Your Fund's Objective:
The Franklin Asset Allocation Fund seeks to provide total return through
investment in common stocks, investment grade corporate and U.S. government
bonds, short-term money market instruments, securities of foreign issuers and
real estate securities. The fund places secondary emphasis on reduced risk over
time. February 18, 1997
Dear Shareholder:
We are pleased to bring you the annual report of the Franklin Asset Allocation
Fund for the twelve months ended December 31, 1996.
During the first quarter of the year, Gross Domestic Product (GDP) expanded at a
modest annual rate of 2%. It then rose 4.7% in the second quarter, returned to a
2.1% rate in the third quarter, and to the surprise of many economists, rose
4.7% in the fourth quarter. The growth rate for the year as a whole was a
moderate 2.5%.1 Over the period, the Standard & Poor's 500 Stock Index (S&P
500(R)) advanced 22.96%,2 and long-term bond prices, as measured by the Lehman
Brothers Government/Corporate Bond Index, rose 2.91%.3 Within this environment,
the fund delivered a one-year total return of +17.41%, as discussed in the
Performance Summary on page 7.
1. Source for all GDP figures: U.S. Commerce Dept.
2. Source: Standard & Poor's Corporation. The index is unmanaged and includes
reinvested dividends.
On August 1, 1996, the fund's name was changed from Franklin Premier Return Fund
in order to better reflect its investment strategy and philosophy. The fund's
shareholders also voted to modify the wording of its investment objective from
high current return and relative stability of principal, to total return with a
secondary emphasis on reduced risk over time. During the reporting period, we
continued our "top-down" investment approach, first analyzing economic factors
in seeking to determine the business cycle's stage; then allocating our assets
among stocks, bonds, and cash; and finally positioning the stock portion in the
sectors, industries and companies that appeared to offer the strongest prospects
for capital appreciation. In trying to determine the business cycle's stage, we
closely monitor the Leading Economic Index.4 In the third quarter, the
Conference Board5 removed two components of this index, which had produced
misleading signals during the preceding two business cycles. Since measuring
expected economic activity is critical to our "top-down" analysis, this change
should help in our investment process.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
3. Source: Unmanaged Lehman Brothers Government/ Corporate Bond Index. Price
return includes reinvested interest.
4. The Leading Economic Index is a composite of 10 leading economic indicators
and is published by Business Conditions Digest USA.
During the reporting period, your fund's asset allocation mix shifted in
response to market opportunities and our assessment of expected returns for
various asset classes. At the beginning of 1996, the fund's total net assets
consisted of 68% equities, 14% bonds, and 18% cash and equivalents. Believing
the potential returns from stocks exceeded the potential returns for long-term
bonds, we allotted cash to new purchases in the equity market. By year's end,
our equity allocation had increased to 71%, bonds to 15%, and cash and
equivalents declined to 14%. Since some foreign equity securities appeared more
attractively valued than domestic stocks, we also increased the fund's foreign
exposure, from 2.5% to 11%, during the year.
Franklin Asset Allocation Fund
Top 10 Sectors on December 31, 1996
Based on Total Net Assets
% of Total
Sector Net Assets
--------------------------------------------------
Technology 11.44%
Energy 11.39%
Basic Materials 10.72%
Consumer Staples 8.38%
Health Care 6.75%
Consumer Cyclicals 5.73%
Capital Goods 4.84%
Real Estate 4.43%
Financial Services 2.58%
Communication Services 2.31%
5. The Conference Board is a government organization within the Federal Reserve
that measures and tracks economic indicators such as consumer confidence and
leading economic indicators.
On December 31, 1996, technology represented the fund's largest sector weighting
(11.44% of total net assets). During the period, we added to our holdings of
industry leaders Cisco Systems Inc. and Intel Corp., which contributed
significantly to the fund's performance as the value of these stocks increased
70.5% and 130.8%, respectively, over the year. In an effort to increase our
exposure to mid-cap companies (companies with a market capitalization between
$200 million and $5 billion), we purchased shares of technology companies such
as Linear Technology and Xilinx. In our opinion, profits in this sector could
grow substantially in 1997.
Energy stocks, which represented 11.39% of the fund's total net assets on
December 31, 1996, was the top performing S&P 500 sector for the year. Our high
exposure to these stocks, relative to the S&P 500, helped the fund's
performance. We maintained our holdings in several energy companies, such as
Schlumberger Ltd., Helmerich & Payne Inc., and Exxon Corp., which appreciated
considerably during the reporting period. We remain optimistic about this sector
because many of these companies have relatively high dividend yields and solid
prospects for increased future earnings.
Franklin Asset Allocation Fund
Top 10 Equity Holdings on December 31, 1996
Based on Total Net Assets
Company % of Total
Industry Net Assets
Air Products & Chemicals, Inc. 2.43%
Chemicals
Intel Corp. 2.30%
Electronics (Semiconductors)
Proctor & Gamble Co. 1.89%
Household Products
Boeing Co. 1.87%
Aerospace & Defense Electronics
Starwood Lodging Trust 1.79%
Real Estate Investment Trust
BankAmerica Corp. 1.75%
Financial Services
Exxon Corp. 1.72%
Oil
Chevron Corp. 1.71%
Oil
FelCor Suite Hotels, Inc. 1.56%
Real Estate Investment Trust
Betzdearborn, Inc. 1.54%
Specialty Chemicals
For a complete listing of portfolio holdings, please see page 10 of this report.
The fund's largest industry group, Real Estate Investment Trusts (4.43% of total
net assets), also helped the fund's performance. New positions initiated over
the year included Starwood Lodging, FelCor Suite Hotels and Simon Debartolo
Group. By the end of 1996, the value of Starwood's and FelCor's stocks had
increased considerably and ranked among the fund's top ten holdings.
During the year, we increased our exposure to health care stocks by initiating a
position in Amgen, a leading biotechnology company which we believed had strong
growth potential. Epogen, one of its main products, treats anemia associated
with chronic kidney failure. The company also produces Neupogen, which
stimulates the immune system, and Leptin, an anti-obesity product currently in
clinical trials. We also purchased shares of Abbott Labs, a diversified health
care products company specializing in diagnostics and clinical chemistry, and
Roche Holding, a leading international manufacturer and distributor of
pharmaceuticals. The fund's foreign health care holdings also include Novartis
and Astra. These companies command worldwide leadership in their respective
products, yet we purchased their shares below valuations of most domestic
pharmaceutical companies.
This discussion reflects the strategies we employed for the fund during the past
fiscal year, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies,
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.
Looking forward, we will continue to focus on high quality companies within the
S&P 500, with established market leadership positions and seasoned management
teams. We will also continue our search for opportunities in mid-cap and foreign
companies with attractive growth potential, and for investment grade corporate
bonds and U.S. government bonds that offer the greatest total return potential
for our shareholders. Of course, investing in foreign securities involves
special risks related to market, economic, currency, political and other
factors. These risks are discussed in the fund's prospectus. Finally, consistent
with the fund's objective, we will continue to monitor U.S. economic development
in order to optimize the fund's allocation among the various asset classes for
its portfolio.
We appreciate your participation in the Franklin Asset Allocation Fund and
welcome your comments and suggestions.
Sincerely,
Charles B. Johnson
Chairman of the Board
Franklin Asset Allocation Fund
Performance Summary
The Franklin Asset Allocation Fund posted a total return of +17.41% for the
one-year period ended December 31, 1996. Of course, we believe it is important
for shareholders to view their investments with a long-term perspective. As you
can see from the table on page 9, the fund delivered a cumulative total return
of +94.40% for the five-year period. Total return measures the change in value
of an investment, assuming reinvestment of dividends and capital gains, and does
not include the initial sales charge.
The fund's share price, as measured by net asset value, increased $1.07, from
$7.25 on December 31, 1995 to $8.32 on December 31, 1996. During the reporting
period, shareholders received distributions of 15 cents ($0.15) per share in
dividend income and 3.2 cents ($0.032) in short-term capital gains. Of course,
distributions will vary depending on income earned by the fund, and past
performance is not indicative of future results.
The first graph on page 8 compares the fund's performance over the past 10 years
with the performance of two unmanaged indices, the Standard & Poor's 500 Stock
Index (S&P 500(R)) and the Lehman Brothers Government/Corporate Bond Index.
The second graph on page 8 compares the fund's performance with that of the S&P
500(R), the Lehman Brothers Government/Corporate Bond Index and the Consumer
Price Index, since May 1991 when the fund's portfolio and basic investment
strategy changed. Since this change, the fund's performance has been more
consistent with the performance of the S&P 500(R), generally underperforming
during exceptionally strong stock market rises because of its asset allocation
among equities, bonds and cash, rather than equities alone. It is also worth
noting that the fund has outperformed the Lehman Brothers Govt./Corp. Bond Index
during most of this period. Both graphs show how an investment in the fund has
kept your purchasing power well ahead of inflation, as measured by the CPI.
Please remember that unmanaged market indices do not take into account
commissions or market spreads to buy or sell securities. Further, they do not
reflect payment of management fees to cover salaries to security analysts or
portfolio managers. In addition, the fund's performance results 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. In addition, unlike the index, mutual funds
are never 100% invested because of the need to have cash on hand to redeem
shares. An index is simply a measure of performance and cannot be invested in
directly.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
<TABLE>
<CAPTION>
Franklin Asset Allocation Fund
Periods ended December 31, 1996
Since
Objective
Change
One-Year Five-Year (5/1/91) Ten-Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return1 ................................. 17.41% 94.40% 108.79% 198.09%
Average Annual Total Return2 ............................. 12.15% 13.17% 12.94% 11.03%
Value of a $10,000 Investment3 ........................... $11,215 $18,565 $19,945 $28,464
30-Day Standardized Yield4 ......................... 1.36%
- -------------------------------------------------------------------------------------------------------------
One-Year 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
Total Return5 ...................................... 14.02% 18.38% 0.48% 21.79% 17.41%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the initial sales charge. See Note
below.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the 4.5% initial sales
charge. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the indicated periods and include the initial sales charge.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio during the 30 days ended December 31, 1996.
5. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include the
initial sales charge.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the offering price. Thus, actual total
returns for purchasers of shares during that period would have been different
than noted above. Effective May 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 figures assume
reinvestment of dividends and capital gains at net asset value, and take into
account the effect of the 12b-1 plan from the date of its implementation.
All total return calculations assume reinvestment of dividends and capital gains
distributions at net asset value. Investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you sell
your shares. Past performance is not predictive of future results.
FRANKLIN ASSET ALLOCATION FUND
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 71.0%
Aerospace & Defense Electronics 1.9%
10,000 Boeing Co. ....................................................................... $ 1,063,750
----------
Aluminum 1.6%
17,500 aAlumax, Inc....................................................................... 584,063
5,000 Aluminum Co. of America (ALCOA)................................................... 318,750
----------
902,813
----------
Banks - Major Regional 1.0%
10,000 Wachovia Corp. ................................................................... 565,000
----------
Banks - Money Center 1.8%
10,000 BankAmerica Corp. ................................................................ 997,500
----------
Beverages - Alcoholic 0.8%
10,000 Panamerican Beverages, Inc., Class A.............................................. 468,750
----------
Biotechnology 1.2%
12,500 aAmgen, Inc........................................................................ 679,688
----------
Chemicals 3.3%
20,000 Air Products & Chemicals, Inc..................................................... 1,382,500
5,000 Du Pont (E.I.) De Nemours & Co. .................................................. 471,875
----------
1,854,375
----------
Chemicals - Diversified 0.7%
10,000 Goodrich (B.F.) Co. .............................................................. 405,000
----------
Chemicals - Specialty 2.3%
15,000 Betzdearborn, Inc................................................................. 877,500
20,000 Hanna (M.A.) Co................................................................... 437,500
----------
1,315,000
----------
Communication Equipment Manufacturers 1.1%
15,000 Ericsson (LM), Sponsored ADR...................................................... 452,813
4,051 Lucent Technologies, Inc.......................................................... 187,359
----------
640,172
----------
Computer Hardware 1.9%
45,000 dHitachi, Ltd. (Japan)............................................................. 419,653
35,000 dNEC Corp. (Japan)................................................................. 423,107
10,000 aSilicon Graphics, Inc............................................................. 255,000
----------
1,097,760
----------
Computer Software 1.5%
7,500 Adobe Systems, Inc................................................................ 280,313
12,500 Electronic Data Systems Corp...................................................... 540,625
----------
820,938
----------
Computers - Networking 1.1%
10,000 aCisco Systems, Inc................................................................ $ 636,250
----------
Electric Utility Companies 0.8%
10,000 Duke Power Co..................................................................... 462,500
----------
Electrical Equipment 1.3%
70,000 dMitsubishi Electric Corp. (Japan)................................................. 417,062
15,000 Westinghouse Electric Corp. ...................................................... 298,125
----------
715,187
----------
Electronic Semiconductors 3.7%
10,000 Intel Corp. ...................................................................... 1,309,375
10,000 Linear Technology Corp............................................................ 438,750
10,000 aXilinx, Inc....................................................................... 368,125
----------
2,116,250
----------
Electronics - Defense 0.6%
7,500 aLitton Industries, Inc............................................................ 357,188
----------
Entertainment/Media 1.2%
17,500 Time Warner, Inc.................................................................. 656,250
----------
Foods 2.9%
20,000 Nabisco Holdings Corp., Class A................................................... 777,500
275 dNestle, SA (Switzerland).......................................................... 295,237
15,000 Sara Lee Corp..................................................................... 558,750
----------
1,631,487
----------
Gold & Precious Metal Mining 1.2%
5,000 Newmont Mining Corp............................................................... 223,750
20,000 Placer Dome, Inc.................................................................. 435,000
----------
658,750
----------
Health Care - Diversified 2.6%
15,000 Abbott Laboratories............................................................... 766,875
20,000 Allergan, Inc..................................................................... 712,500
----------
1,479,375
----------
Homebuilding 0.6%
25,000 Clayton Homes, Inc................................................................ 337,500
----------
Household Products 1.9%
10,000 Procter & Gamble Co. ............................................................. 1,075,000
----------
Manufacturing - Specialized 0.8%
15,000 aWaters Corp. ..................................................................... 455,625
----------
Metals/Mining 1.4%
12,500 RTZ Corp. Plc..................................................................... $ 800,000
----------
Natural Gas 1.3%
17,500 Enron Corp. ...................................................................... 754,688
----------
Oil - Domestic Integrated 2.9%
15,000 Occidental Petroleum Corp......................................................... 350,625
16,000 Phillips Petroleum Co. ........................................................... 708,000
15,000 Unocal Corp....................................................................... 609,375
----------
1,668,000
----------
Oil - Exploration & Production 2.3%
20,000 Enron Oil & Gas Co. .............................................................. 505,000
13,600 aTitan Exploration, Inc............................................................ 163,200
21,000 Union Pacific Resources Group, Inc................................................ 614,250
----------
1,282,450
----------
Oil & Gas Drilling 1.4%
15,000 Helmerich & Payne, Inc............................................................ 781,875
----------
Oil - International Integrated 3.4%
15,000 Chevron Corp. .................................................................... 975,000
10,000 Exxon Corp. ...................................................................... 980,000
----------
1,955,000
----------
Oil Well Equipment & Services 1.3%
7,500 Schlumberger, Ltd................................................................. 749,063
----------
Paper & Forest Products 0.6%
7,500 Weyerhaeuser Co................................................................... 355,313
----------
Personal Care 1.3%
15,000 Estee Lauder Cos., Class A ....................................................... 763,125
----------
Pharmaceuticals 3.0%
5,000 dAstra, AB (Sweden)................................................................ 241,208
350 a,dNovartis, AG (Switzerland)........................................................ 400,598
14,500 Pharmacia & Upjohn, Inc........................................................... 574,563
60 dRoche Holding, AG (Switzerland)................................................... 466,866
----------
1,683,235
----------
Real Estate Investment Trusts 4.4%
25,000 FelCor Suite Hotels, Inc.......................................................... 884,375
20,000 Simon DeBartolo Group, Inc........................................................ 620,000
18,500 Starwood Lodging Trust............................................................ 1,019,812
----------
2,524,187
----------
Retail - Building Supplies 1.1%
12,500 Home Depot, Inc................................................................... $ 626,562
----------
Retail - General Merchandise 2.8%
12,500 Dayton Hudson Corp................................................................ 490,624
30,000 aPrice/Costco, Inc................................................................. 753,750
15,000 Wal-Mart Stores, Inc.............................................................. 343,124
----------
1,587,498
----------
Retail - Specialty 0.7%
12,500 aToys R Us, Inc.................................................................... 375,000
----------
Service - Commercial & Consumer 0.6%
12,500 aSabre Group Holdings, Inc......................................................... 348,437
----------
Service - Data Processing 1.5%
10,000 First Data Corp................................................................... 365,000
15,000 aFirst USA Paymentech, Inc......................................................... 508,124
----------
873,124
----------
Telecommunications - Long Distance 1.5%
30,000 Hong Kong Telecommunications, Ltd., Sponsored ADR................................. 487,500
5,000 Telecomunicacoes Brasileiras, SA -Telebras, Sponsored ADR......................... 382,500
----------
870,000
----------
Telephone Utilities 0.8%
10,000 GTE Corp. ........................................................................ 455,000
----------
Waste Management 0.9%
20,000 Browning-Ferris Industries, Inc................................................... 525,000
----------
Total Common Stocks (Cost $33,403,297)...................................... 40,369,665
----------
Convertible Preferred Stocks 0.5%
5,400 Enron Corp., 6.25% cvt. pfd....................................................... 129,600
10,000 Westinghouse Electric Co., $1.30 cvt. pfd., Series C ............................. 178,750
----------
Total Convertible Preferred Stocks (Cost $280,345).......................... 308,350
----------
Face
Amount
--------
Bonds 14.6%
Convertible Bonds 2.3%
$ 500,000 bThermo Electron Corp., cvt. sub. deb., 4.25%, 01/01/03 ........................... 597,500
700,000 bThermo Instrument Systems, Inc., cvt. deb., 4.50%, 10/15/03 ...................... 717,500
----------
Total Convertible Bonds (Cost $1,202,000)................................... 1,315,000
----------
Corporate Bonds 1.1%
$ 250,000 Dayton Hudson Co., deb., 8.60%, 01/15/12 ......................................... $ 269,013
100,000 Georgia Pacific Corp., deb., 9.125%, 07/01/22 .................................... 106,387
250,000 Panamerican Beverages, Inc., senior notes, 8.125%, 04/01/03 ...................... 257,499
----------
Total Corporate Bonds (Cost $596,005) ...................................... 632,899
----------
U.S. Government Securities 11.2%
1,250,000 U.S. Treasury Bonds, 6.875% - 8.00%, 11/15/21 - 08/15/25 ......................... 1,306,017
5,000,000 U.S. Treasury Notes, 5.875% - 7.25%, 10/31/98 - 05/15/04 ......................... 5,056,254
----------
Total U.S. Government Securities (Cost $6,198,602).......................... 6,362,271
----------
Total Bonds (Cost $7,996,607)............................................... 8,310,170
----------
Total Long Term Investments (Cost $41,680,249).............................. 48,988,185
----------
cReceivables from Repurchase Agreements 12.7%
7,094,809 Joint Repurchase Agreement, 6.59%, 01/02/97 (Maturity Value $7,219,882)
(Cost $7,217,240)
Aubrey G. Lanston & Co., Inc., (Maturity Value $904,772)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $904,772)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $904,772)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $904,772)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $904,772)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $886,478)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $904,772)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $904,772)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........... 7,217,240
----------
Total Investments (Cost $48,897,489) 98.8% ............................ 56,205,425
Other Assets and Liabilities, Net 1.2% ................................ 661,825
----------
Net Assets 100.0% ..................................................... $56,867,250
==========
At December 31, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $48,897,489 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost .............................................. $ 8,147,112
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value .............................................. (839,176)
----------
Net unrealized appreciation .................................................... $ 7,307,936
==========
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
cFace amount for repurchase agreements is for the underlying collateral. See
Note 1(h) regarding joint repurchase agreement.
dSecurities traded in foreign currency and valued in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
Assets:
Investments in securities, at value
(identified cost $41,680,249) $48,988,185
Receivables from repurchase
agreements, at value and cost 7,217,240
Receivables:
Investment securities sold 1,033,635
Dividend and interest 167,068
Capital shares sold 48,573
---------
Total assets 57,454,701
---------
Liabilities:
Payables:
Investment securities purchased 465,733
Capital shares repurchased 48,820
Management fees 29,838
Distribution fees 13,805
Shareholder servicing costs 3,731
Accrued expenses and other liabilities 25,524
---------
Total liabilities 587,451
---------
Net assets, at value $56,867,250
=========
Net assets consist of:
Undistributed net investment income $ 29,261
Net unrealized appreciation on
investments 7,307,936
Undistributed net realized gain 405,174
Capital shares 49,124,879
---------
Net assets, at value $56,867,250
=========
Net asset value per share:
($56,867,250 / 6,833,908
shares outstanding)* $8.32
=========
Maximum offering price per
share (100/95.50 of $8.32) $8.71
=========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
Statement of Operations
for the year ended December 31, 1996
Investment income:
Dividends, net of foreign
taxes withheld of $5,768 $600,066
Interest 844,608
---------
Total Income $1,444,674
Expenses:
Management fees (Note 5) 298,727
Distribution fees (Note 5) 97,572
Shareholder servicing costs
(Note 5) 40,417
Professional fees 55,759
Reports to shareholders 39,015
Registration and filing fees 24,985
Trustees' fees and expenses 6,503
Custodian fees 1,386
Other 5,591
---------
Total expenses 569,955
---------
Net investment income 874,719
---------
Realized and unrealized
gain (loss) from investments
and foreign currency:
Net realized gain (loss) from:
Transactions in written
options which expired or
were closed (Note 4) 56,625
Other investments 920,607
Foreign currency transactions (912)
---------
Net realized gain from
investments and foreign
currency transactions 976,320
Net unrealized appreciation 5,670,859
---------
Net realized and unrealized
gain from investments and
foreign currency 6,647,179
---------
Net increase in net assets
resulting from operations $7,521,898
=========
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FRANKLIN ASSET ALLOCATION FUND
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended December 31, 1996 and 1995
1996 1995
---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C>
Net investment income ........................................................... $ 874,719 $ 894,020
Net realized gain from investments and foreign currency transactions ............ 976,320 355,611
Net unrealized appreciation on investments ...................................... 5,670,859 4,911,516
---------- ----------
Net increase in net assets resulting from operations ...................... 7,521,898 6,161,147
Distributions to shareholders from:
Undistributed net investment income (Note 6) .................................... (915,260) (857,567)
Net realized gain................................................................ (215,956) --
Increase in net assets from capital share transactions (Note 3)................... 11,157,925 8,384,330
---------- ----------
Net increase in net assets.................................................. 17,548,607 13,687,910
Net assets:
Beginning of period.............................................................. 39,318,643 25,630,733
---------- ----------
End of period (including undistributed net
investment income of $29,261 - 1996; and
$70,714 - 1995)................................................................. $56,867,250 $39,318,643
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Asset Allocation Fund, formerly Franklin Premier Return Fund (Premier
Return) is an open-end, diversified management investment company (mutual fund)
registered under the Investment Company Act of 1940, as amended.
On March 21, 1996, the Board of Directors of Premier Return approved for
submission to shareholders an Agreement and Plan of Reorganization (the
Agreement) whereby Premier Return would be reorganized and its domicile changed
from a California corporation to a Delaware business trust; the investment
objective modified from high current return and relative stability of principal
to total return with reduced risk over time; and in this connection, its name
changed to Franklin Asset Allocation Fund (the Fund). Shareholders approved the
change at a special meeting held on July 3, 1996. These changes became effective
on August 1, 1996.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its 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 manager. The Fund 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 Board of Trustees
(the Board). Securities for which market quotations are not available are valued
in accordance with procedures established by the Board.
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
Board.
Open option contracts are valued at their last sales price on the relevant
exchange. If there is no sale price, the options will be valued within the range
of the current closing bid and asked prices.
b. Income Taxes:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes.
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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions. Net realized
capital gains and losses may differ for financial statement and tax purposes
primarily due to differing treatment of foreign currency and option
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 expenses during
the reporting period. Actual results could differ from those estimates.
f. Foreign Currency Translation:
The accounting records of the Fund 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 Fund does 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 and settlement dates on security transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's 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.
g. Option Transactions:
The Fund writes listed put options and covered call options in which premiums
received are recorded as a liability which is marked to market to reflect the
current value of the options written. A covered call option gives the holder the
right to buy the underlying security which the Fund owns at any time during the
option period at a predetermined exercise price. The risk in writing a covered
call option is that the Fund gives up the opportunity to participate in any
increase in the price of the underlying security beyond the exercise price.
Proceeds from call options exercised are increased by the amount of premiums
received. A put option gives the holder the right to sell the underlying
security to the Fund at any time during the option period at a predetermined
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying securities declines. If
the holder of a put option written by the Fund exercises the option, the Fund's
cost basis in the underlying security is the exercise price reduced by the
premium received. If an option expires or is canceled in a closing transaction,
the Fund will realize a gain or loss depending on whether the cost of the
closing transaction, if any, is less than or greater than the premium originally
received.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
g. Option Transactions: (cont.)
The Fund purchases listed put options on certain securities in order to protect
the securities against a decline in market value. A listed purchased put option
gives the Fund the right to sell the underlying security at the option exercise
price at any time during the option period. The put option on a security allows
the Fund to protect the unrealized gain in an appreciated security without
actually selling the security. Any losses realized by the Fund upon expiration
of the put options are limited to the premiums paid for the purchase of such
options, plus any transaction costs.
The Fund may buy listed call options on securities which it intends to purchase
in order to limit the risk of a substantial increase in the market price of such
securities. A call option gives the Fund the right to buy the underlying
securities from the option writer at a stated exercise price. Any losses
realized by the Fund upon expiration of the call options are limited to the
premiums paid for the purchase of such options, plus any transaction costs.
h. Repurchase Agreements:
The Fund 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
Fund based on its 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 Fund, 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
Fund had been entered into on that date.
2. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVER
At December 31, 1996, for tax purposes, the Fund had accumulated net realized
gains of $406,933.
For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Fund are the same as for financial statement purposes at December 31,
1996.
<TABLE>
<CAPTION>
3. CAPITAL STOCK
At December 31, 1996, there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in the Fund's shares were as
follows:
Year Ended December 31,
-------------------------------------------------------
1996 1995
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares sold .............................................. 2,278,018 $17,832,540 2,254,336 $15,312,713
Shares issued in reinvestment of distributions ........... 116,229 926,122 96,003 662,619
Shares redeemed .......................................... (983,856) (7,600,737) (1,120,306) (7,591,002)
---------- ---------- ---------- ----------
Net increase ............................................. 1,410,391 $11,157,925 1,230,033 $ 8,384,330
========== ========== ========== ==========
</TABLE>
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchased and written options, and
purchases and sales of short-term securities) for the year ended December 31,
1996 aggregated $32,409,548 and $23,902,272, respectively.
<TABLE>
<CAPTION>
4. PURCHASES AND SALES OF SECURITIES (cont.)
Transactions in written options for the year ended December 31,1996 were as
follows:
Call
----------------------
Number of
Amount of Shares
Premiums Optioned
-------- --------
<S> <C> <C>
Options outstanding at December 31, 1995.............. $ -- --
Options written ...................................... 195,251 87,000
Options expired ...................................... (5,100) (6,000)
Options exercised .................................... (79,597) (35,000)
Options closed ....................................... (110,554) (46,000)
-------- --------
Options outstanding at December 31, 1996 ............. $ -- --
======== ========
</TABLE>
The cost of canceling written call options in closing purchase transactions was
$59,029 resulting in a net short-term capital gain of $51,525 for the year ended
December 31, 1996. Premiums received on expired written call and put options
resulted in a net short-term capital gain of $5,100 for the year ended December
31, 1996.
5. 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 the Fund, and receives fees computed monthly on the net assets of the Fund on
the last day of the month as follows:
Annualized Fee Rate Average Daily Net Assets
------------------- ---------------------------------------------------
.0625% First $100 million
.050% Over $100 million, up to and including $250 million
.045% In excess of $250 million
Under an agreement with Advisers, Franklin Templeton Services, Inc. (FT
Services) provides administrative services and facilities for the Fund. The fee
is paid by Advisers and computed monthly based on average daily net assets. It
is not a separate expense of the Fund.
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc., (Investor Services), the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred for the year
ended December 31, 1996 aggregated $40,417, of which $38,897 was paid to
Investor Services.
c. Distribution Plan and Underwriting Agreement:
Under the terms of a distribution plan pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plan), the Fund will reimburse Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to a maximum of 0.25% per
annum of the Fund's average daily net assets for costs incurred in the
promotion, offering and marketing of the Fund's shares. The Plan does not permit
nor require payments of excess costs after termination. Fees incurred by the
Fund under the Plan aggregated $97,572 for the year ended December 31, 1996.
In its capacity as underwriter for the shares of the Fund, Distributors receives
commissions on sales of the Fund's capital stock. Commissions are deducted from
the gross proceeds received from the sale of the capital stock of the Fund, and
as such are not expenses of the Fund. Distributors may also make payments, out
of its resources, to dealers for
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Distribution Plan and Underwriting Agreement: (cont)
certain sales of the Fund's shares Commissions received by Distributors and the
amount paid to other dealers for the year ended December 31, 1996, amounted to
$241,223 and $240,445 respectively.
d. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Fund are also officers and/or directors of
Distributors, Advisers, FT Services, and Investor Services (all wholly-owned
subsidiaries of Franklin Resources, Inc.).
<TABLE>
<CAPTION>
6. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period are
as follows:
Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
_______ _______ _______ _______ _______
Per Share Operating Performance
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ........................ $7.25 $6.11 $6.22 $5.40 $4.88
_______ _______ _______ _______ _______
Net investment income ......................................... 0.14 0.18 0.14 0.13 0.15
Net realized and unrealized gain (loss) on securities ......... 1.11 1.14 (0.11) 0.86 0.53
_______ _______ _______ _______ _______
Total from investment operations .............................. 1.25 1.32 0.03 0.99 0.68
_______ _______ _______ _______ _______
Less distributions from:
Net investment income ........................................ (0.15) (0.18) (0.14) (0.17) (0.16)
Realized capital gains ....................................... (0.03) -- -- -- --
_______ _______ _______ _______ _______
Total distributions ........................................... (0.18) (0.18) (0.14) (0.17) (0.16)
_______ _______ _______ _______ _______
Net asset value at end of period .............................. $8.32 $7.25 $6.11 $6.22 $5.40
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
Total Return* ................................................. 17.41% 21.79% 0.46% 18.38% 14.02%
Ratios/Supplemental Data
Net assets at end of period (in 000's) ........................ $56,867 $39,319 $25,631 $22,877 $22,077
Ratio of expenses to average net assets ....................... 1.21% 1.17% 1.27% 1.00% .92%
Ratio of net investment income to average net assets .......... 1.86% 2.86% 2.29% 2.15% 2.81%
Portfolio turnover rate ....................................... 60.11% 62.01% 45.18% 20.49% 23.17%
Average commission rate** ..................................... 0.0622 0.0640 -- -- --
</TABLE>
*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, if any, at net asset value. Prior to May 1, 1994,
dividends were reinvested at the maximum offering price, and capital gains at
net asset value.
**Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.
- --------------------------------------------------------------------------------
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
32.13% of its ordinary income dividends paid (including short-term capital gain
distributions, if any) as income qualifying for the dividends received deduction
for the fiscal year ended December 31, 1996.
- --------------------------------------------------------------------------------
FRANKLIN ASSET ALLOCATION FUND
Report of Independent Auditors
To the Shareholders and Board of Trustees
of Franklin Asset Allocation Fund:
We have audited the accompanying statement of assets and liabilities of Franklin
Asset Allocation Fund, including the statement of investments in securities and
net assets, as of December 31, 1996, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for 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 included 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 the
Franklin Asset Allocation Fund as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 4, 1997
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 Asset Allocation Fund 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 pie format the asset allocation of the fund's securities on
December 31, 1996, based on total net assets.
<TABLE>
<CAPTION>
<S> <C>
Equity Securities 70.8%
Fixed-Income Securities 15.2%
Cash & Equivalents 14.0%
</TABLE>
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500, the Lehman Brothers Government/Corporate Bond Index,
and the CPI, based on a $10,000 investment from 1/1/87 to 12/31/96.
<TABLE>
<CAPTION>
Period Ending Fund Index Index Index
<S> <C> <C> <C> <C>
1/1/87 $9,549 $10,000 $10,000 $10,000
1/31/87 $10,184 $11,347 $10,137 $10,063
2/28/87 $10,417 $11,795 $10,204 $10,099
3/31/87 $10,500 $12,136 $10,149 $10,145
4/30/87 $10,346 $12,028 $9,878 $10,199
5/31/87 $10,466 $12,133 $9,834 $10,235
6/30/87 $10,879 $12,745 $9,956 $10,271
7/31/87 $11,308 $13,392 $9,934 $10,298
8/31/87 $11,522 $13,891 $9,878 $10,352
9/30/87 $11,415 $13,587 $9,665 $10,406
10/31/87 $9,440 $10,660 $10,028 $10,433
11/30/87 $9,011 $9,782 $10,091 $10,443
12/31/87 $9,697 $10,526 $10,229 $10,443
1/31/88 $9,932 $10,969 $10,580 $10,470
2/29/88 $10,402 $11,481 $10,702 $10,497
3/31/88 $10,265 $11,126 $10,596 $10,542
4/30/88 $10,359 $11,249 $10,534 $10,597
5/31/88 $10,460 $11,346 $10,464 $10,633
6/30/88 $10,864 $11,867 $10,700 $10,679
7/31/88 $10,929 $11,822 $10,639 $10,723
8/31/88 $10,720 $11,420 $10,667 $10,769
9/30/88 $11,117 $11,906 $10,901 $10,841
10/31/88 $11,219 $12,237 $11,094 $10,876
11/30/88 $11,133 $12,062 $10,968 $10,885
12/31/88 $11,425 $12,273 $11,005 $10,904
1/31/89 $11,983 $13,172 $11,152 $10,958
2/28/89 $11,849 $12,844 $11,067 $11,003
3/31/89 $12,050 $13,143 $11,126 $11,067
4/30/89 $12,463 $13,825 $11,362 $11,139
5/31/89 $12,739 $14,385 $11,641 $11,202
6/30/89 $12,693 $14,303 $12,021 $11,229
7/31/89 $13,338 $15,595 $12,271 $11,256
8/31/89 $13,623 $15,900 $12,080 $11,274
9/30/89 $13,480 $15,835 $12,134 $11,310
10/31/89 $13,047 $15,468 $12,441 $11,365
11/30/89 $13,218 $15,783 $12,553 $11,392
12/31/89 $13,122 $16,162 $12,571 $11,410
1/31/90 $12,339 $15,078 $12,399 $11,528
2/28/90 $12,516 $15,272 $12,426 $11,582
3/31/90 $12,794 $15,677 $12,428 $11,645
4/30/90 $12,626 $15,287 $12,313 $11,664
5/31/90 $13,381 $16,777 $12,670 $11,691
6/30/90 $13,280 $16,665 $12,876 $11,754
7/31/90 $13,039 $16,611 $13,035 $11,799
8/31/90 $12,019 $15,110 $12,846 $11,907
9/30/90 $11,345 $14,374 $12,953 $12,007
10/31/90 $10,903 $14,312 $13,125 $12,079
11/30/90 $11,594 $15,237 $13,411 $12,106
12/31/90 $11,983 $15,662 $13,614 $12,106
1/31/91 $12,808 $16,344 $13,766 $12,179
2/28/91 $13,235 $17,513 $13,885 $12,197
3/31/91 $13,459 $17,937 $13,981 $12,215
4/30/91 $13,517 $17,980 $14,141 $12,233
5/31/91 $14,243 $18,755 $14,208 $12,270
6/30/91 $13,690 $17,896 $14,192 $12,306
7/31/91 $13,984 $18,730 $14,371 $12,324
8/31/91 $14,219 $19,174 $14,701 $12,360
9/30/91 $14,223 $18,854 $15,009 $12,414
10/31/91 $14,432 $19,106 $15,142 $12,433
11/30/91 $13,836 $18,336 $15,294 $12,469
12/31/91 $14,642 $20,434 $15,809 $12,478
1/31/92 $15,002 $20,054 $15,575 $12,496
2/29/92 $15,422 $20,313 $15,658 $12,541
3/31/92 $15,336 $19,916 $15,572 $12,605
4/30/92 $15,698 $20,502 $15,665 $12,623
5/31/92 $15,638 $20,602 $15,969 $12,641
6/30/92 $15,456 $20,295 $16,204 $12,686
7/31/92 $15,761 $21,126 $16,619 $12,713
8/31/92 $15,425 $20,692 $16,766 $12,748
9/30/92 $15,794 $20,935 $16,994 $12,784
10/31/92 $15,578 $21,006 $16,734 $12,829
11/30/92 $16,162 $21,720 $16,719 $12,847
12/31/92 $16,716 $21,987 $17,007 $12,838
1/31/93 $17,087 $22,172 $17,378 $12,901
2/28/93 $17,273 $22,473 $17,739 $12,946
3/31/93 $17,646 $22,948 $17,799 $12,991
4/30/93 $17,802 $22,392 $17,937 $13,028
5/31/93 $18,113 $22,990 $17,928 $13,046
6/30/93 $18,378 $23,057 $18,334 $13,064
7/31/93 $18,284 $22,965 $18,452 $13,064
8/31/93 $18,880 $23,835 $18,876 $13,101
9/30/93 $19,083 $23,651 $18,942 $13,128
10/31/93 $19,431 $24,141 $19,020 $13,182
11/30/93 $19,273 $23,912 $18,805 $13,191
12/31/93 $19,810 $24,201 $18,888 $13,191
1/31/94 $20,447 $25,024 $19,171 $13,227
2/28/94 $20,288 $24,346 $18,753 $13,272
3/31/94 $19,634 $23,284 $18,294 $13,317
4/30/94 $19,698 $23,582 $18,142 $13,336
5/31/94 $19,923 $23,969 $18,109 $13,345
6/30/94 $19,682 $23,382 $18,068 $13,390
7/31/94 $20,036 $24,149 $18,429 $13,426
8/31/94 $20,584 $25,139 $18,436 $13,480
9/30/94 $20,343 $24,525 $18,158 $13,517
10/31/94 $20,440 $25,077 $18,138 $13,526
11/30/94 $19,760 $24,164 $18,105 $13,544
12/31/94 $19,905 $24,522 $18,225 $13,544
1/31/95 $20,133 $25,157 $18,575 $13,598
2/28/95 $20,817 $26,138 $19,006 $13,652
3/31/95 $21,225 $26,909 $19,133 $13,697
4/30/95 $21,323 $27,700 $19,399 $13,742
5/31/95 $21,847 $28,808 $20,212 $13,770
6/30/95 $22,223 $29,477 $20,373 $13,797
7/31/95 $22,619 $30,455 $20,294 $13,797
8/31/95 $22,751 $30,532 $20,554 $13,833
9/30/95 $23,180 $31,820 $20,763 $13,861
10/31/95 $23,113 $31,705 $21,069 $13,907
11/30/95 $24,076 $33,097 $21,416 $13,897
12/31/95 $24,243 $33,736 $21,731 $13,887
1/31/96 $24,979 $34,883 $21,866 $13,969
2/29/96 $25,213 $35,207 $21,402 $14,014
3/31/96 $25,514 $35,545 $21,222 $14,087
4/30/96 $25,985 $36,068 $21,076 $14,142
5/31/96 $26,389 $36,999 $21,040 $14,169
6/30/96 $26,507 $37,139 $21,322 $14,177
7/31/96 $25,459 $35,498 $21,371 $14,204
8/31/96 $26,101 $36,247 $21,320 $14,231
9/30/96 $26,997 $38,287 $21,699 $14,277
10/31/96 $27,371 $39,344 $22,205 $14,322
11/30/96 $28,661 $42,318 $22,614 $14,349
12/31/96 $28,464 $41,481 $22,363 $14,349
</TABLE>
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500, the Lehman Brothers Government/Corporate Bond Index,
and the CPI, based on a $10,000 investment from 5/1/91 to 12/31/96.
<TABLE>
<CAPTION>
Period Ending Fund Index Index Index
<S> <C> <C> <C> <C>
5/1/91 $9,553 $10,000 $10,000 $10,000
5/31/91 $9,980 $10,431 $10,047 $10,030
6/30/91 $9,593 $9,953 $10,036 $10,059
7/31/91 $9,799 $10,417 $10,162 $10,074
8/31/91 $9,963 $10,664 $10,396 $10,103
9/30/91 $9,966 $10,486 $10,613 $10,148
10/31/91 $10,113 $10,626 $10,708 $10,163
11/30/91 $9,695 $10,198 $10,815 $10,193
12/31/91 $10,260 $11,365 $11,179 $10,200
1/31/92 $10,512 $11,153 $11,014 $10,215
2/29/92 $10,806 $11,297 $11,072 $10,252
3/31/92 $10,746 $11,077 $11,011 $10,304
4/30/92 $11,000 $11,403 $11,078 $10,318
5/31/92 $10,957 $11,459 $11,292 $10,333
6/30/92 $10,830 $11,288 $11,458 $10,370
7/31/92 $11,043 $11,749 $11,752 $10,392
8/31/92 $10,808 $11,509 $11,856 $10,421
9/30/92 $11,066 $11,643 $12,018 $10,450
10/31/92 $10,916 $11,683 $11,834 $10,487
11/30/92 $11,325 $12,080 $11,823 $10,501
12/31/92 $11,713 $12,229 $12,026 $10,494
1/31/93 $11,973 $12,331 $12,289 $10,545
2/28/93 $12,103 $12,499 $12,544 $10,582
3/31/93 $12,365 $12,763 $12,587 $10,619
4/30/93 $12,474 $12,454 $12,684 $10,649
5/31/93 $12,692 $12,786 $12,677 $10,664
6/30/93 $12,878 $12,824 $12,965 $10,679
7/31/93 $12,812 $12,772 $13,048 $10,679
8/31/93 $13,229 $13,256 $13,348 $10,709
9/30/93 $13,372 $13,154 $13,395 $10,731
10/31/93 $13,615 $13,427 $13,450 $10,775
11/30/93 $13,504 $13,299 $13,298 $10,783
12/31/93 $13,881 $13,460 $13,356 $10,783
1/31/94 $14,327 $13,918 $13,557 $10,812
2/28/94 $14,216 $13,540 $13,261 $10,849
3/31/94 $13,758 $12,950 $12,936 $10,886
4/30/94 $13,803 $13,116 $12,829 $10,901
5/31/94 $13,960 $13,331 $12,806 $10,909
6/30/94 $13,791 $13,004 $12,776 $10,946
7/31/94 $14,039 $13,431 $13,032 $10,975
8/31/94 $14,423 $13,981 $13,037 $11,019
9/30/94 $14,254 $13,640 $12,840 $11,049
10/31/94 $14,322 $13,947 $12,826 $11,057
11/30/94 $13,846 $13,440 $12,803 $11,071
12/31/94 $13,947 $13,638 $12,888 $11,071
1/31/95 $14,107 $13,992 $13,135 $11,115
2/28/95 $14,587 $14,537 $13,440 $11,160
3/31/95 $14,872 $14,966 $13,530 $11,197
4/30/95 $14,941 $15,406 $13,718 $11,233
5/31/95 $15,308 $16,022 $14,293 $11,256
6/30/95 $15,572 $16,394 $14,407 $11,278
7/31/95 $15,849 $16,939 $14,351 $11,278
8/31/95 $15,942 $16,981 $14,535 $11,308
9/30/95 $16,242 $17,697 $14,683 $11,330
10/31/95 $16,195 $17,634 $14,899 $11,368
11/30/95 $16,870 $18,408 $15,144 $11,360
12/31/95 $16,987 $18,763 $15,367 $11,352
1/31/96 $17,503 $19,401 $15,462 $11,419
2/29/96 $17,667 $19,582 $15,135 $11,455
3/31/96 $17,878 $19,769 $15,007 $11,515
4/30/96 $18,208 $20,060 $14,904 $11,560
5/31/96 $18,491 $20,578 $14,879 $11,582
6/30/96 $18,573 $20,656 $15,078 $11,589
7/31/96 $17,839 $19,743 $15,113 $11,611
8/31/96 $18,289 $20,159 $15,076 $11,633
9/30/96 $18,917 $21,294 $15,345 $11,670
10/31/96 $19,179 $21,882 $15,702 $11,707
11/30/96 $20,083 $23,536 $15,991 $11,730
12/31/96 $19,945 $23,070 $15,814 $11,730
</TABLE>
