SHAREHOLDER LETTER
Your Fund's Goal: 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.
Dear Shareholder:
We are pleased to bring you this semiannual report of Franklin Asset Allocation
Fund for the six months ended June 30, 2000. During this time, the U.S. economy
continued to strengthen, and consumer spending and energy costs rose while
unemployment sank to a 30-year low. Concerned about the possibility of increased
inflation, the Federal Reserve Board (the Fed) boosted the federal funds target
rate three times during the period, leaving it at 6.50% on June 30, 2000. During
the latter part of the period, some economic data indicated that the Fed's
actions have begun to take hold and that the economy's growth may have begun to
slow to a more sustainable pace.
Although U.S. equity markets reached record highs during the first part of the
reporting period, they suffered severe declines in March and April, due largely
to fears of inflation
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter .................................................. 1
Performance Summary ................................................. 6
Financial Highlights & Statement of Investments ..................... 8
Financial Statements ................................................ 14
Notes to Financial Statements ....................................... 17
</TABLE>
[FUND PYRAMID CHART]
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 10.
<PAGE>
[ASSETS PIE CHART]
ASSET ALLOCATION
Based on Total Net Assets
6/30/00
<TABLE>
<S> <C>
Equity..................................... 72.0%
Fixed-Income Securities.................... 13.8%
Short-Term Investments & Other Net Assets.. 14.2%
</TABLE>
and rising interest rates and some re-thinking of technology stock valuations.
But by June, many stocks achieved a comeback, and at period's end, the Standard
& Poor's 500(R) (S&P 500(R)) Index was only slightly lower than it had been on
January 1.
U.S. bond markets displayed conflicting results during the period. Although
rising interest rates generally had a negative impact on bond prices, the
30-year Treasury bond performed well due to a supply/demand imbalance that began
when the government announced a sustained buyback program of these securities.
Within this environment, Franklin Asset Allocation Fund - Class A delivered a
-0.48% six-month cumulative total return, as shown in the Performance Summary on
page 6. The S&P 500 Index and the Lehman Brothers Government/Corporate Bond
Index, the Fund's benchmarks, posted returns of -0.42% and 4.18%, respectively,
for the same period.(1)
The Fund performed in line with the S&P 500 during the period while
underperforming the Lehman Brothers/Corporate Bond Index due to our
overweighting of stocks versus bonds. As the chart to the left shows, on June
30, 2000, 72.0% of our portfolio was composed of equities, 13.8% of fixed-income
securities and 14.2% of short-term investments and other net assets.
(1.) Source: Standard & Poor's Micropal. The S&P 500 Composite Index measures
the performance of 500 domestic stocks. The Lehman Brothers Government/Corporate
Bond Index includes fixed rate debt issues rated investment grade or higher by
Moody's, S&P, or Fitch. Indexes are unmanaged and include reinvested dividends
and interest. One cannot invest directly in an index.
Throughout the period, we adhered to a top-down investment strategy, using
quantitative, technical and fundamental analyses to identify economic sectors
that we believed offered the best opportunity for achieving the Fund's goal. We
also sought to diversify our investments among different asset classes in order
to reduce the impact of a particular asset class on the Fund. However, after
selecting the sectors and asset classes in which the Fund should invest, we used
a bottom-up strategy to select individual companies, considering factors such as
price-to-earnings ratio, management quality and industry leadership.
During the six months under review, we added to established positions in basic
materials and capital goods by increasing our holdings in General Electric and
Deere & Co. Anticipating interest-rate increases, we increased our exposure to
defensive industries by adding to our existing holdings in Philip Morris and
Coca-Cola. In addition, we took advantage of the meltdown in technology stocks
by initiating positions in industry leaders such as EMC and Oracle. In our
opinion, the convergence of voice, video and data technologies should drive
attractive long-term performance of these stocks.
Throughout the period, we were underweighted in consumer cyclicals and
financials -- industry groups that are usually harmed by rising interest rates.
And although we remained underweighted in the health care sector relative to the
S&P 500, we did find value in some pharmaceutical stocks and purchased
additional shares of Schering-Plough during market dips.
TOP 10 SECTORS
6/30/00
<TABLE>
<CAPTION>
% OF TOTAL
SECTOR NET ASSETS
<S> <C>
Electronic Technology 12.4%
Health Technology 8.7%
Utilities 7.4%
Process Industries 6.0%
Producer Manufacturing 5.2%
Technology Services 4.9%
Consumer Non-Durables 4.5%
Energy Minerals 4.3%
Consumer Services 3.8%
Retail Trade 3.7%
</TABLE>
TOP 10 EQUITY HOLDINGS
6/30/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR NET ASSETS
----------------------------------------
<S> <C>
Cisco Systems Inc. 3.7%
Electronic Technology
Genentech Inc. 3.2%
Health Technology
General Electric Co. 2.9%
Process Industries
Enron Corp. 2.4%
Utilities
Symbol Technologies Inc. 1.7%
Electronic Technology
Intel Corp. 1.6%
Electronic Technology
American International
Group Inc. 1.6%
Finance
Linear Technology Corp. 1.6%
Electronic Technology
Waters Corp. 1.5%
Electronic Technology
Pfizer Inc. 1.5%
Health Technology
</TABLE>
Due to the rising interest-rate environment, we did not significantly alter our
bond portfolio during the reporting period. The Fund's performance benefited
from the increase in value of 30-year Treasury bonds, but until the direction of
the U.S. economy becomes clearer, we expect to hold to an equity-focused
strategy. However, if the economy demonstrates any real evidence of slowing, we
will consider increasing the Fund's bond weightings in the future.
Looking forward, rising interest rates and election year uncertainties could
continue to face off against a robust economy that has used technology to
increase profits and productivity. If the Fed continues to raise interest rates,
corporate earnings could be negatively impacted. Election years traditionally
have been periods of ambiguity, and the markets generally do not like surprises.
Any volatility in the equity markets could present our analysts with unique
opportunities to discover undervalued stocks with the potential to provide
attractive long-term returns for the Fund's shareholders.
We appreciate your participation in Franklin Asset Allocation Fund and welcome
your comments and suggestions.
Sincerely,
/s/ R. Martin Wiskemann
R. Martin Wiskemann
Portfolio Manager
Franklin Asset Allocation Fund
--------------------------------------------------------------------------------
R. MARTIN WISKEMANN
R. Martin Wiskemann is senior vice president of Franklin Management, Inc. and
executive vice president and director of Franklin Advisers, Inc. He received a
degree in business administration from the Handelsschule of the State of Zurich,
Switzerland and he is a member of the Financial Analysts Federation and the
Security Analysts of San Francisco.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of June
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS C: Subject to 1% initial sales charge and 1% contingent deferred sales
charge for shares redeemed within 18 months of investment. These shares have
higher annual fees and expenses than Class A shares.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 6/30/00
Six-month total return does not include sales charges. Distributions will vary
based on earnings of the Fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
Six-Month Total Return -0.48%
Net Asset Value (NAV) $11.12 (6/30/00) $11.33 (12/31/99)
Change in NAV -$0.21
Distributions (1/1/00-6/30/00) Dividend Income $0.0800
Long-Term Capital Gain $0.0774
----------------------------------
Total $0.1574
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return -0.88%
Net Asset Value (NAV) $11.09 (6/30/00) $11.31 (12/31/99)
Change in NAV -$0.22
Distributions (1/1/00-6/30/00) Dividend Income $0.0444
Long-Term Capital Gain $0.0774
----------------------------------
Total $0.1218
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 6/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR(6) 10-YEAR(6) (12/5/51)(6)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +9.52% +98.01% +231.35% +8,695.86%
Average Annual Total Return(2) +3.21% +13.29% +12.07% +9.52%
Value of $10,000 Investment(3) $10,321 $18,665 $31,241 $829,799
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR (5/3/99)
----------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +8.62% +10.59%
Average Annual Total Return(2) +6.52% +7.20%
Value of $10,000 Investment(3) $10,652 $10,846
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
----------------------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(4) 1.39% 0.91%
30-Day Standardized Yield(5) 1.53% 0.86%
</TABLE>
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
applicable, maximum sales charge(s) for that class.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
(4.) Distribution rate is based on the respective class's 12 months' dividends
and the maximum offering price on 6/30/00.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 6/30/00.
(6.) On July 3, 1996, the Fund amended its investment objective from total
return and secondarily reduced risk over time.
--------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
--------------------------------------------------------------------------------
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN ASSET ALLOCATION FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 -------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.33 $ 9.96 $ 9.05 $ 8.32 $ 7.25 $ 6.11
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a)...................... .09 .17 .18 .15 .14 .18
Net realized and unrealized gains (losses) ... (.14) 1.67 1.03 1.10 1.11 1.14
---------------------------------------------------------------------------------
Total from investment operations .............. (.05) 1.84 1.21 1.25 1.25 1.32
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.08) (.17) (.19) (.15) (.15) (.18)
Net realized gains ........................... (.08) (.30) (.11) (.37) (.03) --
---------------------------------------------------------------------------------
Total distributions ........................... (.16) (.47) (.30) (.52) (.18) (.18)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 11.12 $ 11.33 $ 9.96 $ 9.05 $ 8.32 $ 7.25
Total return(b)................................ (.48% ) 18.72% 13.54% 15.24% 17.41% 21.79%
=================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $154,922 $146,715 $108,268 $ 89,630 $ 56,867 $ 39,319
Ratios to average net assets:
Expenses ..................................... 1.10%(c) 1.10% 1.13% 1.12% 1.21% 1.17%
Net investment income ........................ 1.50%(c) 1.60% 1.91% 1.73% 1.86% 2.86%
Portfolio turnover rate ....................... 5.28% 49.86% 54.28% 54.57% 60.11% 62.01%
</TABLE>
(a) Based on average shares outstanding effective year ended December 31, 1999.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
FRANKLIN ASSET ALLOCATION FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999(d)
--------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.31 $ 10.50
--------- ---------
Income from investment operations:
Net investment income(a)...................... .04 .07
Net realized and unrealized gains (losses) ... (.14) 1.13
--------- ---------
Total from investment operations .............. (.10) 1.20
--------- ---------
Less distributions from:
Net investment income ........................ (.04) (.09)
Net realized gains ........................... (.08) (.30)
--------- ---------
Total distributions ........................... (.12) (.39)
--------- ---------
Net asset value, end of period ................ $ 11.09 $ 11.31
========= =========
Total return(b)................................ (.88%) 11.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 7,943 $ 3,544
Ratios to average net assets:
Expenses ..................................... 1.85%(c) 1.85%(c)
Net investment income ........................ 0.80%(c) 0.94%(c)
Portfolio turnover rate ....................... 5.28% 49.86%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1999 (effective date) to December 31, 1999.
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 68.8%
CONSUMER NON-DURABLES 4.5%
Coca-Cola Co. ......................................................... 40,000 $ 2,297,500
Estee Lauder Cos. Inc., A ............................................. 35,000 1,730,313
(a)Givaudan AG (Switzerland) ............................................. 90 27,480
Nestle SA (Switzerland) ............................................... 480 963,778
Philip Morris Cos. Inc. ............................................... 60,000 1,593,750
Procter & Gamble Co. .................................................. 13,000 744,250
------------
7,357,071
------------
CONSUMER SERVICES 3.8%
(a)Charter Communications Inc., A ........................................ 80,000 1,315,000
(a)Clear Channel Communications Inc. ..................................... 15,000 1,125,000
Time Warner Inc. ...................................................... 30,000 2,280,000
(a)United Pan-Europe Communications NV, A (Netherlands) .................. 55,200 1,449,262
------------
6,169,262
------------
ELECTRONIC TECHNOLOGY 12.4%
(a)Cisco Systems Inc. .................................................... 94,000 5,974,875
(a)EMC Corp. ............................................................. 24,000 1,846,500
Intel Corp. ........................................................... 20,000 2,673,750
Linear Technology Corp. ............................................... 40,000 2,557,500
Motorola Inc. ......................................................... 60,000 1,743,750
Symbol Technologies Inc. .............................................. 52,500 2,835,000
(a)Waters Corp. .......................................................... 20,000 2,496,250
------------
20,127,625
------------
ENERGY MINERALS 4.3%
Chevron Corp. ......................................................... 22,500 1,908,281
Conoco Inc., B ........................................................ 29,999 736,850
Devon Energy Corp. .................................................... 40,000 2,247,500
Exxon Mobil Corp. ..................................................... 27,500 2,158,750
------------
7,051,381
------------
FINANCE 3.4%
American International Group Inc. ..................................... 21,875 2,570,313
Bank of America Corp. ................................................. 30,000 1,290,000
Wells Fargo & Co. ..................................................... 45,000 1,743,750
------------
5,604,063
------------
HEALTH SERVICES .6%
IMS Health Inc. ....................................................... 50,000 900,000
------------
HEALTH TECHNOLOGY 8.7%
Abbott Laboratories ................................................... 35,000 1,559,688
Bristol-Myers Squibb Co. .............................................. 20,000 1,165,000
(a)Genentech Inc. ........................................................ 30,000 5,160,000
(a)Genzyme Corp. ......................................................... 20,000 1,188,750
Pfizer Inc. ........................................................... 51,250 2,460,000
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
Roche Holding AG (Switzerland) ........................................ 90 $ 878,913
Schering-Plough Corp. ................................................. 35,000 1,767,500
------------
14,179,851
------------
INDUSTRIAL SERVICES 1.1%
Schlumberger Ltd. ..................................................... 20,000 1,492,500
Transocean Sedco Forex Inc. ........................................... 3,872 206,910
------------
1,699,410
------------
NON-ENERGY MINERALS 1.1%
Barrick Gold Corp. (Canada) ........................................... 30,000 545,625
Rio Tinto PLC, ADR (United Kingdom) ................................... 20,000 1,305,000
------------
1,850,625
------------
PROCESS INDUSTRIES 6.0%
Bowater Inc. .......................................................... 30,000 1,323,750
Cambrex Corp. ......................................................... 40,000 1,800,000
E. I. du Pont de Nemours and Co. ...................................... 15,836 692,825
Ecolab Inc. ........................................................... 30,000 1,171,875
General Electric Co. .................................................. 90,000 4,770,000
------------
9,758,450
------------
PRODUCER MANUFACTURING 5.2%
(a)Ballard Power Systems Inc. (Canada) ................................... 14,000 1,257,375
Deere & Co. ........................................................... 35,000 1,295,000
Honeywell International Inc. .......................................... 47,625 1,604,367
Illinois Tool Works Inc. .............................................. 35,000 1,995,000
Minnesota Mining & Manufacturing Co. .................................. 15,000 1,237,500
Pentair Inc. .......................................................... 31,000 1,100,500
------------
8,489,742
------------
REAL ESTATE 1.1%
Equity Office Properties Trust ........................................ 40,000 1,102,500
Simon Property Group Inc. ............................................. 30,000 665,625
------------
1,768,125
------------
RETAIL TRADE 3.7%
(a)Costco Wholesale Corp. ................................................ 50,000 1,650,000
Target Corp. .......................................................... 35,000 2,030,000
Wal-Mart Stores Inc. .................................................. 40,000 2,305,000
------------
5,985,000
------------
TECHNOLOGY SERVICES 4.9%
(a)America Online Inc. ................................................... 10,000 527,500
(a)Computer Sciences Corp. ............................................... 25,000 1,867,188
(a)Equant NV, N.Y. shs. (Netherlands) .................................... 20,000 860,000
First Data Corp. ...................................................... 30,000 1,488,750
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TECHNOLOGY SERVICES (CONT.)
(a)Microsoft Corp. ....................................................... 20,000 $ 1,600,000
(a)Oracle Corp. .......................................................... 19,000 1,597,188
------------
7,940,626
------------
TRANSPORTATION .6%
United Parcel Service Inc., B ......................................... 17,100 1,008,900
------------
UTILITIES 7.4%
AT&T Corp. ............................................................ 50,000 1,581,250
Duke Energy Corp. ..................................................... 30,000 1,691,250
Enron Corp. ........................................................... 60,000 3,870,000
GTE Corp. ............................................................. 30,000 1,867,500
(a)KPNQwest NV (Netherlands) ............................................. 21,500 851,938
Montana Power Co. ..................................................... 35,200 1,243,000
Swisscom AG (Switzerland) ............................................. 2,870 997,202
------------
12,102,140
------------
TOTAL COMMON STOCKS (COST $79,119,603)................................. 111,992,271
------------
CONVERTIBLE PREFERRED STOCKS 3.2%
Apache Corp., 6.50%, cvt. pfd. ........................................ 40,300 2,085,525
Georgia-Pacific Corp., 7.50%, cvt. pfd. ............................... 35,500 1,136,000
MediaOne Group Inc., 7.00%, cvt. pfd. ................................. 33,300 1,348,650
Tower Automotive Capital, 6.75%, cvt. pfd. ............................ 20,000 632,500
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $5,210,244) 5,202,675
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
-------------
<S> <C> <C> <C>
BONDS .4%
Georgia-Pacific Corp., 9.125%, 7/01/22 ................................ $ 100,000 96,084
PanAmerican Beverage Inc., senior note, 8.125%, 4/01/03 (Mexico) ...... 250,000 237,170
Target Corp., 8.60%, 1/15/12 .......................................... 250,000 265,967
------------
TOTAL BONDS (COST $596,005)............................................ 599,221
------------
CONVERTIBLE BONDS 1.4%
Liberty Media Corp., cvt., 4.00%, 11/15/29 (convertible into Sprint PCS) 1,250,000 1,775,000
Thermo Electron Corp., cvt., 144A, 4.25%, 1/01/03 ..................... 600,001 555,750
------------
TOTAL CONVERTIBLE BONDS (COST $1,805,406).............................. 2,330,750
------------
U.S. GOVERNMENT AGENCY SECURITIES 2.0%
Federal Home Loan Mortgage Corp., 5.75%, 4/15/08 ...................... 2,000,000 1,836,608
Federal National Mortgage Association, 6.375%, 6/15/09 ................ 1,500,000 1,423,871
------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $3,447,854).............. 3,260,479
------------
U.S.GOVERNMENT SECURITIES 10.0%
U.S. Treasury Bond, 8.00%, 11/15/21 ................................... 250,000 301,797
U.S. Treasury Bond, 6.25%, 8/15/23 .................................... 2,900,000 2,919,031
U.S. Treasury Bond, 6.875%, 8/15/25 ................................... 1,000,000 1,087,500
U.S. Treasury Bond, 6.00%, 2/15/26 .................................... 3,000,000 2,933,436
U.S. Treasury Note, 5.50%, 1/31/03 .................................... 2,000,000 1,958,750
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S.GOVERNMENT SECURITIES (CONT.)
U.S. Treasury Note, 7.25%, 5/15/04 .................................... $ 1,300,000 $ 1,340,625
U.S. Treasury Note, 5.875%, 11/15/05 .................................. 2,000,000 1,966,250
U.S. Treasury Note, 3.375%, 1/15/07 ................................... 1,000,000 1,037,328
U.S. Treasury Note, 6.125%, 8/15/07 ................................... 1,700,000 1,690,438
U.S. Treasury Strip, 11/15/21 ......................................... 4,000,000 1,080,596
------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $16,428,328).................... 16,315,751
------------
TOTAL LONG TERM INVESTMENTS (COST $106,607,440)........................ 139,701,147
------------
(b)REPURCHASE AGREEMENT 13.8%
Joint Repurchase Agreement, 6.563%, 7/03/00, (Maturity Value $22,495,650)
(COST $22,483,353) ................................................... 22,483,353 22,483,353
Banc of America Securities LLC (Maturity Value $644,500)
Barclays Capital Inc. (Maturity Value $2,292,082)
Bear, Stearns & Co., Inc. (Maturity Value $1,222,413)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $2,292,082)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $2,292,082)
Goldman, Sachs & Co. (Maturity Value $2,292,082)
Greenwich Capital Inc. (Maturity Value $763,951)
Lehman Brothers Inc. (Maturity Value $2,292,082)
Nesbitt Burns Securities Inc. (Maturity Value $2,292,082)
Paine Webber Inc. (Maturity Value $1,528,130)
Paribas Corporation (Maturity Value $2,292,082)
Warburg Dillon Read LLC (Maturity Value $2,292,082)
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $129,090,793) 99.6% ........................... 162,184,500
OTHER ASSETS, LESS LIABILITIES .4% .................................... 680,384
------------
NET ASSETS 100.0% ..................................................... $162,864,884
============
</TABLE>
* The principal amount is stated in U.S. dollars unless otherwise indicated.
(a) Non-income producing.
(b) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $106,607,440) ................. $139,701,147
Repurchase agreements, at value and cost ................................ 22,483,353
Receivables:
Capital shares sold .................................................... 760,282
Dividends and interest ................................................. 472,677
------------
Total assets ....................................................... 163,417,459
------------
Liabilities:
Payables:
Capital shares redeemed ................................................ 205,271
Affiliates ............................................................. 153,368
Shareholders ........................................................... 191,105
Other liabilities ....................................................... 2,831
------------
Total liabilities .................................................. 552,575
------------
Net assets, at value .............................................. $162,864,884
============
Net assets consist of:
Undistributed net investment income ..................................... $ 92,683
Net unrealized appreciation ............................................. 33,093,707
Accumulated net realized gain ........................................... 2,953,982
Capital shares .......................................................... 126,724,512
------------
Net assets, at value ..................................................... $162,864,884
============
CLASS A:
Net asset value per share ($154,921,974 / 13,929,680 shares outstanding)* $ 11.12
============
Maximum offering price per share ($11.12 / 94.25%) ...................... $ 11.80
============
CLASS C:
Net asset value per share (7,942,910 / 716,096 shares outstanding)* ..... $ 11.09
============
Maximum offering price per share ($11.09 / 99%) ......................... $ 11.20
============
</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)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
(net of foreign taxes of $19,395)
Dividends ........................................................... $ 845,752
Interest ............................................................ 1,192,381
-----------
Total investment income ........................................ 2,038,133
-----------
Expenses:
Management fees (Note 3) ............................................ 456,846
Distribution fees (Note 3)
Class A ............................................................ 192,079
Class C ............................................................ 29,400
Transfer agent fees (Note 3) ........................................ 126,550
Custodian fees ...................................................... 3,285
Reports to shareholders ............................................. 34,157
Registration and filing fees ........................................ 23,394
Professional fees (Note 3) .......................................... 11,136
Trustees' fees and expenses ......................................... 3,210
Other ............................................................... 2,743
-----------
Total expenses ................................................. 882,800
-----------
Net investment income ......................................... 1,155,333
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................ 3,010,655
Foreign currency transactions ...................................... (327)
-----------
Net realized gain .............................................. 3,010,328
Net unrealized depreciation on investments .......................... (4,928,822)
-----------
Net realized and unrealized loss ..................................... (1,918,494)
-----------
Net decrease in net assets resulting from operations ................. $ (763,161)
===========
</TABLE>
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................................. $ 1,155,333 $ 1,994,358
Net realized gain from investments and foreign currency transactions 3,010,328 4,564,565
Net unrealized appreciation (depreciation) on investments .......... (4,928,822) 15,843,406
------------- -------------
Net increase (decrease) in net assets resulting from operations (763,161) 22,402,329
Distributions to shareholders from:
Net investment income:
Class A ........................................................... (1,088,118) (1,969,117)
Class C ........................................................... (28,372) (14,119)
Net realized gains:
Class A ........................................................... (1,064,371) (3,775,397)
Class C ........................................................... (54,960) (76,530)
------------- -------------
Total distributions to shareholders ................................. (2,235,821) (5,835,163)
Capital share transactions: (Note 2)
Class A ............................................................ 11,036,753 22,098,801
Class C ............................................................ 4,568,118 3,325,142
------------- -------------
Total capital share transactions .................................... 15,604,871 25,423,943
Net increase in net assets ..................................... 12,605,889 41,991,109
Net assets
Beginning of period ................................................. 150,258,995 108,267,886
------------- -------------
End of period ....................................................... $ 162,864,884 $ 150,258,995
============= =============
Undistributed net investment income included in net assets:
End of period ....................................................... $ 92,683 $ 53,840
============= =============
</TABLE>
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Asset Allocation Fund (the Trust) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company, consisting of
one fund (the Fund). The Fund seeks 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 gain or loss 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 and 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 June 30, 2000, all repurchase agreements had been entered into on that
date.
d. 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 to
distribute substantially all of its taxable income.
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
f. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers two classes of shares: Class A and Class C. Each class of shares
differs by its initial sales load, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
At June 30, 2000, there were an unlimited number of shares authorized (no par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999(a)
-----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold .................................. 3,293,787 $ 37,435,967 5,839,883 $ 61,426,546
Shares issued in reinvestment of distributions 172,345 1,943,227 478,601 5,160,095
Shares redeemed .............................. (2,486,588) (28,342,441) (4,235,173) (44,487,840)
-----------------------------------------------------------------------------
Net increase ................................. 979,544 $ 11,036,753 2,083,311 $ 22,098,801
=============================================================================
CLASS C SHARES:
Shares sold .................................. 443,040 $ 5,029,096 323,668 $ 3,434,754
Shares issued in reinvestment of distributions 6,749 75,328 7,939 86,580
Shares redeemed .............................. (47,101) (536,306) (18,199) (196,192)
-----------------------------------------------------------------------------
Net increase ................................. 402,688 $ 4,568,118 313,408 $ 3,325,142
=============================================================================
</TABLE>
(a) For the period May 1, 1999 (effective date) to December 31, 1999 for Class C
shares.
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 advisor, administrative manager, principal underwriter, and transfer
agent, respectively.
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE MONTH END NET ASSETS
---------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
</TABLE>
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% and 1.00% per year of its average
daily net assets of Class A and Class C, respectively, for costs incurred in
marketing the Fund's shares.
Distributors paid net commissions on sales of Fund shares, and received
contingent deferred sales charges for the period of $24,584 and $2,193,
respectively.
The Fund paid transfer agent fees of $126,550 of which $92,507 was paid to
Investor Services.
Included in professional fees are legal fees of $269 that were paid to a law
firm in which a partner was an officer of the Fund.
4. INCOME TAXES
At June 30, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $129,126,401 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $40,452,972
Unrealized depreciation (7,394,873)
-----------
Net unrealized appreciation $33,058,099
===========
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gains 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
period ended June 30, 2000 aggregated $14,380,837 and $7,364,815, respectively.
This page intentionally left blank.
