Annual
Report
December 31, 1997
Franklin Asset Allocation Fund
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
SHAREHOLDER LETTER
Your Fund's Objective: 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.
Dear Shareholder:
We are pleased to bring you the annual report of the Franklin Asset Allocation
Fund for the twelve months ended December 31, 1997.
During the first quarter of 1997, Gross Domestic Product (GDP) expanded at an
annualized rate of 4.9%, and in March, the Federal Reserve Board (the Fed)
responded by raising the federal funds rate from 5.25% to 5.50%. In the second,
third, and fourth quarters, growth slowed to 3.3%, 3.1%, and 4.3%, respectively.
With inflation remaining benign, the Fed found no reason to raise interest rates
further and left them unchanged for the remainder of the year.
You may find a complete listing of the fund's portfolio holdings, including the
number of shares and dollar value, beginning on page 11 of this report.
Lisa Costa
Portfolio Manager
Franklin Asset Allocation Fund
CONTENTS
Shareholder Letter ........................................... 1
Performance Summary........................................... 6
Financial Highlights &
Statement of Investments ..................................... 10
Financial Statements ......................................... 16
Notes to
Financial Statements ......................................... 19
Report of
Independent Accountants....................................... 23
Tax Designation .............................................. 24
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
In Asia, many countries experienced economic turmoil and devalued their
currencies during the latter part of the reporting period. As a result, many
U.S. companies that export to Asia were faced with potentially declining
revenues, and the U.S. stock market experienced severe volatility for the
remainder of the year. The Dow Jones(R) Industrial Average, at or near record
highs in early October, declined 12.44% later in the month. By early December,
it had regained most of its losses, only to suffer another correction later that
month. Despite this volatility, the index rose 24.99%1 for the year. The U.S.
fixed-income market performed well as many investors moved their money from
stocks to bonds in a flight to safety. Within this environment, Franklin Asset
Allocation Fund delivered a +15.24% one-year cumulative total return, as
discussed in the Performance Summary on page 6. Over the same period, the
Standard & Poor's(R) 500 Stock Index (S&P 500(R)) advanced 33.36% and
long-term bonds, as measured by the Lehman Brothers Government/Corporate Bond
Index, returned 9.76%.2
1. Source: Micropal.
2. Source: Micropal.
Indices are unmanaged and include reinvested dividends or interest. One cannot
invest directly in an index.
The business cycle reached its economic peak during the first half of 1997. In
contrast to previous cycles, the one element that was missing during this phase
was significant inflation. Because of this, our emphasis on the basic materials
sector proved disappointing. Although this sector generally benefits when peak
business cycle activity forces manufacturers to run at full capacity, it earned
less than we expected due to pricing pressures from foreign competitors and the
lack of significant inflation. We reduced our exposure to this area by taking
profits in our paper and forest products stocks, including Weyerhaeuser Co.,
Willamette Industries Inc., and Union Camp Corp. We also sold for a profit our
holdings in Aluminum Company of America; and sold Inco, a nickel producer, and
Ispat International, a steel manufacturer. As a result, our weighting in the
basic materials sector decreased from 10.72% of total net assets at the
beginning of the reporting period, to 6.44% on December 31, 1997.
Throughout the reporting period, we used the proceeds from the sales of
securities in economically sensitive groups to increase our exposure to
defensive sectors like consumer staples, utilities, and bonds. Believing that it
offered excellent value and had adequate reserves for any settlement
necessitated by tobacco litigation, we initiated a position in Philip Morris
Cos., Inc. We also bought convertible preferred stock shares in Newell Corp., a
diversified manufacturer in the housewares industry, and increased our position
in Nestle, SA.
We added to our holdings of utility stocks Duke Energy Co., Southern Company,
and Enron Corp., and bought shares of real estate investment trusts (REITs),
such as Arden Realty, Public Storage Inc., and Patriot American Hospitality Inc.
In our opinion, both groups offered investors dividend yields that supported
their equity prices. Overall, our holdings in REITs, utilities, and consumer
staples increased during the reporting period, from 14.9% of total net assets on
December 31, 1996, to 18.6% on December 31, 1997.
Top 10 Sectors
12/31/97
% of Total
Sector Net Assets
Consumer Staples 8.6%
Technology 8.1%
Energy 7.1%
Real Estate 6.5%
Basic Materials 6.4%
Health Care 5.1%
Capital Goods 4.4%
Financials 4.0%
Consumer Cyclicals 3.9%
Utilities 3.5%
In the health care group, we increased our positions in Roche Holding AG and
Novartis AG. In our opinion, these European pharmaceutical companies were
selling at better valuations than many of their domestic counterparts.
Despite market volatility, we maintained our core positions in technology
companies, such as Intel Corp., Cisco Systems, and Oracle Corp. as we believe
they offer products and services unmatched by competitors. However, attempting
to minimize the effects of dramatic price swings, we hedged these positions with
options. Our short-term capital gains distribution to shareholders included
gains from our option positions.
Looking forward, we are cautious as we enter 1998. Never before has the stock
market experienced three consecutive years of better-than-20% returns, and, in
our opinion, the business cycle was entering a period of contraction at the end
of the reporting period. Anticipating this, we repositioned our asset mix to
contain approximately 60% equities and 20% cash. Since they tend to perform well
during times of global economic uncertainty, we increased our exposure to bonds
to 19.2%, up from 14.6% on December 31, 1996. Our stock positions include
companies that could provide a stable stream of earnings and which are less
economically sensitive. If the Asian currency crisis adversely affects our
economy and GDP slows dramatically, the Fed may be inclined to lower interest
rates, thereby setting the stage for the business cycle's next expansionary
phase.
This discussion reflects our views and opinions as of December 31, 1997, the end
of the reporting period. However, market and economic conditions are changing
constantly, which may affect our strategies and portfolio holdings. Although
historic performance is no guarantee of future results, these insights may help
you understand our investment and management philosophy.
We appreciate your participation in Franklin Asset Allocation Fund and welcome
your comments and suggestions.
Sincerely,
Lisa Costa
Portfolio Manager
Franklin Asset Allocation Fund
Top 10 Equity Holdings
12/31/97
Company, % of Total
Industry Net Assets
Philip Morris Cos., Inc.,
Tobacco 1.77%
BankAmerica Corp.,
Banks - Money Centers 1.63%
Time Warner Inc.,
Entertainment/Broadcast
Media 1.56%
Costco Cos. Inc.,
Retail - General Merchandise 1.49%
Enron Corp.,
Natural Gas 1.39%
Air Products &
Chemicals Inc., Chemicals 1.38%
Exxon Corp.,
Oil - International Integrated 1.37%
Schlumberger Ltd.,
Oil & Gas Drilling 1.35%
Arthur J. Gallagher & Co.,
Insurance 1.34%
Sigma-Aldrich Corp.,
Chemicals - Specialty 1.33%
PERFORMANCE SUMMARY
Franklin Asset Allocation Fund provided a +15.24% cumulative total return for
the 12-month period ended December 31, 1997. 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
+96.24% cumulative total return for the five-year period ended on the same date.
The fund's share price, as measured by net asset value, increased $0.73, from
$8.32 on December 31, 1996, to $9.05 on December 31, 1997. During the reporting
period, shareholders received per-share distributions of 14.90 cents ($0.1490)
in dividend income, 17.30 cents ($0.1730) in short-term capital gains, and 20.10
cents ($0.2010) in long-term capital gains. Distributions will vary depending on
income earned by the fund and any profits realized from the sale of securities
in the portfolio, as well as the level of the fund's operating expenses.
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 and Poor's 500 Stock
Index (S&P 500) and the Lehman Brothers Government/Corporate Bond Index. The
graph also includes the Consumer Price Index (CPI).
The second graph compares the fund's performance with that of the same indices
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, 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 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.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index does not pay management fees
to cover salaries of security analysts or portfolio managers, or pay commissions
or market spreads to buy and sell securities. Unlike an index, mutual funds are
never 100% invested because they need to have cash on hand to redeem shares. In
addition, the performance shown for the fund includes the maximum initial sales
charge, all fund expenses and account fees. The indices' performance would have
been lower if the fund's costs had been applied to them. Please remember that an
index is simply a measure of performance, and one cannot invest in it directly.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Periods ended 12/31/97
One- Five- Ten-
Year Year Year
Cumulative Total Return1 15.24% 96.24% 238.28%
Average Annual Total Return2 10.08% 13.40% 12.45%
Value of $10,000 Investment3 $11,008 $18,755 $32,326
30-Day Standardized Yield:4 1.85%
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
One-Year
Total Return5 18.51% 0.48% 21.79% 17.41% 15.24%
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the current maximum 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 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, 1997.
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 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 would differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 Plan, which affects
subsequent performance.
On August 1, 1996, the fund's name was changed from Franklin Premier Return Fund
to better reflect its investment strategy and philosophy. The fund's
shareholders also voted to modify its investment objective, from high current
return and relative stability of principal, to total return with a secondary
emphasis on reduced risk over time.
All calculations assume reinvestment of dividends and capital gains 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
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year................ $8.32 $7.25 $6.11 $6.22 $5.40
Income from investment operations:
Net investment income............................ .15 .14 .18 .14 .13
Net realized and unrealized gains (losses)....... 1.10 1.11 1.14 (.11) .86
Total from investment operations.................. 1.25 1.25 1.32 .03 .99
Less distributions from:
Net investment income............................ (.15) (.15) (.18) (.14) (.17)
Net realized gains............................... (.37) (.03) -- -- --
Total distributions............................... (.52) (.18) (.18) (.14) (.17)
Net asset value, end of year...................... $9.05 $8.32 $7.25 $6.11 $6.22
Total return*..................................... 15.24% 17.41% 21.79% .46% 18.38%
Ratios/supplemental data
Net assets, end of year (000's)................... $89,630 $56,867 $39,319 $25,631 $22,877
Ratios to average net assets:
Expenses......................................... 1.12% 1.21% 1.17% 1.27% 1.00%
Net investment income............................ 1.73% 1.86% 2.86% 2.29% 2.15%
Portfolio turnover rate........................... 54.57% 60.11% 62.01% 45.18% 20.49%
Average commission rate paid**.................... $.0638 $.0622 $.0640 -- --
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were invested at the offering price.
**Relates to purchases and sales of equity securities. Prior to December 31,
1995 disclosure of average commission rate was not required.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN ASSET ALLOCATION FUND
Statement of Investments, December 31, 1997
SHARES VALUE
<S> <C> <C>
Common Stocks and Options 59.9%
Banks - Money Center 1.6%
BankAmerica Corp. ............................................................ 20,000$ 1,460,000
-------------
Beverages - Non-Alcoholic 1.1%
Panamerican Beverages, Inc., Class A (Mexico) ................................ 30,000 978,750
-------------
Biotechnology 1.6%
a Genzyme Corp., General Division............................................... 22,500 624,375
a Vertex Pharmaceuticals, Inc. ................................................. 25,000 825,000
-------------
1,449,375
-------------
Chemicals 2.2%
Air Products & Chemicals, Inc.* .............................................. 15,000 1,233,750
Air Products & Chemicals, Inc., put options, expire March 98, strike price 75. 5,000 5,000
Du Pont (E.I.) De Nemours & Co. .............................................. 12,500 750,781
-------------
1,989,531
-------------
Chemicals - Specialty 2.6%
Betzdearborn, Inc. ........................................................... 10,000 610,625
Hanna (M.A.) Co. ............................................................. 20,000 505,000
Sigma-Aldrich Corp. .......................................................... 30,000 1,192,500
-------------
2,308,125
-------------
Communication Equipment Manufacturers 1.0%
Ericsson (LM) Co., Sponsored ADR (Sweden)..................................... 10,000 373,125
a Tellabs, Inc. ................................................................ 10,000 528,750
-------------
901,875
-------------
Computer Hardware 1.3%
Hitachi, Ltd. (Japan)......................................................... 55,000 391,744
NEC Corp. (Japan)............................................................. 70,000 745,194
1,136,938
Computer Software 1.4%
aOracle Corp. ................................................................... 30,000 669,375
a Parametric Technology Corp. ................................................. 12,500 592,188
-------------
1,261,563
-------------
Computers - Networking .9%
a Cisco Systems, Inc.* ......................................................... 15,000 836,250
-------------
Containers - Metal & Glass .8%
a Owens-Illinois, Inc. ......................................................... 20,000 758,750
-------------
Data Collection Equipment Manufacturers .9%
Symbol Technologies, Inc. .................................................... 22,100 834,275
-------------
Electric Utilities 2.1%
Duke Energy Corp. ............................................................ 15,000 830,625
Southern Co. ................................................................. 40,000 1,035,000
-------------
1,865,625
-------------
Electronic Semiconductors 2.4%
Intel Corp. .................................................................. 15,000$ 1,053,750
Linear Technology Corp.*...................................................... 10,000 576,250
a Xilinx, Inc. ................................................................. 15,000 525,938
-------------
2,155,938
-------------
Energy - Drilling & Equipment .6%
a EVI, Inc. .................................................................... 10,000 517,500
-------------
Entertainment/Broadcast Media 1.6%
Time Warner, Inc. ............................................................ 22,500 1,395,000
-------------
Foods 2.1%
Nabisco Holdings Corp., Class A .............................................. 20,000 968,750
Nestle, SA (Switzerland) ..................................................... 580 868,621
-------------
1,837,371
-------------
Gold & Precious Metal Mining .5%
Newmont Mining Corp. ......................................................... 15,000 440,625
-------------
Health Care - Diversified 1.1%
Abbott Laboratories .......................................................... 15,000 983,438
-------------
Health Care - Pharmaceuticals 2.3%
Novartis, AG (Switzerland).................................................... 550 893,682
a Penederm, Inc. ............................................................... 30,000 300,000
Roche Holding, AG (Switzerland)............................................... 90 893,134
-------------
2,086,816
-------------
Household Products .9%
Procter & Gamble Co. ......................................................... 10,000 798,125
-------------
Insurance 2.4%
Arthur J. Gallagher & Co. .................................................... 35,000 1,205,313
Hartford Life, Inc., Class A.................................................. 20,000 906,250
-------------
2,111,563
-------------
Manufacturing - Specialized 2.6%
a Thermo Electron Corp. ........................................................ 22,500 1,001,250
a U.S. Filter Corp. ............................................................ 20,000 598,750
a Waters Corp. ................................................................. 20,000 752,500
-------------
2,352,500
-------------
Metals/Mining 1.1%
Rio Tinto, Plc., Sponsored ADR (United Kingdom)............................... 20,000 1,035,000
-------------
Natural Gas 1.4%
Enron Corp. .................................................................. 30,000 1,246,875
-------------
Oil - Domestic Integrated .6%
Unocal Corp. ................................................................. 15,000 582,188
-------------
Oil - Exploration & Production .7%
Anadarko Petroleum Corp. ..................................................... 10,000 606,875
-------------
Oil - International Integrated 2.7%
Chevron Corp. ................................................................ 15,000$ 1,155,000
Exxon Corp. .................................................................. 20,000 1,223,750
-------------
2,378,750
-------------
Oil & Gas Drilling 2.5%
Helmerich & Payne, Inc. ...................................................... 15,000 1,018,125
Schlumberger, Ltd.*........................................................... 15,000 1,207,500
-------------
2,225,625
-------------
Personal Care .9%
Estee Lauder Cos., Class A ................................................... 15,000 771,563
-------------
Real Estate Investment Trusts 6.5%
Arden Realty, Inc. ........................................................... 30,000 922,500
FelCor Suite Hotels, Inc. .................................................... 15,000 532,500
Patriot American Hospitality, Inc. ........................................... 30,000 862,500
Public Storage, Inc. ......................................................... 35,000 1,028,125
a Security Capital Group, Class B .............................................. 20,000 650,000
Simon DeBartolo Group, Inc. .................................................. 20,000 653,750
Starwood Lodging Trust ....................................................... 20,000 1,157,500
-------------
5,806,875
-------------
Retail - General Merchandise 3.3%
a Costco Cos., Inc.*............................................................ 30,000 1,338,750
Dayton Hudson Corp. .......................................................... 15,000 1,012,500
Wal-Mart Stores, Inc. ........................................................ 15,000 591,563
-------------
2,942,813
-------------
Retail - Specialty .6%
Talbots, Inc. ................................................................ 30,000 543,750
-------------
Service - Transportation & Logistics .7%
C.H. Robinson Worldwide, Inc. ................................................ 30,000 671,250
-------------
Telecommunications 1.6%
a China Telecom, Ltd., ADR (Hong Kong).......................................... 15,100 506,794
Portugal Telecom, SA (Portugal)............................................... 20,300 941,929
-------------
1,448,723
-------------
Tobacco 2.2%
Philip Morris Cos., Inc. ..................................................... 35,000 1,585,938
RJR Nabisco Holdings Corp. ................................................... 10,000 375,000
-------------
1,960,938
-------------
Trucking 1.1%
Reuters Holdings, Plc., Sponsored ADR (United Kingdom)........................ 15,000 993,750
-------------
Total Common Stocks and Options (Cost $42,151,255)............................ 53,674,908
-------------
Preferred Stocks .9%
a Newell Financial Trust I, cvt., 144A (Cost $757,943).......................... 15,000 783,750
-------------
PRINCIPAL
AMOUNT VALUE
Bonds 19.2%
Convertible Bonds 3.4%
Interpublic Group Cos. Inc., cvt. sub. deb., 144A, 1.80%, 9/16/04............. $ 1,000,000 $ 828,750
Rite Aid Corp., cvt. sub. notes, 144A, 5.25%, 9/15/02......................... 800,000 868,000
Thermo Instrument Systems, Inc., cvt. deb., 144A, 4.50%, 10/15/03 ............ 700,000 805,000
U.S. Cellular Corp., cvt. notes, 0.00%, 6/15/15............................... 1,500,000 541,875
-------------
Total Convertible Bonds (Cost $2,873,212) 3,043,625
-------------
Corporate Bonds .7%
Dayton Hudson Co., deb., 8.60%, 1/15/12 ...................................... 250,000 292,945
Georgia Pacific Corp., deb., 9.125%, 7/01/22 ................................. 100,000 111,987
Panamerican Beverages, Inc., senior notes, 8.125%, 4/01/03 (Mexico)........... 250,000 268,320
-------------
Total Corporate Bonds (Cost $596,005) 673,252
-------------
U.S. Government Securities 15.1%
U.S. Treasury Bonds, 6.00% - 8.00%, 11/15/21 - 2/25/26 ....................... 3,150,000 3,353,626
U.S. Treasury Notes, 5.875% - 7.25%, 10/31/98 - 8/15/07 ...................... 9,000,000 9,183,288
U.S. Treasury Notes, Inflation-Indexed, 3.375%, 1/15/07....................... 1,019,890 993,755
-------------
Total U.S. Government Securities (Cost $13,135,969) 13,530,669
-------------
Total Bonds (Cost $16,605,186) 17,247,546
-------------
Total Long Term Investments (Cost $59,514,384) 71,706,204
-------------
b Repurchase Agreements 20.1%
Joint Repurchase Agreement, 6.285%, 1/02/98,
(Maturity Value $18,082,814) (Cost $18,076,502) ................................. 18,076,502 18,076,502
-------------
BancAmerica Robertson Stephens (Maturity Value $560,566)
Barclays Capital Group, Inc. (Maturity Value $1,663,619)
BT Alex Brown, Inc. (Maturity Value $1,555,122)
Chase Securities, Inc. (Maturity Value $1,663,619)
CIBC Wood Gundy Securities Corp. (Maturity Value $1,663, 619)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $1,663, 619)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,663,619)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $1,663,619)
Greenwich Capital Markets, Inc. (Maturity Value $994,555)
Paribas Corp. (Maturity Value $1,663,619)
SBC Warburg Dillon Read, Inc. (Maturity Value $1,663,619)
UBS Securities, L.L.C. (Maturity Value $1,663,619)
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $77,590,886) 100.1% .................................. 89,782,706
Open Call Options Written (Premiums Received $173,794) ( .1%)................. (122,345)
Other Assets, less Liabilities................................................ (30,177)
-------------
Net Assets 100.0%............................................................. $89,630,184
=============
EXPIRATION STRIKE SHARES
DATE PRICE OPTIONED VALUE
Call Options Written
Air Products & Chemicals, Inc. March 98 80 10,000 $ 57,500
Cisco Systems, Inc. January 98 565/8 5,000 8,282
Linear Technology Corp. February 98 75 10,000 8,125
Schlumberger, Ltd. January 98 90 5,000 1,563
Costco Cos., Inc. January 98 40 10,000 46,875
---------- --------
Total Call Options Written (Premiums Received $173,794) 40,000 $122,345
========== ========
</TABLE>
*Portion of the security is segregated as collateral for call options written.
aNon-income producing.
bSee Note 1 regarding joint repurchase agreements.
FRANKLIN ASSET ALLOCATION FUND
Financial Statements
Statement of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value (cost $59,514,384)...................................... $71,706,204
Repurchase agreements, at value and cost ................................................... 18,076,502
Receivables:
Investment securities sold................................................................... 622,559
Capital shares sold.......................................................................... 200,936
Dividends and interest....................................................................... 316,519
-------------
Total assets................................................................................. 90,922,720
-------------
Liabilities:
Payables:
Investment securities purchased.............................................................. 573,400
Capital shares redeemed...................................................................... 150,236
Affiliates................................................................................... 90,112
Shareholders................................................................................. 328,884
Options written, at value (premiums received $173,794)...................................... 122,345
Other liabilities........................................................................... 27,559
-------------
Total liabilities............................................................................ 1,292,536
-------------
Net assets, at value........................................................................ $89,630,184
=============
Net assets consist of:
Undistributed net investment income......................................................... $ 79,306
Net unrealized appreciation................................................................. 12,243,269
Accumulated net realized gain............................................................... 439,059
Capital shares.............................................................................. 76,868,550
-------------
Net assets, at value......................................................................... $89,630,184
=============
Net asset value per share ($89,630,184 / 9,902,204 shares outstanding)*...................... $9.05
=============
Maximum offering price per share ($9.05 / 95.5%)............................................. $9.48
=============
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
Financial Statements (continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Statement of Operations
for the year ended December 31, 1997
Investment income:
(net of foreign taxes of $10,849)
Dividends........................................................................ $ 762,891
Interest......................................................................... 1,345,609
-------------
Total investment income........................................................... $2,108,500
Expenses:
Management fees (Note 3)......................................................... 461,208
Distribution fees (Note 3)....................................................... 181,480
Transfer agent fees (Note 3)..................................................... 94,412
Custodian fees................................................................... 3,601
Reports to shareholders.......................................................... 34,533
Registration and filing fees..................................................... 26,264
Professional fees................................................................ 18,137
Trustees' fees and expenses...................................................... 6,163
Other............................................................................ 3,417
-------------
Total expenses.................................................................... 829,215
-------------
Net investment income............................................................ 1,279,285
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments..................................................................... 3,192,617
Transactions in written options which expired or were closed (Note 5)........... 295,127
Foreign currency transactions................................................... (2,449)
-------------
Net realized gain................................................................. 3,485,295
Net unrealized appreciation on:
Investments....................................................................... 4,895,909
Options........................................................................... 39,424
-------------
Net unrealized appreciation....................................................... 4,935,333
-------------
Net realized and unrealized gain.................................................. 8,420,628
-------------
Net increase in net assets resulting from operations.............................. $9,699,913
=============
See notes to financial statements.
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
for the years ended December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................................................ $ 1,279,285 $ 874,719
Net realized gain from investments, options and foreign currency transactions 3,485,295 976,320
Net unrealized appreciation on investments................................... 4,935,333 5,670,859
--------------------------
Net increase in net assets resulting from operations..................... 9,699,913 7,521,898
Distributions to shareholders from:
Net investment income........................................................ (1,226,791) (915,260)
Net realized gains........................................................... (3,456,153) (215,956)
--------------------------
Total distributions to shareholders........................................... (4,682,944) (1,131,216)
Capital share transactions (Note 2)........................................... 27,745,965 11,157,925
--------------------------
Net increase in net assets............................................... 32,762,934 17,548,607
Net assets:
Beginning of year............................................................. 56,867,250 39,318,643
--------------------------
End of year................................................................... $89,630,184 $56,867,250
==========================
Undistributed net investment income included in net assets
End of year................................................................... $ 79,306 $ 29,261
==========================
</TABLE>
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Asset Allocation Fund (the Trust) is registered under the Investment
Company Act of 1940 as an open-end, diversified investment company. The Trust
consists of one fund (the Fund). The Fund's investment objective is total
return. The following summarizes the Fund's significant accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. Foreign Currency Translation:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gains or losses from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the recorded amounts of
dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. Joint Repurchase Agreement:
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. 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 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, 1997, all outstanding repurchase agreements held by the
Fund had been entered into on that date.
d. Options:
In order to produce incremental income or protect against changes in the value
of the underlying securities, the Fund may buy put and call options, and write
put and covered call options.
The risk in buying an option is that the Fund pays a premium whether or not the
option is exercised. When an option is exercised, the cost of the security for a
purchased put or call option is adjusted by amount of the premium received or
paid. The Fund also has the risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Options: (cont.)
Premiums received by the Fund upon writing put or covered call options are
recorded as an asset and an equivalent liability which is subsequently adjusted
daily to equal the current market value of the option written. The Fund will
realize a gain or loss upon the expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call option or
the purchase cost for a written put option is adjusted by the amount of the
premium received or paid. The risk in writing a call option is that the Fund
gives up the opportunity for profit if the market price of the security
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market price of the security decreases and the
option is exercised. All collateral covering written options are held in a
segregated account by the custodian bank.
e. Income Taxes:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
f. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on the trade date. Realized gains and
losses on security transactions are determined
on a specific identification basis. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
g. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
At December 31, 1997, there were an unlimited number of shares authorized (no
par value). Transactions in the Fund's shares were as follows:
Year Ended December 31,
1997 1996
Shares Amount Shares Amount
Shares sold 3,999,853 $36,150,348 2,278,018 $17,832,540
Shares issued in
reinvestment of distributions 460,518 4,097,788 116,229 926,122
Shares redeemed (1,392,075)(12,502,171) (983,856) (7,600,737)
Net increase 3,068,296 $27,745,965 1,410,391 $11,157,925
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers or directors of
Franklin Advisers, Inc. (Advisers), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment adviser, administrative manager, principal underwriter, and transfer
agent, respectively.
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund on the last business day of the month as follows:
Annualized Fee Rate Month-End Net Assets
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets and
is not an additional expense of the Fund.
The Fund reimburses Distributors up to .25% per year of average daily net assets
for costs incurred in marketing the Fund's shares.
For the year ended December 31, 1997, Distributors paid net commissions on sales
of the Fund's shares of $39,847.
For the year ended December 31, 1997, the Fund paid transfer agent fees of
$94,412, of which $86,062 was paid to Investor Services.
4. INCOME TAXES
At December 31, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $77,626,494 was as follows:
Unrealized appreciation $13,793,173
Unrealized depreciation (1,636,961)
Net unrealized appreciation $12,156,212
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sales and foreign currency
transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1997, aggregated $47,301,537 and $32,715,798, respectively.
Transactions in written options for the year ended December 31, 1997 were as
follows:
Call
Number
Amount of of Shares
Premiums Optioned
Outstanding at December 31, 1996 $-- --
Options written 742,038 192,500
Options expired (113,865) (32,500)
Options exercised (89,015) (30,000)
Options closed (365,364) (90,000)
Options outstanding at December 31, 1997 $173,794 40,000
FRANKLIN ASSET ALLOCATION FUND
Report of Independent Accountants
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 as of December 31,
1997, 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 each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Franklin Asset Allocation Fund as of December 31, 1997, 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 its financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 3, 1998
Franklin Asset Allocation - Annual Report December 31, 1997
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 Distribution based on total net assets.
Period ended 12/31/97
Equity 60.8%
Fixed-Income Securities 19.2%
Cash & Equivalents 20.0%
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the Franklin
Asset Allocation Fund Class I shares to that of the S&P 500 Stock Index, the LB
Gov't./ Corp. Bond Index and the CPI based on a $10,000 investment from 1/1/88
to 12/31/97.
<TABLE>
<CAPTION>
FR. ASSET
ALLOCATION - LB GOV/CORP
DATE CLASS I S&P 500 BOND INDEX CPI S&P % LB % CPI %
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/88 $9,556 $10,000 $10,000 $10,000
1/31/88 $9,788 $10,421 $10,343 $10,026 4.21% 3.43% 0.26%
2/28/88 $10,251 $10,907 $10,462 $10,052 4.66% 1.15% 0.26%
3/31/88 $10,116 $10,570 $10,358 $10,095 -3.09% -0.99% 0.43%
4/30/88 $10,208 $10,687 $10,298 $10,148 1.11% -0.58% 0.52%
5/31/88 $10,308 $10,779 $10,229 $10,182 0.86% -0.67% 0.34%
6/30/88 $10,706 $11,274 $10,460 $10,226 4.59% 2.26% 0.43%
7/31/88 $10,770 $11,231 $10,401 $10,269 -0.38% -0.57% 0.42%
8/31/88 $10,564 $10,849 $10,428 $10,312 -3.40% 0.26% 0.42%
9/30/88 $10,955 $11,311 $10,656 $10,381 4.26% 2.19% 0.67%
10/31/88 $11,056 $11,626 $10,845 $10,416 2.78% 1.77% 0.33%
11/30/88 $10,971 $11,459 $10,722 $10,424 -1.43% -1.13% 0.08%
12/31/88 $11,259 $11,660 $10,759 $10,442 1.75% 0.34% 0.17%
1/31/89 $11,809 $12,513 $10,902 $10,494 7.32% 1.33% 0.50%
2/28/89 $11,677 $12,202 $10,819 $10,537 -2.49% -0.76% 0.41%
3/31/89 $11,875 $12,486 $10,876 $10,598 2.33% 0.53% 0.58%
4/30/89 $12,281 $13,134 $11,107 $10,667 5.19% 2.12% 0.65%
5/31/89 $12,553 $13,666 $11,380 $10,728 4.05% 2.46% 0.57%
6/30/89 $12,508 $13,588 $11,751 $10,753 -0.57% 3.26% 0.24%
7/31/89 $13,144 $14,815 $11,996 $10,779 9.03% 2.08% 0.24%
8/31/89 $13,424 $15,105 $11,810 $10,796 1.96% -1.55% 0.16%
9/30/89 $13,284 $15,044 $11,862 $10,831 -0.41% 0.44% 0.32%
10/31/89 $12,857 $14,695 $12,162 $10,883 -2.32% 2.53% 0.48%
11/30/89 $13,026 $14,994 $12,271 $10,909 2.04% 0.90% 0.24%
12/31/89 $12,932 $15,354 $12,290 $10,926 2.40% 0.15% 0.16%
1/31/90 $12,159 $14,324 $12,121 $11,039 -6.71% -1.37% 1.03%
2/28/90 $12,334 $14,509 $12,148 $11,091 1.29% 0.22% 0.47%
3/31/90 $12,608 $14,893 $12,149 $11,152 2.65% 0.01% 0.55%
4/30/90 $12,443 $14,522 $12,037 $11,170 -2.49% -0.92% 0.16%
5/31/90 $13,187 $15,938 $12,386 $11,195 9.75% 2.90% 0.23%
6/30/90 $13,087 $15,831 $12,587 $11,256 -0.67% 1.62% 0.54%
7/31/90 $12,849 $15,781 $12,743 $11,299 -0.32% 1.24% 0.38%
8/31/90 $11,845 $14,354 $12,558 $11,403 -9.04% -1.45% 0.92%
9/30/90 $11,184 $13,655 $12,663 $11,498 -4.87% 0.83% 0.84%
10/31/90 $10,744 $13,596 $12,831 $11,567 -0.43% 1.33% 0.60%
11/30/90 $11,426 $14,475 $13,111 $11,593 6.46% 2.18% 0.22%
12/31/90 $11,808 $14,879 $13,309 $11,593 2.79% 1.51% 0.00%
1/31/91 $12,622 $15,527 $13,458 $11,662 4.36% 1.12% 0.60%
2/28/91 $13,042 $16,638 $13,574 $11,680 7.15% 0.86% 0.15%
3/31/91 $13,267 $17,040 $13,667 $11,697 2.42% 0.69% 0.15%
4/30/91 $13,435 $17,081 $13,824 $11,715 0.24% 1.15% 0.15%
5/31/91 $14,035 $17,817 $13,889 $11,750 4.31% 0.47% 0.30%
6/30/91 $13,492 $17,001 $13,874 $11,784 -4.58% -0.11% 0.29%
7/31/91 $13,781 $17,793 $14,049 $11,802 4.66% 1.26% 0.15%
8/31/91 $14,012 $18,215 $14,372 $11,836 2.37% 2.30% 0.29%
9/30/91 $14,012 $17,911 $14,672 $11,888 -1.67% 2.09% 0.44%
10/31/91 $14,222 $18,151 $14,803 $11,906 1.34% 0.89% 0.15%
11/30/91 $13,635 $17,419 $14,951 $11,941 -4.03% 1.00% 0.29%
12/31/91 $14,429 $19,412 $15,455 $11,949 11.44% 3.37% 0.07%
1/31/92 $14,784 $19,051 $15,226 $11,967 -1.86% -1.48% 0.15%
2/29/92 $15,198 $19,297 $15,307 $12,010 1.29% 0.53% 0.36%
3/31/92 $15,109 $18,921 $15,223 $12,071 -1.95% -0.55% 0.51%
4/30/92 $15,470 $19,477 $15,314 $12,088 2.94% 0.60% 0.14%
5/31/92 $15,410 $19,572 $15,611 $12,105 0.49% 1.94% 0.14%
6/30/92 $15,232 $19,281 $15,840 $12,149 -1.49% 1.47% 0.36%
7/31/92 $15,531 $20,069 $16,246 $12,174 4.09% 2.56% 0.21%
8/31/92 $15,201 $19,658 $16,391 $12,208 -2.05% 0.89% 0.28%
9/30/92 $15,561 $19,888 $16,614 $12,242 1.17% 1.36% 0.28%
10/31/92 $15,352 $19,956 $16,359 $12,285 0.34% -1.53% 0.35%
11/30/92 $15,927 $20,634 $16,345 $12,302 3.40% -0.09% 0.14%
12/31/92 $16,473 $20,888 $16,626 $12,294 1.23% 1.72% -0.07%
1/31/93 $16,839 $21,063 $16,988 $12,354 0.84% 2.18% 0.49%
2/28/93 $17,022 $21,350 $17,342 $12,397 1.36% 2.08% 0.35%
3/31/93 $17,389 $21,800 $17,400 $12,441 2.11% 0.34% 0.35%
4/30/93 $17,543 $21,273 $17,534 $12,475 -2.42% 0.77% 0.28%
5/31/93 $17,849 $21,841 $17,526 $12,493 2.67% -0.05% 0.14%
6/30/93 $18,110 $21,904 $17,924 $12,510 0.29% 2.27% 0.14%
7/31/93 $18,018 $21,816 $18,038 $12,510 -0.40% 0.64% 0.00%
8/31/93 $18,606 $22,643 $18,453 $12,545 3.79% 2.30% 0.28%
9/30/93 $18,806 $22,469 $18,518 $12,572 -0.77% 0.35% 0.21%
10/31/93 $19,148 $22,934 $18,594 $12,623 2.07% 0.41% 0.41%
11/30/93 $18,992 $22,716 $18,384 $12,632 -0.95% -1.13% 0.07%
12/31/93 $19,522 $22,991 $18,464 $12,632 1.21% 0.44% 0.00%
1/31/94 $20,150 $23,773 $18,741 $12,666 3.40% 1.50% 0.27%
2/28/94 $19,993 $23,128 $18,333 $12,709 -2.71% -2.18% 0.34%
3/31/94 $19,349 $22,120 $17,884 $12,753 -4.36% -2.45% 0.34%
4/30/94 $19,412 $22,403 $17,735 $12,770 1.28% -0.83% 0.14%
5/31/94 $19,633 $22,771 $17,703 $12,779 1.64% -0.18% 0.07%
6/30/94 $19,396 $22,213 $17,663 $12,823 -2.45% -0.23% 0.34%
7/31/94 $19,745 $22,941 $18,016 $12,857 3.28% 2.00% 0.27%
8/31/94 $20,284 $23,882 $18,023 $12,909 4.10% 0.04% 0.40%
9/30/94 $20,046 $23,299 $17,751 $12,944 -2.44% -1.51% 0.27%
10/31/94 $20,143 $23,823 $17,731 $12,953 2.25% -0.11% 0.07%
11/30/94 $19,472 $22,956 $17,699 $12,970 -3.64% -0.18% 0.13%
12/31/94 $19,616 $23,296 $17,816 $12,970 1.48% 0.66% 0.00%
1/31/95 $19,840 $23,899 $18,158 $13,021 2.59% 1.92% 0.40%
2/28/95 $20,514 $24,831 $18,580 $13,074 3.90% 2.32% 0.40%
3/31/95 $20,916 $25,564 $18,704 $13,117 2.95% 0.67% 0.33%
4/30/95 $21,013 $26,315 $18,964 $13,160 2.94% 1.39% 0.33%
5/31/95 $21,529 $27,368 $19,759 $13,186 4.00% 4.19% 0.20%
6/30/95 $21,900 $28,003 $19,917 $13,213 2.32% 0.80% 0.20%
7/31/95 $22,290 $28,933 $19,839 $13,213 3.32% -0.39% 0.00%
8/31/95 $22,420 $29,005 $20,093 $13,247 0.25% 1.28% 0.26%
9/30/95 $22,843 $30,229 $20,298 $13,274 4.22% 1.02% 0.20%
10/31/95 $22,777 $30,120 $20,596 $13,317 -0.36% 1.47% 0.33%
11/30/95 $23,726 $31,443 $20,936 $13,308 4.39% 1.65% -0.07%
12/31/95 $23,891 $32,049 $21,244 $13,299 1.93% 1.47% -0.07%
1/31/96 $24,616 $33,139 $21,376 $13,377 3.40% 0.62% 0.59%
2/29/96 $24,846 $33,447 $20,922 $13,420 0.93% -2.12% 0.32%
3/31/96 $25,143 $33,768 $20,747 $13,490 0.96% -0.84% 0.52%
4/30/96 $25,607 $34,265 $20,604 $13,542 1.47% -0.69% 0.39%
5/31/96 $26,005 $35,149 $20,569 $13,568 2.58% -0.17% 0.19%
6/30/96 $26,121 $35,282 $20,844 $13,576 0.38% 1.34% 0.06%
7/31/96 $25,088 $33,723 $20,892 $13,602 -4.42% 0.23% 0.19%
8/31/96 $25,722 $34,434 $20,842 $13,628 2.11% -0.24% 0.19%
9/30/96 $26,604 $36,373 $21,213 $13,671 5.63% 1.78% 0.32%
10/31/96 $26,973 $37,377 $21,707 $13,715 2.76% 2.33% 0.32%
11/30/96 $28,244 $40,203 $22,107 $13,741 7.56% 1.84% 0.19%
12/31/96 $28,050 $39,407 $21,861 $13,741 -1.98% -1.11% 0.00%
1/31/97 $28,657 $41,870 $21,887 $13,785 6.25% 0.12% 0.32%
2/28/97 $28,489 $42,196 $21,933 $13,828 0.78% 0.21% 0.31%
3/31/97 $28,253 $40,462 $21,672 $13,863 -4.11% -1.19% 0.25%
4/30/97 $28,625 $42,877 $21,989 $13,879 5.97% 1.46% 0.12%
5/31/97 $30,082 $45,489 $22,193 $13,871 6.09% 0.93% -0.06%
6/30/97 $30,793 $47,527 $22,460 $13,888 4.48% 1.20% 0.12%
7/31/97 $32,461 $51,310 $23,147 $13,904 7.96% 3.06% 0.12%
8/31/97 $31,576 $48,436 $22,888 $13,931 -5.60% -1.12% 0.19%
9/30/97 $33,124 $51,091 $23,247 $13,965 5.48% 1.57% 0.25%
10/31/97 $32,031 $49,384 $23,619 $14,000 -3.34% 1.60% 0.25%
11/30/97 $32,202 $51,671 $23,744 $13,992 4.63% 0.53% -0.06%
12/31/97 $32,326 $52,559 $23,993 $13,975 1.72% 1.05% -0.12%
</TABLE>
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the Franklin
Asset Allocation Fund Class I shares to that of the S&P 500 Stock Index, the LB
Gov't./ Corp. Bond Index and the CPI based on a $10,000 investment from 5/1/91
to 12/31/97.
<TABLE>
<CAPTION>
FR. ASSET
ALLOCATION - LB GOV/CORP
DATE CLASS I S&P 500 BOND INDEX CPI S&P % LB % CPI %
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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 4.31% 0.47% 0.30%
6/30/91 $9,593 $9,953 $10,036 $10,059 -4.58% -0.11% 0.29%
7/31/91 $9,799 $10,417 $10,162 $10,074 4.66% 1.26% 0.15%
8/31/91 $9,963 $10,664 $10,396 $10,103 2.37% 2.30% 0.29%
9/30/91 $9,966 $10,486 $10,613 $10,148 -1.67% 2.09% 0.44%
10/31/91 $10,113 $10,626 $10,708 $10,163 1.34% 0.89% 0.15%
11/30/91 $9,695 $10,198 $10,815 $10,193 -4.03% 1.00% 0.29%
12/31/91 $10,260 $11,365 $11,179 $10,200 11.44% 3.37% 0.07%
1/31/92 $10,512 $11,153 $11,014 $10,215 -1.86% -1.48% 0.15%
2/29/92 $10,806 $11,297 $11,072 $10,252 1.29% 0.53% 0.36%
3/31/92 $10,746 $11,077 $11,011 $10,304 -1.95% -0.55% 0.51%
4/30/92 $11,000 $11,403 $11,078 $10,318 2.94% 0.60% 0.14%
5/31/92 $10,957 $11,459 $11,292 $10,333 0.49% 1.94% 0.14%
6/30/92 $10,830 $11,288 $11,458 $10,370 -1.49% 1.47% 0.36%
7/31/92 $11,043 $11,749 $11,752 $10,392 4.09% 2.56% 0.21%
8/31/92 $10,808 $11,509 $11,856 $10,421 -2.05% 0.89% 0.28%
9/30/92 $11,066 $11,643 $12,018 $10,450 1.17% 1.36% 0.28%
10/31/92 $10,916 $11,683 $11,834 $10,487 0.34% -1.53% 0.35%
11/30/92 $11,325 $12,080 $11,823 $10,501 3.40% -0.09% 0.14%
12/31/92 $11,713 $12,229 $12,026 $10,494 1.23% 1.72% -0.07%
1/31/93 $11,973 $12,331 $12,289 $10,545 0.84% 2.18% 0.49%
2/28/93 $12,103 $12,499 $12,544 $10,582 1.36% 2.08% 0.35%
3/31/93 $12,365 $12,763 $12,587 $10,619 2.11% 0.34% 0.35%
4/30/93 $12,474 $12,454 $12,684 $10,649 -2.42% 0.77% 0.28%
5/31/93 $12,692 $12,786 $12,677 $10,664 2.67% -0.05% 0.14%
6/30/93 $12,878 $12,824 $12,965 $10,679 0.29% 2.27% 0.14%
7/31/93 $12,812 $12,772 $13,048 $10,679 -0.40% 0.64% 0.00%
8/31/93 $13,229 $13,256 $13,348 $10,709 3.79% 2.30% 0.28%
9/30/93 $13,372 $13,154 $13,395 $10,731 -0.77% 0.35% 0.21%
10/31/93 $13,615 $13,427 $13,450 $10,775 2.07% 0.41% 0.41%
11/30/93 $13,504 $13,299 $13,298 $10,783 -0.95% -1.13% 0.07%
12/31/93 $13,881 $13,460 $13,356 $10,783 1.21% 0.44% 0.00%
1/31/94 $14,327 $13,918 $13,557 $10,812 3.40% 1.50% 0.27%
2/28/94 $14,216 $13,540 $13,261 $10,849 -2.71% -2.18% 0.34%
3/31/94 $13,758 $12,950 $12,936 $10,886 -4.36% -2.45% 0.34%
4/30/94 $13,803 $13,116 $12,829 $10,901 1.28% -0.83% 0.14%
5/31/94 $13,960 $13,331 $12,806 $10,909 1.64% -0.18% 0.07%
6/30/94 $13,791 $13,004 $12,776 $10,946 -2.45% -0.23% 0.34%
7/31/94 $14,039 $13,431 $13,032 $10,975 3.28% 2.00% 0.27%
8/31/94 $14,423 $13,981 $13,037 $11,019 4.10% 0.04% 0.40%
9/30/94 $14,254 $13,640 $12,840 $11,049 -2.44% -1.51% 0.27%
10/31/94 $14,322 $13,947 $12,826 $11,057 2.25% -0.11% 0.07%
11/30/94 $13,846 $13,440 $12,803 $11,071 -3.64% -0.18% 0.13%
12/31/94 $13,947 $13,638 $12,888 $11,071 1.48% 0.66% 0.00%
1/31/95 $14,107 $13,992 $13,135 $11,115 2.59% 1.92% 0.40%
2/28/95 $14,587 $14,537 $13,440 $11,160 3.90% 2.32% 0.40%
3/31/95 $14,872 $14,966 $13,530 $11,197 2.95% 0.67% 0.33%
4/30/95 $14,941 $15,406 $13,718 $11,233 2.94% 1.39% 0.33%
5/31/95 $15,308 $16,022 $14,293 $11,256 4.00% 4.19% 0.20%
6/30/95 $15,572 $16,394 $14,407 $11,278 2.32% 0.80% 0.20%
7/31/95 $15,849 $16,939 $14,351 $11,278 3.32% -0.39% 0.00%
8/31/95 $15,942 $16,981 $14,535 $11,308 0.25% 1.28% 0.26%
9/30/95 $16,242 $17,697 $14,683 $11,330 4.22% 1.02% 0.20%
10/31/95 $16,195 $17,634 $14,899 $11,368 -0.36% 1.47% 0.33%
11/30/95 $16,870 $18,408 $15,144 $11,360 4.39% 1.65% -0.07%
12/31/95 $16,987 $18,763 $15,367 $11,352 1.93% 1.47% -0.07%
1/31/96 $17,503 $19,401 $15,462 $11,419 3.40% 0.62% 0.59%
2/29/96 $17,667 $19,582 $15,135 $11,455 0.93% -2.12% 0.32%
3/31/96 $17,878 $19,769 $15,007 $11,515 0.96% -0.84% 0.52%
4/30/96 $18,208 $20,060 $14,904 $11,560 1.47% -0.69% 0.39%
5/31/96 $18,491 $20,578 $14,879 $11,582 2.58% -0.17% 0.19%
6/30/96 $18,573 $20,656 $15,078 $11,589 0.38% 1.34% 0.06%
7/31/96 $17,839 $19,743 $15,113 $11,611 -4.42% 0.23% 0.19%
8/31/96 $18,289 $20,159 $15,076 $11,633 2.11% -0.24% 0.19%
9/30/96 $18,917 $21,294 $15,345 $11,670 5.63% 1.78% 0.32%
10/31/96 $19,179 $21,882 $15,702 $11,707 2.76% 2.33% 0.32%
11/30/96 $20,083 $23,536 $15,991 $11,730 7.56% 1.84% 0.19%
12/31/96 $19,945 $23,070 $15,814 $11,730 -1.98% -1.11% 0.00%
1/31/97 $20,376 $24,512 $15,833 $11,767 6.25% 0.12% 0.32%
2/28/97 $20,257 $24,703 $15,866 $11,804 0.78% 0.21% 0.31%
3/31/97 $20,089 $23,688 $15,677 $11,833 -4.11% -1.19% 0.25%
4/30/97 $20,354 $25,102 $15,906 $11,847 5.97% 1.46% 0.12%
5/31/97 $21,389 $26,631 $16,054 $11,840 6.09% 0.93% -0.06%
6/30/97 $21,895 $27,824 $16,246 $11,855 4.48% 1.20% 0.12%
7/31/97 $23,081 $30,039 $16,744 $11,869 7.96% 3.06% 0.12%
8/31/97 $22,452 $28,357 $16,556 $11,891 -5.60% -1.12% 0.19%
9/30/97 $23,552 $29,911 $16,816 $11,921 5.48% 1.57% 0.25%
10/31/97 $22,775 $28,912 $17,085 $11,951 -3.34% 1.60% 0.25%
11/30/97 $22,897 $30,250 $17,176 $11,944 4.63% 0.53% -0.06%
12/31/97 $22,985 $30,771 $17,356 $11,929 1.72% 1.05% -0.12%
</TABLE>
