SHAREHOLDER LETTER
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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.
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Dear Shareholder:
We are pleased to bring you this annual report of Franklin Asset Allocation
Fund, which covers the year ended December 31, 1999. During the 12 months under
review, the U.S. economy continued its notable expansion, as reflected by a 5.7%
third-quarter gross domestic product (GDP) growth rate and an estimated
annualized fourth quarter GDP of 5.8%. Renewed Asian and European economic
growth impacted many industries worldwide and, combined with almost non-existent
global inflation, created a uniquely positive environment for equity markets.
However, bond markets, negatively impacted by the reporting period's generally
rising interest rates, presented a different picture, and most bond sectors
posted dismal results for the year.
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CONTENTS
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Shareholder Letter ............................................ 1
Performance Summary ........................................... 6
Financial Highlights &
Statement of Investments ...................................... 9
Financial Statements .......................................... 15
Notes to
Financial Statements .......................................... 18
Independent
Auditors' Report .............................................. 22
Tax Designation ............................................... 23
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[FUND CATEGORY GRAPHICS]
You will find a complete listing of portfolio holdings, including dollar value
and number of shares or principal amount, beginning on page 11 of this report.
[PIE CHART]
ASSET ALLOCATION
Based on Total Net Assets
12/31/99
Equity 75.1%
Fixed-Income
Securities 14.4%
Cash & Equivalents 10.5%
Within this environment, Franklin Asset Allocation - Class A performed well,
delivering an +18.72% one-year cumulative total return, as shown in the
Performance Summary on page 6. The Standard & Poor's(R) S&P 500(R) Index and
Lehman Brothers Government/Corporate Bond Index, the fund's benchmark indexes,
posted returns of 21.04% and -2.15%, respectively, for the year.(1)
Throughout the period, we used quantitative, technical and fundamental analysis
to identify economic sectors, industries and companies that we believed offered
the best opportunity for achieving the fund's goal. We sought to diversify
investments among different asset classes in order to reduce the impact of a
particular security or asset class on the fund. The fund's strong performance
relative to the Lehman Brothers/Corporate Bond Index was largely due to our
overweighting of stocks versus bonds and cash; conversely our underperformance
relative to the S&P 500 reflected the weak bond market's impact on the fund's
fixed-income holdings. On December 31, 1999, 75.1% of the fund's portfolio was
composed of stocks, 14.4% of fixed income securities and 10.5% of short-term
investments and other net assets.
After selection of the asset classes and industries 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. In the capital goods sector, we purchased shares of electrical
equipment companies such as General Electric Co. and Honeywell International
Inc. In the basic industries sector, we concentrated on the paper industry,
adding to holdings of Bowater Inc.; in the utilities sector, we established
positions in specialty growth companies such as Enron Corp. and Montana Power
Co.
(1). Source: Standard & Poor's Micropal. Indexes are unmanaged and include
reinvested dividends and interest; one cannot invest directly in an index.
Believing that electronic technology companies stand to benefit from a worldwide
trend toward voice, video and data integration, we focused on that sector, which
accounted for 16.4% of total net assets on December 31, 1999. Within this
sector, we preferred communications and communications equipment companies such
as Motorola Inc., Cisco Systems Inc. and Lucent Technologies Inc. We also
favored retail trade, our fourth largest sector holding, and our positions in
companies like Tiffany & Co., Wal-Mart Stores Inc. and Costco Companies Inc.
performed exceptionally well over the period. In the consumer staples area,
where we remained committed to the entertainment and broadcasting industries,
our holdings of Time Warner Inc. and Clear Channel Communications Inc.
also delivered superior returns during the year.
Although our health care industry holdings were underweighted compared to the
S&P 500, we did find value in the pharmaceutical sector during the last quarter
of the year. Taking advantage of market dips, we initiated positions in Pfizer
Inc., Schering-Plough Corp. and Warner-Lambert Co., and added Biogen Inc. to the
fund.
TOP 10 SECTORS
12/31/99
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% OF TOTAL
SECTOR NET ASSETS
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<S> <C>
Electronic Technology 16.4%
Health Technology 8.1%
Producer Manufacturing 7.1%
Retail Trade 6.9%
Consumer Services 5.1%
Energy 5.0%
Consumer Non-Durables 4.6%
Utilities 4.5%
Telecommunications 3.5%
Finance 3.2%
</TABLE>
TOP 10 EQUITY HOLDINGS
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------------
<S> <C>
Cisco Systems Inc. 3.21%
Electronic Technology
Genentech Inc. 2.69%
Health Technology
Tiffany & Co. 2.14%
Retail Trade
General Electric Co. 2.06%
Producer Manufacturing
Motorola Inc. 1.96%
Electronic Technology
Wal-Mart Stores Inc. 1.84%
Retail Trade
Enron Corp. 1.77%
Utilities
Lucent Technologies Inc. 1.74%
Electronic Technology
Dayton Hudson Corp. 1.71%
Retail Trade
American International
Group Inc. 1.57%
Finance
</TABLE>
Regarding fixed income securities, due to the expanding economy and rising
interest rates, the fund didn't significantly alter its bond portfolio during
the past year. Should the economy show any signs of softening, the fund would
consider increasing its bond weighting. Until that time, however, we will hold
to an equity-focused strategy.
Looking forward, if analysts' 10% earnings assumptions for the S&P 500 are
correct, the market could have another year of positive returns. However,
potentially rising interest rates, election year uncertainties and possible
post-new year Y2K computer glitches bear close watching. Even though Y2K "cross
over weekend" may have been a non-event, the outside chance remains that, as the
year progresses, certain chips may malfunction, temporarily disrupting the
manufacturing process. And, if the Fed raises interest rates, corporate earnings
could be negatively impacted. Finally, election years traditionally have been
periods of uncertainty, and the markets generally don't like surprises.
Nevertheless, we would view any market dips caused by these potential events as
opportunities to buy leading-edge, well-positioned companies within their
respective industries.
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
Martin Wiskemann is a senior vice president of Franklin Management, Inc., vice
president of ILA Financial Services, Inc. and vice president of Franklin
Templeton Distributors, Inc., the underwriting subsidiary of Franklin Resources,
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
December 31, 1999, the end of the reporting period. 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 (formerly Class I): Subject to the current, maximum 5.75% initial sales
charge. Prior to August 3, 1998, fund shares were offered at a lower initial
sales charge; thus actual total returns may differ. Effective May 1, 1994, the
fund implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS C (formerly Class II): 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.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 12/31/99
One-year 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. Past distributions are not indicative of future
trends. All total returns include reinvested distributions at net asset value.
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<CAPTION>
<S> <C> <C>
CLASS A
One-Year Total Return +18.72%
Net Asset Value (NAV) (12/31/99) $11.33 (12/31/98) $9.96
Change in NAV +$1.37
Distributions (1/1/99-12/31/99) Dividend Income $0.1645
Short-Term Capital Gain $0.1029
Long-Term Capital Gain $0.1978
-------------------------------------------
Total $0.4652
CLASS C
Aggregate Total Return +11.57%
Net Asset Value (NAV) (12/31/99) $11.31 (5/1/99) $10.50
Change in NAV +$0.81
Distributions (5/1/99-12/31/99) Dividend Income $0.0850
Short-Term Capital Gain $0.1029
Long-Term Capital Gain $0.1978
-------------------------------------------
Total $0.3857
</TABLE>
Franklin Asset Allocation Fund paid distributions derived from long-term capital
gains totaling 19.78 cents ($0.1978) per share in June and December 1999. The
fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF QUARTER ENDED 12/31/99
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<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (12/5/51)
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<S> <C> <C> <C> <C>
Cumulative Total Return(1) +18.72% +122.14% +236.96% +8,738.33%
Average Annual Total Return(2) +11.87% +15.94% +12.24% +9.64%
Value of $10,000 Investment(3) $11,187 $20,945 $31,739 $833,805
30-Day Standardized Yield(4) 1.25%
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<TABLE>
<CAPTION>
INCEPTION
CLASS C (5/1/99)
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<S> <C> <C>
Cumulative Total Return(1) +11.57%
Aggregate Total Return(2) +9.42%
Value of $10,000 Investment(3) $10,942
30-Day Standardized Yield(4) 0.59%
</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. Since Class C shares have existed for
less than one year, aggregate total return for that class represents total
return since inception, including the maximum sales charge.
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. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended December 31, 1999.
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" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURN
12/31/99
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CLASS A
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<S> <C>
1-Year +11.87%
5-Year +15.94%
10-Year +12.24%
Since Inception (12/5/51) +9.64%
</TABLE>
AGGREGATE ANNUAL
TOTAL RETURN
12/31/99
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------------
<S> <C>
Since Inception (5/1/99) +9.42%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charges, fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
This graph compares the performance of Franklin Asset Allocation Fund - Class A,
as tracked by the growth in value of a $10,000 investment, to that of S&P 500
Index*, the Lehman Brothers Government Corporate Bond Index* and the CPI* from
1/1/90-12/31/99.
<TABLE>
<CAPTION>
DATE FRANKLIN ASSET S&P 500 LB GOV/CORP CPI S&P % LB % CPI %
ALLOCATION FUND BOND INDEX
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<S> <C> <C> <C> <C> <C> <C> <C>
01/01/1990 $9,419 $10,000 $10,000 $10,000
01/31/1990 $8,857 $9,329 $9,863 $10,103 -6.71% -1.37% 1.03%
02/28/1990 $8,984 $9,449 $9,885 $10,150 1.29% 0.22% 0.47%
03/31/1990 $9,183 $9,700 $9,886 $10,206 2.65% 0.01% 0.55%
04/30/1990 $9,063 $9,458 $9,795 $10,223 -2.49% -0.92% 0.16%
05/31/1990 $9,605 $10,380 $10,079 $10,246 9.75% 2.90% 0.23%
06/30/1990 $9,533 $10,311 $10,241 $10,301 -0.67% 1.61% 0.54%
07/31/1990 $9,359 $10,278 $10,368 $10,341 -0.32% 1.24% 0.38%
08/31/1990 $8,628 $9,349 $10,218 $10,436 -9.04% -1.45% 0.92%
09/30/1990 $8,144 $8,893 $10,303 $10,523 -4.87% 0.83% 0.84%
10/31/1990 $7,826 $8,855 $10,439 $10,587 -0.43% 1.32% 0.60%
11/30/1990 $8,322 $9,427 $10,666 $10,610 6.46% 2.18% 0.22%
12/31/1990 $8,601 $9,690 $10,827 $10,610 2.79% 1.51% 0.00%
01/31/1991 $9,194 $10,113 $10,948 $10,674 4.36% 1.12% 0.60%
02/28/1991 $9,500 $10,836 $11,043 $10,690 7.15% 0.86% 0.15%
03/31/1991 $9,661 $11,098 $11,119 $10,706 2.42% 0.69% 0.15%
04/30/1991 $9,703 $11,125 $11,247 $10,722 0.24% 1.15% 0.15%
05/31/1991 $10,223 $11,604 $11,298 $10,754 4.31% 0.46% 0.30%
06/30/1991 $9,827 $11,073 $11,286 $10,785 -4.58% -0.11% 0.29%
07/31/1991 $10,038 $11,589 $11,427 $10,801 4.66% 1.25% 0.15%
08/31/1991 $10,206 $11,863 $11,690 $10,832 2.37% 2.30% 0.29%
09/30/1991 $10,210 $11,665 $11,934 $10,880 -1.67% 2.09% 0.44%
10/31/1991 $10,359 $11,822 $12,040 $10,896 1.34% 0.89% 0.15%
11/30/1991 $9,931 $11,345 $12,161 $10,928 -4.03% 1.00% 0.29%
12/31/1991 $10,510 $12,643 $12,571 $10,936 11.44% 3.37% 0.07%
01/31/1992 $10,769 $12,408 $12,385 $10,952 -1.86% -1.48% 0.15%
02/29/1992 $11,070 $12,568 $12,450 $10,992 1.29% 0.53% 0.36%
03/31/1992 $11,008 $12,323 $12,382 $11,048 -1.95% -0.55% 0.51%
04/30/1992 $11,268 $12,685 $12,456 $11,063 2.94% 0.60% 0.14%
05/31/1992 $11,225 $12,747 $12,698 $11,079 0.49% 1.94% 0.14%
06/30/1992 $11,094 $12,557 $12,883 $11,118 -1.49% 1.46% 0.36%
07/31/1992 $11,313 $13,071 $13,213 $11,142 4.09% 2.56% 0.21%
08/31/1992 $11,072 $12,803 $13,330 $11,173 -2.05% 0.89% 0.28%
09/30/1992 $11,337 $12,953 $13,513 $11,204 1.17% 1.37% 0.28%
10/31/1992 $11,182 $12,997 $13,306 $11,243 0.34% -1.53% 0.35%
11/30/1992 $11,601 $13,439 $13,294 $11,259 3.40% -0.09% 0.14%
12/31/1992 $11,999 $13,604 $13,523 $11,251 1.23% 1.72% -0.07%
01/31/1993 $12,265 $13,718 $13,818 $11,306 0.84% 2.18% 0.49%
02/28/1993 $12,399 $13,905 $14,105 $11,346 1.36% 2.08% 0.35%
03/31/1993 $12,666 $14,198 $14,153 $11,386 2.11% 0.34% 0.35%
04/30/1993 $12,778 $13,855 $14,262 $11,418 -2.42% 0.77% 0.28%
05/31/1993 $13,001 $14,225 $14,255 $11,434 2.67% -0.05% 0.14%
06/30/1993 $13,192 $14,266 $14,579 $11,450 0.29% 2.27% 0.14%
07/31/1993 $13,124 $14,209 $14,672 $11,450 -0.40% 0.64% 0.00%
08/31/1993 $13,552 $14,747 $15,009 $11,482 3.79% 2.30% 0.28%
09/30/1993 $13,698 $14,634 $15,062 $11,506 -0.77% 0.35% 0.21%
10/31/1993 $13,947 $14,937 $15,124 $11,553 2.07% 0.41% 0.41%
11/30/1993 $13,834 $14,795 $14,953 $11,561 -0.95% -1.13% 0.07%
12/31/1993 $14,220 $14,974 $15,018 $11,561 1.21% 0.44% 0.00%
01/31/1994 $14,677 $15,483 $15,244 $11,592 3.40% 1.50% 0.27%
02/28/1994 $14,563 $15,063 $14,911 $11,632 -2.71% -2.18% 0.34%
03/31/1994 $14,094 $14,407 $14,546 $11,671 -4.36% -2.45% 0.34%
04/30/1994 $14,140 $14,591 $14,425 $11,688 1.28% -0.83% 0.14%
05/31/1994 $14,300 $14,830 $14,399 $11,696 1.64% -0.18% 0.07%
06/30/1994 $14,127 $14,467 $14,366 $11,736 -2.45% -0.23% 0.34%
07/31/1994 $14,382 $14,941 $14,654 $11,767 3.28% 2.00% 0.27%
08/31/1994 $14,775 $15,554 $14,659 $11,814 4.10% 0.04% 0.40%
09/30/1994 $14,602 $15,174 $14,438 $11,846 -2.44% -1.51% 0.27%
10/31/1994 $14,672 $15,516 $14,422 $11,854 2.25% -0.11% 0.07%
11/30/1994 $14,184 $14,951 $14,396 $11,870 -3.64% -0.18% 0.13%
12/31/1994 $14,288 $15,172 $14,491 $11,870 1.48% 0.66% 0.00%
01/31/1995 $14,452 $15,565 $14,770 $11,917 2.59% 1.92% 0.40%
02/28/1995 $14,943 $16,172 $15,112 $11,965 3.90% 2.32% 0.40%
03/31/1995 $15,235 $16,650 $15,213 $12,005 2.95% 0.67% 0.33%
04/30/1995 $15,305 $17,139 $15,426 $12,044 2.94% 1.40% 0.33%
05/31/1995 $15,682 $17,825 $16,073 $12,068 4.00% 4.19% 0.20%
06/30/1995 $15,952 $18,238 $16,201 $12,092 2.32% 0.80% 0.20%
07/31/1995 $16,236 $18,844 $16,138 $12,092 3.32% -0.39% 0.00%
08/31/1995 $16,331 $18,891 $16,345 $12,124 0.25% 1.28% 0.26%
09/30/1995 $16,638 $19,688 $16,511 $12,148 4.22% 1.02% 0.20%
10/31/1995 $16,591 $19,617 $16,754 $12,188 -0.36% 1.47% 0.33%
11/30/1995 $17,282 $20,478 $17,031 $12,180 4.39% 1.65% -0.07%
12/31/1995 $17,402 $20,873 $17,281 $12,171 1.93% 1.47% -0.07%
01/31/1996 $17,930 $21,583 $17,388 $12,243 3.40% 0.62% 0.59%
02/29/1996 $18,098 $21,784 $17,020 $12,282 0.93% -2.12% 0.32%
03/31/1996 $18,314 $21,993 $16,877 $12,346 0.96% -0.84% 0.52%
04/30/1996 $18,652 $22,316 $16,760 $12,394 1.47% -0.69% 0.39%
05/31/1996 $18,942 $22,892 $16,732 $12,418 2.58% -0.17% 0.19%
06/30/1996 $19,027 $22,979 $16,954 $12,425 0.38% 1.33% 0.06%
07/31/1996 $18,274 $21,963 $16,993 $12,449 -4.42% 0.23% 0.19%
08/31/1996 $18,735 $22,427 $16,951 $12,472 2.11% -0.25% 0.19%
09/30/1996 $19,379 $23,689 $17,252 $12,512 5.63% 1.78% 0.32%
10/31/1996 $19,647 $24,343 $17,654 $12,552 2.76% 2.33% 0.32%
11/30/1996 $20,573 $26,184 $17,979 $12,576 7.56% 1.84% 0.19%
12/31/1996 $20,432 $25,665 $17,780 $12,576 -1.98% -1.11% 0.00%
01/31/1997 $20,874 $27,269 $17,801 $12,616 6.25% 0.12% 0.32%
02/28/1997 $20,751 $27,482 $17,838 $12,655 0.78% 0.21% 0.31%
03/31/1997 $20,579 $26,352 $17,626 $12,687 -4.11% -1.19% 0.25%
04/30/1997 $20,851 $27,926 $17,883 $12,702 5.97% 1.46% 0.12%
05/31/1997 $21,912 $29,626 $18,050 $12,695 6.09% 0.93% -0.06%
06/30/1997 $22,430 $30,954 $18,266 $12,710 4.48% 1.20% 0.12%
07/31/1997 $23,644 $33,417 $18,825 $12,725 7.96% 3.06% 0.12%
08/31/1997 $23,000 $31,546 $18,614 $12,749 -5.60% -1.12% 0.19%
09/30/1997 $24,127 $33,275 $18,907 $12,781 5.48% 1.57% 0.25%
10/31/1997 $23,331 $32,163 $19,209 $12,813 -3.34% 1.60% 0.25%
11/30/1997 $23,456 $33,653 $19,311 $12,806 4.63% 0.53% -0.06%
12/31/1997 $23,546 $34,231 $19,514 $12,790 1.72% 1.05% -0.12%
01/31/1998 $23,572 $34,611 $19,789 $12,814 1.11% 1.41% 0.19%
02/28/1998 $24,508 $37,107 $19,749 $12,839 7.21% -0.20% 0.19%
03/31/1998 $24,925 $39,007 $19,811 $12,863 5.12% 0.31% 0.19%
04/30/1998 $25,055 $39,401 $19,910 $12,886 1.01% 0.50% 0.18%
05/31/1998 $24,742 $38,723 $20,123 $12,910 -1.72% 1.07% 0.18%
06/30/1998 $25,069 $40,295 $20,328 $12,925 4.06% 1.02% 0.12%
07/31/1998 $24,726 $39,864 $20,344 $12,941 -1.07% 0.08% 0.12%
08/31/1998 $22,538 $34,100 $20,741 $12,956 -14.46% 1.95% 0.12%
09/30/1998 $23,525 $36,285 $21,334 $12,972 6.41% 2.86% 0.12%
10/31/1998 $24,665 $39,236 $21,183 $13,003 8.13% -0.71% 0.24%
11/30/1998 $25,618 $41,613 $21,310 $13,003 6.06% 0.60% 0.00%
12/31/1998 $26,733 $44,010 $21,363 $12,995 5.76% 0.25% -0.06%
01/31/1999 $27,726 $45,850 $21,515 $13,026 4.18% 0.71% 0.24%
02/28/1999 $26,733 $44,424 $21,003 $13,042 -3.11% -2.38% 0.12%
03/31/1999 $27,485 $46,201 $21,108 $13,081 4.00% 0.50% 0.30%
04/30/1999 $28,293 $47,989 $21,160 $13,176 3.87% 0.25% 0.73%
05/31/1999 $27,781 $46,856 $20,942 $13,176 -2.36% -1.03% 0.00%
06/30/1999 $28,841 $49,457 $20,877 $13,176 5.55% -0.31% 0.00%
07/31/1999 $28,760 $47,914 $20,819 $13,216 -3.12% -0.28% 0.30%
08/31/1999 $28,651 $47,674 $20,802 $13,248 -0.50% -0.08% 0.24%
09/30/1999 $28,218 $46,368 $20,990 $13,311 -2.74% 0.90% 0.48%
10/31/1999 $28,953 $49,303 $21,044 $13,335 6.33% 0.26% 0.18%
11/30/1999 $29,661 $50,304 $21,032 $13,343 2.03% -0.06% 0.06%
12/31/1999 $31,739 $53,267 $20,903 $13,343 5.89% -0.61%
</TABLE>
*Source: Standard & Poor's Micropal.
This graph compares the performance of Franklin Asset Allocation Fund - Class C,
as tracked by the growth in value of a $10,000 investment, to that of the S&P
500 Index*, the Lehman Brothers Government Corporate Bond Index* and the CPI*
from 5/3/99-12/31/99.
<TABLE>
<CAPTION>
DATE FRANKLIN ASSET S&P 500 LB GOV/CORP CPI S&P % LB % CPI %
ALLOCATION FUND BOND INDEX
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
05/03/1999 $9,896 $10,000 $10,000 $10,000
05/31/1999 $9,171 $9,764 $9,897 $10,000 -2.36% -1.03% 0.00%
06/30/1999 $10,076 $10,306 $9,866 $10,000 5.55% -0.31% 0.00%
07/31/1999 $10,038 $9,984 $9,839 $10,030 -3.12% -0.28% 0.30%
08/31/1999 $9,990 $9,934 $9,831 $10,054 -0.50% -0.08% 0.24%
09/30/1999 $9,833 $9,662 $9,919 $10,102 -2.74% 0.90% 0.48%
10/31/1999 $10,090 $10,274 $9,945 $10,121 6.33% 0.26% 0.18%
11/30/1999 $10,318 $10,482 $9,939 $10,127 2.03% -0.06% 0.06%
12/31/1999 $10,942 $11,100 $9,878 $10,127 5.89% -0.61%
</TABLE>
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN ASSET ALLOCATION FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
1999(a) 1998 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $9.96 $9.05 $8.32 $7.25 $6.11
----------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................. .17 .18 .15 .14 .18
Net realized and unrealized gains ................. 1.67 1.03 1.10 1.11 1.14
----------------------------------------------------------------------------
Total from investment operations ................... 1.84 1.21 1.25 1.25 1.32
----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.17) (.19) (.15) (.15) (.18)
Net realized gains ................................ (.30) (.11) (.37) (.03) --
----------------------------------------------------------------------------
Total distributions ................................ (.47) (.30) (.52) (.18) (.18)
----------------------------------------------------------------------------
Net asset value, end of year ....................... $11.33 $9.96 $9.05 $8.32 $7.25
============================================================================
Total return(b) .................................... 18.72% 13.54% 15.24% 17.41% 21.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $146,715 $108,268 $89,630 $56,867 $39,319
Ratios to average net assets:
Expenses .......................................... 1.10% 1.13% 1.12% 1.21% 1.17%
Net investment income ............................. 1.60% 1.91% 1.73% 1.86% 2.86%
Portfolio turnover rate ............................ 49.86% 54.28% 54.57% 60.11% 62.01%
</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.
FRANKLIN ASSET ALLOCATION FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
--------------------
YEAR ENDED
DECEMBER 31, 1999(C)
--------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................... $10.50
--------------------
Income from investment operations:
Net investment income ............................................................... .07
Net realized and unrealized gains ................................................... 1.13
--------------------
Total from investment operations ..................................................... 1.20
--------------------
Less distributions from:
Net investment income ............................................................... (.09)
Net realized gains .................................................................. (.30)
--------------------
Total distributions .................................................................. (.39)
--------------------
Net asset value, end of year ......................................................... $11.31
====================
TOTAL RETURN(b) ...................................................................... 11.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................................................... $3,544
Ratios to average net assets:
Expenses ............................................................................ 1.85%(d)
Net investment income ............................................................... 0.94%(d)
Portfolio turnover rate .............................................................. 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)For the period May 1, 1999 (effective date) to December 31, 1999.
(d)Annualized
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 71.4%
CONSUMER NON-DURABLES 4.6%
Coca-Cola Co. ................................................... United States 20,000 $ 1,165,000
Estee Lauder Cos., A ............................................ United States 35,000 1,765,313
Nestle SA ....................................................... Switzerland 480 879,221
Philip Morris Cos. Inc. ......................................... United States 40,000 927,500
The Procter & Gamble Co. ........................................ United States 20,000 2,191,250
------------
6,928,284
------------
CONSUMER SERVICES 5.1%
(a)Charter Communications Inc., A .................................. United States 80,000 1,750,000
(a)Clear Channel Communications Inc. ............................... United States 15,000 1,338,750
Time Warner Inc. ................................................ United States 30,000 2,173,125
(a)United Pan-Europe Communications NV, A .......................... Netherlands 18,400 2,352,562
------------
7,614,437
------------
ELECTRONIC TECHNOLOGY 11.1%
(a)Cisco Systems Inc. .............................................. United States 45,000 4,820,625
Intel Corp. ..................................................... United States 20,000 1,646,250
Linear Technology Corp. ......................................... United States 20,000 1,431,250
Lucent Technologies Inc. ........................................ United States 35,000 2,618,438
Motorola Inc. ................................................... United States 20,000 2,945,000
Symbol Technologies Inc. ........................................ United States 35,000 2,224,688
(a)Waters Corp. .................................................... United States 20,000 1,060,000
------------
16,746,251
------------
ENERGY 5.0%
Chevron Corp. ................................................... United States 22,500 1,949,063
Conoco Inc., B .................................................. United States 29,999 746,225
Devon Energy Corp. .............................................. United States 40,000 1,315,000
Exxon Corp. ..................................................... United States 27,500 2,215,469
Schlumberger Ltd. ............................................... United States 20,000 1,125,000
Transocean Sedco Forex Inc. ..................................... United States 3,872 130,438
------------
7,481,195
------------
FINANCE 3.2%
American International Group Inc. ............................... United States 21,875 2,365,234
Bank of America Corp. ........................................... United States 30,000 1,505,625
Wells Fargo Co. ................................................. United States 25,000 1,010,938
------------
4,881,797
------------
HEALTH SERVICES .9%
IMS Health Inc. ................................................. United States 50,000 1,359,375
------------
HEALTH TECHNOLOGY 8.1%
Abbott Laboratories ............................................. United States 35,000 1,270,938
(a)Biogen Inc. ..................................................... United States 20,000 1,690,000
Bristol-Myers Squibb Co. ........................................ United States 20,000 1,283,750
(a)Genentech Inc. .................................................. United States 30,000 4,035,000
(a)Genzyme Corp., General Division ................................. United States 20,000 900,000
Pfizer Inc. ..................................................... United States 10,000 324,375
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
Roche Holding AG .......................................... Switzerland 90 $ 1,068,132
Schering-Plough Corp. ..................................... United States 20,000 843,750
Warner-Lambert Co. ........................................ United States 10,000 819,375
------------
12,235,320
------------
NON-ENERGY MINERALS 1.6%
Barrick Gold Corp. ........................................ Canada 30,000 530,625
Rio Tinto PLC, ADR ........................................ United Kingdom 20,000 1,895,000
------------
2,425,625
------------
PROCESS INDUSTRIES 2.6%
Bowater Inc. .............................................. United States 30,000 1,629,375
E. I. du Pont de Nemours and Co. .......................... United States 15,836 1,043,197
Ecolab Inc. ............................................... United States 30,000 1,173,750
------------
3,846,322
------------
PRODUCER MANUFACTURING 7.1%
Deere & Co. ............................................... United States 20,000 867,500
General Electric Co. ...................................... United States 20,000 3,095,000
Honeywell International Inc. .............................. United States 28,125 1,622,461
Illinois Tool Works Inc. .................................. United States 35,000 2,364,688
Minnesota Mining & Manufacturing Co. ...................... United States 15,000 1,468,125
Pentair Inc. .............................................. United States 31,000 1,193,500
------------
10,611,274
------------
REAL ESTATE 1.1%
Equity Office Properties Trust ............................ United States 40,000 985,000
Simon Property Group Inc. ................................. United States 30,000 688,125
------------
1,673,125
------------
RETAIL TRADE 6.9%
(a)Costco Cos. Inc. .......................................... United States 20,000 1,825,000
Dayton Hudson Corp. ....................................... United States 35,000 2,570,313
Tiffany & Co. ............................................. United States 36,000 3,213,000
Wal-Mart Stores Inc. ...................................... United States 40,000 2,765,000
------------
10,373,313
------------
TECHNOLOGY SERVICES 5.3%
(a)Computer Sciences Corp. ................................... United States 20,000 1,892,500
(a)Equant NV, N.Y. shs. ...................................... Netherlands 20,000 2,240,000
First Data Corp. .......................................... United States 30,000 1,479,375
(a)Microsoft Corp. ........................................... United States 20,000 2,335,000
------------
7,946,875
------------
TELECOMMUNICATIONS 3.5%
AT&T Corp. ................................................ United States 40,000 2,030,000
GTE Corp. ................................................. United States 30,000 2,116,875
Swisscom AG ............................................... Switzerland 2,870 1,160,615
------------
5,307,490
------------
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION .8%
United Parcel Service Inc., B ................................... United States 17,100 $1,179,900
-----------
Utilities 4.5%
Duke Energy Corp. ............................................... United States 30,000 1,503,750
Enron Corp. ..................................................... United States 60,000 2,662,500
(a)Kpnqwest NV ..................................................... Netherlands 21,500 1,370,625
Montana Power Co. ............................................... United States 35,200 1,269,400
-----------
6,806,275
-----------
TOTAL COMMON STOCKS (COST $69,096,501) .......................... 107,416,858
-----------
CONVERTIBLE PREFERRED STOCKS 3.7%
Apache Corp., 6.50%, cvt. pfd ................................... United States 40,300 1,430,650
Georgia-Pacific Corp., 7.50%, cvt. pfd .......................... United States 35,500 1,814,938
(a)MediaOne Group Inc., 7.00%, cvt. pfd ............................ United States 33,300 1,598,400
Tower Automotive Capital, 6.75%, cvt. pfd ....................... United States 20,000 730,000
-----------
Total Convertible Preferred Stocks (Cost $5,210,244) ............ 5,573,988
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(c)
---------
<S> <C> <C> <C>
BONDS .4%
Dayton Hudson Corp., 8.60%, 1/15/12 ............................... United States $250,000 270,998
Georgia-Pacific Corp., 9.125%, 7/01/22 ............................ United States 100,000 101,050
Pan-American Beverage Inc., senior note, 8.125%, 4/01/03 .......... Mexico 250,000 240,128
-----------
TOTAL BONDS (COST $596,005) ....................................... 612,176
-----------
CONVERTIBLE BONDS 1.4%
AT&T Corp. - Liberty Media Group cvt., 144A, 4.00%, 11/15/29 ...... United States 1,250,000 1,568,750
Thermo Electron Corp., cvt., 144A, 4.25%, 1/01/03 ................. United States 600,000 510,000
-----------
TOTAL CONVERTIBLE BONDS (COST $1,797,438) ......................... 2,078,750
-----------
U.S. GOVERNMENT AGENCY SECURITIES 2.2%
FNMA, 6.375%, 6/15/09 ............................................. United States 1,500,000 1,431,855
Freddie Mac, 5.75%, 4/15/08 ....................................... United States 2,000,000 1,837,108
-----------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $3,447,036) ......... 3,268,963
-----------
U.S. GOVERNMENT SECURITIES 10.4%
U.S. Treasury Bond, 8.00%, 11/15/21 ............................... United States 250,000 283,672
U.S. Treasury Bond, 6.25%, 8/15/23 ................................ United States 2,900,000 2,735,970
U.S. Treasury Bond, 6.875%, 8/15/25 ............................... United States 1,000,000 1,018,438
U.S. Treasury Bond, 6.00%, 2/15/26 ................................ United States 3,000,000 2,745,000
U.S. Treasury Note, 5.50%, 1/31/03 ................................ United States 2,000,000 1,953,125
U.S. Treasury Note, 7.25%, 5/15/04 ................................ United States 1,300,000 1,340,218
U.S. Treasury Note, 5.875%, 11/15/05 .............................. United States 2,000,000 1,942,500
U.S. Treasury Note, 3.375%, 1/15/07 ............................... United States 1,000,000 1,000,363
U.S. Treasury Note, 6.125%, 8/15/07 ............................... United States 1,700,000 1,657,500
U.S. Treasury Strip, 11/15/21 ..................................... United States 4,000,000 924,991
-----------
TOTAL U.S. GOVERNMENT SECURITIES (COST $16,385,886) ............... 15,601,777
-----------
TOTAL LONG TERM INVESTMENTS (COST $96,533,110) .................... 134,552,512
-----------
</TABLE>
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT(c) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS 4.0%
FHLB, 2/02/00 (COST $5,970,773) ......................................... United States $6,000,000 $5,973,900
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $102,503,883) ....... 140,526,412
------------
(b)REPURCHASE AGREEMENT 6.4%
Joint Repurchase Agreement, 2.582%, 12/31/99, (Maturity Value $9,538,337)
(COST $9,536,285) ....................................................... United States 9,536,285 9,536,285
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corporation
Warburg Dillon Read LLC
------------
Collateralized by U.S. Treasury Bills & Notes
TOTAL INVESTMENTS (COST $112,040,168) 99.9% ............................. 150,062,697
OTHER ASSETS, LESS LIABILITIES .1% ...................................... 196,298
------------
NET ASSETS 100.0% ....................................................... $150,258,995
============
</TABLE>
(a)Non-income producing.
(b)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements held by the Fund had been entered into on that date.
(c)Securities traded in U.S. dollars unless otherwise indicated
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value (cost $112,040,168) .............................................. $150,062,697
------------
Receivables:
Capital shares sold ................................................................................. 650,521
Dividends and interest .............................................................................. 452,478
------------
Total assets .................................................................................... 151,165,696
------------
Liabilities:
Payables:
Capital shares redeemed ............................................................................. 650,305
Affiliates .......................................................................................... 151,513
Shareholders ........................................................................................ 68,711
Other liabilities .................................................................................... 36,172
------------
Total liabilities ............................................................................... 906,701
------------
Net assets, at value $150,258,995
============
Net assets consist of:
Undistributed net investment income .................................................................. $53,840
Net unrealized appreciation .......................................................................... 38,022,529
Accumulated net realized gain ........................................................................ 1,062,985
Capital shares ....................................................................................... 111,119,641
------------
Net assets, at value ............................................................................ $150,258,995
============
CLASS A:
Net asset value per share ($146,714,862 / 12,950,136 shares outstanding)* ............................ $11.33
============
Maximum offering price per share ($11.33 / 94.25%) ................................................... $12.02
============
CLASS C:
Net asset value per share ($3,544,133 / 313,408 shares outstanding)* ................................. $11.31
============
Maximum offering price per share ($11.31 / 99.00%) ................................................... $11.42
============
</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 year ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Investment income:
(net of foreign taxes of $22,328)
Dividends ............................................................................. $ 1,135,624
Interest .............................................................................. 2,241,715
-----------
Total investment income .......................................................... 3,377,339
-----------
Expenses:
Management fees (Note 3) .............................................................. 757,931
Distribution fees (Note 3)
Class A .............................................................................. 310,818
Class C .............................................................................. 9,012
Transfer agent fees (Note 3) .......................................................... 176,003
Custodian fees ........................................................................ 7,083
Reports to shareholders ............................................................... 41,422
Registration and filing fees .......................................................... 40,018
Professional fees ..................................................................... 30,007
Trustees' fees and expenses ........................................................... 3,897
Other ................................................................................. 6,790
-----------
Total expenses ................................................................... 1,382,981
-----------
Net investment income ........................................................... 1,994,358
-----------
Realized and unrealized gains:
Net realized gain from:
Investments .......................................................................... 4,516,192
Transactions in written options which expired or were closed (Note 5) ................ 41,428
Foreign currency transactions ........................................................ 6,945
-----------
Net realized gain ................................................................ 4,564,565
Net unrealized appreciation on investments ............................................ 15,843,406
-----------
Net realized and unrealized gain ....................................................... 20,407,971
-----------
Net increase in net assets resulting from operations ................................... $22,402,329
===========
</TABLE>
See notes to financial statements.
FRANKLIN ASSET ALLOCATION FUND
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................................................. $1,994,358 $1,905,517
Net realized gain from investments, options, and foreign currency transactions ..... 4,564,565 1,166,727
Net unrealized appreciation on investments ......................................... 15,843,406 9,935,854
-----------------------------------
Net increase in net assets resulting from operations ........................... 22,402,329 13,008,098
Distributions to shareholders from:
Net investment income:
Class A ........................................................................... (1,969,117) (1,984,332)
Class C ........................................................................... (14,119) --
Net realized gains:
Class A ........................................................................... (3,775,397) (1,213,212)
Class C ........................................................................... (76,530) --
-----------------------------------
Total distributions to shareholders ................................................. (5,835,163) (3,197,544)
Capital share transactions: (Note 2)
Class A ............................................................................ 22,098,801 8,827,148
Class C ............................................................................ 3,325,142 --
-----------------------------------
Total capital share transactions .................................................... 25,423,943 8,827,148
Net increase in net assets ..................................................... 41,991,109 18,637,702
Net assets
Beginning of year ................................................................... 108,267,886 89,630,184
-----------------------------------
End of year ......................................................................... $150,258,995 $108,267,886
===================================
Undistributed net investment income included in net assets:
End of year ......................................................................... $53,840 $35,773
===================================
</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 a diversified, open-end investment company, consisting of
one fund (the Fund). The investment objective of the Fund 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 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. OPTIONS:
In order to produce incremental income or protect against changes in the value
of the underlying securities, the Fund may buy and sell 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 the 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.
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.
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 all of its taxable income.
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
Effective May 1, 1999, the Fund offers two classes of shares: Class A and Class
C. Outstanding shares before that date were designated as Class A shares. 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 December 31, 1999, there were an unlimited number of shares authorized (no
par value). Transactions in the Fund's shares were as follows:
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold .................................... 5,839,883 $61,426,546 4,374,604 $40,768,517
Shares issued in reinvestment of distributions . 478,601 5,160,095 301,346 2,874,984
Shares redeemed ................................ (4,235,173) (44,487,840) (3,711,329) (34,816,353)
--------------------------------------------------------------------------
Net increase ................................... 2,083,311 $22,098,801 964,621 $8,827,148
==========================================================================
CLASS C SHARES:*
Shares sold .................................... 323,668 $3,434,754
Shares issued in reinvestment of distributions . 7,939 86,580
Shares redeemed ................................ (18,199) (196,192)
--------------------------------
Net increase ................................... 313,408 $3,325,142
================================
</TABLE>
* For the period May 1, 1999 (effective date) to December 31, 1999.
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements (continued)
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.
The Fund pays an investment management fee to Advisers based on the 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 the Fund shares, and received
contingent deferred sales charges for the year of $26,843 and $3,969,
respectively.
The Fund paid transfer agent fees of $176,003, of which $153,550 was paid to
Investor Services.
4. INCOME TAXES
At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $112,075,776 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation ........ $41,360,663
Unrealized depreciation ........ (3,373,742)
-----------
Net unrealized appreciation .... $37,986,921
===========
</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 year
ended December 31, 1999 aggregated $75,437,895 and $52,507,916, respectively.
FRANKLIN ASSET ALLOCATION FUND
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS (cont.)
Transactions in written options for the year ended December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (PAID)
-------------------------
<S> <C> <C>
Options outstanding at
December 31, 1998............. 362 $ 161,759
Options written................ 2,200 1,092,140
Options expired................ (300) (133,346)
Options exercised.............. (1,262) (614,369)
Options closed................. (1,000) (506,184)
-------------------------
Options outstanding at
December 31, 1999............. -- $ --
=========================
</TABLE>
6. CREDIT FACILITY
Certain Franklin Templeton Funds, including Franklin Asset Allocation Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
or emergency purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December 31,
1999, the Fund had not utilized this credit facility.
FRANKLIN ASSET ALLOCATION FUND
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
FRANKLIN ASSET ALLOCATION FUND:
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Asset Allocation Fund (the
Fund) at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles in the United States.
These financial statements and financial highlights (hereafter referred to as
financial statements) are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
February 3, 2000
FRANKLIN ASSET ALLOCATION FUND
Tax Designation
Under Section 852(b)(3)(c) of the Internal Revenue Code, the Fund hereby
designates $3,227,452, as a capital gain dividend for the fiscal year ended
December 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
30.03% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended December 31, 1999.
