1,563,798
Receivables:
Dividends and interest........................................ 1,125,129 2,046,419 5,510,567
----------- ----------- ----------
Total assets.................................................. 32,950,014 338,254,250 336,651,674
----------- ----------- ----------
Liabilities:
Payables:
Distributions to partners..................................... -- 8,163 --
Management fees............................................... 39,061 147,491 146,383
Distribution fees............................................. 6,419 52,208 74,560
Partners' servicing costs..................................... 987 5,663 2,816
Bank Overdraft............................................... -- 2,899,791 --
Accrued expenses and other liabilities....................... 8,968 58,878 49,237
----------- ----------- ----------
Total liabilities............................................. 55,435 3,172,194 272,996
----------- ----------- ----------
Net assets, at value.......................................... $32,894,579 $335,082,056 $336,378,678
=========== =========== ==========
Net assets consist of:
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated
in foreign currencies........................................ $ 2,166,510 $ (6,517,043) $ 12,359,189
Accumulated net realized gain (loss) from investments........ 752,280 (11,425,368) (4,495,739)
Partners' capital............................................ 29,975,789 353,024,467 328,515,228
----------- ----------- ----------
Net assets, at value.......................................... $32,894,579 $335,082,056 $336,378,678
=========== =========== ==========
Shares outstanding............................................ 2,643,813 31,865,592 37,444,492
=========== =========== ==========
Net asset value per share*.................................... $12.44 $10.52 $8.98
=========== =========== ==========
Maximum offering price per share
(100/95.75 of net asset value per share)..................... $12.99 $10.99 $9.38
=========== =========== ==========
*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, 1996
Franklin Franklin Franklin
Tax-Advantaged Tax-Advantaged Tax-Advantaged
International U.S. Government High Yield
Bond Fund Securities Fund Securities Fund
----------- ----------- ----------
Investment income:
<S> <C> <C> <C>
Dividends.................................................... $-- $-- $ 151,685
Interest (Note 1)............................................ 2,343,088 27,620,206 22,786,413
----------- ----------- ----------
Total income.................................................. 2,343,088 27,620,206 22,938,098
----------- ----------- ----------
Expenses:
Management fees (Note 4)..................................... 191,900 1,910,739 1,340,712
Distribution fees (Note 4)................................... 35,888 323,731 343,987
Partners' servicing costs (Note 4)........................... 11,876 73,354 31,457
Custodian fees............................................... 14,585 7,213 5,274
Registration fees............................................ 12,891 13,730 14,010
Reports to partners.......................................... 9,106 58,978 26,553
Professional fees............................................ 5,995 50,404 31,104
Managing partners' fees and expenses......................... -- 6,148 6,084
Other........................................................ 3,567 48,617 73,301
Management fees waived by manager (Note 4)................... (55,690) -- --
----------- ----------- ----------
Total expenses................................................ 230,118 2,492,914 1,872,482
----------- ----------- ----------
Net investment income......................................... 2,112,970 25,127,292 21,065,616
----------- ----------- ----------
Realized and unrealized gain (loss) from investments
and foreign currency:
Net realized gain (loss) from:
Investments................................................ 131,865 (566,636) (1,362,434)
Foreign currency transactions.............................. (38,162) -- (528)
Net unrealized appreciation (depreciation) on:
Investments................................................ 1,127,585 (10,283,895) 10,870,241
Translation of assets and liabilities denominated in
foreign currencies........................................ (5,670) -- 8
----------- ----------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currency transactions............................ 1,215,618 (10,850,531) 9,507,287
----------- ----------- ----------
Net increase in net assets resulting from operations.......... $3,328,588 $14,276,761 $30,572,903
=========== =========== ==========
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, 1996 and 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
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in
net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income........ $ 2,112,970 $ 1,888,748 $ 25,127,292 $ 29,326,619 $ 21,065,616 $ 9,708,179
Net realized gain (loss) from
investments and foreign
currency transactions....... 93,703 85,573 (566,636) (2,853,964) (1,362,962) 588,709
Net unrealized appreciation
(depreciation) on invest-
ments and translation of
assets and liabilities
denominated in foreign
currencies.................. 1,121,915 2,489,173 (10,283,895) 46,981,743 10,870,249 7,378,901
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net
assets resulting from
operations................ 3,328,588 4,463,494 14,276,761 73,454,398 30,572,903 17,675,789
Distributions to partners
from undistributed net
investment income.......... (2,103,312) (1,970,655) (25,127,292) (29,326,619) (21,065,088) (9,853,364)
Increase (decrease) in net
assets from partnership's
capital share transactions
(Note 2)................... 3,316,895 3,134,327 (57,632,234) (96,984,064) 166,790,799 71,106,906
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net assets.......... 4,542,171 5,627,166 (68,482,765) (52,856,285) 176,298,614 78,929,331
Net assets:
Beginning of year.............. 28,352,408 22,725,242 403,564,821 456,421,106 160,080,064 81,150,733
---------- ---------- ---------- ---------- ---------- ----------
End of year.................... $32,894,579 $28,352,408 $335,082,056 $403,564,821 $336,378,678 $160,080,064
========== ========== ========== ========== ========== ==========
Undistributed net investment
income included in net assets:
Beginning of year............. $-- $-- $-- $-- $-- $ 145,950
========== ========== ========== ========== ========== ==========
End of year................... $-- $-- $-- $-- $-- $--
========== ========== ========== ========== ========== ==========
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), 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.
On January 14, 1997, the Managing General Partners of the Funds agreed to submit
for a vote of the partners a recommendation to liquidate the Funds. Under the
plan proposed by the Managing General Partners, non-U.S. partners will have the
option to receive the value of their shares in cash or in shares of established
offshore funds which parallel the respective Funds. If approved, the liquidation
is expected to occur by the summer of 1997.
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 Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over the counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the Managing General Partners. 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 prices is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
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 the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Original issue discount is amortized as required by the Internal Revenue Code.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Investment Income, Expenses and Distributions: (cont.)
Net capital gains (or losses) realized by the Funds on transactions in their
respective portfolio securities will be allocated proportionately to each
partner and will not be distributed. Thus, they will be reflected in the value
of a partner's shares.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of realized foreign currency transactions.
Net realized capital gains and losses differ from financial statement and tax
purposes primarily due to differing treatment of wash sales and foreign currency
transactions.
e. Accounting Estimates:
The preparation of 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 the 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, 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 joint repurchase agreements whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the joint repurchase agreements are allocated to
the Funds based on their pro rata interest. 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 Funds' 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, 1996, all outstanding repurchase agreements held by
the Funds had been entered into on that date.
<TABLE>
<CAPTION>
2. SHARES OF PARTNERSHIP INTEREST
At December 31, 1996, there were an unlimited number of shares authorized.
Transactions in each of the Fund's shares for the years ended December 31, 1996
and 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
------------------ --------------------- --------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ----------- --------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold................. 1,030,431 $12,354,985 4,627,383 $ 48,667,839 27,487,907 $240,041,203
Shares issued in reinvest-
ment of distributions....... 131,440 1,578,666 1,432,703 14,985,152 1,386,114 12,098,606
Shares redeemed............. (888,462) (10,616,756) (11,578,668) (121,285,225) (9,807,246) (85,349,010)
-------- ---------- --------- ----------- --------- -----------
Net increase (decrease)...... 273,409 $ 3,316,895 (5,518,582) $ (57,632,234) 19,066,775 $166,790,799
======== ========== ========= =========== ========= ===========
1995
Shares sold................. 614,961 $ 7,144,340 3,361,305 $ 34,978,883 10,645,479 $ 91,897,613
Shares issued in reinvest-
ment 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
======== ========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended December 31, 1996 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........................... $4,612,008 $ 5,917,146 $182,236,665
Sales............................... $1,658,539 $57,467,487 $ 35,853,551
</TABLE>
For tax purposes, the aggregate cost of securities is higher (and unrealized
depreciation is higher) than for financial reporting purposes at December 31,
1996 by $19,584 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
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
a. Management Agreement: (cont.)
Under an agreement with Advisers, Franklin Templeton Services, Inc. (FT
Services) provides administrative services and facilities for the Funds. The fee
is paid by Advisers and computed monthly based on average daily net assets.It is
not a separate expense of the Funds.
Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI)
provides services to the International Bond Fund, and receives from Advisers,
fees computed on 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
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 year ended December
31, 1996 aggregated $116,687, 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 the Funds' 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 year ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged
International Bond Fund U.S. Government Securities Fund High Yield Securities Fund
---------------- -------------------- -----------------
<S> <C> <C> <C>
Total commission received........... $147,798 $645,826 $749,557
Paid to other dealers............... $149,840 $706,251 $778,024
</TABLE>
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
5. CREDIT RISK AND DEFAULTED SECURITIES (cont.)
often subordinated to other creditors of the issuer. At December 31, 1996, the
Fund held two defaulted securities with a value aggregating $661,150,
representing .20% of the Fund's net assets. For information as to specific
securities, see the accompanying Statement of Investments in Securities and Net
Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds in the period in which the default
occurs.
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 Italian securities.
6. OTHER CONSIDERATIONS
As the Investment Advisor of the High Yield Fund, Advisers 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 Scott Cable and Forstmann Textile, and therefore 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 securities while in possession of
material non-public information in contravention of the Federal Securities laws.
<TABLE>
<CAPTION>
7. FINANCIAL HIGHLIGHTS
Selected data for each share of partnership interest outstanding throughout each
period by Fund are as follows:
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------- --------------------------------------------
Net Realized Ratio of Net
Net Asset & Unrealized Dividends Net Asset Net Assets Ratio of Investment
Year Value at Net Gain Total From From Net Value at End Expenses Income Portfolio
Ended Beginning Investment (Loss) on Investment Investment at End Total of Period to Average to Average Turnover
December 31, of Period Income 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>
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
1996 11.96 .831 .477 1.308 (.828) 12.44 11.41 32,895 .75 6.92 5.81
Franklin Tax-Advantaged U.S. Government Securities Fund
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
1996 10.80 .709 (.280) .429 (.709) 10.52 4.22 335,082 .67 6.76 1.64
Franklin Tax-Advantaged High Yield Securities Fund
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
1996 8.71 .767 .270 1.037 (.767) 8.98 12.55 336,379 .79 8.84 16.40
</TABLE>
7. FINANCIAL HIGHLIGHTS (cont.)
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the contingent deferred sales charge and assumes reinvestment of
dividends and capital gains at net asset value. Prior to May 1, 1994, dividends
were reinvested at the maximum offering price, and capital gains at net asset
value. 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. The total return may differ from that
reported in the Manager's Discussion due to differences between the net asset
values quoted and the net asset values calculated for financial reporting
purposes.
*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 would have been as follows:
Ratio of expenses to
average net assets
- --------------------------------------------------------------------------------
Franklin Tax-Advantaged International Bond Fund
1992......................................... .92%
1993......................................... .97
1994......................................... 1.06
1995......................................... 1.00
1996......................................... .94
FRANKLIN PARTNERS FUNDS
Report of Independent Accountants
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
statement of investments in securities and net assets, as of December 31, 1996,
and the related statements of operations for the year then ended, statements of
changes in net assets for each of the two years in the period ended, and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
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 include confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. 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 each
of the three funds comprising the Franklin Partners Funds as of December 31,
1996, 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 their
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 4, 1997
Franklin Partners Funds Annual Report December 31, 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
securities on December 31, 1996, and December 31, 1995, based on total net
assets.
<TABLE>
<CAPTION>
Geographic Distribution on 12/31/96 versus 12/31/95
<S> <C> <C>
Canada 12.3% 10.6%
Australia 11.8% 10.8%
Denmark 11.1% 10.9%
Italy 10.8% 9.2%
Germany 10.6% 11.2%
United Kingdom 9.7% 10.3%
New Zealand 8.3% 8.9%
Spain 7.6% 5.3%
Sweden 7.6% 7.4%
France 1.8% 7.0%
Japan 1.0% 1.4%
Short-Term Obligations & 7.4% 7.0%
Other Net Assets
</TABLE>
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the fund's
shares with the Salomon Brothers Non-U.S. World Government Bond Index, based on
a $10,000 investment from 6/9/90 to 12/31/96.
<TABLE>
<CAPTION>
Period Ending Fund Index
<S> <C> <C>
6/9/90 9575 $10,000
6/30/90 9,727 $10,146
7/31/90 10,293 $10,645
8/31/90 10,465 $10,635
9/30/90 10,525 $10,760
10/31/90 10,912 $11,532
11/30/90 11,048 $11,672
12/31/90 11,085 $11,725
1/31/91 11,309 $12,177
2/28/91 11,246 $12,141
3/31/91 10,494 $11,227
4/30/91 10,574 $11,439
5/31/91 10,545 $11,371
6/30/91 10,294 $11,144
7/31/91 10,677 $11,481
8/31/91 10,860 $11,672
9/30/91 11,431 $12,334
10/31/91 11,498 $12,493
11/30/91 11,724 $12,752
12/31/91 12,221 $13,626
1/31/92 11,930 $13,361
2/29/92 11,913 $13,163
3/31/92 11,901 $12,968
4/30/92 12,004 $13,060
5/31/92 12,355 $13,634
6/30/92 12,753 $14,186
7/31/92 12,988 $14,495
8/31/92 13,187 $15,136
9/30/92 12,954 $15,232
10/31/92 12,447 $14,683
11/30/92 12,032 $14,305
12/31/92 12,092 $14,275
1/31/93 12,212 $14,471
2/28/93 12,293 $14,759
3/31/93 12,652 $15,125
4/30/93 12,927 $15,578
5/31/93 13,101 $15,862
6/30/93 12,868 $15,565
7/31/93 12,820 $15,576
8/31/93 13,175 $16,131
9/30/93 13,286 $16,403
10/31/93 13,444 $16,328
11/30/93 13,231 $16,253
12/31/93 13,599 $16,433
1/31/94 13,940 $16,504
2/28/94 13,695 $16,550
3/31/94 13,544 $16,752
4/30/94 13,527 $16,861
5/31/94 13,461 $16,633
6/30/94 13,387 $17,036
7/31/94 13,467 $17,080
8/31/94 13,477 $16,981
9/30/94 13,584 $17,317
10/31/94 13,937 $17,764
11/30/94 13,817 $17,407
12/31/94 13,898 $17,416
1/31/95 13,989 $17,795
2/28/95 14,290 $18,299
3/31/95 14,630 $19,929
4/30/95 14,943 $20,356
5/31/95 15,341 $20,800
6/30/95 15,377 $20,904
7/31/95 15,730 $21,014
8/31/95 15,565 $19,812
9/30/95 16,030 $20,397
10/31/95 16,417 $20,462
11/30/95 16,473 $20,640
12/31/95 16,734 $20,820
1/31/96 16,640 $20,360
2/29/96 16,662 $20,419
3/31/96 16,754 $20,470
4/30/96 16,784 $20,429
5/31/96 16,911 $20,439
6/30/96 17,086 $20,553
7/31/96 17,411 $21,121
8/31/96 17,683 $21,262
9/30/96 17,898 $21,222
10/31/96 18,390 $21,581
11/30/96 18,684 $21,829
12/31/96 18,641 $21,674
- ---------------------------------------
Totals 86.41% 116.74%
</TABLE>
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the fund's
shares with the Lehman Brothers Intermediate Government Bond Index, based on a
$10,000 investment from 5/4/87 to 12/31/96.
<TABLE>
<CAPTION>
Period Ending Fund Index
<S> <C> <C>
5/4/87 $9,579 $10,000
5/31/87 $9,714 $9,981
6/30/87 $9,879 $10,099
7/31/87 $9,977 $10,121
8/31/87 $9,969 $10,095
9/30/87 $9,748 $9,968
10/31/87 $9,971 $10,265
11/30/87 $10,154 $10,327
12/31/87 $10,239 $10,427
1/31/88 $10,565 $10,686
2/29/88 $10,648 $10,799
3/31/88 $10,641 $10,754
4/30/88 $10,645 $10,735
5/31/88 $10,617 $10,684
6/30/88 $10,842 $10,858
7/31/88 $10,824 $10,825
8/31/88 $10,824 $10,839
9/30/88 $11,052 $11,027
10/31/88 $11,251 $11,179
11/30/88 $11,134 $11,083
12/31/88 $11,080 $11,094
1/31/89 $11,226 $11,205
2/28/89 $11,182 $11,156
3/31/89 $11,183 $11,208
4/30/89 $11,380 $11,435
5/31/89 $11,671 $11,655
6/30/89 $11,965 $11,953
7/31/89 $12,118 $12,195
8/31/89 $12,024 $12,031
9/30/89 $12,083 $12,088
10/31/89 $12,324 $12,342
11/30/89 $12,456 $12,464
12/31/89 $12,540 $12,500
1/31/90 $12,467 $12,423
2/28/90 $12,562 $12,469
3/31/90 $12,594 $12,484
4/30/90 $12,520 $12,443
5/31/90 $12,848 $12,709
6/30/90 $12,980 $12,877
7/31/90 $13,186 $13,057
8/31/90 $13,144 $13,010
9/30/90 $13,224 $13,126
10/31/90 $13,370 $13,308
11/30/90 $13,629 $13,509
12/31/90 $13,822 $13,696
1/31/91 $14,018 $13,837
2/28/91 $14,092 $13,921
3/31/91 $14,184 $13,998
4/30/91 $14,323 $14,142
5/31/91 $14,434 $14,221
6/30/91 $14,464 $14,232
7/31/91 $14,700 $14,386
8/31/91 $14,924 $14,659
9/30/91 $15,174 $14,909
10/31/91 $15,376 $15,079
11/30/91 $15,443 $15,255
12/31/91 $15,852 $15,626
1/31/92 $15,611 $15,476
2/29/92 $15,767 $15,524
3/31/92 $15,678 $15,462
4/30/92 $15,808 $15,601
5/31/92 $16,082 $15,833
6/30/92 $16,309 $16,061
7/31/92 $16,529 $16,370
8/31/92 $16,735 $16,537
9/30/92 $16,882 $16,765
10/31/92 $16,651 $16,564
11/30/92 $16,707 $16,496
12/31/92 $16,980 $16,708
1/31/93 $17,310 $17,019
2/28/93 $17,523 $17,269
3/31/93 $17,599 $17,333
4/30/93 $17,666 $17,468
5/31/93 $17,771 $17,421
6/30/93 $18,043 $17,674
7/31/93 $18,172 $17,709
8/31/93 $18,339 $17,973
9/30/93 $18,307 $18,047
10/31/93 $18,416 $18,090
11/30/93 $18,221 $18,002
12/31/93 $18,420 $18,075
1/31/94 $18,619 $18,254
2/28/94 $18,363 $18,004
3/31/94 $17,695 $17,741
4/30/94 $17,535 $17,626
5/31/94 $17,588 $17,638
6/30/94 $17,482 $17,642
7/31/94 $17,874 $17,873
8/31/94 $17,896 $17,925
9/30/94 $17,541 $17,776
10/31/94 $17,451 $17,780
11/30/94 $17,432 $17,701
12/31/94 $17,660 $17,760
1/31/95 $18,078 $18,049
2/28/95 $18,569 $18,398
3/31/95 $18,640 $18,499
4/30/95 $18,908 $18,713
5/31/95 $19,673 $19,241
6/30/95 $19,783 $19,364
7/31/95 $19,744 $19,374
8/31/95 $19,986 $19,533
9/30/95 $20,169 $19,664
10/31/95 $20,398 $19,880
11/30/95 $20,646 $20,122
12/31/95 $20,907 $20,322
1/31/96 $21,029 $20,492
2/29/96 $20,775 $20,275
3/31/96 $20,629 $20,182
4/30/96 $20,535 $20,123
5/31/96 $20,433 $20,113
6/30/96 $20,702 $20,318
7/31/96 $20,767 $20,381
8/31/96 $20,741 $20,404
9/30/96 $21,127 $20,667
10/31/96 $21,572 $21,006
11/30/96 $21,953 $21,260
12/31/96 $21,788 $21,145
- ---------------------------------------
Total 117.88% 111.45%
</TABLE>
GRAPHIC MATERIAL(4)
This chart shows in pie format the credit quality of the fund's securities on
December 31, 1996, as a percentage of total long-term investments.
<TABLE>
<CAPTION>
Quality Break down on December 31, 1996
<S> <C>
Aa2 0.3%
Baa2 2.7%
Ba1 2.2%
Ba2 0.5%
Ba3 13.2%
B1 19.6%
B2 32.0%
B3 23.5%
Caa 3.8%
Ca 0.2%
NotRated 2.0%
</TABLE>
GRAPHICMATERIAL(5)
The following line graph hypothetically compares the performance of the fund's
shares with the Salomon Brothers Combined Corporate Index and the CS First
Boston High Yield Index, based on a $10,000 investment from 5/4/87 to 12/31/96.
<TABLE>
<CAPTION>
Period Ending Fund Index Index
<S> <C> <C> <C>
5/4/87 $9,579 $10,000 $10,000
5/31/87 $9,579 $9,969 $9,969
6/30/87 $9,512 $10,165 $10,106
7/31/87 $9,515 $10,268 $10,067
8/31/87 $9,553 $10,374 $10,046
9/30/87 $9,157 $10,119 $9,743
10/31/87 $8,810 $9,732 $10,012
11/30/87 $9,216 $10,109 $10,141
12/31/87 $9,350 $10,356 $10,315
1/31/88 $9,686 $10,710 $10,743
2/29/88 $9,948 $11,021 $10,911
3/31/88 $9,857 $10,946 $10,795
4/30/88 $9,946 $11,024 $10,729
5/31/88 $9,940 $11,079 $10,711
6/30/88 $10,098 $11,314 $11,001
7/31/88 $10,203 $11,443 $10,957
8/31/88 $10,208 $11,410 $10,999
9/30/88 $10,299 $11,513 $11,262
10/31/88 $10,423 $11,671 $11,460
11/30/88 $10,417 $11,697 $11,349
12/31/88 $10,500 $11,770 $11,370
1/31/89 $10,771 $12,007 $11,554
2/28/89 $10,823 $12,062 $11,493
3/31/89 $10,765 $11,975 $11,543
4/30/89 $10,884 $11,947 $11,737
5/31/89 $11,023 $12,231 $12,062
6/30/89 $11,224 $12,407 $12,402
7/31/89 $11,248 $12,434 $12,609
8/31/89 $11,367 $12,433 $12,449
9/30/89 $11,233 $12,151 $12,470
10/31/89 $10,986 $11,847 $12,673
11/30/89 $10,912 $11,871 $12,762
12/31/89 $10,987 $11,817 $12,774
1/31/90 $10,647 $11,401 $12,605
2/28/90 $10,298 $11,191 $12,600
3/31/90 $10,442 $11,513 $12,640
4/30/90 $10,174 $11,561 $12,530
5/31/90 $10,402 $11,802 $12,902
6/30/90 $10,651 $12,173 $13,127
7/31/90 $10,968 $12,567 $13,301
8/31/90 $10,358 $11,986 $13,046
9/30/90 $9,543 $11,071 $13,011
10/31/90 $8,984 $10,794 $13,007
11/30/90 $9,130 $11,011 $13,265
12/31/90 $9,188 $11,063 $13,457
1/31/91 $8,998 $11,367 $13,655
2/28/91 $9,925 $12,347 $13,990
3/31/91 $10,805 $13,113 $14,267
4/30/91 $11,436 $13,657 $14,536
5/31/91 $11,446 $13,725 $14,642
6/30/91 $11,878 $14,085 $14,701
7/31/91 $12,496 $14,561 $14,936
8/31/91 $12,781 $14,826 $15,259
9/30/91 $12,993 $15,163 $15,553
10/31/91 $13,502 $15,665 $15,744
11/30/91 $13,603 $15,790 $15,908
12/31/91 $13,782 $15,905 $16,364
1/31/92 $14,247 $16,553 $16,292
2/29/92 $14,541 $16,955 $16,479
3/31/92 $14,806 $17,207 $16,450
4/30/92 $14,977 $17,221 $16,559
5/31/92 $15,187 $17,455 $16,891
6/30/92 $15,316 $17,628 $17,160
7/31/92 $15,528 $17,900 $17,558
8/31/92 $15,759 $18,147 $17,738
9/30/92 $15,877 $18,265 $17,937
10/31/92 $15,738 $18,075 $17,661
11/30/92 $15,988 $18,346 $17,705
12/31/92 $16,189 $18,553 $17,995
1/31/93 $16,537 $19,060 $18,429
2/28/93 $16,805 $19,437 $18,822
3/31/93 $17,156 $19,847 $18,930
4/30/93 $17,251 $19,960 $19,074
5/31/93 $17,394 $20,252 $19,117
6/30/93 $17,797 $20,618 $19,560
7/31/93 $18,092 $20,833 $19,705
8/31/93 $18,157 $21,010 $20,127
9/30/93 $18,189 $21,129 $20,205
10/31/93 $18,619 $21,516 $20,329
11/30/93 $18,702 $21,787 $20,152
12/31/93 $18,967 $22,062 $20,289
1/31/94 $19,271 $22,454 $20,662
2/28/94 $19,120 $22,488 $20,284
3/31/94 $18,296 $21,827 $19,669
4/30/94 $18,081 $21,535 $19,494
5/31/94 $18,074 $21,657 $19,461
6/30/94 $18,175 $21,512 $19,432
7/31/94 $18,127 $21,613 $19,819
8/31/94 $18,327 $21,769 $19,868
9/30/94 $18,424 $21,856 $19,582
10/31/94 $18,485 $21,871 $19,551
11/30/94 $18,313 $21,618 $19,473
12/31/94 $18,509 $21,847 $19,650
1/31/95 $18,816 $22,076 $20,043
2/28/95 $19,628 $22,619 $20,606
3/31/95 $19,843 $22,875 $20,781
4/30/95 $20,391 $23,383 $21,147
5/31/95 $20,871 $24,042 $22,082
6/30/95 $21,124 $24,201 $22,254
7/31/95 $21,355 $24,576 $22,227
8/31/95 $21,329 $24,645 $22,527
9/30/95 $21,549 $24,928 $22,779
10/31/95 $21,714 $25,205 $23,064
11/30/95 $21,746 $25,323 $23,472
12/31/95 $22,110 $25,645 $23,843
1/31/96 $22,459 $26,132 $24,039
2/29/96 $22,607 $26,270 $23,618
3/31/96 $22,441 $26,200 $23,427
4/30/96 $22,506 $26,341 $23,232
5/31/96 $22,618 $26,554 $23,251
6/30/96 $22,620 $26,613 $23,549
7/31/96 $22,825 $26,852 $23,619
8/31/96 $23,201 $27,145 $23,622
9/30/96 $23,804 $27,612 $24,115
10/31/96 $23,964 $27,844 $24,684
11/30/96 $24,526 $28,278 $25,178
12/31/96 $24,885 $28,830 $24,969
- -----------------------------------------------
Totals 148.85% 188.30% 149.69%
</TABLE>
