Franklin Balanced Fund–Advisor Class
Total Return
Multi Asset
March 31, 2017
Product Profile
Product Details1
Fund Assets
$3,507,018,330.36
Fund Inception Date
07/03/2006
Number of Issuers
138
NASDAQ Symbol
FBFZX
Maximum Sales Charge
Investment Style
Benchmark
0.00
Total Return
Bloomberg Barclays US
Aggregate Index;S&P
500 Index
Mixed-Asset Target
Allocation Moderate
Funds
Allocation—50% to 70%
Equity
Monthly
Lipper Classification
Morningstar Category
Dividend Frequency
Asset Allocation2
Fund Description
The fund seeks both income and capital appreciation by investing in a combination of stocks,
convertible securities and fixed income securities.
Performance Data4
Average Annual Total Returns5 (%)
Advisor Class
S&P 500 Index
2.68
0.82
0.82
1 Yr
3 Yrs
5 Yrs
10 Yrs
Since Inception
(07/03/2006)
17.17
10.37
13.30
7.51
8.16
11.78
6.07
0.44
"
5.83
2.34
6.55
4.27
4.60
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2.68
7.71
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5.68
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Total Annual Operating Expenses—With Waiver: 0.77% Without Waiver: 0.78%
30-Day Standardized Yield6—With Waiver: 2.39% Without Waiver: 2.37%
2.68
6.07
Bloomberg Barclays
US Aggregate Index
YTD
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Percent of Total
3 Mths
Third-Party Fund Data
Overall Morningstar RatingTM 3
Traditional
As of 03/31/2017 the fund’s Advisor Class
shares received a 4 star overall Morningstar
Rating™, measuring risk-adjusted returns
against 721, 616 and 424 U.S.-domiciled
Allocation—50% to 70% Equity mutual funds
and exchange traded funds over the 3-, 5- and
10- year periods, respectively. A fund’s overall
rating is derived from a weighted average of the
performance figures associated with its 3-, 5and 10-year (if applicable) rating metrics.
Performance data represents past performance, which does not guarantee future results. Current
performance may differ from figures shown. The fund’s investment return and principal value will
change with market conditions, and you may have a gain or a loss when you sell your shares. Please
call Franklin Templeton Investments at (800) DIAL BEN/342-5236 or visit franklintempleton.com for
the most recent month-end performance.
Advisor Class shares are offered only to certain eligible investors as stated in the prospectus. They
are offered without sales charges or Rule 12b-1 fees. The fund offers other share classes subject to
different fees and expenses, which will affect their performance. Please see the prospectus
for details.
The fund has a fee waiver associated with any investment it makes in a Franklin Templeton money
fund and/or other Franklin Templeton fund, contractually guaranteed through 2/28/18. Fund
investment results reflect the fee waiver; without this waiver, the results would have been lower.
1. All holdings are subject to change. Holdings of the same issuers have been combined.
2. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be
negative due to rounding use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current
or future portfolio characteristics. All holdings are subject to change.
4. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees,
expenses or sales charges.
5. Periods shorter than one year are shown as cumulative total returns.
6. The fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the
dividends accrued on stocks. It may not equal the fund’s actual income distribution rate, which reflects the fund’s past dividends
paid to shareholders.
Not FDIC Insured | May Lose Value | No Bank Guarantee
Franklin Balanced Fund–Advisor Class
Calendar Year Returns (%)
Advisor Class
S&P 500 Index
Bloomberg Barclays US
Aggregate Index
2016
2015
2014
1.38
13.69
12.22
-2.57
2.65
0.55
11.96
March 31, 2017
2013
2012
7.79
13.41
12.99
5.95
-2.02
4.21
32.39
16.00
2011
2010
2009
2008
2007
-37.00
5.49
3.54
15.35
38.02
-32.64
7.84
6.54
5.93
5.24
2.11
15.06
26.46
4.56
6.97
Portfolio Manager Insight7
Market Review
US equity gauges marched through a series of record highs and posted their largest quarterly gain since 2015 as optimism surrounding President Donald
Trump’s policy initiatives joined with brightening domestic economic data to drive equity markets higher. An improving corporate earnings outlook and
increased confidence among businesses and consumers were also supportive. The first-quarter 2017 rally was further backed by signs of synchronized
developed- and emerging-market growth underpinned by stronger leading indicators in China, Europe and Japan. Major US equity indexes eventually
saw their upward trend lines break to the downside in March. At that point, growing skepticism surrounding the Trump administration’s ability to enact a
pro-business agenda weighed on sectors that had previously benefited from the “Trump trade,” namely financials and industrials. Technology companies
led the market higher for the quarter, followed by smaller gains in the consumer discretionary, health care and six other sectors, along with contrasting
declines in the energy and telecommunication services sectors. Large- and mid-capitalization stocks enjoyed solid average gains, while small caps were
notable laggards. In terms of investment style, growth-oriented stocks generally outperformed their value counterparts regardless of company size.
Across the globe, developed equity markets produced solid returns that generally outpaced the United States, as did most emerging and frontier markets.
Incoming US economic data reflected a tight labor market amid low unemployment, gradually accelerating inflation, stronger housing demand, and
resilient spending across most consumer segments. A key consumer sentiment gauge reached its highest level since late 2000 as more Americans
thought jobs were plentiful than at any point since 2001. Manufacturing activity continued to improve, while ongoing expansion in the US services sector
cooled off somewhat near quarter-end but remained near cyclical peak levels. The US Federal Reserve (Fed) offered a broadly positive economic
assessment in March and raised benchmark short-term interest rates for just the third time in a decade.
Performance Review
Absolute contributions to the fund’s first-quarter 2017 returns came from a wide variety of holdings as most of them advanced on both the equity and
fixed income sides of the portfolio. Much of the equity gains came from the consumer staples, information technology (IT), health care, industrials and
materials sectors. Energy equities saw widespread declines, while the fund’s fixed income portion contained no significant detractors.
Equity Analysis
In the consumer staples sector, all holdings advanced, including global tobacco producer Philip Morris International, which reported strong sales with
favorable pricing in its legacy products, in addition to incremental returns from newer product platforms. Kimberly-Clark, an American multinational
personal goods manufacturer that produces mostly paper-based consumer products, was driven by stronger-than-expected earnings aided by effective
cost savings, an equity valuation that was below its industry peer group average, and merger speculation among food and household product companies
in recent months.
Most IT-related equity holdings rallied, including leading fund contributors such as Texas Instruments, Oracle and Microsoft, as many technology
companies reported stronger-than-expected sales and earnings metrics for the final quarter of 2016. In general, the fund’s IT holdings have benefited
from accelerating earnings growth and a more optimistic tone from tech company executives. In particular, semiconductor manufacturer Texas
Instruments continued to increase its market share while serving a broad array of end markets, and has lately shown improving profitability and financial
metrics, underscored by better-than-expected results during the fourth-quarter 2016 earnings season. Oracle, meanwhile, advanced in the wake of the
company’s in-line quarterly revenue results and above-consensus earnings-per-share (EPS) results. The company saw modest outperformance in its
higher-margin software and cloud segments, but this was offset somewhat by signs of weakness in its hardware business. The EPS upside was partially
the result of higher cloud-related gross margins and cost reductions in its secularly challenged hardware business. Finally, tech bellwether Microsoft’s
Azure cloud-computing platforms and services have become a major revenue generator for the company.
After underperforming in 2016, most of the fund’s health care stocks rallied solidly over the January–March span. Within the group, our pharmaceutical
industry holdings had a significant positive impact. Pharmaceutical companies, in general, performed well as the prospect of additional government
regulation of drug pricing appeared less likely. Shares of top contributor AstraZeneca rebounded after it posted better-than-expected earnings, and the
company continued to be a highly sought-after partner for several of its pharmaceutical industry peers due to its focused development pipeline. Amgen
was also highly supportive as the company benefited from positive data on its cholesterol drug as well as a favorable outcome in litigation over one of its
other drugs.
Returns in the industrial sector were led higher by non-hazardous solid waste collection services provider Republic Services, though aerospace and
defense contractors such as Raytheon also fared well on the prospects of increased US government defense spending. All of our materials sector
investments advanced on signs of stronger global demand that has helped diminish inventory overhangs and supply surpluses in key commodity
markets, and on expectations of increased infrastructure spending under the new US presidential administration. The sector was further supported by the
inverse pricing correlation of a weaker trade-weighted US dollar (which makes commodities less expensive for non-US buyers) and ongoing costcontainment efforts. All of the fund’s equity positions in the materials sector—a mix of chemical manufacturers and fertilizer producers—traded higher, led
by Dow Chemical. The potential for eventual approval of Dow’s intended merger with DuPont (not a fund holding) grew more likely in early 2017. Investor
optimism that the combination should drive additional value creation over time underpinned the rally in Dow’s common stock.
Smaller sector contributors included financials, utilities, real estate, telecommunication services and consumer discretionary. Among these groups, home
improvement retailer Lowe’s Companies (consumer discretionary) and Rogers Communications (telecommunication services) were standout
contributors. Lowe’s reported a solid fourth quarter of 2016, with strong sales and good momentum heading into 2017, according to our analysis. Rogers
Communications’ wireless business continued to perform well, with its cable business improving as investors became less concerned about business
operations during the period prior to its new chief executive officer taking the reins.
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2
Franklin Balanced Fund–Advisor Class
March 31, 2017
Conversely, energy holdings were had a negative impact on the fund’s overall results. After a strong rebound in 2016, energy holdings detracted from
performance in January and February as rising US onshore oil-rig counts and elevated global crude oil inventory levels pressured energy commodities
and numerous related equities outside of the oil and gas storage and transportation industry. Hess, Occidental Petroleum, Chevron and Anadarko
Petroleum were among the fund’s key detractors. Chevron, in particular, reported a fourth quarter that was weaker than consensus expectations, driven
in part by significant maintenance downtime at one of its refineries. A major point of weakness in the consumer discretionary space was US-based
general merchandise retailer Target, which was also the fund’s leading detractor for the quarter. Target announced that strong holiday season results,
which started off with solid Black Friday sales, did not continue through year-end 2016. It also offered weak guidance for 2017 that was emblematic of
many brick-and-mortar retailers’ struggles versus their online competitors. The softness was store traffic-related, with weakness in food, essentials and
electronics sales. Furthermore, heavier promotions throughout the quarter and the more meaningful consumer shift to Internet retailers hurt its margins.
In seeking to improve the trajectory of the business, the company has vowed to lower prices and remodel hundreds of stores while enhancing its online
and supply chain capabilities. There were only a handful of other individual detractors across the equity portion. Mobile communications chipmaker
Qualcomm sold off in the IT sector; General Electric trimmed the overall contribution from industrials holdings; Verizon (telecommunication services)
reported weaker-than-anticipated results driven by increased competition within its wireless business; and Teva Pharmaceutical Industries reduced our
overall advance in health care amid disappointing quarterly earnings and negative outcomes in regard to drug patent challenges.
Fixed Income Analysis
What many investors at the outset of 2017 thought was supposed to be the year of the bear market in bonds has thus far turned out to be just the
opposite. The decline in longer-term yields was largely a tailwind for corporate fixed income securities, which ended the period in positive territory despite
flat results in March. Investors continued to migrate into higher-yielding corporate bonds even as their yield spreads versus Treasuries have narrowed as
prices reached recent highs. According to our analysis, high-yield corporate debt default rates continued to decline during the period as liquidity and
access to capital remained favorable amid robust new issuance, particularly in March as issuers rushed to get ahead of the Fed’s latest interest-rate hike.
Given the stable fundamentals outlined above, the fund benefited from the increased buying and issuance within the corporate bond space, and all of our
related sector/industry allocations helped propel absolute returns higher. Furthermore, all credit-quality tranches represented in the portfolio were
supportive, except for those rated B-, with the highest average returns generally pertaining to non-investment grade credits rated BB and below. This
sub-category outperformed as overall yield spread compression during the period helped lower-rated bonds most of all. The portion of the fund dedicated
to investment-grade bonds rated BBB and above also performed well, but to a lesser degree.
Bonds issued by consumer non-cyclicals, banking, communications and energy companies were the strongest first-quarter contributors overall, though
net gains were present across all fund allocations. In consumer non-cyclicals, hospital and health care center operators such as Community Health
Systems and Tenet Healthcare were among the top contributors, as were several pharmaceutical firms such as Valeant Pharmaceuticals International. In
particular, Community Health outperformed as concerns about the potential repeal of the Affordable Care Act receded. Hospitals were the biggest
beneficiaries of this change in sentiment. In addition, Community Health reported much better-than-expected fourth-quarter earnings and announced
several asset sales at robust deleveraging multiples, leading to significant outperformance relative to the broader market. The fund’s banking and finance
company contributors included our debt holdings in Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley and Wells Fargo. In communications,
DISH Network and Sirius XM Radio led several contributors, while the positive results for nearly all energy bonds were aided foremost by Weatherford
International. Notably, our energy bonds fared better than related equities as many investors maintained confidence in these companies’ ability to pay
down their long-term debt despite a lack of crude oil and natural gas pricing power so far in 2017. Moreover, green shoots of pricing power have emerged
on the services side of the energy value chain, which has benefited Weatherford in particular.
There were no significant detractors across the fund’s fixed income sector/industry allocations.
Portfolio Positioning
While equities have continued to represent a larger weighting in the portfolio than fixed income, much as they did in 2016, the fund’s allocations shifted
incrementally out of equities and into bonds thus far in 2017. Our equity allocation at the end of March was 59.1% of total holdings versus 32.4% for fixed
income securities, compared to 60.8% and 31.7% at the end of 2016. Meanwhile, the cash position increased from 7.5% to 8.5%. The largest quarterend equity allocations were industrials, financial and energy. Our largest exposures in fixed income were consumer non-cyclical, banking and energy. The
equity weighting included 10.8% in convertible securities and equity-linked notes (ELNs) that we believe offer attractive yield and total return potential.
Outlook & Strategy
We continue to hold the view that US interest rates may be poised to rise further in the quarters and years ahead as economic indicators, including
inflation, gradually recover from the unusually low levels that persisted after the 2008–2009 global financial crisis. The fund’s positioning reflects our
efforts to navigate this scenario. That said, while real yields have risen recently, corporate bond spreads have narrowed as investor demand for high-yield
fixed income securities has remained strong. We believe this trend, along with what recently have been rising stocks and commodities and a relatively
flat US dollar, point to continued optimism about the global economy. Interest rates have remained low by historical standards, but the Fed has moved to
a new and more aggressive phase of withdrawing “easy money” from the financial system as the economy improves. In addition, we are seeing early
evidence of a synchronized global upturn year-to-date in 2017. In our view, central banks in the world’s other major economies are not yet feeling as
compelled as the United States to tighten their monetary policies given the earlier stages of their economic recoveries. However, we anticipate directional
moves toward tightening in the future by other global central banks as their economic data continue to gradually improve. Quantitative easing and other
unconventional monetary policy tools appear to have served their intended purpose during the depths of the global financial crisis—loosening financial
conditions by incrementally lowering market interest rates. At this point, it appears that the US and global financial markets have returned to levels of
stability that no longer warrant such aggressive monetary tools.
In the United States, we anticipate faster growth potential for earnings, cash flow and dividends. We think this environment is well suited for active
managers like us. One thing that clearly stands out to us is that within the last four or five months, we have seen more differentiation and lower correlation
among sectors and individual stocks than we have over the past few years. Certain drivers that previously existed—including a generally strong investor
preference for yield and stability—drove specific sectors. Real estate investment trusts, utilities, consumer staples and telecommunication services stocks
all were good examples; these areas were very strong performers and saw some elevated valuations. In 2017, attention has pivoted somewhat to stocks
and sectors that have a little more of a cyclical component—financials, industrials, technology and to some extent energy. Financials, in particular, tend to
do better when rates rise and the yield curve steepens, because these firms can charge more for loans while more slowly adjusting deposit rates.
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3
Franklin Balanced Fund–Advisor Class
March 31, 2017
The steepening of the yield curve (in which yields on long-term bonds rise faster than on short-term issues) and the narrowing of credit spreads (the
difference in yield between bonds of similar duration but of different credit quality) are certainly positive developments for financials. So are the prospects
of fewer regulations and the reduced costs of compliance. Ultimately, we think the current environment represents an attractive time for active
management and for us to be able to leverage our fundamental research.
On the policy front, there clearly has been a learning curve for President Trump and his advisors, which is likely true of every new administration. We
have not yet seen any of the policies that may lead to better economic growth meaningfully derailed, but Trump’s first 50 or so days in office likewise did
little to allay concerns about a potential policy mistake. Nevertheless, we continue to see a positive overall backdrop for 2017 that is apt to be sustainable
into 2018 as policy proposals become more concrete and move toward enactment.
Globally, on the equity side, there has been underperformance in a number of regions versus the United States, and valuations at quarter-end were
generally a bit lower, which we regard as interesting. We continue to find compelling opportunities among some leading multinational companies that
provide exposure to investment themes in both the United States and emerging-market economies. As always, there are risks we must take into careful
consideration. Reflation can be positive, but there is another side to that coin: Inflation, rising input costs and wage pressures all can be problematic and
offset some of the positive aspects. We think stocks on a relative basis still held fairly strong appeal as we entered 2017’s second quarter. We also
believe there is potential for further upside in the months ahead, but not without risks we need to monitor.
Dividends remain a core focus of the fund’s equity portion. To be sure, the pace of dividend growth has been decelerating but is still ample, as evidenced
by elevated payout ratios. We believe the strong growth in dividends achieved over the last five years pulled forward some future growth and therefore
EPS needs to catch up, meaning an estimate that modestly lags projected EPS growth might be appropriate. We expect US banks may be well
positioned to generate some of the stronger dividend growth going forward, while other sectors, including real estate and automobile manufacturers, may
see reduced aggregate dividends payouts.
In line with a positive assessment of broader economic fundamentals, credit conditions have remained broadly favorable, in our view, with still-low interest
rates, generally strong corporate balance sheets, manageable debt service costs, and markets that still have appeared receptive to debt offerings. We
hold a constructive view on corporate credit, including investment grade and high-yield issuance, even though it has had a healthy run. We still think
these sectors could broadly benefit from economic tailwinds despite the increased risks posed by tightening credit spreads. Among corporate bonds rated
below investment grade, we are cognizant of the risk of distress and defaults when we are so far into the US economic cycle. We monitor the situation
closely, but we have not seen early signs of broad credit deterioration, at least for the near-to-intermediate term. Default rates have remained low,
particularly outside of the energy sector, and we believe an improving economy should help continue that trend. In other words, one can find challenging
conditions in some isolated portions of US credit markets—including energy, materials and increasingly in traditional brick-and-mortar retailers—but we
think the overall outlook remains constructive. We expect the Fed to continue raising short-term interest rates as it seeks a more neutral level of interest
rates across the yield curve, and that it will do so in a more consistent fashion over time. Given the strength of the US economy, we view Fed tightening
with a positive lens and believe there are still plenty of potential opportunities within the fixed income universe for investors.
Consistent with a cautiously optimistic view, the fund’s fixed income holdings continue to emphasize corporate debt on the lower end of the high-grade
credit spectrum, as well as those issued from the middle to upper range of the sub-investment-grade ratings tier, with a bias toward shorter maturities as
a means to manage interest-rate risk. We believe the fund’s portfolio of corporate bonds continues to offer a favorable combination of yield, income and
return potential in a market environment in which options have narrowed.
7. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change,
comments, opinions and analyses are rendered as of the date of this posting and may change without notice. A portfolio manager’s assessment of a particular security, investment or strategy is not
intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund’s
portfolio selection process. Holdings are subject to change.
Portfolio Characteristics8,9,10,11
Price to Earnings (12 Month Trailing)
Price to Book Value
Price to Cash Flow
Market Capitalization (Millions in USD)
Average Duration
Average Weighted Maturity
Portfolio
20.00
2.62
11.41
133,621.09
S&P 500 Index
22.75
3.09
12.78
163,919.22
Portfolio
Bloomberg Barclays US Aggregate Index
6.66
8.17
5.25
6.00
8. The portfolio characteristics listed are based on the fund’s underlying holdings, and do not necessarily reflect the fund’s characteristics. Due to data limitations all equity holdings are assumed to be
the primary equity issue (usually the ordinary or common shares) of each security’s issuing company. This methodology may cause small differences between the portfolio’s reported characteristics
and the portfolio’s actual characteristics. In practice, Franklin Templeton’s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The
market capitalization figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Average Weighted Maturity and Average Duration data points
pertain to the fixed income component of the fund. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change.
9. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exception to this are noted.
10. Average Duration and Average Weighted Maturity reflect certain derivatives held in Portfolio (or their underlying reference assets).
11. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.
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Franklin Balanced Fund–Advisor Class
March 31, 2017
Portfolio Diversification
Top Ten Holdings12
Percent of Total
Top Holdings
%
WELLS FARGO & CO
2.36
GENERAL ELECTRIC CO
1.99
JPMORGAN CHASE & CO
2.23
MICROSOFT CORP
1.87
TEXAS INSTRUMENTS INC
1.85
BANK OF AMERICA CORP
1.76
RAYTHEON CO
1.56
COCA-COLA CO
1.44
DOW CHEMICAL CO
1.44
MORGAN STANLEY
1.43
Geographic Allocation13
Percent of Total
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Sector Weightings vs. S&P 500 Index14,15
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Sector Weightings vs. Bloomberg Barclays US Aggregate Index16,17
Equity as a Percent of Total
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12. Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. The
information provided is not a recommendation to purchase, sell, or hold any particular security. The portfolio manager for the fund reserves the right to withhold release of information with respect to
holdings that would otherwise be included.
13,16. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding use of derivatives, unsettled trades or
other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change.
14. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change.
15,17. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.
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Franklin Balanced Fund–Advisor Class
March 31, 2017
Credit Quality Ratings18
Fixed Income as a Percent of Total
Supplemental Performance Statistics
Supplemental Risk Statistics19,20
Standard Deviation
Franklin Balanced Fund
Tracking Error
Information Ratio
Beta
Sharpe Ratio
Franklin Balanced Fund
3 Yrs
5 Yrs
10 Yrs
7.09
6.76
11.88
4.40
4.61
6.09
-1.07
-1.21
-0.28
0.78
1.12
0.44
0.65
0.62
0.73
Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund’s
investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call
Franklin Templeton Investments at (800) DIAL BEN/342-5236 or visit franklintempleton.com for the most recent month-end performance.
18. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations (‘NRSRO’), such as Standard & Poor’s, Moody’s and Fitch. The ratings are an indication of an
issuer’s creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest
rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. The NR
category consists of rateable securities that have not been rated by an NRSRO. The N/A category consists of nonrateable securities (e.g., equities). Cash and equivalents as well as derivatives are
excluded from this breakdown. As a result, the chart does not reflect the fund’s total net assets. Information is historical and may not reflect current or future portfolio characteristics. All holdings are
subject to change.
19. Beta, Information Ratio and Tracking Error information are displayed for the product versus the S&P 500 Index.
20. Information ratio is a way to evaluate a manager’s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This
measure is calculated by dividing the portfolio’s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences
between the portfolio return and the benchmark return over time).
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Franklin Balanced Fund–Advisor Class
March 31, 2017
Investment Philosophy & Process
Investment Philosophy
We believe that we can identify investments with the potential to
deliver attractive risk-adjusted total returns. We search for long-term
investments that seek to exploit a fundamental view that differs from
the “market consensus” regarding growth potential or valuation.
Our goal is to focus on investment opportunities that we believe offer
the most compelling risk-reward trade-off between growth potential,
valuation and risk.
Investment Approach
We utilize a flexible and diversified approach, searching across
various asset classes including equities, fixed income and convertibles
in seeking to meet the fund’s investment objective. The fund normally
invests at least 25% of its total assets in equity securities and at least
25% of its total assets in fixed income securities, including money
market securities and the value of convertible and preferred securities
that can be attributed to their debt characteristics.
Investment Team
Edward D. Perks, CFA
Alan Muschott, CFA, MBA
Shawn Lyons, CFA
Todd Brighton, CFA
Portfolio
Objective
Rigorous Bottom-Up,
Fundamental Research
Equities
Fixed Income
Convertibles
Years with Firm
Years Experience
18
18
24
20
16
24
21
17
Glossary
Average Duration: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is
expressed as a number of years.
Average Weighted Maturity: An estimate of the number of terms to maturity, taking the possibility of early payments into account, for the underlying
holdings. Maturity is expressed as a number of years.
Beta: A measure of the magnitude of a portfolio’s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate
market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when
the overall market rose or fell by 10%.
Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager’s
performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by
which the investment has beaten the benchmark.
Market Capitalization: A determination of a company’s value, calculated by multiplying the total number of company stock shares outstanding by the
price per share. Market capitalization is expressed in millions of USD.
Price to Book Value: The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the value represents a weighted
average of the stocks it holds.
Price to Cash Flow: Supplements price/earnings ratio as a measure of relative value for a stock. For a portfolio, the value represents a weighted
average of the stocks it holds.
Price to Earnings (12-mo Trailing): The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, the value represents
a weighted average of the stocks it holds.
Sharpe Ratio: To calculate a Sharpe ratio, an asset’s excess returns (its return in excess of the return generated by risk-free assets such as Treasury
bills) are divided by the asset’s standard deviation.
Standard Deviation: A measure of the degree to which a fund’s returns varies from the average of its previous returns. The larger the standard
deviation, the greater the likelihood (and risk) that a fund’s performance will fluctuate from the average return.
Tracking Error: Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a
percentage. The more passively the investment fund is managed, the smaller the tracking error.
franklintempleton.com
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Franklin Balanced Fund–Advisor Class
March 31, 2017
What Are The Risks?
All investments involve risks, including possible loss of principal. The fund’s share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction of
interest rates. As the prices of bonds in the fund adjust to a rise in interest rates, the fund’s share price may decline. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting
individual companies, particular industries or sectors, or general market conditions. These and other risk considerations are described more fully in the prospectus.
Important Legal Information
Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other
information, talk to your financial advisor, call us at (800) DIAL BEN/342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
Standard & Poor’s®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product.
Important data provider notices and terms available at: www.franklintempletondatasources.com
3. Source: Morningstar®, 03/31/2017. For each mutual fund and exchange traded fund with at least a 3-year history, Morningstar calculates a Morningstar Rating™ based on how a fund ranks on a
Morningstar Risk-Adjusted Return measure against other funds in the same category. This measure takes into account variations in a fund’s monthly performance, and does not take into account the
effects of sales charges, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4
stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The weights are: 100% 3-year rating for 36-59 months of total returns, 60% 5-year rating/40% 3year rating for 60-119 months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems
to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. The Fund’s Advisor Class shares
received a Morningstar Rating of 4, 4 and 3 star(s) for the 3-, 5- and 10-year periods, respectively. Morningstar Rating™ is for the named share class only; other classes may have different
performance characteristics. Past performance is not an indicator or a guarantee of future performance.
Franklin Templeton Distributors, Inc.
One Franklin Parkway
San Mateo, CA 94403-1906
(800) DIAL BEN/342-5236
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© 2017 Franklin Templeton Investments. All rights reserved.
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