-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AMEc3b69FPAWhCr1c0Ocy7O9QfH+bKh0H1Ao1cMdVsRBUKJcta2W/59dC/HuuctM YXcxeRJ8U2NWv5yAy2hdWw== 0000802669-96-000008.txt : 19960911 0000802669-96-000008.hdr.sgml : 19960911 ACCESSION NUMBER: 0000802669-96-000008 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960910 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TAX ADVANTAGED INTERNATIONAL BOND FUND CENTRAL INDEX KEY: 0000802669 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04849 FILM NUMBER: 96627977 BUSINESS ADDRESS: STREET 1: 777 MARINER'S ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4153122000 MAIL ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM INTERNATIONAL BOND FUND DATE OF NAME CHANGE: 19900712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TAX ADVANTAGED HIGH YIELD SECURITIES FUND CENTRAL INDEX KEY: 0000810303 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05008 FILM NUMBER: 96627978 BUSINESS ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4153122000 MAIL ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TAX ADVANTAGED U S GOVERNMENT SECURITIES FUND CENTRAL INDEX KEY: 0000810742 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05007 FILM NUMBER: 96627979 BUSINESS ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4155703000 MAIL ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 N-30D 1 MESSAGE FROM THE MANAGING GENERAL PARTNER ================================================================================ Table of Contents Page Message from the Managing General Partner 1 Fund Reports Franklin Tax-Advantaged International Bond Fund 4 Franklin Tax-Advantaged U.S. Government Securities Fund 9 Franklin Tax-Advantaged High Yield Securities Fund 12 Statement of Investments 16 Financial Statements 27 Notes to Financial Statements 30 August 15, 1996 Dear Shareholder: We're pleased to bring you the Franklin Partners Funds(R) semi-annual report for the fiscal period ended June 30, 1996. A Difficult Market Moderate U.S. economic growth and rising interest rates contributed to a troublesome U.S. bond market. As you may recall, investment-grade bonds performed well throughout 1995, thanks in part to a declining interest rate environment. Unfortunately, that trend stopped in the first quarter of 1996. A strong employment report, released March 8, 1996, caught many investors by surprise. Fearing a rekindling of inflation, bonds sold off -- raising interest rates -- and nervous investors threw the Dow Jones Industrial Average(R) into a short-lived tailspin, tumbling 171.24 points (-3.04%) in a single day. By March 30, 1996, U.S. gross domestic product (GDP), a measure of the nation's economic output, advanced at an annual 2.2% growth rate, contrasting sharply with the 0.5% annualized growth rate in the last quarter of 1995. For most bond markets, the nation's economic expansion brought growing pains. As interest rates rose, bond prices fell. Yields on 30-year Treasury bonds climbed approximately 100 basis points over the six-month period to close June 30, 1996, near 7%. Municipal and high-yield bonds generally fared a bit better. Currently, GDP is estimated at an annualized 3.5% to 4% growth rate for the year, and markets are looking to the Federal Reserve Board for a possible rate increase to cool the accelerating economy. Dealing With Ups and Downs Since such volatility is a normal part of investing, I would like to remind you of several ways to deal with the ups and downs of financial markets. First, develop a long-term investment plan based on sound financial goals. Stay focused on the plan and periodically consult with your investment representative to make sure you are invested in funds that match your goals. If you concentrate on the long term, you need not unduly concern yourself with short-term market volatility. Next, consider using an investment technique called Dollar Cost Averaging. Investing a fixed dollar amount at regular intervals, regardless of the market's direction, automatically buys more shares when prices are low and less when prices are high. The net result: you reduce your average cost per share. Of course, no investment technique can assure a profit or completely protect against loss, but Dollar Cost Averaging provides a way to minimize the effects of market volatility and helps make the most of your investment dollars.* Finally, diversify your investments. Mutual funds are an easy way to diversify your assets through a single, professionally managed vehicle. On the pages that follow, you will find detailed discussions of the three funds included in this report. While each fund has a distinct investment objective, keep in mind that Franklin Templeton provides careful investment selection, broad asset diversification and constant, professional investment supervision. We appreciate your support, welcome your questions and look forward to serving you in the years to come. Sincerely, Rupert H. Johnson, Jr. Executive Vice President and Managing General Partner *Be sure to consider your financial ability to continue share purchases through periods of low price levels or changing economic conditions. For more information on Dollar Cost Averaging, contact your investment representative, or call Franklin Templeton at 1-800/DIAL BEN (1-800/342-5236). Special Update As you may know, after 1997 non-U.S. investors in the Franklin Partners Funds(R) will become subject to U.S. withholding taxes. The Managing General Partners believe that this is not consistent with the purpose of these Funds, and are expected to recommend that Partners approve actions which would allow non-U.S. Partners to continue to receive income free from U.S. taxation. U.S. investors would have the opportunity to transfer holdings to other U.S. registered Franklin Templeton funds, while non-U.S. Partners would be advised of other options which may accommodate the tax and investment goals of those Partners. We'll apprise you of progress as we move ahead. FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND =============================================== Your Fund's Objective: Seeks to provide current income through investments in debt securities of non-U.S. issuers and foreign currency denominated debt securities of U.S. issuers. Recently, global fixed-income markets offered a welcome respite from this period's twin threats of a rising U.S. dollar and rising global interest rates. The Franklin Tax-Advantaged International Bond Fund generated a +2.11% total return for the six-month period ended June 30, 1996, as discussed in the Performance Summary on page 7. In contrast, the J.P. Morgan Global Government Bond Index generated a total re-turn of -0.90% over the same period. Dollar-Block Countries Approximately 33% of portfolio assets are invested in the dollar-block countries of Canada, Australia and New Zealand. Increased U.S. economic activity and rising interest rates negatively impacted these assets during much of the reporting period. In May, however, those markets rebounded and, by the end of the reporting period, generated net positive returns for the year. European Markets About 44% of our net assets are in interme- diate bonds invested in Italy, Spain, Sweden, Denmark and the United Kingdom. Year to date, three of the top five performing developed market bond performers (in U.S. dollar terms) are Italy, Spain and Sweden. Spain experienced a brief bond sell-off follow-ing its elections in March, during which we took advantage of lower bond prices to increase our holdings. The Spanish market recovered quickly, reaching new highs in the equity and fixed-income markets. As a result, bond prices rebounded, aiding the performance of our Spanish positions. GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT In Sweden, the re-election of the Social Democratic Party renewed hopes that the government would continue its policy of disciplined fiscal management, attempting to keep the country's economy strong. This restored investor confidence and bond markets rallied in response. Looking Forward U.S. economic growth, a rebound in core European economies and the strength of the U.S. dollar are all key factors that will influence global fixed-income markets during the balance of the year. Although sustained global growth probably won't occur, it's likely the U.S. economy will rebound mildly and maintain this growth through the summer. This may help move the U.S. dollar higher. In Europe, most economies have moved through the trough in their business cycles. We believe that any renewed growth there will be slow to arrive and sluggish. One significant factor affecting this growth is the degree of constraint placed on domestic European policies relative to the European Monetary Union. Given this global outlook, Franklin Tax-Advantaged International Bond Fund is positioned conservatively with respect to both currency and interest rate risk, and we remain optimistic about our performance over the balance of the year. Performance Summary The Franklin Tax-Advantaged International Bond Fund reported a cumulative total return of +2.11% for the six-month period, and +11.11% for the one-year period, ended June 30, 1996. Of course, we maintain a long-term perspective when managing the fund, and encourage shareholders to view their investments in a similar manner. As shown in the table on page 8, the fund delivered a cumulative total return of +78.45% since its inception on June 9, 1990. The fund's share price, as measured by net asset value, decreased $0.17, from $11.96 on December 31, 1995, to $11.79 on June 30, 1996. Over this reporting period, shareholders received income distributions totaling 41.5 cents ($0.415) per share. Based on the fund's maximum offering price of $12.31 and an annualization of its distributions for the 30 days ended June 30, 1996, the fund's distribution rate was 8.58%. Dividends will vary depending on income earned by the fund, and past performance is not predictive of future results. It is important to remember that there are special risks involved with foreign investing. Fund share prices and returns will fluctuate with market conditions, currencies and the economic and political climates where investments are made; however, such fluctuations can provide long-term investors with opportunities to purchase securities at prices which may be depressed due to investor pessimism surrounding political and economic uncertainty.
Franklin Tax-Advantaged International Bond Fund Periods ended June 30, 1996 Since Inception One-Year Five-Year (6/9/90) - --------------------------------------------------------------------------------------------------------------------------- Cumulative Total Return1 11.11% 65.98% 78.45% Average Annual Total Return2 6.36% 9.71% 9.23% Distribution Rate3 8.58% 30-Day Standardized Yield4 6.23% - ---------------------------------------------------------------------------------------------------------------------------
1. Cumulative total return shows the change in value of an investment over the periods shown and does not include the current maximum 4.25% initial sales charge. See Note below. 2. Average annual total return represents the average annual change in value of an investment over the periods shown and includes the current maximum 4.25% initial sales charge. See Note below. 3. Distribution rate is based on an annualization of the distribution paid over the 30 days ended June 30, 1996, and the maximum offering price of $12.31 on that date. 4. Yield, calculated as required by the SEC, is based on earnings of the fund's portfolio during the 30 days ended June 30, 1996. Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales charge, with dividend reinvested at the offering price. Thus, actual total returns for purchasers of shares during that period would have been different than noted above. Effective July 1, 1994, the fund eliminated the sales charge on reinvested dividends and implemented a plan of distribution under Rule 12b-1, which affects subsequent performance. All total return calculations assume reinvestment of dividends at net asset value, and 12b-1 fees from the date of the plan's implementation. Investment return and principal value will fluctuate, so your shares, when redeemed, may be worth more or less than their original cost. Past performance is not predictive of future results. The fund's manager agreed in advance to waive a portion of its manager fees, which reduces operating expenses and increases distribution rate, yield and total return to shareholders. Without these reductions, the fund's distribution rate and total return would have been lower, and yield for the period would have been 6.20%. The fee waiver may be discontinued at any time, upon notice to the fund's Managing General Partners. FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND ======================================================= Your Fund's Objective: Seeks to provide current income through investment in U.S. government obligations, primarily Government National Mortgage Association securities. The Franklin Tax-Advantaged U.S. Government Securities Fund generated a -0.98% cumulative total return for the six months ended June 30, 1996, as discussed in the Performance Summary on page 11. During this reporting period, a growing U.S. economy and rising interest rates negatively impacted the U.S. government securities market in which your fund invests. A surprisingly strong employment report, released in March 1996, marked the start of a gradual rise in interest rates, which continued through June 1996. This was the first sustained rate increase in nearly two years. Yields on most Treasury securities rose approximately 100 basis points between January 1 and June 30, 1996. It was only six months ago that the Federal Reserve Board lowered rates in an effort to stimulate economic growth. Now, the governing board may try to cool off an over-heated economy by raising rates sometime in the near term. Currently, forward-looking economists are divided into two camps -- "slower growth" and "faster growth." Talk of a balanced budget package has been replaced by political campaigning in this presidential election year. As you know, elections are known events with unknown outcomes. It's difficult to say how much of an impact this will have on market values. As the political positioning heats up, however, the potential exists for increased volatility as candidates try to "please everyone." We believe, nevertheless, that interest rates at current levels adequately discount election rhetoric and reasonable economic uncertainty. When investing in a Government National Mortgage Association (GNMA or "Ginnie Mae") fund, it's important to maintain a long-term outlook. Like most fixed-income vehicles, the share price of a Ginnie Mae fund will fluctuate with interest rate movements. Ginnie Mae values are also affected by the higher level of mortgage prepayments that often occurs in periods of declining interest rates. Although the fund may invest in other mortgage passthroughs, Ginnie Maes remain the fund's primary income-generating investment. They generally provide the price stability of an intermediate-term bond, and often more income than a 30-year bond. The fund is not managed as an aggressive trading vehicle, but as an income fund, investing only in those issues boasting high credit quality, moderate volatility and solid income. Performance Summary The Franklin Tax-Advantaged U.S. Government Securities Fund reported a cumulative total return of -0.98% for the six-month period, and a total return of +4.64% for the one-year period, ended June 30, 1996. We maintain a long-term perspective when managing the fund, and encourage shareholders to view their investments in a similar manner. As shown in the table, the fund has delivered a cumulative total return of +116.13% since its inception on May 4, 1987. The fund's share price, as measured by net asset value, decreased $0.46, from $10.80 on December 31, 1995, to $10.34 on June 30, 1996. Over the reporting period, shareholders received income distributions totaling 35.4 cents ($0.354) per share. Based on the fund's maximum offering price of $10.80 and an annualization of its distributions for the 30 days ended June 30, 1996, the fund's distribution rate was 6.60%. Dividends will vary depending on income earned by the fund, and past performance is not predictive of future results. Franklin Tax-Advantaged U.S. Government Securities Fund Periods ended June 30, 1996 Since Inception One-Year Five-Year (5/4/87) - -------------------------------------------------------------------------------- Cumulative Total Return1 4.64% 43.13% 116.13% Average Annual Total Return2 0.18% 6.50% 8.26% Distribution Rate3 6.60% 30-Day Standardized Yield4 6.44% - -------------------------------------------------------------------------------- 1. Cumulative total return shows the change in value of an investment over the periods shown and does not include the current maximum 4.25% initial sales charge. See Note below. 2. Average annual total return represents the average annual change in value of an investment over the periods shown and includes the current maximum 4.25% initial sales charge. See Note below. 3. Distribution rate is based on an annualization of the distribution paid over the 30 days ended June 30, 1996, and the maximum offering price of $10.80 on that date. 4. Yield, calculated as required by the SEC, is based on earnings of the fund's portfolio during the 30 days ended June 30, 1996. Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales charge, with dividend reinvested at the offering price. Thus, actual total returns for purchasers of shares during that period would have been different than noted above. Effective July 1, 1994, the fund eliminated the sales charge on reinvested dividends and implemented a plan of distribution under Rule 12b-1, which will affect subsequent performance. All total return calculations assume reinvestment of dividend at net asset value, and 12b-1 fees from the date of the plan's implementation. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is not predictive of future results. FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND ================================================== Your Fund's Objective: Seeks to provide high current income from a portfolio of high yielding, lower-rated corporate bonds issued by U.S. and non-U.S. corporations. Market Activity Over the past six months, the fund generated a cumulative total return of +2.31%, as discussed in the Performance Summary on page 15. With signs of stronger economic growth and fears of inflation, long-term U.S. Treasury bond interest rates rose from 6.2% on January 1, 1996, to 7.0% by June 30, 1996. Despite these rate increases, which generally cause declines in bond values, the high yield bond market performed very well. The solid performance of this sector can be attributed to the hybrid nature of these high yield instruments. They possess both debt and equity characteristics. While the "debt" component can be negatively impacted by rising interest rates, this is often offset by the "equity" component of the security, which gains on expectations of economic growth. It's this growth that helps strengthen the overall financial condition of high-yield bond issuers. Portfolio Changes Industry positioning and individual company selection played significant roles in our performance over the period. We increased the fund's exposure to media and broadcasting bonds, seeking to take advantage of new opportunities arising from the Telecommunications Bill of 1996. The bill generally deregulated the telecommunications industry, resulting in improved growth prospects for many corporations. In May, Bally's Casino agreed to be purchased by Hilton Hotels, an investment-grade company. In general, a merger like this has a beneficial impact on the price of the company being purchased, as its financial operations are usually improved by the acquiring company. The fund continued to increase its overall credit quality rating during this reporting period. Improved ratings came as a result of two actions: first, some of our current holdings received upgraded ratings and, second, we purchased new, higher-rated securities, which helped raise our overall credit worthiness. The portfolio's average maturity decreased from 9 years to 8.5 years during the six-month reporting period. GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT We are pleased that Franklin's Tax-Advantaged High Yield Securities Fund fared well during the reporting period, but we cannot guarantee that this trend will continue. Investing in this fund may entail a greater degree of credit risk relative to investing in a fund of higher-rated, lower-yielding securities. The fund should not be considered a complete investment program, and should be carefully evaluated for its appropriateness in light of your overall investment needs and goals. Those on fixed incomes, including retired individuals, should consider the increased risk of loss of principal that is present with an investment in higher risk securities such as those contained in the fund's portfolio. In the months ahead, moderate economic growth and low inflation should help improve corporate earnings and benefit high yield bonds. This discussion reflects the strategies we employed for the fund during this fiscal period, and includes our opinions as of June 30, 1996. Since economic and market conditions are constantly changing, our strategies, and our evaluations, conclusions and decisions regarding portfolio holdings may change as new circumstances arise. Although past performance of a specific investment or sector cannot guarantee future performance, such information can be useful in analyzing securities we purchase or sell for the fund. Performance Summary The Franklin Tax-Advantaged High Yield Securities Fund reported a total return of +2.31% for the six-month period, and a total return of +7.08% for the one-year period, ended June 30, 1996. Of course, we maintain a long-term perspective when managing the fund, and encourage shareholders to do the same with regard to their own investment in the fund. As shown in the table, the fund delivered a cumulative total return of +136.16% since its inception on May 4, 1987. The fund's share price, as measured by net asset value, decreased $0.17, from $8.71 on December 31, 1995, to $8.54 on June 30, 1996. Over the reporting period, shareholders received income distributions totaling 37.0 cents ($0.370) per share. Based on the fund's maximum offering price of $8.92 and an annualization of its distributions for the 30 days ended June 30, 1996, the fund's distribution rate was 8.89%. Dividends will vary depending on income earned by the fund, and past performance is not predictive of future results. Franklin Tax-Advantaged High Yield Securities Fund Periods ended June 30, 1996 Since Inception One-Year Five-Year (5/4/87) - -------------------------------------------------------------------------------- Cumulative Total Return1 7.08% 90.43% 136.16% Average Annual Total Return2 2.49% 12.78% 9.31% Distribution Rate3 8.89% 30-Day Standardized Yield4 8.51% - -------------------------------------------------------------------------------- 1. Cumulative total return shows the change in value of an investment over the periods shown and does not include the current maximum 4.25% initial sales charge. See Note below. 2. Average annual total return represents the average annual change in value of an investment over the periods shown and includes the current maximum 4.25% initial sales charge. See Note below. 3. Distribution rate is based on an annualization of the distribution paid over the 30 days ended June 30, 1996, and the maximum offering price of $8.92 on that date. 4. Yield, calculated as required by the SEC, is based on earnings of the fund's portfolio during the 30 days ended June 30, 1996. Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales charge, with dividend reinvested at the offering price. Thus, actual total returns for purchasers of shares during that period would have been different than noted above. Effective July 1, 1994, the fund eliminated the sales charge on reinvested dividends and implemented a plan of distribution under Rule 12b-1, which will affect subsequent performance. All total return calculations assume reinvestment of dividend at net asset value, and 12b-1 fees from the date of the plan's implementation. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Past performance is not predictive of future results. FRANKLIN PARTNERS FUNDS ======================= Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited)
Face Value Country* Amount Franklin Tax-Advantaged International Bond Fund (Note 1) - --------------------------------------------------------------------------------------------------------------------------- Foreign Notes, Bills, Bonds & Government Securities 91.3% Australia 11.9% AU 820,000 EIB Global Bond, 10.25%, 10/01/01 ............................... $ 701,513 AU 1,000,000 EuroFima, 9.875%, 01/17/07 ...................................... 826,031 AU 600,000 New South Wales Treasury Corp., 7.00%, 04/01/04 ................. 420,576 AU 425,000 Queensland Treasury Corp., notes, 12.00%, 07/15/99 .............. 366,779 AU 1,660,000 Queensland Treasury Corp., notes, 8.00%, 05/14/03 ............... 1,242,531 ---------- 3,557,430 ---------- Canada 12.8% CA 400,000 Government of Canada, 8.50%, 04/01/02 ........................... 311,386 CA 945,000 Government of Canada, 10.25%, 02/01/04 .......................... 802,791 CA 550,000 Government of Canada, 8.75%, 12/01/05 ........................... 433,635 CA 420,000 Hydro-Quebec, Eurobonds, 11.25%, 10/10/00 ....................... 353,431 CA 150,000 Ontario-Hydro, Eurobonds, 9.00%, 06/24/02 ....................... 118,857 CA 1,500,000 Province of British Columbia, 9.00%, 01/09/02 ................... 1,188,519 CA 830,000 Province of Ontario, 7.50%, 01/19/06 ............................ 596,275 ---------- 3,804,894 ----------- Denmark 9.4% DK 3,750,000 Government of Denmark, 9.00%, 11/15/00 .......................... 707,366 DK 1,393,000 Nykredit, 9.00%, 10/01/12 ....................................... 253,964 DK 5,811,000 Nykredit, 6.00%, 10/01/26 ....................................... 802,013 DK 7,536,000 Real Kredit Danmark, 6.00%, 10/01/26 ............................ 1,042,664 ----------- 2,806,007 ---------- France 1.9% FR 4,250,000 French OAT, Strip, 0.00%, 10/25/15 .............................. 199,648 FR 510,000 French OAT, Strip, 0.00%, 10/25/16 .............................. 21,799 FR 1,500,000 Government of France, OAT, 8.50%, 12/26/12 ...................... 336,463 ---------- 557,910 ---------- Germany 11.6% DD 1,380,000 Deutscheland Republic, 8.50%, 08/21/00 .......................... 1,010,527 DD 1,070,000 Deutscheland Republic, 8.25%, 09/20/01 .......................... 782,750 DD 1,450,000 German Unity Fund, 8.75%, 08/20/01 .............................. 1,085,056 DD 850,000 West Japan Railway Co., 8.70%, 06/25/97 ......................... 584,520 ----------- 3,462,853 ----------- Italy 11.4% IT 1,050,000,000 Buoni Poliennali del Tesoro, 10.50%, 07/15/00 ................... 727,991 IT 900,000,000 Buoni Poliennali del Tesoro, 10.50%, 09/01/05 ................... 633,452 IT 2,000,000,000 Certificati di Credito del Tesoro, 12.00%, 01/20/98 ............. 1,371,895 IT 1,000,000,000 Certificati di Credito del Tesoro, 11.60%, 01/01/00 ............. 665,709 ---------- 3,399,047 ---------- Japan 1.2% JP 34,000,000 International Bank of Reconstruction and Development, 6.75%, 03/15/20 ....................................................... $ 363,048 ---------- New Zealand 8.4% NZ 2,275,000 New Zealand Government, 8.00%, 07/15/98 ......................... 1,530,153 NZ 1,500,000 New Zealand Government, 8.00%, 04/15/04 ......................... 984,836 ---------- 2,514,989 ----------- Spain 4.9% ES 73,000,000 Government of Spain, 11.60%, 01/15/97 ........................... 582,266 ES 100,000,000 Government of Spain, 10.90%, 08/30/03 ........................... 873,794 ---------- 1,456,060 ---------- Sweden 8.2% SE 5,100,000 Staten Bostadiffinansier, 12.50%, 01/23/97 ...................... 797,198 SE 1,800,000 Staten Bostadiffinansier, 11.00%, 01/21/99 ...................... 297,372 SE 1,700,000 Government of Sweden, 10.25%, 05/05/03 .......................... 288,316 SE 8,000,000 Government of Sweden, 6.00%, 02/09/05 ........................... 1,051,322 ---------- 2,434,208 ---------- United Kingdom 9.6% GB 300,000 Abbey National Treasury Service, 10.50%, 04/22/97 ............... 481,620 GB 460,000 Export-Import Bank of Japan, 10.75%, 05/15/01 ................... 798,760 GB 270,000 Government of Italy, Eurobonds, 10.50%, 04/28/14 ................ 471,458 GB 715,000 United Kingdom Treasury, Conversion, 7.00%, 08/06/97 ............ 1,123,577 ---------- 2,875,415 ---------- Total Long Term Investments (Cost $26,697,739)............. 27,231,861 ---------- d,e Receivables from Repurchase Agreements 4.3% US 1,266,121 Joint Repurchase Agreement, 5.439%, 07/01/96 (Maturity Value $1,272,045) (Cost $1,271,468) Chase Securities, Inc., (Maturity Value $182,812) Collateral: U.S. Treasury Notes, 5.375%, 11/30/97 Daiwa Securities America, Inc., (Maturity Value $182,812) Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00 Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $175,173) Collateral: U.S. Treasury Bills, 05/29/97 U.S. Treasury Notes, 5.125% - 6.75%, 07/31/97 - 07/31/00 Fuji Securities, Inc., (Maturity Value $182,812) Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99 Lehman Brothers, Inc., (Maturity Value $182,812) Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01 SBC Warburg, Inc., (Maturity Value $182,812) Collateral: U.S. Treasury Notes, 5.75%, 09/30/97 UBS Securities, L.L.C., (Maturity Value $182,812) Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99 1,271,468 ---------- Total Investments (Cost $27,969,207) 95.6% ........... 28,503,329 Other Assets and Liabilities, Net 4.4% ............... 1,324,045 ---------- Net Assets 100.0% .................................... $29,827,374 ============ At June 30, 1996, the net unrealized appreciation based on the cost of investments for income tax purposes of $27,969,207 was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost ................................. $ 1,369,712 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value ............................. (835,590) ------------- Net unrealized appreciation ................................... $ 534,122 =============
PORTFOLIO ABBREVIATION: OAT - Obligations Assumable by the Treasurer COUNTRY LEGEND: AU - Australia CA - Canada DD - Germany DK - Denmark ES - Spain FR - France GB - United Kingdom IT - Italy JP - Japan NZ - New Zealand SE - Sweden US - United States of America *Securities traded in currency of country indicated and valued in U.S. dollars. dFace amount for repurchase agreements is for the underlying collateral. eSee note 1(h) regarding joint repurchase agreement. The accompanying notes are an integral part of these financial statements.
FRANKLIN PARTNERS FUNDS ================================================================================ Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited) Face Value Amount Franklin Tax-Advantaged U.S. Government Securities Fund (Note 1) - --------------------------------------------------------------------------------------------------------------------------- Government National Mortgage Association (GNMA) 97.2% $ 9,350,293 GNMA I, SF, 6.00%, 10/15/23 - 11/15/23 ....................................... $ 8,461,964 62,319,757 GNMA I, SF, 6.50%, 05/15/23 - 03/15/24 ....................................... 58,054,323 7,110,422 GNMA II, 6.50%, 09/20/23 ..................................................... 6,588,196 16,405,126 GNMA I, PL, 7.00%, 05/15/13 - 06/15/28 ....................................... 15,671,898 51,262,021 GNMA I, SF, 7.00%, 03/15/22 - 07/15/25 ....................................... 49,227,187 25,831,184 GNMA II, 7.00%, 11/20/16 - 03/20/26 .......................................... 24,676,662 34,072,716 GNMA I, SF, 7.50%, 01/15/17 - 04/15/23 ....................................... 33,614,632 56,397,862 GNMA II, 7.50%, 09/20/16 - 12/20/25 .......................................... 55,357,605 1,156,449 GNMA I, PL, 8.00%, 03/15/32 .................................................. 1,156,442 50,254,363 GNMA I, SF, 8.00%, 11/15/15 - 09/15/24 ....................................... 50,756,616 10,063,044 GNMA II, 8.00%, 11/20/16 - 08/20/22 .......................................... 10,113,298 7,137,328 GNMA I, PL, 8.25%, 07/15/31 .................................................. 7,206,417 14,770,769 GNMA I, SF, 8.50%, 06/15/16 - 05/15/22 ....................................... 15,204,610 4,955,436 GNMA II, 8.50%, 11/20/21 - 03/20/22 .......................................... 5,069,999 3,866,158 GNMA I, SF, 9.00%, 05/15/16 - 11/15/21 ....................................... 4,049,793 2,840,547 GNMA I, SF, 9.50%, 01/15/17 - 10/15/21 ....................................... 3,038,496 530,405 GNMA II, 9.50%, 04/20/25 ..................................................... 563,388 5,181,035 GNMA I, SF, 10.00%, 10/15/11 - 08/15/21 ...................................... 5,650,556 733,902 GNMA II, 10.00%, 10/20/16 - 11/20/20 ......................................... 793,072 149,459 GNMA, GPM, 10.25%, 02/15/16 - 09/15/20 ....................................... 161,651 852,837 GNMA I, SF, 10.50%, 02/15/16 - 07/15/19 ...................................... 941,324 1,444,122 GNMA II, 10.50%, 07/20/17 - 02/20/19 ......................................... 1,579,506 203,108 GNMA I, SF, 11.00%, 10/15/13 - 09/15/14 ...................................... 227,544 1,067,400 GNMA II, 11.00%, 07/20/17 - 05/20/19 ......................................... 1,185,147 97,079 GNMA I, SF, 11.50%, 08/15/16 - 12/15/17 ...................................... 110,488 396,280 GNMA II, 11.50%, 08/20/16 - 03/20/19 ......................................... 447,053 146,912 GNMA I, SF, 12.00%, 06/15/15 ................................................. 169,224 ------------- Total Long Term Investments (Cost $372,904,379) ........................ 360,077,091 ------------- d,e Receivables from Repurchase Agreements 2.2% 8,150,829 Joint Repurchase Agreement, 5.439%, 07/01/96, (Maturity Value $8,192,154) (Cost $8,188,442) Chase Securities, Inc., (Maturity Value $1,177,335) Collateral: U.S. Treasury Notes, 5.375%, 11/30/97 Daiwa Securities America, Inc., (Maturity Value $1,177,335) Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00 Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,128,144) Collateral: U.S. Treasury Bills, 05/29/97 U.S. Treasury Notes, 5.125% - 6.75%, 03/31/97 - 07/31/00 Fuji Securities, Inc., (Maturity Value $1,177,335) Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99 Lehman Brothers Securities, Inc., (Maturity Value $1,177,335) Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01 SBC Warburg, Inc., (Maturity Value $1,177,335) Collateral: U.S. Treasury Notes, 5.75%, 09/30/97 UBS Securities, L.L.C. (Maturity Value $1,177,335) Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99 ....... $ 8,188,442 ------------- Total Investments (Cost $381,092,821) 99.4%........................ 368,265,533 Other Assets and Liabilities, Net .6%.............................. 2,105,996 ------------- Net Assets 100.0%.................................................. $370,371,529 ============= At June 30, 1996, the net unrealized depreciation based on the cost of investments for income tax purposes of $381,113,452 was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost ................................................. $ 1,777,551 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value .............................................. (14,625,470) ------------- Net unrealized depreciation................................................. $ (12,847,919) =============
PORTFOLIO ABBREVIATIONS: GPM - Graduated Payment Mortgage PL - Project Loan SF - Single Family dFace amount for repurchase agreements is for the underlying collateral. eSee Note 1(h) regarding joint repurchase agreement The accompanying notes are an integral part of these financial statements.
FRANKLIN PARTNERS FUNDS ================================================================================ Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited) Face Value Amount Franklin Tax-Advantaged High Yield Securities Fund (Note 1) - --------------------------------------------------------------------------------------------------------------------------- Corporate Bonds 91.0% Automotive 1.4% $ 2,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............... $ 2,040,000 1,100,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ............................... 1,171,500 ------------- 3,211,500 ------------- Cable Television 7.2% 3,500,000 Cablevision Systems Corp., senior sub. notes, 9.25%, 11/01/05 ................ 3,246,250 960,000 Cablevision Systems Corp., senior sub. deb., 10.50%, 05/15/16 ................ 936,000 2,000,000 Comcast Corp., senior sub., 9.125%, 10/15/06 ................................. 1,900,000 1,500,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................. 1,447,500 1,900,000 Continental Cablevision, Inc., senior sub. deb., 9.00%, 09/01/08 ............. 2,071,860 1,000,000 Diamond Cable Communication Co., senior disc. notes, zero coupon to 12/15/00, (original accretion rate 11.75%), 11.75% thereafter, 12/15/05 ............... 593,750 1,200,000 fRogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 ..... 767,464 800,000 Rogers Communications, Inc., deb., 10.875%, 04/15/04 ......................... 816,000 200,000 a,bScott Cable Communications, Inc., S.F., sub. deb., 12.25%, 04/15/01 .......... 121,000 5,000,000 Telewest PLC, deb., zero coupon to 10/01/00, (original accretion rate 11.00%), 11.00% thereafter, 10/01/07 ................................................. 2,975,000 1,500,000 Time Warner, Inc., senior notes, 9.125%, 01/15/13 ............................ 1,545,000 ------------- 16,419,824 ------------- Chemicals 3.6% 1,250,000 Applied Extrusion Technology, senior unsecured notes, 11.50%, 04/01/02 ....... 1,268,750 2,000,000 Arcadian Partners L.P., senior notes, Series B, 10.75%, 05/01/05 ............. 2,172,500 2,500,000 Harris Chemical North America, Inc., senior sub. notes, 10.75%, 10/15/03 ..... 2,443,750 2,225,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ......... 2,386,313 ------------- 8,271,313 ------------- Consumer Goods 5.5% 1,250,000 Calmar, Inc., senior sub. notes, 11.50%, 08/15/05 ............................ 1,225,000 4,000,000 cEkco Group, Inc., senior notes, 9.25%, 04/01/06 .............................. 3,840,000 1,300,000 Herff Jones, Inc., senior sub. notes, 11.00%, 08/15/05 ....................... 1,358,500 2,250,000 Hines Horticulture, Inc., senior sub. notes, Series B, 11.75%, 10/15/05 ...... 2,340,000 2,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ............ 1,880,000 2,000,000 Revlon Consumers Products Corp., senior sub. notes, Series B, 10.50%, 02/15/03 2,015,000 ------------- 12,658,500 ------------- Containers & Packaging .7% 1,500,000 Container Corp. of America, guaranteed, senior notes, 11.25%, 05/01/04 ....... 1,552,500 ------------- Energy & Natural Resources 1.3% 975,000 Gulf Canada Resources, Ltd., sub. deb., 9.625%, 07/01/05 ..................... 1,001,013 700,000 gMesa Operating Co., company guarantee, 10.625%, 07/01/06 ..................... 714,875 1,400,000 Nuevo Energy Co., senior sub. notes, 9.50%, 04/15/06 ......................... 1,375,500 ------------- 3,091,388 ------------- Financial .9% $ 750,000 American Reinsurance Corp., senior sub. notes, 10.875%, 09/15/04 ............. $ 819,581 1,300,000 cHomeside, Inc., senior notes, 11.25%, 05/15/03 ............................... 1,339,000 ------------- 2,158,581 ------------- Food & Beverages 5.4% 950,000 a,bBeatrice Foods, Inc., senior sub. notes, 12.00%, 12/01/01 .................... 299,250 1,500,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 . 1,462,500 1,800,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............... 1,755,000 280,000 Doane Products Co., senior notes, 10.625%, 03/01/06 .......................... 281,400 2,065,000 Dr. Pepper Bottling Texas, senior notes, 10.25%, 02/15/00 .................... 2,152,763 1,300,000 Dr. Pepper Bottling Holdings, senior notes, zero coupon to 02/15/98, (original accretion rate 11.625%), 11.625% thereafter, 02/15/03 ....................... 1,085,500 1,800,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ........ 1,773,000 2,250,000 Specialty Foods Corp., senior notes, Series B, 10.25%, 08/15/01 .............. 2,112,188 1,500,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ............... 1,462,500 ------------- 12,384,101 ------------- Food Retailing 5.9% 1,400,000 Brunos, Inc., senior sub. notes, 10.50%, 08/01/05 ............................ 1,389,500 2,000,000 Dominick's Finer Foods, Inc., senior sub. notes, 10.875%, 05/01/05 ........... 2,125,000 2,000,000 Grand Union Co., senior notes, 12.00%, 09/01/04 .............................. 1,877,500 2,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ................... 1,887,500 1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ................... 1,000,000 1,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................. 832,500 1,000,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ........................... 962,500 1,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ...................... 925,000 2,460,000 Smiths Food & Drug, senior sub. notes, 11.25%, 05/15/07 ...................... 2,503,050 ------------- 13,502,550 ------------- Forest & Paper Products 6.4% 2,000,000 APP International Finance, company guarantee, 11.75%, 10/01/05 ............... 2,050,000 1,000,000 Fort Howard Corp., senior sub. notes, 9.00%, 02/01/06 ........................ 967,500 1,500,000 Fort Howard Corp., sub. notes, 10.00%, 03/15/03 .............................. 1,507,500 800,000 cFour M Corp., senior notes, 12.00%, 06/01/06 ................................. 818,000 3,000,000 Rapp International Finance Co., company guarantee, 13.25%, 12/15/05 .......... 3,225,000 1,500,000 REPAP Wisconsin, Inc., senior notes, 9.875%, 05/01/06 ........................ 1,338,750 2,450,000 Riverwood International, company guarantee, 10.25%, 04/01/06 ................. 2,443,875 500,000 S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 ......................... 532,500 2,000,000 Tembec Finance Corp., senior notes, 9.875%, 09/30/05 ......................... 1,870,000 ------------- 14,753,125 ------------- Gaming & Leisure 10.0% $ 850,000 cAMF Group, Inc., senior sub. notes, 10.875%, 03/15/06 ........................ $ 847,875 1,400,000 cAMF Group, Inc., senior disc. notes, zero coupon to 03/15/01, (original accretion rate 12.25%), 12.25% thereafter, 03/15/06 ................................... 759,500 2,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ............................. 2,085,000 1,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................. 1,152,500 2,000,000 Bally's Grand, first mortgage, Series B, 10.375%, 12/15/03 ................... 2,202,500 1,000,000 cCobb Theatres/Financial Corp., senior notes, 10.625%, 03/01/03 ............... 1,027,500 1,000,000 Grand Casinos, Inc., first mortgage, 10.125%, 12/01/03 ....................... 1,027,500 560,000 Harvey Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 ................. 562,800 2,000,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ................. 2,035,000 2,500,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............... 2,612,500 2,000,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .......................... 2,310,000 4,000,000 Six Flags Theme Parks, senior sub. notes, zero coupon to 06/15/98, (original accretion rate 12.25%), 12.25% thereafter, 06/15/05 ......................... 3,410,000 2,950,000 Station Casinos, Inc., senior sub. notes, 10.125%, 03/15/06 .................. 2,898,375 ------------- 22,931,050 ------------- Health Care Services 11.2% 4,000,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............. 4,120,000 1,750,000 Integrated Health Services, Inc., senior sub. notes, 9.625%, 05/31/02 ........ 1,741,250 3,000,000 IVAC Corp., senior notes, 9.25%, 12/01/02 .................................... 3,000,000 3,500,000 cMariner Health Group, senior sub. notes, 9.50%, 04/01/06 ..................... 3,386,250 1,000,000 OrNda Healthcorp, Inc., S.F., senior sub. deb., 12.25%, 05/15/02 ............. 1,086,250 3,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ........... 2,887,500 1,500,000 Sola Group, Ltd., senior sub. notes, 6.00%, 12/15/03 ......................... 1,372,500 250,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ....................... 265,625 3,000,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ....................... 3,045,000 900,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ................. 954,000 3,950,000 Unilab Corp., senior notes, 11.00%, 04/01/06 ................................. 3,732,750 ------------- 25,591,125 ------------- Industrial 4.2% 2,800,000 AAF-McQuay, Inc., senior notes, 8.875%, 02/15/03 ............................. 2,646,000 3,500,000 American Standard, Inc., senior sub. deb., zero coupon to 06/01/98, (original accretion rate 10.50%), 10.50% thereafter, 06/01/05 ......................... 3,045,000 750,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ................ 768,750 1,000,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ........................ 1,010,000 2,300,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ............................ 2,196,500 ------------- 9,666,250 ------------- Lodging 3.8% $ 2,950,000 HMH Properties, Inc., senior notes, 9.50%, 05/15/05 .......................... $ 2,817,250 3,000,000 John Q. Hammons Hotels L.P., first mortgage, 9.75%, 10/01/05 ................. 2,906,250 3,000,000 Red Roof Inns, senior notes, 9.625%, 12/15/03 ................................ 2,872,500 ------------- 8,596,000 ------------- Media & Broadcasting 9.0% 1,000,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ............... 1,010,000 2,700,000 Granite Broadcasting Corp., senior sub. notes, 10.375%, 05/15/05 ............. 2,625,750 3,000,000 Heritage Media Corp., senior sub. notes, 8.75%, 02/15/06 ..................... 2,805,000 2,500,000 Hollinger International Publishing, company guarantee, 9.25%, 02/01/06 ....... 2,290,625 1,500,000 cK-III Communications Corp., senior notes, 8.50%, 02/01/06 .................... 1,376,250 1,500,000 K-III Communications Corp., S.F., senior notes, 10.25%, 06/01/04 ............. 1,522,500 500,000 News America Holdings, Inc., senior notes, 9.125%, 10/15/99 .................. 532,845 2,000,000 SCI Television, Inc., senior notes, 11.00%, 06/30/05 ......................... 2,090,000 3,800,000 cSFX Broadcasting, senior sub. notes, 10.75%, 05/15/06 ........................ 3,752,500 1,100,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .......... 1,072,500 1,500,000 Sullivan Broadcasting, senior sub. notes, 10.25%, 12/15/05 ................... 1,436,250 ------------- 20,514,220 ------------- Metals & Mining 1.1% 1,500,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ........................ 1,470,000 1,100,000 Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 .................. 1,031,250 ------------- 2,501,250 ------------- Retail .7% 1,500,000 Eckerd Jack Corp., senior sub. notes, 9.25%, 02/15/04 ........................ 1,531,875 ------------- Technology & Information Services 2.1% 2,000,000 ADT Operations, guaranteed senior sub. notes, 9.25%, 08/01/03 ................ 2,070,000 1,500,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ............................. 1,481,250 400,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ....................... 428,000 900,000 Exide Electronics Group, senior sub. notes, 11.50%, 03/15/06 ................. 900,000 ------------- 4,879,250 ------------- Textiles & Apparel 1.9% 3,000,000 cClark-Schwebel, Inc., senior notes, 10.50%, 04/15/06 ......................... 3,105,000 1,030,000 a,bForstmann Textile & Co., Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ..... 293,550 1,000,000 Westpoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 .................. 975,000 ------------- 4,373,550 ------------- Transportation 1.6% $ 1,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ....................... $ 1,582,500 2,000,000 Southern Pacific Transportation Co., senior notes, 9.375%, 08/15/05 .......... 2,090,000 ------------- 3,672,500 ------------- Utilities 1.6% 2,500,000 El Paso Electric Co., first mortgage, Series D, 8.90%, 02/01/06 .............. 2,481,250 1,000,000 Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 07/23/06 1,117,500 ------------- 3,598,750 ------------- Wireless Communication 5.5% 4,170,000 Arch Communications Group, senior disc. notes, zero coupon to 03/15/01, (original accretion rate 10.875%), 10.875% thereafter, 03/15/08 ............. 2,168,400 2,500,000 Dial Call Communications, units, senior disc. notes, zero coupon to 04/15/99, (original accretion rate 12.25%), 12.25% thereafter, 04/15/04 ............... 1,600,000 5,000,000 Intelcom Group (USA), Inc., senior disc. notes, zero coupon to 05/01/01, (original accretion rate 12.50%), 12.50% thereafter, 05/01/06 ............... 2,725,000 5,000,000 MFS Communication Co., Inc., senior disc. notes, zero coupon to 01/15/01, (original accretion rate 8.875%), 8.875% thereafter, 01/15/06 ............... 3,037,500 5,000,000 Teleport Communications, senior disc. notes, zero coupon to 07/01/01, (original accretion rate 11.125%), 11.125% thereafter, 07/01/07 ............. 2,937,500 ------------- 12,468,400 ------------- Total Corporate Bonds (Cost $210,494,405) .............................. 208,327,602 ------------- Shares/ Warrants - ---------- Common Stock .6% 50,817 aKash N' Karry Food Stores, Inc. (Cost $1,462,392)............................. 1,321,242 ------------- Preferred Stock .9% 2,044 cTime Warner, Inc., Series K, PIK, 10.25%, 07/01/16 (Cost $2,043,897).......... 2,003,674 ------------- Warrants 0% 900 a,cExide Electronics Group ...................................................... 18,000 300 aFoodmaker, Inc. .............................................................. 6,926 2,500 aNextel Communications, Inc. .................................................. 25 ------------- Total Warrants (Cost $38,843) .......................................... 24,951 ------------- Total Long Term Investments (Cost $214,039,537) ........................ 211,677,469 ------------- $ 11,522,534 d,eJoint Repurchase Agreement, 5.439%, 07/01/96, (Maturity Value $11,581,182) (Cost $11,575,935) Chase Securities, Inc., (Maturity Value $1,664,388) Collateral: U.S. Treasury Notes, 5.375%, 11/30/97 Daiwa Securities America, Inc., (Maturity Value $1,664,388) Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00 Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,594,854) Collateral: U.S. Treasury Bills, 05/29/97 Collateral: U.S. Treasury Notes, 5.125% - 6.75%, 07/31/97 - 07/31/00 Fuji Securities, Inc., (Maturity Value $1,664,388) Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99 Lehman Brothers, Inc., (Maturity Value $1,664,388) Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01 SBC Warburg, Inc., (Maturity Value $1,664,388) Collateral: U.S. Treasury Notes, 5.75%, 09/30/97 UBS Securities, L.L.C., (Maturity Value $1,664,388) Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99 ....... $ 11,575,935 ------------- Total Investments (Cost $225,615,472) 97.6%........................ 223,253,404 Other Assets and Liabilities, Net 2.4%............................. 5,510,410 ------------- Net Assets 100.0%.................................................. $228,763,814 ============= At June 30, 1996, the net unrealized depreciation based on the cost of investments for income tax purposes of $225,615,472 was as follows: Aggregate gross unrealized appreciation for all investments for which there was an excess of value over tax cost ............................................ $ 4,044,035 Aggregate gross unrealized depreciation for all investments for which there was an excess of tax cost over value ............................................ (6,406,103) ------------- Net unrealized depreciation ................................................ $ (2,362,068) =============
PORTFOLIO ABBREVIATION: L.P. - Limited Partnership PIK - Payment-in-Kind S.F. - Sinking Fund *Securities traded in currency of country indicated and valued in U.S. dollars. aNon-Income producing. bSee Note 5 regarding defaulted securities. cPurchased in a private placement transaction; resale may only be to qualified insititutional buyers. dFace amount for repurchase agreements is for the underlying collateral. eSee Note 1(h) regarding joint repurchase agreement. fFace amount is stated in foreign currency and value is stated in U.S. dollars. gSee Note 1(i) regarding securities purchased on a when-issued basis. The accompanying notes are an integral part of these financial statements.
FRANKLIN PARTNERS FUNDS ================================================================================ Financial Statements Statements of Assets and Liabilities June 30, 1996 (unaudited) Franklin Franklin Franklin Tax-Advantaged Tax-Advantaged Tax-Advantaged International U.S. Government High Yield Bond Fund Securities Fund Securities Fund ----------- ----------- ---------- Assets: Investments in securities: At identified cost ......................................... $26,697,739 $372,904,379 $214,039,537 =========== =========== ========== At value.................................................... 27,231,861 360,077,091 211,677,469 Receivables from repurchase agreements, at value and cost.... 1,271,468 8,188,442 11,575,935 Cash......................................................... 423,025 192,081 5,014,143 Foreign currencies (Cost $55)................................ 55 -- -- Receivables: Dividends and interest...................................... 956,333 2,125,967 4,272,930 Prepaid expenses............................................. -- 32,027 -- ----------- ----------- ---------- Total assets............................................ 29,882,742 370,615,608 232,540,477 ----------- ----------- ---------- Liabilities: Payables: Investment securities purchased: Regular delivery........................................... -- -- 2,910,750 When-issued basis (Note 1)................................. -- -- 700,000 Distributions to partners................................... -- 23,386 4,898 Management fees............................................. 10,260 159,255 94,501 Distribution fees........................................... 4,653 49,928 39,642 Partners' servicing costs................................... 1,006 5,677 426 Accrued expenses and other liabilities....................... 39,449 5,833 26,446 ----------- ----------- ---------- Total liabilities....................................... 55,368 244,079 3,776,663 ----------- ----------- ---------- Net assets, at value.......................................... $29,827,374 $370,371,529 $228,763,814 =========== =========== ========== Net assets consist of: Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies........................... $ 527,301 $ (12,827,288) $ (2,362,006) Undistributed net realized gain (loss) from investments and foreign currency transactions............... 750,060 (11,189,041) (3,952,124) Partners' capital............................................ 28,550,013 394,387,858 235,077,944 ----------- ----------- ---------- Net assets, at value.......................................... $29,827,374 $370,371,529 $228,763,814 =========== =========== ========== Shares outstanding............................................ 2,528,898 35,812,492 26,795,604 =========== =========== ========== Net asset value per share*.................................... $11.79 $10.34 $8.54 =========== =========== ========== Maximum offering price per share (100/95.75 of net asset value per share)..................... $12.31 $10.80 $8.92 =========== =========== ========== *Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements. FRANKLIN PARTNERS FUNDS ================================================================================ Financial Statements (cont.) Statements of Operations for the six months ended June 30, 1996 (unaudited) Franklin Franklin Franklin Tax-Advantaged Tax-Advantaged Tax-Advantaged International U.S. Government High Yield Bond Fund Securities Fund Securities Fund ----------- ----------- ---------- Investment income: Dividends.................................................... $ -- $ -- $ 43,897 Interest (Note 1)............................................ 1,148,434 14,272,116 9,342,417 ----------- ----------- ---------- Total income ........................................... 1,148,434 14,272,116 9,386,314 ----------- ----------- ---------- Expenses: Management fees (Note 4)..................................... 93,365 992,250 570,157 Distribution fees (Note 4)................................... 16,168 162,583 131,368 Partners' servicing costs (Note 4)........................... 6,265 26,629 12,790 Custodian fees............................................... 16,352 7,717 2,805 Registration fees............................................ 10,750 6,040 11,097 Professional fees............................................ 7,361 16,572 10,052 Reports to partners.......................................... 4,190 5,748 8,881 Managing partners' fees and expenses......................... -- 1,973 2,755 Other........................................................ 21,864 19,086 33,709 Management fees waived by manager (Note 4)................... (54,862) -- -- ----------- ----------- ---------- Total expenses.......................................... 121,453 1,238,598 783,614 ----------- ----------- ---------- Net investment income................................. 1,026,981 13,033,518 8,602,700 ----------- ----------- ---------- Realized and unrealized gain (loss) from investments and foreign currency: Net realized gain (loss) from: Investments................................................ 127,723 (330,309) (818,393) Foreign currency transactions.............................. (9,783) -- (426) Net unrealized appreciation (depreciation) on: Investments................................................ (500,408) (16,594,140) (3,851,302) Translation of assets and liabilities denominated in foreign currencies......................... (13,551) -- 356 ----------- ----------- ---------- Net realized and unrealized loss from investments and foreign currency transactions............................ (396,019) (16,924,449) (4,669,765) ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations $ 630,962 $ (3,890,931) $ 3,932,935 =========== =========== ========== The accompanying notes are an integral part of these financial statements. FRANKLIN PARTNERS FUNDS =========================================================================================================================== Financial Statements (cont.) Statements of Changes in Net Assets for the six months ended June 30, 1996 (unaudited) and the year ended December 31, 1995 Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged International Bond Fund U.S. Government Securities Fund High Yield Securities Fund -------------------- ---------------------- --------------------- 1996 1995 1996 1995 1996 1995 ---------- ---------- ----------- ----------- ----------- ---------- Increase (decrease) in net assets: Operations: Net investment income.. $ 1,026,981 $ 1,888,748 $ 13,033,518 $ 29,326,619 $ 8,602,700 $ 9,708,179 Net realized gain (loss) from investments and foreign currency transactions.......... 117,940 85,573 (330,309) (2,853,964) (818,819) 588,709 Net unrealized apprecia- tion (depreciation) on investments and trans- lation of assets and liabilities denominated in foreign currencies. (513,959) 2,489,173 (16,594,140) 46,981,743 (3,850,946) 7,378,901 ---------- ---------- ----------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations..... 630,962 4,463,494 (3,890,931) 73,454,398 3,932,935 17,675,789 Distributions to partners from undistributed net investment income...... (1,047,115) (1,970,655) (13,033,518) (29,326,619) (8,602,700) (9,853,364) Increase (decrease) in net assets from partnership's capital share transactions (Note 2)............... 1,891,119 3,134,327 (16,268,843) (96,984,064) 73,353,515 71,106,906 ---------- ---------- ----------- ----------- ----------- ---------- Net increase (decrease) in net assets....... 1,474,966 5,627,166 (33,193,292) (52,856,285) 68,683,750 78,929,331 Net assets: Beginning of period...... 28,352,408 22,725,242 403,564,821 456,421,106 160,080,064 81,150,733 ---------- ---------- ----------- ----------- ----------- ---------- End of period............ $29,827,374 $28,352,408 $370,371,529 $403,564,821 $228,763,814 $160,080,064 ========== ========== =========== =========== =========== ========== Undistributed net invest- ment income included in net assets: Beginning of period..... $-- $-- $-- $-- $-- $ 145,950 ========== ========== =========== =========== =========== ========== End of period........... $-- $-- $-- $-- $-- $ -- ========== ========== =========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements. FRANKLIN PARTNERS FUNDS ================================================================================ Notes to Financial Statements (unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES Franklin Partners Funds (the Funds) consist of three separate and distinct Funds (each organized as a California Limited Partnership): Franklin Tax-Advantaged International Bond Fund (the International Bond Fund), Franklin Tax-Advantaged U.S. Government Securities Fund (the Government Fund), and Franklin Tax-Advantaged High Yield Securities Fund (the High Yield Fund). Each Fund is an open-end diversified management investment company (mutual fund), registered under the Investment Company Act of 1940, as amended. Each Fund issues one class of shares in the form of partnership interests, and purchasers of shares of any of the Funds become limited partners of such Fund. Each Fund maintains a totally separate investment portfolio. The investment objective of the Funds is current income. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. a. Security Valuations: Portfolio securities listed on a securities exchange or on the NASDAQ for which market quotations are readily available are valued at the last sale price or, if there is no sale price, within the range of the most recent quoted bid and asked prices. Other securities are valued based on a variety of factors, including yield, risk, maturity, trade activity and recent developments related to the securities. The Funds may utilize a pricing service, bank or broker/dealer experienced in such matters to perform any of the pricing functions, under procedures approved by the Managing General Partners. Securities for which market quotations are not available are valued in accordance with procedures established by the Managing General Partners. The value of a foreign security is determined as of the earlier of the close of trading on the foreign exchange on which it is traded or the close of trading on the New York Stock Exchange. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York time, on the day the value of the foreign security is determined. If no sale is reported at that time, the mean between the current bid and asked price is used. Occasionally, events which affect the values of foreign securities and foreign exchange rates may occur between the times at which they are determined and the close of the exchange and will, therefore, not be reflected in the computation of the Fund's net asset value, unless material. If events which materially affect the value of these foreign securities occur during such period, these securities will be valued in accordance with procedures established by the Managing General Partners. b. Income Taxes: No provision for income taxes has been made as all income and expenses are allocated to the partners for inclusion in their individual income tax returns. c. Security Transactions: Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses on security transactions are determined on the basis of specific identification. d. Investment Income, Expenses and Distributions: Dividend income and distributions to shareholders are recorded on ex-dividend date. Interest income and estimated expenses are accrued daily. Original issue discount is amortized as required by the Internal Revenue Code. Net capital gains (or losses) realized by the Funds on transactions in their respective portfolio securities will be allocated proportionately to each partner and will not be distributed. Thus, they will be reflected in the value of a partner's shares. 1. SIGNIFICANT ACCOUNTING POLICIES (cont.) d. Investment Income, Expenses and Distributions: (cont.) Net investment income differs for financial statement and tax purposes primarily due to differing treatments of realized foreign currency transactions. Net realized capital gains and losses differ for financial statement and tax purposes primarily due to differing treatment of wash sale and foreign currency transactions. e. Accounting Estimates: The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. f. Expense Allocation: Common expenses incurred by the Funds are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets. In all other respects, expenses are charged to each Fund as incurred on a specific identification basis. g. Foreign Currency Translation: The accounting records of the Funds are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the rate of exchange of the currencies against U.S. dollars on the valuation date. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the day that such transactions are recorded. Differences between income and expense amounts recorded and collected or paid are recognized when reported by the custodian. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, gains or losses realized between the trade date and settlement dates on security transactions, the difference between the amounts of dividends and interest, and foreign withholding taxes recorded on the Funds' books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies arises from changes in the value of assets and liabilities other than investments in securities at the end of the reporting period, resulting from changes in exchange rates. h. Repurchase Agreements: The Funds may enter into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account to be used to invest in one or more repurchase agreements with government securities dealers recognized by the Federal Reserve Board and/or member banks of the Federal Reserve System. The value and face amount of the joint repurchase agreement are allocated to the Funds based on their pro rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by underlying U.S. government securities, which are delivered to the Fund's custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the Funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. At June 30, 1996, all outstanding repurchase agreements held by the Funds had been entered into on June 28, 1996. 1. SIGNIFICANT ACCOUNTING POLICIES (cont.) i. Securities Purchased on a When-Issued or Delayed Delivery Basis: The Funds may trade securities on a when-issued or delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of holding the securities, they may sell the securities before the settlement date. These securities are identified on the accompanying Statement of Investments in Securities and Net Assets. The Funds have set aside sufficient investment securities as collateral for these purchase commitments. 2. SHARES OF PARTNERSHIP INTEREST At June 30, 1996, there were an unlimited number of shares authorized. Transactions in each of the Fund's shares for the six months ended June 30, 1996 and the year ended December 31, 1995 were as follows:
Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged International Bond FundU.S. Government Securities FundHigh Yield Securities Fund ----------------- --------------------- -------------------- Shares Amount Shares Amount Shares Amount ------- --------- --------- ----------- --------- ----------- Six months ended June 30, 1996 Shares sold .................... 604,538 $ 7,138,698 3,367,388 $ 35,422,263 12,761,380 $110,874,728 Shares issued in reinvestment of distributions ............... 66,755 786,100 739,111 7,745,513 591,752 5,120,561 Shares redeemed ................ (512,799) (6,033,679) (5,678,181) (59,436,619) (4,935,245) (42,641,774) ------- --------- --------- ----------- --------- ----------- Net increase (decrease) ......... 158,494 $ 1,891,119 (1,571,682) $ (16,268,843) 8,417,887 $ 73,353,515 ======= ========= ========= =========== ========= =========== Year ended December 31, 1995 Shares sold .................... 614,961 $ 7,144,340 3,361,305 $ 34,978,883 10,645,479 $ 91,897,613 Shares issued in reinvestment of distributions ............... 138,785 1,586,635 1,594,639 16,617,604 729,778 6,243,333 Shares redeemed ................ (491,575) (5,596,648) (14,331,556) (148,580,551) (3,151,509) (27,034,040) ------- --------- --------- ----------- --------- ----------- Net increase (decrease) ......... 262,171 $ 3,134,327 (9,375,612) $ (96,984,064) 8,223,748 $ 71,106,906 ======= ========= ========= =========== ========= =========== 3. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding purchases and sales of short-term securities) for the period ended June 30, 1996 were as follows: Franklin Tax-Advantaged Franklin Tax-Advantaged Franklin Tax-Advantaged International Bond FundU.S. Government Securities FundHigh Yield Securities Fund ----------------- --------------------- -------------------- Purchases.......................... $2,889,187 $ 5,917,146 $82,079,155 Sales.............................. $1,614,439 $21,335,777 $10,805,063
3. PURCHASES AND SALES OF SECURITIES (cont.) For tax purposes, the aggregate cost of securities is higher (and unrealized depreciation is higher) than for financial reporting purposes at June 30, 1996 by $20,631 in the Government Fund. 4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES a. Management Agreement: Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers), provides investment advice, administrative services, office space and facilities to each Fund and receives fees computed monthly on the net assets of each Fund on the last day of the month as follows: Annualized Fee Rate Month End Net Assets - ------------------ ------------------------------------------------- 0.625% First $100 million 0.50% Over $100 million up to and including $250 million 0.45% Over $250 million Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI) provides services to the International Bond Fund, and receives from Advisers fees computed monthly on the net assets at the last day of the month as follows: International Bond Fund Annualized Fee Rate Month End Net Assets --------------------- ------------------------------------------------- 0.026% First $100 million 0.021% Over $100 million up to and including $250 million 0.019% Over $250 million The terms of the management agreement provide that annual aggregate expenses of each Fund be limited to the extent necessary to comply with the limitations set forth in the laws, regulations and administrative interpretations of the states in which each Fund's shares are registered. For the six months ended June 30, 1996, the Funds' expenses did not exceed these limitations. However, Advisers agreed in advance to waive management fees for the International Bond Fund as noted in the Statement of Operations. b. Partner Services Agreement: Under the terms of a partner services agreement with Franklin/Templeton Investor Services, Inc. (Investor Services), the Funds pay costs on a per partner account basis. Partner servicing costs incurred by the Funds for the six months ended June 30, 1996, aggregated $45,684, all of which was paid to Investor Services. c. Distribution Plan and Underwriting Agreement: Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment Company Act of 1940 (the Plans), the Funds reimburse Franklin Templeton/Distributors, Inc. (Distributors), in an amount up to 0.15% per annum of the Funds' average daily net assets for costs incurred in the promotion, offering and marketing of each Fund's shares. The Plans do not permit nor require payments of excess costs after termination In its capacity as underwriter for the shares of the Funds, Distributors receives commissions on sales of the Funds' shares of partnership interest. Commissions are deducted from the gross proceeds received from the sale of the shares of the Funds, and as such are not expenses of the Funds. Distributors may also make payments, out of its own resources, to dealers for certain sales of the Funds' shares. Commissions received by Distributors and the amounts paid to other dealers for the six months ended June 30, 1996, were as follows:
International U.S. Government High Yield Bond Fund Securities Fund Securities Fund --------- ----------- ---------- Total commission received......................................... $87,063 $449,473 $485,221 Paid to other dealers............................................. $81,639 $418,910 $466,856
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.) d. Other Affiliates and Related Party Transactions: Certain officers and Managing General Partners of the Funds are also officers and/or directors of Distributors, Advisers, and Investor Services, all wholly-owned subsidiaries of Franklin Resources, Inc. 5. CREDIT RISK AND DEFAULTED SECURITIES The High Yield Fund's portfolio is primarily invested in lower rated and comparable quality unrated high yield securities. Investments in high yield securities are accompanied by a greater degree of credit risk and such lower rated securities tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities, because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At June 30, 1996, the Fund held three defaulted securities issued by three companies with a value aggregating $713,800, representing .31% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments in Securities and Net Assets. There are certain credit risks and foreign currency exchange risks due to the manner in which the Funds are invested, which may subject the Funds more significantly to economic changes occurring in certain industries, sectors or countries as follows: The International Bond Fund has investments in excess of 10% of its total net assets in Australian, Canadian, German an Italian Securities. The High Yield Fund has investments in excess of 10% in the Health Care Services Industry. 6. OTHER CONSIDERATIONS Advisers, as the High Yield Fund's Manager, may serve as a member of various credit committees, representing credit interests in certain corporate restructuring negotiations. Currently, Advisers serves on the credit committees for Beatrice Foods, Scott Cable and Forstmann Textile. As a result of this involvement in these committees, Advisers may be in possession of certain material non-public information. Advisers has not sold nor does it intend to sell any of its holdings in these securitites while in possession of material non-public information in contravention of the Federal Securities laws. . FINANCIAL HIGHLIGHTS Selected data for each share of partnership interest outstanding throughout each period by Fund are as follows:
Per Share Operating Performance Ratios/Supplemental Data - --------------------------------------------------------------------------- ---------------------------------------- Ratio of Net Net Asset Net Realized Dividends Net Asset Net Assets Ratio of Investment Year Value at Net & Unrealized Total From From Net Value at End Expenses Income Portfolio Ended Beginning Investment Gains (Loss) Investment Investment at End Total of Period to Average to Average Turnover June 30, of Period Income on Securities Operations Income of Period Return+ (in 000's) Net Assets*Net Assets Rate - ----------------------------------------------------------------------------------------------------------------------------------- Franklin Tax-Advantaged International Bond Fund 1991 $11.95 $1.018 $ .112 $1.130 $(1.030) $12.05 9.86% $ 5,060 --% 9.05% 60.77% 1992 12.05 1.012 (1.110) (.098) (1.102) 10.85 (1.43) 12,662 .13 9.71 15.26 1993 10.85 .808 .505 1.313 (.823) 11.34 12.13 19,606 .25 7.31 6.80 1994 11.34 .794 (.560) .234 (.794) 10.78 2.06 22,725 .29 7.69 6.46 1995 10.78 .938 1.180 2.118 (.938) 11.96 20.41 28,352 .41 7.85 4.90 19961 11.96 .480 (.235) .245 (.415) 11.79 2.11 29,827 .822 6.932 5.78 Franklin Tax-Advantaged U.S. Government Securities Fund 1991 10.23 .865 .570 1.435 (.865) 10.80 14.31 127,637 .80 8.13 12.42 1992 10.80 .785 (.050) .735 (.785) 10.75 6.80 312,645 .67 7.22 15.26 1993 10.75 .733 .160 .893 (.733) 10.91 8.19 574,007 .59 6.63 14.63 1994 10.91 .704 (1.150) (.446) (.704) 9.76 (4.26) 456,421 .61 6.92 10.20 1995 9.76 .706 1.040 1.746 (.706) 10.80 18.38 403,565 .64 6.82 3.50 19961 10.80 .354 (.456) (.102) (.354) 10.34 (.98) 370,372 .642 6.722 1.57 Franklin Tax-Advantaged High Yield Securities Fund 1991 6.09 .982 1.890 2.872 (.982) 7.98 49.19 57,469 .87 12.96 38.35 1992 7.98 .922 .420 1.342 (.922) 8.40 16.96 39,131 .76 11.00 29.79 1993 8.40 .815 .570 1.385 (.815) 8.97 16.72 69,545 .76 9.17 32.27 1994 8.97 .770 (.990) (.220) (.760) 7.99 (2.58) 81,151 .81 9.36 18.39 1995 7.99 .770 .734 1.504 (.784) 8.71 19.46 160,080 .82 8.87 18.47 19961 8.71 .370 (.170) .200 (.370) 8.54 2.31 228,764 .782 8.592 5.91
1For the six months ended June 30, 1996. 2Annualized. +Total return measures the change in value of an investment over the periods indicated. It is not annualized. It does not include the maximum front-end sales charge or the deferred contingent sales charge and assumes reinvestment of dividend and capital gains at net asset value. Prior to May 1, 1994, dividends were reinvested at the maximum offering price, and capital gains at net asset value. Effective May 1, 1994, with the implementation of the Rule 12b-1 distribution plan for shares of partnership interest, the sales charge on reinvested dividends was eliminated. *During the periods indicated, Advisers agreed in advance to waive its management fees and made payments of other expenses incurred by the International Bond Fund. Had such action not been taken, the ratio of operating expenses to average net assets for the years ended December 31, 1991, 1992, 1993, 1994, 1995 and the period ended June 30, 1996, respectively, would have been .89%, .92%, .97%, 1.06%, 1.00% and 1.19%2. # To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be determined by the presence of a regular beeping tone. Franklin Partners Funds Semi-Annual Report June 30, 1996. APPENDIX DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304 (a) OF REGULATION S-T) GRAPHIC MATERIAL (1) This chart shows in bar format the geographic distribution of the fund's portfolio based on total net assets. Geographic Distribution on 6/30/96 Canada 12.8% Australia 11.9% Germany 11.6% Italy 11.4% United Kingdom 9.6% Denmark 9.4% United States 8.7% New Zealand 8.4% Sweden 8.2% Spain 4.9% France 1.9% Japan 1.2% GRAPHIC MATERIAL (2) This chart shows in pie format the bond quality breakdown of the fund's securities based on total net assets. Bond Quality Breakdown on 6/30/96 Baa2 0.4% Ba1 0.7% Ba2 2.0% Ba3 16.1% B1 17.3% B2 29.0% B3 23.1% Caa 2.0% Ca 0.1% Other 2.5% -----END PRIVACY-ENHANCED MESSAGE-----