UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7851
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Franklin Templeton Fund Allocator Series
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(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Murray L. Simpson, One Franklin Parkway, San Mateo, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 7/31
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Date of reporting period: 7/31/03
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Item 1. Reports to Stockholders.
JULY 31, 2003
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
[GRAPHIC OMITTED]
ANNUAL REPORT AND SHAREHOLDER LETTER
ASSET ALLOCATION
Franklin Templeton
Fund Allocator Series
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[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
expertise in growth- and value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style
of value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios covering every major asset class.
RELIABILITY YOU CAN TRUST
At Franklin Templeton Investments, we seek to consistently provide investors
with exceptional risk-adjusted returns over the long term, as well as the
reliable account services that have helped us become one of the most trusted
names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the annual report
Contents
SHAREHOLDER LETTER ..................... 1
ANNUAL REPORT
Franklin Templeton
Conservative Target Fund ............... 3
Franklin Templeton
Moderate Target Fund ...................11
Franklin Templeton
Growth Target Fund .....................18
Financial Highlights &
Statements of Investments ..............25
Financial Statements ...................37
Notes to
Financial Statements ...................41
Independent
Auditors' Report .......................48
Tax Designation ........................49
Board Members
and Officers ...........................50
Annual Report
Franklin Templeton
Conservative Target Fund
YOUR FUND'S GOAL: Franklin Templeton Conservative Target Fund seeks the highest
level of long-term total return achievable at a lower level of risk.
We are pleased to bring you Franklin Templeton Conservative Target Fund's annual
report for the fiscal year ended July 31, 2003.
PERFORMANCE OVERVIEW
For the 12 months under review, Franklin Templeton Conservative Target Fund-
Class A posted a +8.99% cumulative total return, as shown in the Performance
Summary beginning on page 7. The Fund outperformed its hybrid benchmark, which
comprised a weighted combination of the Standard & Poor's 500 Composite Index
(S&P 500) and the Morgan Stanley Capital International (MSCI) Europe Australasia
Far East (EAFE) Index for equities, the Lehman Brothers Government/ Credit Index
for fixed income, and the P&R 90 Day T-Bill for short-term investments and other
net assets. For the reporting period, the benchmark returned 7.35%. 1
ECONOMIC AND MARKET OVERVIEW
During the year under review, the U.S. economy experienced mixed growth. While
the economy grew strongly in 2002's third quarter, expanding at a 4.0%
annualized rate, several factors including war in Iraq weighed on manufacturers
and consumers. Growth slowed in the subsequent two quarters to 1.4% annualized,
followed by annualized 3.1% expansion in 2003's second quarter.
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index
is market capitalization-weighted and measures total returns of equity
securities in developed markets in Europe, Australasia and the Far East. The
Lehman Brothers Government/ Credit Index includes fixed-rate debt issues rated
investment grade or higher by Moody's, S&P or Fitch, in that order. All issues
have at least one year to maturity and an outstanding par value of at least $100
million for U.S. government issues and $50 million for all others. All returns
are market value-weighted inclusive of accrued interest. The index includes
those issues in the Lehman Brothers Government Bond Index and Corporate Bond
Index. The index includes issues of the U.S. government and agencies thereof,
domestic corporate issues and foreign dollar-denominated issues. Total return
includes price appreciation/depreciation and income as a percentage of the
original investment. The index is rebalanced monthly by market capitalization.
The P&R 90 Day T-Bill is a total return index based on a constant maturity
instrument. Payden & Rygel includes both accrued interest and change in market
price in its monthly total return calculations. The benchmark index's weightings
are as follows: S&P 500 25%, MSCI EAFE 10%, Lehman Brothers Government/Credit
Index 45% and P&R 90 Day T-Bill 20%.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 28.
Annual Report | 3
TOP FIVE FUND HOLDINGS
Franklin Templeton Conservative Target Fund
7/31/03
- ------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- ------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 18.3%
Franklin Small Cap Growth Fund II 10.3%
Templeton Global Bond Fund 9.8%
Franklin Total Return Fund 7.5%
Mutual Shares Fund 6.9%
- ------------------------------------------------------------------
In the absence of inflationary pressures, the Federal Reserve Board (the Fed)
continued to add monetary liquidity by reducing short-term interest rates. The
Fed lowered the federal funds target rate 75 basis points during the reporting
period to 1.00%, a 45-year low. The yield curve steepened slightly, increasing
the differential between long- and short-term interest rates.
During the 12 months ended July 31, 2003, equity markets began to show signs of
life, with a sustained rally finally taking hold during the second half of the
period. Overall, most major indexes were up for the period--the S&P 500 rose
10.64%, while the technology-laden Nasdaq Composite Index rose 31.40%. 1, 2 In
terms of capitalization, small cap stocks generally did better than large cap.
Investment style results were a little more mixed, with no clear difference
between growth stocks and their value counterparts. Overseas markets also were
up during the reporting period, but continued to lag some domestic markets. For
example, the MSCI Emerging Markets Free (EMF) Index rose 23.01% during the year
under review, while the MSCI EAFE Index gained 6.76%. 1, 3
Bond markets generally performed well, producing positive returns for most of
the period before experiencing a sharp sell-off in July. Higher-rated
securities, including Treasuries and mortgages, continued to benefit from lower
interest rates. Meanwhile, high yield bonds were the best-performing bond
sector, reversing a long run of weak performance as the outlook for corporate
credit improved. The Lehman Brothers Government/Credit Index posted a 7.12%
return for the 12 months ended July 31, 2003. 1
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same Franklin Templeton funds in each
Target Fund's portfolio. We generally diversify the Target Funds' broad equity
allocations across investment styles, market capitalization sizes and countries
of origin. Maintaining similarity of the underlying Franklin Templeton fund
investments across the Allocator Series increased the consistency and relative
predictability of the Target Funds' total returns. For your reference, the
following asset class allocations are prescribed for Franklin Templeton
Conservative Target Fund: 40% equity, 40% fixed income, and 20% short-term
investments and other net assets.
2. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
S&P 500. The Nasdaq Composite Index measures all domestic and international
common stocks listed on the Nasdaq Stock Market. The index is market
value-weighted and includes over 4,000 companies.
3. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
MSCI EAFE Index. The MSCI EMF Index is market capitalization-weighted and
measures total returns of equity securities available to foreign (non-local)
investors in emerging markets globally.
The indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
4 | Annual Report
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
ASSET ALLOCATION
Franklin Templeton Conservative Target Fund
Based on Total Net Assets as of 7/31/03
Domestic Fixed Income ................. 29.7%
Domestic Equity ....................... 27.9%
Foreign Equity ........................ 12.3%
Foreign Fixed Income .................. 9.8%
Short-Term Investments &
Other Net Assets ...................... 20.3%
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
While domestic growth fund holdings such as Franklin Small Cap Growth Fund II
and Franklin Capital Growth Fund performed relatively better versus their equity
benchmark, domestic value fund holdings such as Mutual Shares Fund
underperformed the benchmark. Meanwhile, foreign equity fund holdings such as
Templeton Foreign Fund and Mutual European Fund, although positive during the
period, trailed their benchmark. On the fixed income side, performance of bond
fund holdings was mixed versus the benchmark. Noteworthy outperformers were
Templeton Global Bond Fund and Franklin Strategic Income Fund, a result of
strong performance in their respective international and high yield sectors.
Annual Report | 5
Thank you for your continued participation in Franklin Templeton Conservative
Target Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED]
/S/SIGNATURE
T. Anthony Coffey
Portfolio Manager
Franklin Templeton Fund Allocator Series
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
JULY 31, 2003, THE END OF THE REPORTING PERIOD. OUR STRATEGIES AND THE FUND'S
PORTFOLIO COMPOSITION WILL CHANGE DEPENDING ON MARKET AND ECONOMIC CONDITIONS.
THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A
PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE
FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
6 | Annual Report
Performance Summary as of 7/31/03
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +0.67 $10.91 $10.24
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.2345
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.66 $10.80 $10.14
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1608
- ---------------------------------------------------------------------------------------------------
CLASS R CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.66 $10.89 $10.23
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.2237
Annual Report | Past performance does not guarantee future results. | 7
Performance Summary (CONTINUED)
PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.99% +26.68% +45.83%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.77% +3.61% +4.95%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,277 $11,941 $13,745
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 -1.50% +3.33% +5.00%
- ---------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.20% +22.06% +38.45%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +6.15% +3.86% +4.91%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,615 $12,084 $13,708
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 +1.74% +3.58% +4.97%
- ---------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (1/1/02)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.79% +2.93%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +7.79% +1.85%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,779 $10,293
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 +3.20% +1.23%
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. 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 MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
8 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
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 charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged indexes
include reinvested distributions. They differ from the Fund in composition and
do not pay management fees or expenses. One cannot invest directly in an index.
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
CLASS A (12/31/96-7/31/03)
FT Conservative MSCI EAFE 5
Date Target Fund - Class A S&P 500 5 (Gross Dividends) LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- ------- ----------------- --------------------------- -------------------
12/31/96 $9,425 $10,000 $10,000 $10,000 $10,000
1/31/97 $9,576 $10,624 $9,652 $10,012 $10,045
2/28/97 $9,585 $10,708 $9,812 $10,033 $10,083
3/31/97 $9,474 $10,269 $9,850 $9,914 $10,126
4/30/97 $9,502 $10,881 $9,905 $10,058 $10,171
5/31/97 $9,814 $11,542 $10,551 $10,152 $10,222
6/30/97 $10,028 $12,060 $11,136 $10,274 $10,260
7/31/97 $10,293 $13,018 $11,319 $10,588 $10,304
8/31/97 $10,189 $12,289 $10,475 $10,470 $10,350
9/30/97 $10,570 $12,962 $11,064 $10,634 $10,398
10/31/97 $10,351 $12,529 $10,217 $10,804 $10,437
11/30/97 $10,408 $13,109 $10,114 $10,861 $10,483
12/31/97 $10,513 $13,334 $10,205 $10,975 $10,528
1/31/98 $10,503 $13,481 $10,675 $11,130 $10,581
2/28/98 $10,797 $14,453 $11,362 $11,108 $10,622
3/31/98 $11,036 $15,193 $11,715 $11,142 $10,674
4/30/98 $11,095 $15,346 $11,809 $11,198 $10,723
5/31/98 $10,987 $15,082 $11,755 $11,318 $10,770
6/30/98 $10,988 $15,695 $11,847 $11,433 $10,814
7/31/98 $10,850 $15,528 $11,970 $11,442 $10,861
8/31/98 $10,219 $13,286 $10,489 $11,666 $10,912
9/30/98 $10,397 $14,138 $10,170 $11,999 $10,969
10/31/98 $10,526 $15,287 $11,233 $11,914 $11,012
11/30/98 $10,715 $16,213 $11,812 $11,985 $11,047
12/31/98 $10,826 $17,147 $12,281 $12,015 $11,092
1/31/99 $10,898 $17,864 $12,248 $12,101 $11,136
2/28/99 $10,754 $17,308 $11,959 $11,813 $11,171
3/31/99 $10,916 $18,001 $12,461 $11,872 $11,219
4/30/99 $11,185 $18,697 $12,968 $11,901 $11,261
5/31/99 $11,092 $18,256 $12,303 $11,779 $11,304
6/30/99 $11,273 $19,269 $12,785 $11,742 $11,345
7/31/99 $11,200 $18,668 $13,169 $11,709 $11,393
8/31/99 $11,211 $18,575 $13,220 $11,700 $11,436
9/30/99 $11,196 $18,066 $13,356 $11,805 $11,487
10/31/99 $11,501 $19,209 $13,860 $11,836 $11,531
11/30/99 $12,123 $19,599 $14,345 $11,829 $11,578
12/31/99 $13,021 $20,754 $15,634 $11,757 $11,631
1/31/00 $12,881 $19,712 $14,643 $11,753 $11,676
2/29/00 $13,950 $19,339 $15,040 $11,900 $11,729
3/31/00 $13,756 $21,231 $15,626 $12,073 $11,787
4/30/00 $13,245 $20,592 $14,808 $12,014 $11,848
5/31/00 $12,962 $20,170 $14,449 $12,003 $11,912
6/30/00 $13,335 $20,668 $15,017 $12,248 $11,963
7/31/00 $13,302 $20,345 $14,391 $12,378 $12,018
8/31/00 $13,818 $21,609 $14,519 $12,552 $12,080
9/30/00 $13,675 $20,468 $13,815 $12,600 $12,147
10/31/00 $13,487 $20,382 $13,492 $12,679 $12,209
11/30/00 $12,999 $18,776 $12,988 $12,896 $12,276
12/31/00 $13,418 $18,868 $13,453 $13,150 $12,347
1/31/01 $13,781 $19,538 $13,447 $13,371 $12,427
2/28/01 $13,348 $17,758 $12,439 $13,509 $12,478
3/31/01 $13,004 $16,634 $11,616 $13,571 $12,541
4/30/01 $13,416 $17,924 $12,430 $13,469 $12,592
5/31/01 $13,498 $18,045 $12,001 $13,547 $12,641
6/30/01 $13,439 $17,606 $11,515 $13,612 $12,679
7/31/01 $13,380 $17,434 $11,307 $13,951 $12,721
8/31/01 $13,214 $16,344 $11,023 $14,130 $12,763
9/30/01 $12,493 $15,025 $9,909 $14,260 $12,819
10/31/01 $12,839 $15,312 $10,162 $14,622 $12,852
11/30/01 $13,150 $16,486 $10,537 $14,382 $12,879
12/31/01 $13,295 $16,631 $10,601 $14,268 $12,900
1/31/02 $13,283 $16,389 $10,038 $14,373 $12,918
2/28/02 $13,271 $16,072 $10,109 $14,495 $12,935
3/31/02 $13,544 $16,677 $10,661 $14,200 $12,954
4/30/02 $13,581 $15,666 $10,738 $14,476 $12,974
5/31/02 $13,532 $15,552 $10,884 $14,609 $12,994
6/30/02 $13,141 $14,444 $10,455 $14,733 $13,014
7/31/02 $12,611 $13,319 $9,424 $14,910 $13,032
8/31/02 $12,698 $13,406 $9,405 $15,244 $13,052
9/30/02 $12,306 $11,950 $8,398 $15,572 $13,073
10/31/02 $12,541 $13,000 $8,850 $15,422 $13,092
11/30/02 $12,876 $13,765 $9,252 $15,432 $13,113
12/31/02 $12,792 $12,957 $8,942 $15,841 $13,126
1/31/03 $12,742 $12,619 $8,569 $15,841 $13,141
2/28/03 $12,704 $12,429 $8,373 $16,123 $13,152
3/31/03 $12,687 $12,549 $8,215 $16,102 $13,167
4/30/03 $13,152 $13,583 $9,030 $16,274 $13,180
5/31/03 $13,654 $14,297 $9,585 $16,736 $13,193
6/30/03 $13,732 $14,480 $9,822 $16,669 $13,209
7/31/03 $13,745 $14,735 $10,062 $15,971 $13,218
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
CLASS C (12/31/96 - 7/31/03)
FT Conservative MSCI EAFE 5
Date Target Fund - Class C S&P 500 5 (Gross Dividends) LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- --------- ----------------- --------------------------- -------------------
12/31/96 $9,901 $10,000 $10,000 $10,000 $10,000
1/31/97 $10,059 $10,624 $9,652 $10,012 $10,045
2/28/97 $10,050 $10,708 $9,812 $10,033 $10,083
3/31/97 $9,899 $10,269 $9,850 $9,914 $10,126
4/30/97 $9,929 $10,881 $9,905 $10,058 $10,171
5/31/97 $10,257 $11,542 $10,551 $10,152 $10,222
6/30/97 $10,472 $12,060 $11,136 $10,274 $10,260
7/31/97 $10,740 $13,018 $11,319 $10,588 $10,304
8/31/97 $10,611 $12,289 $10,475 $10,470 $10,350
9/30/97 $11,001 $12,962 $11,064 $10,634 $10,398
10/31/97 $10,771 $12,529 $10,217 $10,804 $10,437
11/30/97 $10,831 $13,109 $10,114 $10,861 $10,483
12/31/97 $10,932 $13,334 $10,205 $10,975 $10,528
1/31/98 $10,912 $13,481 $10,675 $11,130 $10,581
2/28/98 $11,209 $14,453 $11,362 $11,108 $10,622
3/31/98 $11,455 $15,193 $11,715 $11,142 $10,674
4/30/98 $11,506 $15,346 $11,809 $11,198 $10,723
5/31/98 $11,393 $15,082 $11,755 $11,318 $10,770
6/30/98 $11,385 $15,695 $11,847 $11,433 $10,814
7/31/98 $11,231 $15,528 $11,970 $11,442 $10,861
8/31/98 $10,572 $13,286 $10,489 $11,666 $10,912
9/30/98 $10,750 $14,138 $10,170 $11,999 $10,969
10/31/98 $10,874 $15,287 $11,233 $11,914 $11,012
11/30/98 $11,061 $16,213 $11,812 $11,985 $11,047
12/31/98 $11,171 $17,147 $12,281 $12,015 $11,092
1/31/99 $11,235 $17,864 $12,248 $12,101 $11,136
2/28/99 $11,085 $17,308 $11,959 $11,813 $11,171
3/31/99 $11,250 $18,001 $12,461 $11,872 $11,219
4/30/99 $11,508 $18,697 $12,968 $11,901 $11,261
5/31/99 $11,411 $18,256 $12,303 $11,779 $11,304
6/30/99 $11,586 $19,269 $12,785 $11,742 $11,345
7/31/99 $11,510 $18,668 $13,169 $11,709 $11,393
8/31/99 $11,510 $18,575 $13,220 $11,700 $11,436
9/30/99 $11,493 $18,066 $13,356 $11,805 $11,487
10/31/99 $11,798 $19,209 $13,860 $11,836 $11,531
11/30/99 $12,418 $19,599 $14,345 $11,829 $11,578
12/31/99 $13,338 $20,754 $15,634 $11,757 $11,631
1/31/00 $13,182 $19,712 $14,643 $11,753 $11,676
2/29/00 $14,274 $19,339 $15,040 $11,900 $11,729
3/31/00 $14,060 $21,231 $15,626 $12,073 $11,787
4/30/00 $13,534 $20,592 $14,808 $12,014 $11,848
5/31/00 $13,243 $20,170 $14,449 $12,003 $11,912
6/30/00 $13,602 $20,668 $15,017 $12,248 $11,963
7/31/00 $13,568 $20,345 $14,391 $12,378 $12,018
8/31/00 $14,076 $21,609 $14,519 $12,552 $12,080
9/30/00 $13,927 $20,468 $13,815 $12,600 $12,147
10/31/00 $13,733 $20,382 $13,492 $12,679 $12,209
11/30/00 $13,221 $18,776 $12,988 $12,896 $12,276
12/31/00 $13,640 $18,868 $13,453 $13,150 $12,347
1/31/01 $14,000 $19,538 $13,447 $13,371 $12,427
2/28/01 $13,557 $17,758 $12,439 $13,509 $12,478
3/31/01 $13,198 $16,634 $11,616 $13,571 $12,541
4/30/01 $13,607 $17,924 $12,430 $13,469 $12,592
5/31/01 $13,679 $18,045 $12,001 $13,547 $12,641
6/30/01 $13,607 $17,606 $11,515 $13,612 $12,679
7/31/01 $13,546 $17,434 $11,307 $13,951 $12,721
8/31/01 $13,365 $16,344 $11,023 $14,130 $12,763
9/30/01 $12,629 $15,025 $9,909 $14,260 $12,819
10/31/01 $12,970 $15,312 $10,162 $14,622 $12,852
11/30/01 $13,275 $16,486 $10,537 $14,382 $12,879
12/31/01 $13,425 $16,631 $10,601 $14,268 $12,900
1/31/02 $13,388 $16,389 $10,038 $14,373 $12,918
2/28/02 $13,363 $16,072 $10,109 $14,495 $12,935
3/31/02 $13,639 $16,677 $10,661 $14,200 $12,954
4/30/02 $13,664 $15,666 $10,738 $14,476 $12,974
5/31/02 $13,601 $15,552 $10,884 $14,609 $12,994
6/30/02 $13,206 $14,444 $10,455 $14,733 $13,014
7/31/02 $12,669 $13,319 $9,424 $14,910 $13,032
8/31/02 $12,756 $13,406 $9,405 $15,244 $13,052
9/30/02 $12,351 $11,950 $8,398 $15,572 $13,073
10/31/02 $12,577 $13,000 $8,850 $15,422 $13,092
11/30/02 $12,903 $13,765 $9,252 $15,432 $13,113
12/31/02 $12,815 $12,957 $8,942 $15,841 $13,126
1/31/03 $12,752 $12,619 $8,569 $15,841 $13,141
2/28/03 $12,714 $12,429 $8,373 $16,123 $13,152
3/31/03 $12,688 $12,549 $8,215 $16,102 $13,167
4/30/03 $13,132 $13,583 $9,030 $16,274 $13,180
5/31/03 $13,639 $14,297 $9,585 $16,736 $13,193
6/30/03 $13,708 $14,480 $9,822 $16,669 $13,209
7/31/03 $13,708 $14,735 $10,062 $15,971 $13,218
Annual Report | Past performance does not guarantee future results. | 9
Performance Summary (CONTINUED)
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
CLASS R (1/01/02 - 7/31/03)
FT Conservative MSCI EAFE 5
Date Target Fund - Class R S&P 500 5 (Gross Dividends) LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- ---------- ----------------- --------------------------- -------------------
1/1/02 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/02 $9,991 $9,854 $9,469 $10,073 $10,014
2/28/02 $9,981 $9,664 $9,536 $10,159 $10,027
3/31/02 $10,187 $10,027 $10,057 $9,952 $10,042
4/30/02 $10,205 $9,420 $10,129 $10,145 $10,057
5/31/02 $10,168 $9,351 $10,267 $10,239 $10,073
6/30/02 $9,878 $8,685 $9,863 $10,326 $10,088
7/31/02 $9,470 $8,008 $8,890 $10,450 $10,102
8/31/02 $9,535 $8,060 $8,872 $10,684 $10,118
9/30/02 $9,240 $7,185 $7,922 $10,914 $10,134
10/31/02 $9,417 $7,817 $8,348 $10,809 $10,149
11/30/02 $9,659 $8,276 $8,728 $10,815 $10,165
12/31/02 $9,600 $7,790 $8,436 $11,102 $10,175
1/31/03 $9,563 $7,587 $8,084 $11,102 $10,187
2/28/03 $9,525 $7,473 $7,899 $11,299 $10,196
3/31/03 $9,519 $7,545 $7,750 $11,285 $10,207
4/30/03 $9,859 $8,167 $8,518 $11,406 $10,217
5/31/03 $10,237 $8,596 $9,042 $11,729 $10,227
6/30/03 $10,293 $8,706 $9,266 $11,683 $10,240
7/31/03 $10,293 $8,860 $9,492 $11,193 $10,247
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------
CLASS R 7/31/03
- --------------------------------------------
1-Year +7.79%
Since Inception (1/1/02) +1.85%
- --------------------------------------------
ENDNOTES
THE FUND IS NON-DIVERSIFIED BECAUSE IT INVESTS IN SECURITIES OF A LIMITED NUMBER
OF MUTUAL FUNDS. BECAUSE IT INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A
VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE
SUBJECT TO THESE SAME RISKS. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET
CLASSES OVER THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE
SHORT TERM. BONDS ARE AFFECTED BY CHANGES IN INTEREST RATES AND THE
CREDITWORTHINESS OF THEIR ISSUERS. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH
AS CURRENCY AND MARKET VOLATILITY AND POLITICAL AND SOCIAL INSTABILITY. THESE
AND OTHER RISKS PERTAINING TO SPECIFIC UNDERLYING FUNDS, SUCH AS THOSE INVOLVING
INVESTMENTS IN SPECIALIZED INDUSTRY SECTORS, SUCH AS THE TECHNOLOGY SECTOR,
WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE SECTORS, ARE DISCUSSED MORE
FULLY IN THE FUND'S PROSPECTUS.
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus
actual total returns may differ.
CLASS C: Subject to 1% initial sales charge and 1% contingent deferred sales
charge (CDSC) for shares redeemed within 18 months of investment. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: No initial sales charge, but subject to 1% CDSC for shares redeemed
within 18 months of investment; are available to certain eligible
investors as described in the prospectus. These shares have higher
annual fees and expenses than Class A shares.
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 any current, applicable,
maximum sales charge(s).
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge(s).
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Source: Standard & Poor's Micropal. See page 3 for descriptions of the S&P
500, the MSCI EAFE Index and the Lehman Brothers U.S. Government/Credit Index.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
10 | Past performance does not guarantee future results. | Annual Report
Franklin Templeton
Moderate Target Fund
YOUR FUND'S GOAL: Franklin Templeton Moderate Target Fund seeks the highest
level of long-term total return achievable at an intermediate level of risk.
We are pleased to bring you Franklin Templeton Moderate Target Fund's annual
report for the fiscal year ended July 31, 2003.
PERFORMANCE OVERVIEW
For the 12 months under review, Franklin Templeton Moderate Target Fund-Class A
posted a +10.47% cumulative total return, as shown in the Performance Summary
beginning on page 14. The Fund outperformed its hybrid benchmark, which
comprised a weighted combination of the Standard & Poor's 500 Composite Index
(S&P 500) and the Morgan Stanley Capital International (MSCI) Europe Australasia
Far East (EAFE) Index for equities, the Lehman Brothers Government/ Credit Index
for fixed income, and the P&R 90 Day T-Bill for short-term investments and other
net assets. For the reporting period, the benchmark returned 8.02%. 1
ECONOMIC AND MARKET OVERVIEW
During the year under review, the U.S. economy experienced mixed growth. While
the economy grew strongly in 2002's third quarter, expanding at a 4.0%
annualized rate, several factors including war in Iraq weighed on manufacturers
and consumers. Growth slowed in the subsequent two quarters to 1.4% annualized,
followed by annualized 3.1% expansion in 2003's second quarter.
In the absence of inflationary pressures, the Federal Reserve Board (the Fed)
continued to add monetary liquidity by reducing short-term interest rates. The
Fed lowered the federal funds target rate 75 basis points during the reporting
period to
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index
is market capitalization-weighted and measures total returns of equity
securities in developed markets in Europe, Australasia and the Far East. The
Lehman Brothers Government/ Credit Index includes fixed-rate debt issues rated
investment grade or higher by Moody's, S&P or Fitch, in that order. All issues
have at least one year to maturity and an outstanding par value of at least $100
million for U.S. government issues and $50 million for all others. All returns
are market value-weighted inclusive of accrued interest. The index includes
those issues in the Lehman Brothers Government Bond Index and Corporate Bond
Index. The index includes issues of the U.S. government and agencies thereof,
domestic corporate issues and foreign dollar-denominated issues. Total return
includes price appreciation/depreciation and income as a percentage of the
original investment. The index is rebalanced monthly by market capitalization.
The P&R 90 Day T-Bill is a total return index based on a constant maturity
instrument. Payden & Rygel includes both accrued interest and change in market
price in its monthly total return calculations. The benchmark index's weightings
are as follows: S&P 500 35%, MSCI EAFE 15%, Lehman Brothers Government/Credit
Index 35% and P&R 90 Day T-Bill 15%.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 32.
Annual Report | 11
TOP FIVE FUND HOLDINGS
Franklin Templeton Moderate Target Fund
7/31/03
- ---------------------------------------------------------
% OF TOTAL
NET ASSETS
- ---------------------------------------------------------
Franklin Strategic Mortgage Portfolio 15.8%
- ---------------------------------------------------------
Franklin Small Cap Growth Fund II 13.8%
- ---------------------------------------------------------
Franklin Capital Growth Fund 9.7%
- ---------------------------------------------------------
Mutual Shares Fund 9.5%
- ---------------------------------------------------------
Templeton Global Bond Fund 8.8%
- ---------------------------------------------------------
1.00%, a 45-year low. The yield curve steepened slightly, increasing the
differential between long- and short-term interest rates.
During the 12 months ended July 31, 2003, equity markets began to show signs of
life, with a sustained rally finally taking hold during the second half of the
period. Overall, most major indexes were up for the period -- the S&P 500 rose
10.64%, while the technology-laden Nasdaq Composite Index rose 31.40%. 1, 2 In
terms of capitalization, small cap stocks generally did better than large cap.
Investment style results were a little more mixed, with no clear difference
between growth stocks and their value counterparts. Overseas markets also were
up during the reporting period, but continued to lag some domestic markets. For
example, the MSCI Emerging Markets Free (EMF) Index rose 23.01% during the year
under review, while the MSCI EAFE Index gained 6.76%. 1, 3
Bond markets generally performed well, producing positive returns for most of
the period before experiencing a sharp sell-off in July. Higher-rated
securities, including Treasuries and mortgages, continued to benefit from lower
interest rates. Meanwhile, high yield bonds were the best-performing bond
sector, reversing a long run of weak performance as the outlook for corporate
credit improved. The Lehman Brothers Government/Credit Index posted a 7.12%
return for the 12 months ended July 31, 2003. 1
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same Franklin Templeton funds in each
Target Fund's portfolio. We generally diversify the Target Funds' broad equity
allocations across investment styles, market capitalization sizes and countries
of origin. Maintaining similarity of the underlying Franklin Templeton fund
investments across the Allocator Series increased the consistency and relative
predictability of the Target Funds' total returns. For your reference, the
following asset class allocations are prescribed for Franklin Templeton Moderate
Target Fund: 55% equity, 35% fixed income, and 10% short-term investments and
other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
2. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
S&P 500. The Nasdaq Composite Index measures all domestic and international
common stocks listed on the Nasdaq Stock Market. The index is market
value-weighted and includes over 4,000 companies.
3. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
MSCI EAFE Index. The MSCI EMF Index is market capitalization-weighted and
measures total returns of equity securities available to foreign (non-local)
investors in emerging markets globally.
The indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
12 | Annual Report
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
ASSET ALLOCATION
Franklin Templeton Moderate Target Fund
Based on Total Net Assets as of 7/31/03
Domestic Equity .................... 38.4%
Domestic Fixed Income .............. 25.9%
Foreign Equity ..................... 16.5%
Foreign Fixed Income ............... 8.7%
Short-Term Investments &
Other Net Assets ................... 10.5%
While domestic growth fund holdings such as Franklin Small Cap Growth Fund II
and Franklin Capital Growth Fund performed relatively better versus their equity
benchmark, domestic value fund holdings such as Mutual Shares Fund
underperformed the benchmark. Meanwhile, foreign equity fund holdings such as
Templeton Foreign Fund and Mutual European Fund, although positive during the
period, trailed their benchmark. On the fixed income side, performance of bond
fund holdings was mixed versus the benchmark. Noteworthy outperformers were
Templeton Global Bond Fund and Franklin Strategic Income Fund, a result of
strong performance in their respective international and high yield sectors.
Thank you for your continued participation in Franklin Templeton Moderate Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED]
/S/SIGNATURE
T. Anthony Coffey
Portfolio Manager
Franklin Templeton Fund Allocator Series
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
JULY 31, 2003, THE END OF THE REPORTING PERIOD. OUR STRATEGIES AND THE FUND'S
PORTFOLIO COMPOSITION WILL CHANGE DEPENDING ON MARKET AND ECONOMIC CONDITIONS.
THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A
PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE
FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Annual Report | 13
Performance Summary as of 7/31/03
FRANKLIN TEMPLETON MODERATE TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.82 $10.64 $9.82
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1917
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.79 $10.48 $9.69
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1200
- ---------------------------------------------------------------------------------------------------
CLASS R CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.80 $10.62 $9.82
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1766
14 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
- --------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +10.47% +19.28% +39.86%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.11% +2.36% +4.29%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,411 $11,239 $13,181
- --------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 -2.47% +1.75% +4.24%
- --------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.50% +14.75% +32.17%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +7.39% +2.58% +4.17%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,739 $11,358 $13,086
- --------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 +0.74% +1.97% +4.14%
- --------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (1/1/02)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +10.10% +0.88%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +9.10% +0.56%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,910 $10,088
- --------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 +2.28% -0.51%
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. 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 MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 15
Performance Summary (CONTINUED)
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 charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged indexes
include reinvested distributions. They differ from the Fund in composition and
do not pay management fees or expenses. One cannot invest directly in an index.
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
CLASS A (12/31/96 - 7/31/03)
FT Moderate MSCI EAFE
Date Target Fund - Class A S&P 500 5 (Gross Dividends) 5 LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- ---------- --------------------- --------------------------- -------------------
12/31/96 $9,425 $10,000 $10,000 $10,000 $10,000
1/31/97 $9,670 $10,624 $9,652 $10,012 $10,045
2/28/97 $9,670 $10,708 $9,812 $10,033 $10,083
3/31/97 $9,589 $10,269 $9,850 $9,914 $10,126
4/30/97 $9,674 $10,881 $9,905 $10,058 $10,171
5/31/97 $10,061 $11,542 $10,551 $10,152 $10,222
6/30/97 $10,286 $12,060 $11,136 $10,274 $10,260
7/31/97 $10,655 $13,018 $11,319 $10,588 $10,304
8/31/97 $10,494 $12,289 $10,475 $10,470 $10,350
9/30/97 $10,966 $12,962 $11,064 $10,634 $10,398
10/31/97 $10,632 $12,529 $10,217 $10,804 $10,437
11/30/97 $10,660 $13,109 $10,114 $10,861 $10,483
12/31/97 $10,771 $13,334 $10,205 $10,975 $10,528
1/31/98 $10,720 $13,481 $10,675 $11,130 $10,581
2/28/98 $11,119 $14,453 $11,362 $11,108 $10,622
3/31/98 $11,451 $15,193 $11,715 $11,142 $10,674
4/30/98 $11,513 $15,346 $11,809 $11,198 $10,723
5/31/98 $11,318 $15,082 $11,755 $11,318 $10,770
6/30/98 $11,318 $15,695 $11,847 $11,433 $10,814
7/31/98 $11,051 $15,528 $11,970 $11,442 $10,861
8/31/98 $9,943 $13,286 $10,489 $11,666 $10,912
9/30/98 $10,164 $14,138 $10,170 $11,999 $10,969
10/31/98 $10,381 $15,287 $11,233 $11,914 $11,012
11/30/98 $10,619 $16,213 $11,812 $11,985 $11,047
12/31/98 $10,788 $17,147 $12,281 $12,015 $11,092
1/31/99 $10,884 $17,864 $12,248 $12,101 $11,136
2/28/99 $10,670 $17,308 $11,959 $11,813 $11,171
3/31/99 $10,909 $18,001 $12,461 $11,872 $11,219
4/30/99 $11,241 $18,697 $12,968 $11,901 $11,261
5/31/99 $11,134 $18,256 $12,303 $11,779 $11,304
6/30/99 $11,351 $19,269 $12,785 $11,742 $11,345
7/31/99 $11,243 $18,668 $13,169 $11,709 $11,393
8/31/99 $11,265 $18,575 $13,220 $11,700 $11,436
9/30/99 $11,244 $18,066 $13,356 $11,805 $11,487
10/31/99 $11,667 $19,209 $13,860 $11,836 $11,531
11/30/99 $12,481 $19,599 $14,345 $11,829 $11,578
12/31/99 $13,727 $20,754 $15,634 $11,757 $11,631
1/31/00 $13,561 $19,712 $14,643 $11,753 $11,676
2/29/00 $15,067 $19,339 $15,040 $11,900 $11,729
3/31/00 $14,767 $21,231 $15,626 $12,073 $11,787
4/30/00 $14,055 $20,592 $14,808 $12,014 $11,848
5/31/00 $13,665 $20,170 $14,449 $12,003 $11,912
6/30/00 $14,514 $20,668 $15,017 $12,248 $11,963
7/31/00 $14,369 $20,345 $14,391 $12,378 $12,018
8/31/00 $15,163 $21,609 $14,519 $12,552 $12,080
9/30/00 $14,828 $20,468 $13,815 $12,600 $12,147
10/31/00 $14,286 $20,382 $13,492 $12,679 $12,209
11/30/00 $13,124 $18,776 $12,988 $12,896 $12,276
12/31/00 $13,577 $18,868 $13,453 $13,150 $12,347
1/31/01 $14,063 $19,538 $13,447 $13,371 $12,427
2/28/01 $13,311 $17,758 $12,439 $13,509 $12,478
3/31/01 $12,795 $16,634 $11,616 $13,571 $12,541
4/30/01 $13,434 $17,924 $12,430 $13,469 $12,592
5/31/01 $13,504 $18,045 $12,001 $13,547 $12,641
6/30/01 $13,375 $17,606 $11,515 $13,612 $12,679
7/31/01 $13,212 $17,434 $11,307 $13,951 $12,721
8/31/01 $12,908 $16,344 $11,023 $14,130 $12,763
9/30/01 $11,956 $15,025 $9,909 $14,260 $12,819
10/31/01 $12,380 $15,312 $10,162 $14,622 $12,852
11/30/01 $12,803 $16,486 $10,537 $14,382 $12,879
12/31/01 $13,009 $16,631 $10,601 $14,268 $12,900
1/31/02 $12,961 $16,389 $10,038 $14,373 $12,918
2/28/02 $12,876 $16,072 $10,109 $14,495 $12,935
3/31/02 $13,260 $16,677 $10,661 $14,200 $12,954
4/30/02 $13,224 $15,666 $10,738 $14,476 $12,974
5/31/02 $13,139 $15,552 $10,884 $14,609 $12,994
6/30/02 $12,649 $14,444 $10,455 $14,733 $13,014
7/31/02 $11,932 $13,319 $9,424 $14,910 $13,032
8/31/02 $12,017 $13,406 $9,405 $15,244 $13,052
9/30/02 $11,453 $11,950 $8,398 $15,572 $13,073
10/31/02 $11,795 $13,000 $8,850 $15,422 $13,092
11/30/02 $12,210 $13,765 $9,252 $15,432 $13,113
12/31/02 $12,030 $12,957 $8,942 $15,841 $13,126
1/31/03 $11,943 $12,619 $8,569 $15,841 $13,141
2/28/03 $11,869 $12,429 $8,373 $16,123 $13,152
3/31/03 $11,831 $12,549 $8,215 $16,102 $13,167
4/30/03 $12,387 $13,583 $9,030 $16,274 $13,180
5/31/03 $12,993 $14,297 $9,585 $16,736 $13,193
6/30/03 $13,095 $14,480 $9,822 $16,669 $13,209
7/31/03 $13,181 $14,735 $10,062 $15,971 $13,218
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------
CLASS A 7/31/03
- ---------------------------------------------
1-Year +4.11%
- ---------------------------------------------
5-Year +2.36%
- ---------------------------------------------
Since Inception (12/31/96) +4.29%
- ---------------------------------------------
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
FT Moderate MSCI EAFE
Date Target Fund - Class C S&P 500 5 (Gross Dividends) 5 LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- --------- ----------------- ----------------------------- -------------------
12/31/96 $9,901 $10,000 $10,000 $10,000 $10,000
1/31/97 $10,158 $10,624 $9,652 $10,012 $10,045
2/28/97 $10,149 $10,708 $9,812 $10,033 $10,083
3/31/97 $10,001 $10,269 $9,850 $9,914 $10,126
4/30/97 $10,080 $10,881 $9,905 $10,058 $10,171
5/31/97 $10,477 $11,542 $10,551 $10,152 $10,222
6/30/97 $10,707 $12,060 $11,136 $10,274 $10,260
7/31/97 $11,074 $13,018 $11,319 $10,588 $10,304
8/31/97 $10,905 $12,289 $10,475 $10,470 $10,350
9/30/97 $11,378 $12,962 $11,064 $10,634 $10,398
10/31/97 $11,028 $12,529 $10,217 $10,804 $10,437
11/30/97 $11,058 $13,109 $10,114 $10,861 $10,483
12/31/97 $11,177 $13,334 $10,205 $10,975 $10,528
1/31/98 $11,102 $13,481 $10,675 $11,130 $10,581
2/28/98 $11,519 $14,453 $11,362 $11,108 $10,622
3/31/98 $11,851 $15,193 $11,715 $11,142 $10,674
4/30/98 $11,894 $15,346 $11,809 $11,198 $10,723
5/31/98 $11,701 $15,082 $11,755 $11,318 $10,770
6/30/98 $11,683 $15,695 $11,847 $11,433 $10,814
7/31/98 $11,404 $15,528 $11,970 $11,442 $10,861
8/31/98 $10,248 $13,286 $10,489 $11,666 $10,912
9/30/98 $10,475 $14,138 $10,170 $11,999 $10,969
10/31/98 $10,690 $15,287 $11,233 $11,914 $11,012
11/30/98 $10,916 $16,213 $11,812 $11,985 $11,047
12/31/98 $11,091 $17,147 $12,281 $12,015 $11,092
1/31/99 $11,180 $17,864 $12,248 $12,101 $11,136
2/28/99 $10,958 $17,308 $11,959 $11,813 $11,171
3/31/99 $11,191 $18,001 $12,461 $11,872 $11,219
4/30/99 $11,525 $18,697 $12,968 $11,901 $11,261
5/31/99 $11,403 $18,256 $12,303 $11,779 $11,304
6/30/99 $11,617 $19,269 $12,785 $11,742 $11,345
7/31/99 $11,505 $18,668 $13,169 $11,709 $11,393
8/31/99 $11,516 $18,575 $13,220 $11,700 $11,436
9/30/99 $11,494 $18,066 $13,356 $11,805 $11,487
10/31/99 $11,920 $19,209 $13,860 $11,836 $11,531
11/30/99 $12,740 $19,599 $14,345 $11,829 $11,578
12/31/99 $14,008 $20,754 $15,634 $11,757 $11,631
1/31/00 $13,825 $19,712 $14,643 $11,753 $11,676
2/29/00 $15,346 $19,339 $15,040 $11,900 $11,729
3/31/00 $15,042 $21,231 $15,626 $12,073 $11,787
4/30/00 $14,307 $20,592 $14,808 $12,014 $11,848
5/31/00 $13,894 $20,170 $14,449 $12,003 $11,912
6/30/00 $14,765 $20,668 $15,017 $12,248 $11,963
7/31/00 $14,592 $20,345 $14,391 $12,378 $12,018
8/31/00 $15,399 $21,609 $14,519 $12,552 $12,080
9/30/00 $15,049 $20,468 $13,815 $12,600 $12,147
10/31/00 $14,481 $20,382 $13,492 $12,679 $12,209
11/30/00 $13,298 $18,776 $12,988 $12,896 $12,276
12/31/00 $13,751 $18,868 $13,453 $13,150 $12,347
1/31/01 $14,238 $19,538 $13,447 $13,371 $12,427
2/28/01 $13,466 $17,758 $12,439 $13,509 $12,478
3/31/01 $12,934 $16,634 $11,616 $13,571 $12,541
4/30/01 $13,577 $17,924 $12,430 $13,469 $12,592
5/31/01 $13,636 $18,045 $12,001 $13,547 $12,641
6/30/01 $13,492 $17,606 $11,515 $13,612 $12,679
7/31/01 $13,325 $17,434 $11,307 $13,951 $12,721
8/31/01 $13,015 $16,344 $11,023 $14,130 $12,763
9/30/01 $12,042 $15,025 $9,909 $14,260 $12,819
10/31/01 $12,462 $15,312 $10,162 $14,622 $12,852
11/30/01 $12,870 $16,486 $10,537 $14,382 $12,879
12/31/01 $13,072 $16,631 $10,601 $14,268 $12,900
1/31/02 $13,010 $16,389 $10,038 $14,373 $12,918
2/28/02 $12,924 $16,072 $10,109 $14,495 $12,935
3/31/02 $13,313 $16,677 $10,661 $14,200 $12,954
4/30/02 $13,264 $15,666 $10,738 $14,476 $12,974
5/31/02 $13,165 $15,552 $10,884 $14,609 $12,994
6/30/02 $12,666 $14,444 $10,455 $14,733 $13,014
7/31/02 $11,951 $13,319 $9,424 $14,910 $13,032
8/31/02 $12,013 $13,406 $9,405 $15,244 $13,052
9/30/02 $11,455 $11,950 $8,398 $15,572 $13,073
10/31/02 $11,776 $13,000 $8,850 $15,422 $13,092
11/30/02 $12,197 $13,765 $9,252 $15,432 $13,113
12/31/02 $12,000 $12,957 $8,942 $15,841 $13,126
1/31/03 $11,900 $12,619 $8,569 $15,841 $13,141
2/28/03 $11,825 $12,429 $8,373 $16,123 $13,152
3/31/03 $11,782 $12,549 $8,215 $16,102 $13,167
4/30/03 $12,319 $13,583 $9,030 $16,274 $13,180
5/31/03 $12,918 $14,297 $9,585 $16,736 $13,193
6/30/03 $13,012 $14,480 $9,822 $16,669 $13,209
7/31/03 $13,086 $14,735 $10,062 $15,971 $13,218
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------
CLASS C 7/31/03
- ---------------------------------------------
1-Year +7.39%
- ---------------------------------------------
5-Year +2.58%
- ---------------------------------------------
Since Inception (12/31/96) +4.17%
- ---------------------------------------------
16 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
FT Moderate MSCI EAFE
Date Target Fund - Class R S&P 500 (Gross Dividends) LB U.S. Gov't./Credit Index U.S. Treasury Bills
- ---- --------------------- ------- ----------------- --------------------------- -------------------
1/1/02 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/02 $9,963 $9,854 $9,469 $10,073 $10,014
2/28/02 $9,898 $9,664 $9,536 $10,159 $10,027
3/31/02 $10,191 $10,027 $10,057 $9,952 $10,042
4/30/02 $10,163 $9,420 $10,129 $10,145 $10,057
5/31/02 $10,098 $9,351 $10,267 $10,239 $10,073
6/30/02 $9,712 $8,685 $9,863 $10,326 $10,088
7/31/02 $9,170 $8,008 $8,890 $10,450 $10,102
8/31/02 $9,226 $8,060 $8,872 $10,684 $10,118
9/30/02 $8,795 $7,185 $7,922 $10,914 $10,134
10/31/02 $9,048 $7,817 $8,348 $10,809 $10,149
11/30/02 $9,368 $8,276 $8,728 $10,815 $10,165
12/31/02 $9,220 $7,790 $8,436 $11,102 $10,175
1/31/03 $9,154 $7,587 $8,084 $11,102 $10,187
2/28/03 $9,097 $7,473 $7,899 $11,299 $10,196
3/31/03 $9,074 $7,545 $7,750 $11,285 $10,207
4/30/03 $9,492 $8,167 $8,518 $11,406 $10,217
5/31/03 $9,957 $8,596 $9,042 $11,729 $10,227
6/30/03 $10,030 $8,706 $9,266 $11,683 $10,240
7/31/03 $10,088 $8,860 $9,492 $11,193 $10,247
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 7/31/03
- --------------------------------------
1-Year +9.10%
- --------------------------------------
Since Inception (1/1/02) +0.56%
- --------------------------------------
ENDNOTES
THE FUND IS NON-DIVERSIFIED BECAUSE IT INVESTS IN SECURITIES OF A LIMITED NUMBER
OF MUTUAL FUNDS. BECAUSE IT INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A
VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE
SUBJECT TO THESE SAME RISKS. GENERALLY, INVESTMENTS OFFERING POTENTIAL FOR
HIGHER RETURNS ARE ACCOMPANIED BY A HIGHER DEGREE OF RISK. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO
FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. BONDS ARE AFFECTED BY CHANGES
IN INTEREST RATES AND THE CREDITWORTHINESS OF THEIR ISSUERS. FOREIGN INVESTING
HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND POLITICAL AND
SOCIAL INSTABILITY. THESE AND OTHER RISKS PERTAINING TO SPECIFIC UNDERLYING
FUNDS, SUCH AS THOSE INVOLVING INVESTMENTS IN SPECIALIZED INDUSTRY SECTORS, SUCH
AS THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE
SECTORS, OR USE OF COMPLEX SECURITIES, ARE DISCUSSED MORE FULLY IN THE FUND'S
PROSPECTUS.
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus
actual total returns may differ.
CLASS C: Subject to 1% initial sales charge and 1% contingent deferred sales
charge (CDSC) for shares redeemed within 18 months of investment. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: No initial sales charge, but subject to 1% CDSC for shares redeemed
within 18 months of investment; are available to certain eligible
investors as described in the prospectus. These shares have higher
annual fees and expenses than Class A shares.
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 any current, applicable,
maximum sales charge(s).
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge(s).
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Source: Standard & Poor's Micropal. See page 11 for descriptions of the S&P
500, the MSCI EAFE Index and the Lehman Brothers U.S. Government/Credit Index.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
Annual Report | Past performance does not guarantee future results. | 17
Franklin Templeton
Growth Target Fund
YOUR FUND'S GOAL: Franklin Templeton Growth Target Fund seeks the highest level
of long-term total return achievable at a higher level of risk.
We are pleased to bring you Franklin Templeton Growth Target Fund's annual
report for the fiscal year ended July 31, 2003.
PERFORMANCE OVERVIEW
For the 12 months under review, Franklin Templeton Growth Target Fund-Class A
posted a +11.64% cumulative total return, as shown in the Performance Summary
beginning on page 21. The Fund outperformed its hybrid benchmark, which
comprised a weighted combination of the Standard & Poor's 500 Composite Index
(S&P 500) and the Morgan Stanley Capital International (MSCI) Europe Australasia
Far East (EAFE) Index for equities, the Lehman Brothers Government/Credit Index
for fixed income, and the P&R 90 Day T-Bill for short-term investments and other
net assets. For the reporting period, the benchmark returned 8.60%. 1
ECONOMIC AND MARKET OVERVIEW
During the year under review, the U.S. economy experienced mixed growth. While
the economy grew strongly in 2002's third quarter, expanding at a 4.0%
annualized rate, several factors including war in Iraq weighed on manufacturers
and consumers. Growth slowed in the subsequent two quarters to 1.4% annualized,
followed by annualized 3.1% expansion in 2003's second quarter.
In the absence of inflationary pressures, the Federal Reserve Board (the Fed)
continued to add monetary liquidity by reducing short-term interest rates. The
Fed lowered the federal funds target rate 75 basis points during the reporting
period to
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index
is market capitalization-weighted and measures total returns of equity
securities in developed markets in Europe, Australasia and the Far East. The
Lehman Brothers Government/ Credit Index includes fixed-rate debt issues rated
investment grade or higher by Moody's, S&P or Fitch, in that order. All issues
have at least one year to maturity and an outstanding par value of at least $100
million for U.S. government issues and $50 million for all others. All returns
are market value-weighted inclusive of accrued interest. The index includes
those issues in the Lehman Brothers Government Bond Index and Corporate Bond
Index. The index includes issues of the U.S. government and agencies thereof,
domestic corporate issues and foreign dollar-denominated issues. Total return
includes price appreciation/depreciation and income as a percentage of the
original investment. The index is rebalanced monthly by market capitalization.
The P&R 90 Day T-Bill is a total return index based on a constant maturity
instrument. Payden & Rygel includes both accrued interest and change in market
price in its monthly total return calculations. The benchmark index's weightings
are as follows: S&P 500 45%, MSCI EAFE 20%, Lehman Brothers Government/Credit
Index 25% and P&R 90 Day T-Bill 10%.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 36.
18 | Annual Report
1.00%, a 45-year low. The yield curve steepened slightly, increasing the
differential between long- and short-term interest rates.
During the 12 months ended July 31, 2003, equity markets began to show signs of
life, with a sustained rally finally taking hold during the second half of the
period. Overall, most major indexes were up for the period -- the S&P 500 rose
10.64%, while the technology-laden Nasdaq Composite Index rose 31.40%. 1, 2 In
terms of capitalization, small cap stocks generally did better than large cap.
Investment style results were a little more mixed, with no clear difference
between growth stocks and their value counterparts. Overseas markets also were
up during the reporting period, but continued to lag some domestic markets. For
example, the MSCI Emerging Markets Free (EMF) Index rose 23.01% during the year
under review, while the MSCI EAFE Index gained 6.76%. 1, 3
Bond markets generally performed well, producing positive returns for most of
the period before experiencing a sharp sell-off in July. Higher-rated
securities, including Treasuries and mortgages, continued to benefit from lower
interest rates. Meanwhile, high yield bonds were the best performing bond
sector, reversing a long run of weak performance as the outlook for corporate
credit improved. The Lehman Brothers Government/Credit Index posted a 7.12%
return for the 12 months ended July 31, 2003. 1
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same Franklin Templeton funds in each
Target Fund's portfolio. We generally diversify the Target Funds' broad equity
allocations across investment styles, market capitalization sizes and countries
of origin. Maintaining similarity of the underlying Franklin Templeton fund
investments across the Allocator Series increased the consistency and relative
predictability of the Target Funds' total returns. For your reference, the
following asset class allocations are prescribed for Franklin Templeton Growth
Target Fund: 80% equity, 15% fixed income, and 5% short-term investments and
other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
TOP FIVE FUND HOLDINGS
Franklin Templeton Growth Target Fund
7/31/03
- --------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------
Franklin Small Cap Growth Fund II 19.7%
- --------------------------------------------------------------
Franklin Capital Growth Fund 15.6%
- --------------------------------------------------------------
Mutual Shares Fund 12.7%
- --------------------------------------------------------------
Mutual European Fund 11.5%
- --------------------------------------------------------------
Templeton Foreign Fund 8.1%
- --------------------------------------------------------------
2. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
S&P 500. The Nasdaq Composite Index measures all domestic and international
common stocks listed on the Nasdaq Stock Market. The index is market
value-weighted and includes over 4,000 companies.
3. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
MSCI EAFE Index. The MSCI EMF Index is market capitalization-weighted and
measures total returns of equity securities available to foreign (non-local)
investors in emerging markets globally.
The indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
Annual Report | 19
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
ASSET ALLOCATION
Franklin Templeton Growth Target Fund
Based on Total Net Assets as of 7/31/03
Domestic Equity ........................ 56.0%
Foreign Equity ......................... 23.6%
Domestic Fixed Income .................. 10.8%
Foreign Fixed Income ................... 3.9%
Short-Term Investments &
Other Net Assets ....................... 5.7%
While domestic growth fund holdings such as Franklin Small Cap Growth Fund II
and Franklin Capital Growth Fund performed relatively better versus their equity
benchmark, domestic value fund holdings such as Mutual Shares Fund
underperformed the benchmark. Meanwhile, foreign equity fund holdings such as
Templeton Foreign Fund and Mutual European Fund, although positive during the
period, trailed their benchmark. On the fixed income side, performance of bond
fund holdings was mixed versus the benchmark. Noteworthy outperformers were
Templeton Global Bond Fund and Franklin Strategic Income Fund, a result of
strong performance in their respective international and high yield sectors.
Thank you for your continued participation in Franklin Templeton Growth Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED]
/S/SIGNATURE
T. Anthony Coffey
Portfolio Manager
Franklin Templeton Fund Allocator Series
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
JULY 31, 2003, THE END OF THE REPORTING PERIOD. OUR STRATEGIES AND THE FUND'S
PORTFOLIO COMPOSITION WILL CHANGE DEPENDING ON MARKET AND ECONOMIC CONDITIONS.
THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A
PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE
FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
20 | Annual Report
Performance Summary as of 7/31/03
FRANKLIN TEMPLETON GROWTH TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.99 $10.46 $9.47
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0994
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.98 $10.38 $9.40
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0267
- ---------------------------------------------------------------------------------------------------
CLASS R CHANGE 7/31/03 7/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.93 $10.40 $9.47
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/02-7/31/03)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1085
Annual Report | Past performance does not guarantee future results. | 21
Performance Summary (CONTINUED)
PERFORMANCE
- -------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR INCEPTION (12/31/96)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +11.64% +11.54% +29.70%
- -------------------------------------------------------------------------------------------------------V
Average Annual Total Return 2 +5.19% +1.01% +3.10%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,519 $10,514 $12,225
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 -5.48% +0.03% +2.80%
- -------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (12/31/96)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +10.74% +7.54% +23.75%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +8.70% +1.26% +3.13%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,870 $10,648 $12,252
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 -2.44% +0.27% +2.85%
- -------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (1/1/02)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +11.11% -3.91%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +10.11% -2.50%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,011 $9,609
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (6/30/03) 4 -1.09% -4.60%
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. 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 MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
22 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
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 charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged indexes
include reinvested distributions. They differ from the Fund in composition and
do not pay management fees or expenses. One cannot invest directly in an index.
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
CLASS A (12/31/96 - 7/31/03)
FT Growth MSCI EAFE 5
Date Target Fund - Class A S&P 500 5 (Gross Dividends) LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- ------- ----------------- --------------------------- -------------------
12/31/96 $9,425 $10,000 $10,000 $10,000 $10,000
1/31/97 $9,774 $10,624 $9,652 $10,012 $10,045
2/28/97 $9,708 $10,708 $9,812 $10,033 $10,083
3/31/97 $9,510 $10,269 $9,850 $9,914 $10,126
4/30/97 $9,585 $10,881 $9,905 $10,058 $10,171
5/31/97 $10,047 $11,542 $10,551 $10,152 $10,222
6/30/97 $10,311 $12,060 $11,136 $10,274 $10,260
7/31/97 $10,679 $13,018 $11,319 $10,588 $10,304
8/31/97 $10,490 $12,289 $10,475 $10,470 $10,350
9/30/97 $11,037 $12,962 $11,064 $10,634 $10,398
10/31/97 $10,564 $12,529 $10,217 $10,804 $10,437
11/30/97 $10,573 $13,109 $10,114 $10,861 $10,483
12/31/97 $10,655 $13,334 $10,205 $10,975 $10,528
1/31/98 $10,616 $13,481 $10,675 $11,130 $10,581
2/28/98 $11,107 $14,453 $11,362 $11,108 $10,622
3/31/98 $11,490 $15,193 $11,715 $11,142 $10,674
4/30/98 $11,559 $15,346 $11,809 $11,198 $10,723
5/31/98 $11,294 $15,082 $11,755 $11,318 $10,770
6/30/98 $11,264 $15,695 $11,847 $11,433 $10,814
7/31/98 $10,960 $15,528 $11,970 $11,442 $10,861
8/31/98 $9,614 $13,286 $10,489 $11,666 $10,912
9/30/98 $9,848 $14,138 $10,170 $11,999 $10,969
10/31/98 $10,134 $15,287 $11,233 $11,914 $11,012
11/30/98 $10,420 $16,213 $11,812 $11,985 $11,047
12/31/98 $10,643 $17,147 $12,281 $12,015 $11,092
1/31/99 $10,809 $17,864 $12,248 $12,101 $11,136
2/28/99 $10,581 $17,308 $11,959 $11,813 $11,171
3/31/99 $10,892 $18,001 $12,461 $11,872 $11,219
4/30/99 $11,326 $18,697 $12,968 $11,901 $11,261
5/31/99 $11,192 $18,256 $12,303 $11,779 $11,304
6/30/99 $11,523 $19,269 $12,785 $11,742 $11,345
7/31/99 $11,388 $18,668 $13,169 $11,709 $11,393
8/31/99 $11,450 $18,575 $13,220 $11,700 $11,436
9/30/99 $11,444 $18,066 $13,356 $11,805 $11,487
10/31/99 $12,049 $19,209 $13,860 $11,836 $11,531
11/30/99 $13,133 $19,599 $14,345 $11,829 $11,578
12/31/99 $15,025 $20,754 $15,634 $11,757 $11,631
1/31/00 $14,776 $19,712 $14,643 $11,753 $11,676
2/29/00 $17,097 $19,339 $15,040 $11,900 $11,729
3/31/00 $16,606 $21,231 $15,626 $12,073 $11,787
4/30/00 $15,488 $20,592 $14,808 $12,014 $11,848
5/31/00 $14,869 $20,170 $14,449 $12,003 $11,912
6/30/00 $16,093 $20,668 $15,017 $12,248 $11,963
7/31/00 $15,778 $20,345 $14,391 $12,378 $12,018
8/31/00 $17,018 $21,609 $14,519 $12,552 $12,080
9/30/00 $16,472 $20,468 $13,815 $12,600 $12,147
10/31/00 $15,607 $20,382 $13,492 $12,679 $12,209
11/30/00 $13,725 $18,776 $12,988 $12,896 $12,276
12/31/00 $14,254 $18,868 $13,453 $13,150 $12,347
1/31/01 $14,905 $19,538 $13,447 $13,371 $12,427
2/28/01 $13,558 $17,758 $12,439 $13,509 $12,478
3/31/01 $12,750 $16,634 $11,616 $13,571 $12,541
4/30/01 $13,637 $17,924 $12,430 $13,469 $12,592
5/31/01 $13,681 $18,045 $12,001 $13,547 $12,641
6/30/01 $13,432 $17,606 $11,515 $13,612 $12,679
7/31/01 $13,105 $17,434 $11,307 $13,951 $12,721
8/31/01 $12,576 $16,344 $11,023 $14,130 $12,763
9/30/01 $11,214 $15,025 $9,909 $14,260 $12,819
10/31/01 $11,756 $15,312 $10,162 $14,622 $12,852
11/30/01 $12,343 $16,486 $10,537 $14,382 $12,879
12/31/01 $12,639 $16,631 $10,601 $14,268 $12,900
1/31/02 $12,523 $16,389 $10,038 $14,373 $12,918
2/28/02 $12,350 $16,072 $10,109 $14,495 $12,935
3/31/02 $12,928 $16,677 $10,661 $14,200 $12,954
4/30/02 $12,743 $15,666 $10,738 $14,476 $12,974
5/31/02 $12,604 $15,552 $10,884 $14,609 $12,994
6/30/02 $11,933 $14,444 $10,455 $14,733 $13,014
7/31/02 $10,951 $13,319 $9,424 $14,910 $13,032
8/31/02 $10,985 $13,406 $9,405 $15,244 $13,052
9/30/02 $10,199 $11,950 $8,398 $15,572 $13,073
10/31/02 $10,627 $13,000 $8,850 $15,422 $13,092
11/30/02 $11,147 $13,765 $9,252 $15,432 $13,113
12/31/02 $10,787 $12,957 $8,942 $15,841 $13,126
1/31/03 $10,635 $12,619 $8,569 $15,841 $13,141
2/28/03 $10,495 $12,429 $8,373 $16,123 $13,152
3/31/03 $10,460 $12,549 $8,215 $16,102 $13,167
4/30/03 $11,126 $13,583 $9,030 $16,274 $13,180
5/31/03 $11,839 $14,297 $9,585 $16,736 $13,193
6/30/03 $11,968 $14,480 $9,822 $16,669 $13,209
7/31/03 $12,225 $14,735 $10,062 $15,971 $13,218
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
CLASS C (12/31/96 - 7/31/03)
FT Growth MSCI EAFE 5
Date Target Fund - Class C S&P 500 5 (Gross Dividends) LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- ------- ----------------- --------------------------- -------------------
12/31/96 $9,901 $10,000 $10,000 $10,000 $10,000
1/31/97 $10,257 $10,624 $9,652 $10,012 $10,045
2/28/97 $10,188 $10,708 $9,812 $10,033 $10,083
3/31/97 $9,990 $10,269 $9,850 $9,914 $10,126
4/30/97 $10,069 $10,881 $9,905 $10,058 $10,171
5/31/97 $10,545 $11,542 $10,551 $10,152 $10,222
6/30/97 $10,802 $12,060 $11,136 $10,274 $10,260
7/31/97 $11,188 $13,018 $11,319 $10,588 $10,304
8/31/97 $10,980 $12,289 $10,475 $10,470 $10,350
9/30/97 $11,549 $12,962 $11,064 $10,634 $10,398
10/31/97 $11,053 $12,529 $10,217 $10,804 $10,437
11/30/97 $11,063 $13,109 $10,114 $10,861 $10,483
12/31/97 $11,126 $13,334 $10,205 $10,975 $10,528
1/31/98 $11,085 $13,481 $10,675 $11,130 $10,581
2/28/98 $11,589 $14,453 $11,362 $11,108 $10,622
3/31/98 $11,980 $15,193 $11,715 $11,142 $10,674
4/30/98 $12,041 $15,346 $11,809 $11,198 $10,723
5/31/98 $11,753 $15,082 $11,755 $11,318 $10,770
6/30/98 $11,722 $15,695 $11,847 $11,433 $10,814
7/31/98 $11,393 $15,528 $11,970 $11,442 $10,861
8/31/98 $9,985 $13,286 $10,489 $11,666 $10,912
9/30/98 $10,235 $14,138 $10,170 $11,999 $10,969
10/31/98 $10,523 $15,287 $11,233 $11,914 $11,012
11/30/98 $10,812 $16,213 $11,812 $11,985 $11,047
12/31/98 $11,039 $17,147 $12,281 $12,015 $11,092
1/31/99 $11,200 $17,864 $12,248 $12,101 $11,136
2/28/99 $10,964 $17,308 $11,959 $11,813 $11,171
3/31/99 $11,265 $18,001 $12,461 $11,872 $11,219
4/30/99 $11,717 $18,697 $12,968 $11,901 $11,261
5/31/99 $11,566 $18,256 $12,303 $11,779 $11,304
6/30/99 $11,900 $19,269 $12,785 $11,742 $11,345
7/31/99 $11,749 $18,668 $13,169 $11,709 $11,393
8/31/99 $11,814 $18,575 $13,220 $11,700 $11,436
9/30/99 $11,799 $18,066 $13,356 $11,805 $11,487
10/31/99 $12,414 $19,209 $13,860 $11,836 $11,531
11/30/99 $13,525 $19,599 $14,345 $11,829 $11,578
12/31/99 $15,462 $20,754 $15,634 $11,757 $11,631
1/31/00 $15,204 $19,712 $14,643 $11,753 $11,676
2/29/00 $17,579 $19,339 $15,040 $11,900 $11,729
3/31/00 $17,055 $21,231 $15,626 $12,073 $11,787
4/30/00 $15,901 $20,592 $14,808 $12,014 $11,848
5/31/00 $15,251 $20,170 $14,449 $12,003 $11,912
6/30/00 $16,507 $20,668 $15,017 $12,248 $11,963
7/31/00 $16,171 $20,345 $14,391 $12,378 $12,018
8/31/00 $17,437 $21,609 $14,519 $12,552 $12,080
9/30/00 $16,869 $20,468 $13,815 $12,600 $12,147
10/31/00 $15,969 $20,382 $13,492 $12,679 $12,209
11/30/00 $14,033 $18,776 $12,988 $12,896 $12,276
12/31/00 $14,561 $18,868 $13,453 $13,150 $12,347
1/31/01 $15,228 $19,538 $13,447 $13,371 $12,427
2/28/01 $13,835 $17,758 $12,439 $13,509 $12,478
3/31/01 $12,995 $16,634 $11,616 $13,571 $12,541
4/30/01 $13,904 $17,924 $12,430 $13,469 $12,592
5/31/01 $13,939 $18,045 $12,001 $13,547 $12,641
6/30/01 $13,675 $17,606 $11,515 $13,612 $12,679
7/31/01 $13,330 $17,434 $11,307 $13,951 $12,721
8/31/01 $12,789 $16,344 $11,023 $14,130 $12,763
9/30/01 $11,405 $15,025 $9,909 $14,260 $12,819
10/31/01 $11,935 $15,312 $10,162 $14,622 $12,852
11/30/01 $12,523 $16,486 $10,537 $14,382 $12,879
12/31/01 $12,817 $16,631 $10,601 $14,268 $12,900
1/31/02 $12,688 $16,389 $10,038 $14,373 $12,918
2/28/02 $12,511 $16,072 $10,109 $14,495 $12,935
3/31/02 $13,088 $16,677 $10,661 $14,200 $12,954
4/30/02 $12,900 $15,666 $10,738 $14,476 $12,974
5/31/02 $12,747 $15,552 $10,884 $14,609 $12,994
6/30/02 $12,064 $14,444 $10,455 $14,733 $13,014
7/31/02 $11,063 $13,319 $9,424 $14,910 $13,032
8/31/02 $11,087 $13,406 $9,405 $15,244 $13,052
9/30/02 $10,287 $11,950 $8,398 $15,572 $13,073
10/31/02 $10,710 $13,000 $8,850 $15,422 $13,092
11/30/02 $11,228 $13,765 $9,252 $15,432 $13,113
12/31/02 $10,871 $12,957 $8,942 $15,841 $13,126
1/31/03 $10,706 $12,619 $8,569 $15,841 $13,141
2/28/03 $10,564 $12,429 $8,373 $16,123 $13,152
3/31/03 $10,505 $12,549 $8,215 $16,102 $13,167
4/30/03 $11,166 $13,583 $9,030 $16,274 $13,180
5/31/03 $11,874 $14,297 $9,585 $16,736 $13,193
6/30/03 $12,004 $14,480 $9,822 $16,669 $13,209
7/31/03 $12,252 $14,735 $10,062 $15,971 $13,218
Annual Report | Past performance does not guarantee future results. | 23
Performance Summary (CONTINUED)
[GRAPHIC OMITTED]
EDGAR RERESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
CLASS R (1/1/02 - 7/31/03)
FT Growth MSCI EAFE 5
Date Target Fund - Class R S&P 500 5 (Gross Dividends) LB U.S. Gov't./Credit Index 5 U.S. Treasury Bills 5
- ---- --------------------- ------- ----------------- --------------------------- -------------------
1/1/02 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/02 $9,908 $9,854 $9,469 $10,073 $10,014
2/28/02 $9,771 $9,664 $9,536 $10,159 $10,027
3/31/02 $10,219 $10,027 $10,057 $9,952 $10,042
4/30/02 $10,082 $9,420 $10,129 $10,145 $10,057
5/31/02 $9,963 $9,351 $10,267 $10,239 $10,073
6/30/02 $9,442 $8,685 $9,863 $10,326 $10,088
7/31/02 $8,664 $8,008 $8,890 $10,450 $10,102
8/31/02 $8,682 $8,060 $8,872 $10,684 $10,118
9/30/02 $8,051 $7,185 $7,922 $10,914 $10,134
10/31/02 $8,390 $7,817 $8,348 $10,809 $10,149
11/30/02 $8,792 $8,276 $8,728 $10,815 $10,165
12/31/02 $8,516 $7,790 $8,436 $11,102 $10,175
1/31/03 $8,395 $7,587 $8,084 $11,102 $10,187
2/28/03 $8,284 $7,473 $7,899 $11,299 $10,196
3/31/03 $8,247 $7,545 $7,750 $11,285 $10,207
4/30/03 $8,775 $8,167 $8,518 $11,406 $10,217
5/31/03 $9,330 $8,596 $9,042 $11,729 $10,227
6/30/03 $9,432 $8,706 $9,266 $11,683 $10,240
7/31/03 $9,609 $8,860 $9,492 $11,193 $10,247
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------
CLASS R 7/31/03
- --------------------------------------------
1-Year +10.11%
- --------------------------------------------
Since Inception (1/1/02) -2.50%
- --------------------------------------------
ENDNOTES
THE FUND IS NON-DIVERSIFIED BECAUSE IT INVESTS IN SECURITIES OF A LIMITED NUMBER
OF MUTUAL FUNDS. BECAUSE IT INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A
VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE
SUBJECT TO THESE SAME RISKS. GENERALLY, INVESTMENTS OFFERING POTENTIAL FOR
HIGHER RETURNS ARE ACCOMPANIED BY A HIGHER DEGREE OF RISK. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO
FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. BONDS ARE AFFECTED BY CHANGES
IN INTEREST RATES AND THE CREDITWORTHINESS OF THEIR ISSUERS. FOREIGN INVESTING,
ESPECIALLY IN EMERGING MARKETS, HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET
VOLATILITY AND POLITICAL AND SOCIAL INSTABILITY. THESE AND OTHER RISKS
PERTAINING TO SPECIFIC UNDERLYING FUNDS, SUCH AS THOSE INVOLVING INVESTMENTS IN
SPECIALIZED INDUSTRY SECTORS, SUCH AS THE TECHNOLOGY SECTOR, WHICH HAS BEEN
AMONG THE MARKET'S MOST VOLATILE SECTORS, OR USE OF COMPLEX SECURITIES, ARE
DISCUSSED MORE FULLY IN THE FUND'S PROSPECTUS.
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus
actual total returns may differ.
CLASS C: Subject to 1% initial sales charge and 1% contingent deferred sales
charge (CDSC) for shares redeemed within 18 months of investment. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: No initial sales charge, but subject to 1% CDSC for shares redeemed
within 18 months of investment; are available to certain eligible
investors as described in the prospectus. These shares have higher
annual fees and expenses than Class A shares.
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 any current, applicable,
maximum sales charge(s).
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge(s).
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Source: Standard & Poor's Micropal. See page 18 for descriptions of the S&P
500, the MSCI EAFE Index and the Lehman Brothers U.S. Government/Credit Index.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
24 | Past performance does not guarantee future results. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
----------------------------------------------------------
YEAR ENDED JULY 31,
2003 2002 2001 2000 1999
CLASS A ----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $10.23 $11.30 $12.13 $10.73 $11.00
----------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .23 .31 .54 .58 .41
Net realized and unrealized gains (losses) ....................... .69 (.95) (.47) 1.41 (.08)
----------------------------------------------------------
Total from investment operations .................................. .92 (.64) .07 1.99 .33
----------------------------------------------------------
Less distributions from:
Net investment income ............................................ (.24) (.34) (.56) (.53) (.41)
Net realized gains ............................................... -- (.09) (.34) (.06) (.19)
----------------------------------------------------------
Total distributions ............................................... (.24) (.43) (.90) (.59) (.60)
----------------------------------------------------------
Net asset value, end of year ...................................... $10.91 $10.23 $11.30 $12.13 $10.73
----------------------------------------------------------
Total return b .................................................... 8.99% (5.74)% .58% 18.77% 3.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $64,409 $35,991 $26,523 $18,050 $14,850
Ratios to average net assets:
Expenses ......................................................... .91% .96% .92% .98% .75%
Expenses excluding waiver and payments by affiliate .............. .91% .96% .92% .99% .83%
Net investment income ............................................ 2.21% 2.86% 4.61% 4.95% 3.83%
Portfolio turnover rate ........................................... 18.03% 5.75% 44.98% 103.79% 218.87%
aBased on average shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
Annual Report | 25
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
--------------------------------------------------------
YEAR ENDED JULY 31,
2003 2002 2001 2000 1999
CLASS C --------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $10.14 $11.20 $12.03 $10.65 $10.92
--------------------------------------------------------
Income from investment operations:
Net investment income a ........................................... .15 .23 .44 .50 .33
Net realized and unrealized gains (losses) ........................ .67 (.94) (.46) 1.39 (.08)
--------------------------------------------------------
Total from investment operations ................................... .82 (.71) (.02) 1.89 .25
--------------------------------------------------------
Less distributions from:
Net investment income ............................................. (.16) (.26) (.47) (.45) (.33)
Net realized gains ................................................ -- (.09) (.34) (.06) (.19)
--------------------------------------------------------
Total distributions ................................................ (.16) (.35) (.81) (.51) (.52)
--------------------------------------------------------
Net asset value, end of year ....................................... $10.80 $10.14 $11.20 $12.03 $10.65
--------------------------------------------------------
Total return b ..................................................... 8.20% (6.48)% (.16)% 17.88% 2.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $32,344 $22,436 $17,340 $12,548 $10,611
Ratios to average net assets:
Expenses .......................................................... 1.66% 1.70% 1.67% 1.71% 1.50%
Expenses excluding waiver and payments by affiliate ............... 1.66% 1.70% 1.67% 1.72% 1.58%
Net investment income ............................................. 1.46% 2.15% 3.83% 4.24% 3.13%
Portfolio turnover rate ............................................ 18.03% 5.75% 44.98% 103.79% 218.87%
aBased on average shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
26 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
-----------------------
YEAR ENDED
JULY 31,
CLASS R 2003 2002 C
-----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $10.23 $10.89
-----------------------
Income from investment operations:
Net investment income a ....................................................... .19 .12
Net realized and unrealized gains (losses) .................................... .69 (.70)
-----------------------
Total from investment operations ............................................... .88 (.58)
-----------------------
Less distributions from net investment income .................................. (.22) (.08)
-----------------------
Net asset value, end of year ................................................... $10.89 $10.23
-----------------------
Total return b ................................................................. 8.79% (5.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $5,718 $543
Ratios to average net assets:
Expenses ...................................................................... 1.16% 1.21% d
Net investment income ......................................................... 1.96% 1.93% d
Portfolio turnover rate ........................................................ 18.03% 5.75%
aBased on average shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cFor the period January 1, 2002 (effective date) to July 31, 2002.
dAnnualized
Annual Report | See notes to financial statements. | 27
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JULY 31, 2003
- --------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
MUTUAL FUNDS (NOTE 1) 99.9%
CASH EQUIVALENTS 20.2%
a Franklin Institutional Fiduciary Trust Money Market Portfolio ............................ 20,713,369 $ 20,713,369
--------------
DOMESTIC EQUITY 27.9%
b Franklin Capital Growth Fund, Advisor Class .............................................. 750,171 6,984,088
Franklin Real Estate Securities Fund, Advisor Class ...................................... 125,393 2,425,093
b Franklin Small Cap Growth Fund II, Advisor Class ......................................... 1,192,491 10,553,541
b Franklin Technology Fund, Advisor Class .................................................. 405,552 1,524,875
Mutual Shares Fund, Class Z .............................................................. 382,648 7,109,596
--------------
28,597,193
--------------
DOMESTIC FIXED INCOME 29.7%
Franklin Strategic Income Fund, Advisor Class ............................................ 412,244 3,969,907
Franklin Strategic Mortgage Portfolio .................................................... 1,889,027 18,776,928
Franklin Total Return Fund, Advisor Class ................................................ 779,216 7,706,448
--------------
30,453,283
--------------
FOREIGN EQUITY 12.3%
Franklin Gold & Precious Metals Fund, Advisor Class ...................................... 154,263 2,172,027
Mutual European Fund, Class Z ............................................................ 422,619 6,199,820
Templeton Foreign Fund, Advisor Class .................................................... 452,979 4,180,998
--------------
12,552,845
--------------
FOREIGN FIXED INCOME 9.8%
Templeton Global Bond Fund, Advisor Class ................................................ 1,060,054 10,081,114
--------------
TOTAL INVESTMENTS (COST $100,202,780) 99.9% .............................................. 102,397,804
OTHER ASSETS, LESS LIABILITIES .1% ....................................................... 73,233
--------------
NET ASSETS 100.0% ........................................................................ $ 102,471,037
--------------
aSee Note 6 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
bNon-income producing
28 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
--------------------------------------------------------
YEAR ENDED JULY 31,
CLASS A 2003 2002 2001 2000 1999
--------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $ 9.83 $11.31 $12.83 $10.44 $10.77
--------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .19 .26 .47 .51 .33
Net realized and unrealized gains (losses) ....................... .81 (1.31) (1.48) 2.35 (.17)
--------------------------------------------------------
Total from investment operations .................................. 1.00 (1.05) (1.01) 2.86 .16
--------------------------------------------------------
Less distributions from:
Net investment income ............................................ (.19) (.29) (.51) (.47) (.31)
Net realized gains ............................................... -- (.14) -- c -- (.18)
--------------------------------------------------------
Total distributions ............................................... (.19) (.43) (.51) (.47) (.49)
--------------------------------------------------------
Net asset value, end of year ...................................... $10.64 $ 9.83 $11.31 $12.83 $10.44
--------------------------------------------------------
Total return b .................................................... 10.47% (9.69)% (8.05)% 27.79% 1.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $121,617 $85,035 $70,810 $41,348 $28,694
Ratios to average net assets:
Expenses ......................................................... .98% .96% .87% .83% .85%
Net investment income ............................................ 1.89% 2.46% 3.95% 4.20% 3.23%
Portfolio turnover rate ........................................... 15.90% 8.88% 46.01% 85.78% 202.78%
aBased on average shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
cThe fund made a capital gain distribution of $.003.
Annual Report | 29
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
---------------------------------------------------------
YEAR ENDED JULY 31,
CLASS C 2003 2002 2001 2000 1999
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $ 9.69 $11.16 $12.67 $10.31 $10.65
---------------------------------------------------------
Income from investment operations:
Net investment income a ............................................ .11 .19 .39 .41 .25
Net realized and unrealized gains (losses) ......................... .80 (1.31) (1.48) 2.33 (.17)
---------------------------------------------------------
Total from investment operations .................................... .91 (1.12) (1.09) 2.74 .08
---------------------------------------------------------
Less distributions from:
Net investment income .............................................. (.12) (.21) (.42) (.38) (.24)
Net realized gains ................................................. -- (.14) -- c -- (.18)
---------------------------------------------------------
Total distributions ................................................. (.12) (.35) (.42) (.38) (.42)
---------------------------------------------------------
Net asset value, end of year ........................................ $10.48 $ 9.69 $11.16 $12.67 $10.31
---------------------------------------------------------
Total return b ...................................................... 9.50% (10.31)% (8.69)% 26.84% .88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................................... $56,341 $39,835 $41,535 $35,506 $24,419
Ratios to average net assets:
Expenses ........................................................... 1.73% 1.71% 1.62% 1.57% 1.60%
Net investment income .............................................. 1.14% 1.77% 3.30% 3.40% 2.51%
Portfolio turnover rate ............................................. 15.90% 8.88% 46.01% 85.78% 202.78%
aBased on average shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
cThe fund made a capital gain distribution of $.003.
30 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
--------------------
YEAR ENDED
JULY 31,
CLASS R 2003 2002 C
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................................... $ 9.82 $10.79
--------------------
Income from investment operations:
Net investment income a .............................................................. .13 .09
Net realized and unrealized gains (losses) ........................................... .85 (.99)
--------------------
Total from investment operations ...................................................... .98 (.90)
--------------------
Less distributions from net investment income ......................................... (.18) (.07)
--------------------
Net asset value, end of year .......................................................... $10.62 $ 9.82
--------------------
Total return b ........................................................................ 10.10% (8.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................................................$10,989 $94
Ratios to average net assets:
Expenses ............................................................................. 1.23% 1.21% d
Net investment income ................................................................ 1.64% 1.53% d
Portfolio turnover rate ............................................................... 15.90% 8.88%
aBased on average shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cFor the period January 1, 2002 (effective date) to July 31, 2002.
dAnnualized
Annual Report | See notes to financial statements. | 31
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JULY 31, 2003
- --------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
MUTUAL FUNDS (NOTE 1) 99.6%
CASH EQUIVALENTS 10.1%
a Franklin Institutional Fiduciary Trust Money Market Portfolio .......................... 19,030,657 $ 19,030,657
--------------
DOMESTIC EQUITY 38.3%
b Franklin Capital Growth Fund, Advisor Class ............................................ 1,967,098 18,313,687
Franklin Real Estate Securities Fund, Advisor Class .................................... 298,493 5,772,858
b Franklin Small Cap Growth Fund II, Advisor Class ....................................... 2,948,026 26,090,030
b,c Franklin Technology Fund, Advisor Class .............................................. 1,163,963 4,376,499
Mutual Shares Fund, Class Z ............................................................ 962,171 17,877,144
--------------
72,430,218
--------------
DOMESTIC FIXED INCOME 25.9%
Franklin Strategic Income Fund, Advisor Class .......................................... 620,940 5,979,650
c Franklin Strategic Mortgage Portfolio .................................................. 3,010,185 29,921,236
Franklin Total Return Fund, Advisor Class .............................................. 1,322,106 13,075,631
--------------
48,976,517
--------------
FOREIGN EQUITY 16.5%
Franklin Gold & Precious Metals Fund, Advisor Class .................................... 407,176 5,733,040
Mutual European Fund, Class Z .......................................................... 1,037,043 15,213,424
Templeton Foreign Fund, Advisor Class .................................................. 1,110,144 10,246,625
--------------
31,193,089
--------------
FOREIGN FIXED INCOME 8.8%
Templeton Global Bond Fund, Advisor Class .............................................. 1,740,731 16,554,349
--------------
TOTAL INVESTMENTS (COST $188,498,247) 99.6% ............................................ 188,184,830
OTHER ASSETS, LESS LIABILITIES .4% ..................................................... 762,047
--------------
NET ASSETS 100.0% ...................................................................... $ 188,946,877
--------------
aSee Note 6 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
bNon-income producing
cSee Note 7 regarding investments in underlying funds.
32 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
--------------------------------------------------------
YEAR ENDED JULY 31,
CLASS A 2003 2002 2001 2000 1999
--------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $ 9.47 $11.64 $14.50 $11.01 $11.16
--------------------------------------------------------
Income from investment operations:
Net investment income a ........................................... .08 .13 .38 .40 .28
Net realized and unrealized gains (losses) ........................ 1.01 (2.01) (2.80) 3.77 .11
--------------------------------------------------------
Total from investment operations ................................... 1.09 (1.88) (2.42) 4.17 .39
--------------------------------------------------------
Less distributions from:
Net investment income ............................................. (.10) (.13) (.44) (.39) (.25)
Net realized gains ................................................ -- (.16) (.29) (.29)
--------------------------------------------------------
Total distributions ................................................ (.10) (.29) (.44) (.68) (.54)
--------------------------------------------------------
Net asset value, end of year ....................................... $10.46 $ 9.47 $11.64 $14.50 $11.01
--------------------------------------------------------
Total return b ..................................................... 11.64% (16.44)% (16.94)% 38.55% 3.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $99,432 $69,663 $67,186 $66,445 $40,839
Ratios to average net assets:
Expenses .......................................................... .92% .93% .85% .84% .75%
Expenses excluding waiver and payments by affiliate ............... .92% .93% .85% .85% .86%
Net investment income ............................................. .84% 1.20% 2.98% 2.93% 2.61%
Portfolio turnover rate ............................................ 21.87% 14.24% 59.41% 73.82% 207.65%
aBased on average shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
Annual Report | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
-------------------------------------------------------
YEAR ENDED JULY 31,
CLASS C 2003 2002 2001 2000 1999
-------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $ 9.40 $11.58 $14.43 $10.92 $11.08
-------------------------------------------------------
Income from investment operations:
Net investment income a ............................................ .01 .05 .29 .29 .21
Net realized and unrealized gains (losses) ......................... 1.00 (1.99) (2.79) 3.77 .10
-------------------------------------------------------
Total from investment operations .................................... 1.01 (1.94) (2.50) 4.06 .31
-------------------------------------------------------
Less distributions from:
Net investment income .............................................. (.03) (.08) (.35) (.26) (.18)
Net realized gains ................................................. -- (.16) (.29) (.29)
-------------------------------------------------------
Total distributions ................................................. (.03) (.24) (.35) (.55) (.47)
-------------------------------------------------------
Net asset value, end of year ........................................ $10.38 $ 9.40 $11.58 $14.43 $10.92
-------------------------------------------------------
Total return b ...................................................... 10.74% (17.00)% (17.57)% 37.64% 3.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................................... $40,829 $31,255 $37,884 $38,666 $21,902
Ratios to average net assets:
Expenses ........................................................... 1.67% 1.68% 1.60% 1.59% 1.50%
Expenses excluding waiver and payments by affiliate ................ 1.67% 1.68% 1.60% 1.60% 1.61%
Net investment income .............................................. .09% .50% 2.24% 2.16% 2.00%
Portfolio turnover rate ............................................. 21.87% 14.24% 59.41% 73.82% 207.65%
aBased on average shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
34 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
--------------------
YEAR ENDED
JULY 31,
CLASS R 2003 2002 C
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 9.46 $10.95
--------------------
Income from investment operations:
Net investment income a ....................................................... .05 .01
Net realized and unrealized gains (losses) .................................... 1.00 (1.50)
--------------------
Total from investment operations ............................................... 1.05 (1.49)
--------------------
Less distributions from net investment income (.11) --
--------------------
Net asset value, end of year ................................................... $10.40 $ 9.46
--------------------
Total return b ................................................................. 11.11% (13.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $5,567 $141
Ratios to average net assets:
Expenses ...................................................................... 1.17% 1.18% d
Net investment income ......................................................... .59% .18% d
Portfolio turnover rate ........................................................ 21.87% 14.24%
aBased on average shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cFor the period January 1, 2002 (effective date) to July 31, 2002.
dAnnualized
Annual Report | See notes to financial statements. | 35
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JULY 31, 2003
- --------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
MUTUAL FUNDS (NOTE 1) 99.6%
CASH EQUIVALENTS 5.3%
a Franklin Institutional Fiduciary Trust Money Market Portfolio ............................... 7,747,068 $ 7,747,068
--------------
DOMESTIC EQUITY 56.0%
b Franklin Capital Growth Fund, Advisor Class ................................................. 2,436,114 22,680,223
Franklin Real Estate Securities Fund, Advisor Class ......................................... 364,991 7,058,923
b Franklin Small Cap Growth Fund II, Advisor Class ............................................ 3,253,974 28,797,666
b,c Franklin Technology Fund, Advisor Class ................................................... 1,195,495 4,495,060
Mutual Shares Fund, Class Z ................................................................. 999,092 18,563,136
--------------
81,595,008
--------------
DOMESTIC FIXED INCOME 10.8%
Franklin Strategic Income Fund, Advisor Class ............................................... 185,516 1,786,521
Franklin Strategic Mortgage Portfolio ....................................................... 986,358 9,804,397
Franklin Total Return Fund, Advisor Class ................................................... 421,672 4,170,338
--------------
15,761,256
--------------
FOREIGN EQUITY 23.6%
Franklin Gold & Precious Metals Fund, Advisor Class ......................................... 411,873 5,799,166
Mutual European Fund, Class Z ............................................................... 1,139,864 16,721,811
Templeton Foreign Fund, Advisor Class ....................................................... 1,287,294 11,881,721
--------------
34,402,698
--------------
FOREIGN FIXED INCOME 3.9%
Templeton Global Bond Fund, Advisor Class ................................................... 596,670 5,674,335
--------------
TOTAL INVESTMENTS (COST $147,981,160) 99.6% ................................................. 145,180,365
OTHER ASSETS, LESS LIABILITIES .4% .......................................................... 647,816
--------------
NET ASSETS 100.0% ........................................................................... $ 145,828,181
--------------
aSee Note 6 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
bNon-income producing
cSee Note 7 regarding investments in underlying funds.
36 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 2003
-----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------------
Assets:
Investments in securities:
Cost ................................................................... $ 100,202,780 $ 188,498,247 $ 147,981,160
-----------------------------------------------
Value .................................................................. 102,397,804 188,184,830 145,180,365
Receivables:
Capital shares sold .................................................... 873,590 1,318,436 1,266,582
-----------------------------------------------
Total assets ....................................................... 103,271,394 189,503,266 146,446,947
-----------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ................................................ 642,930 236,180 401,393
Affiliates ............................................................. 119,999 193,386 145,829
Shareholders ........................................................... 2,731 25,094 20,507
Unaffiliated transfer agent fees ....................................... 13,956 78,871 27,953
Other liabilities ....................................................... 20,741 22,858 23,084
-----------------------------------------------
Total liabilities .................................................. 800,357 556,389 618,766
-----------------------------------------------
Net assets, at value .............................................. $ 102,471,037 $ 188,946,877 $ 145,828,181
-----------------------------------------------
Net assets consist of:
Undistributed net investment income ..................................... $ 293,056 $ 436,189 $ 61,600
Net unrealized appreciation (depreciation) .............................. 2,195,024 (313,417) (2,800,795)
Accumulated net realized gain (loss) .................................... (1,431,695) (3,806,468) (9,083,232)
Capital shares .......................................................... 101,414,652 192,630,573 157,650,608
-----------------------------------------------
Net assets, at value .............................................. $ 102,471,037 $ 188,946,877 $ 145,828,181
-----------------------------------------------
CLASS A:
Net assets, at value .................................................... $ 64,408,692 $ 121,616,568 $ 99,432,428
-----------------------------------------------
Shares outstanding ...................................................... 5,903,409 11,430,476 9,510,212
-----------------------------------------------
Net asset value per share a ............................................. $10.91 $10.64 $10.46
-----------------------------------------------
Maximum offering price per share (net asset value per share / 94.25%) ... $11.58 $11.29 $11.10
-----------------------------------------------
CLASS C:
Net assets, at value .................................................... $ 32,344,471 $ 56,341,475 $ 40,829,232
-----------------------------------------------
Shares outstanding ...................................................... 2,995,356 5,373,749 3,934,998
-----------------------------------------------
Net asset value per share a ............................................. $10.80 $10.48 $10.38
-----------------------------------------------
Maximum offering price per share (net asset value per share / 99%) ...... $10.91 $10.59 $10.48
-----------------------------------------------
CLASS R:
Net assets, at value .................................................... $ 5,717,874 $ 10,988,834 $ 5,566,521
-----------------------------------------------
Shares outstanding ...................................................... 525,085 1,034,724 535,034
-----------------------------------------------
Net asset value and maximum offering price per share a .................. $10.89 $10.62 $10.40
-----------------------------------------------
aRedemption price is equal to net asset value less any applicable contingent
deferred sales charge.
Annual Report | See notes to financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended July 31, 2003
-------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------
Investment income:
Dividends .................................................................... $ 2,342,326 $ 4,213,810 $ 1,983,484
-------------------------------------------
Expenses:
Asset allocation fees (Note 3) ............................................... 148,485 328,735 267,374
Distribution fees (Note 3)
Class A ..................................................................... 117,010 242,016 192,543
Class C ..................................................................... 256,557 449,924 334,494
Class R ..................................................................... 12,853 25,261 13,369
Transfer agent fees (Note 3) ................................................. 285,737 656,420 405,504
Reports to shareholders ...................................................... 9,560 15,962 21,595
Registration and filing fees ................................................. 30,078 33,856 32,998
Professional fees ............................................................ 18,406 22,472 17,722
Trustees' fees and expenses .................................................. 1,273 2,489 1,921
Other ........................................................................ 3,700 6,810 6,332
-------------------------------------------
Total expenses .......................................................... 883,659 1,783,945 1,293,852
-------------------------------------------
Net investment income .................................................. 1,458,667 2,429,865 689,632
-------------------------------------------
Realized and unrealized gains (losses): Net realized gain (loss) from:
Investments ................................................................. (1,307,259) (2,577,423) (6,865,057)
Distributions by underlying funds ........................................... 6,994 12,633 4,386
-------------------------------------------
Net realized gain (loss) ............................................... (1,300,265) (2,564,790) (6,860,671)
-------------------------------------------
Net unrealized appreciation (depreciation) on investments .................... 7,109,450 16,155,604 20,265,992
-------------------------------------------
Net realized and unrealized gain (loss) ....................................... 5,809,185 13,590,814 13,405,321
-------------------------------------------
Net increase (decrease) in net assets resulting
from operations ............................................................... $ 7,267,852 $ 16,020,679 $ 14,094,953
-------------------------------------------
38 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended July 31, 2003 and 2002
-------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
2003 2002 2003 2002
-------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 1,458,667 $ 1,361,257 $ 2,429,865 $ 2,585,260
Net realized gain (loss) from investments and
distributions by underlying funds ........................ (1,300,265) (74,798) (2,564,790) (1,220,416)
Net unrealized appreciation (depreciation) on
investments ............................................ 7,109,450 (4,578,859) 16,155,604 (14,281,009)
-------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................... 7,267,852 (3,292,400) 16,020,679 (12,916,165)
Distributions to shareholders from:
Net investment income:
Class A ................................................ (978,809) (950,842) (1,809,008) (1,922,429)
Class C ................................................ (386,024) (448,752) (527,698) (796,725)
Class R ................................................ (44,895) (3,561) (44,308) (387)
Net realized gains: .....................................
Class A ................................................ -- (252,711) -- (886,351)
Class C ................................................ -- (152,365) -- (512,583)
-------------------------------------------------------------------
Total distributions to shareholders ...................... (1,409,728) (1,808,231) (2,381,014) (4,118,475)
Capital share transactions: (Note 2)
Class A ................................................ 24,604,134 12,569,487 27,750,259 25,336,585
Class C ................................................ 8,108,921 7,063,976 12,516,620 4,215,120
Class R ................................................ 4,929,632 574,585 10,075,694 102,846
-------------------------------------------------------------------
Total capital share transactions ......................... 37,642,687 20,208,048 50,342,573 29,654,551
Net increase (decrease) in net assets ............... 43,500,811 15,107,417 63,982,238 12,619,911
Net assets:
Beginning of year ........................................ 58,970,226 43,862,809 124,964,639 112,344,728
-------------------------------------------------------------------
End of year .............................................. $ 102,471,037 $ 58,970,226 $ 188,946,877 $ 124,964,639
-------------------------------------------------------------------
Undistributed net investment income included in net assets:
End of year ............................................. $ 293,056 $ 244,117 $ 436,189 $ 387,338
-------------------------------------------------------------------
Annual Report | See notes to financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended June 30, 2003 and 2002
-------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
2003 2002
-------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 689,632 $ 987,529
Net realized gain (loss) from investments and distributions by underlying funds ........ (6,860,671) (2,055,250)
Net unrealized appreciation (depreciation) on investments .............................. 20,265,992 (18,015,905)
-------------------------------
Net increase (decrease) in net assets resulting from operations .................... 14,094,953 (19,083,626)
Distributions to shareholders from:
Net investment income:
Class A ............................................................................... (779,346) (744,530)
Class C ............................................................................... (93,410) (257,808)
Class R ............................................................................... (23,036)
Net realized gains:
Class A ............................................................................... -- (946,037)
Class C ............................................................................... -- (526,089)
-------------------------------
Total distributions to shareholders ..................................................... (895,792) (2,474,464)
Capital share transactions: (Note 2)
Class A ............................................................................... 20,819,694 16,671,725
Class C ............................................................................... 5,923,783 715,680
Class R ............................................................................... 4,826,890 159,779
-------------------------------
Total capital share transactions ........................................................ 31,570,367 17,547,184
Net increase (decrease) in net assets .............................................. 44,769,528 (4,010,906)
Net assets:
Beginning of year ....................................................................... 101,058,653 105,069,559
-------------------------------
End of year ............................................................................. $ 145,828,181 $ 101,058,653
-------------------------------
Undistributed net investment income included in net assets:
End of year ............................................................................. $ 61,600 $ 267,760
-------------------------------
40 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end investment
company, consisting of three series (the Funds). The Funds invest primarily in
Franklin Templeton mutual funds (the Underlying Funds). The Funds and their
investment objectives are to seek the highest level of long-term total return
that is consistent with an acceptable level of risk.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Investments in the Underlying Funds are valued at the closing net asset value
per share of each Underlying Fund on the day of valuation.
B. INCOME TAXES
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its tax- able income.
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Securities 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. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. Other expenses are
charged to each Fund on a specific identification basis.
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.
D. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
E. GUARANTEES AND INDEMNIFICATIONS
Under the Funds' organizational documents, their officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Funds. Additionally, in the normal course of business, the Funds
enter into contracts with service providers that contain general indemnification
Annual Report | 41
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. GUARANTEES AND INDEMNIFICATIONS (CONTINUED)
clauses. The Funds' maximum exposure under these arrangements is unknown as this
would involve future claims that may be made against the Funds that have not yet
occurred. However, based on experience, the Funds expect the risk of loss to be
remote.
2. SHARES OF BENEFICIAL INTEREST
The Funds offer three classes of shares: Class A, Class C and Class R. Each
class of shares differs by its initial sales load, contingent deferred sales
charges, distribution fees, voting rights on matters affecting a single class
and its exchange privilege.
At July 31, 2003, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Funds' shares were as follows:
--------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS A SHARES:
Year ended July 31, 2003
Shares sold .......................... 3,707,449 $ 38,341,265 4,821,511 $ 47,982,378
Shares issued in reinvestment of
distributions ........................ 91,504 944,989 181,352 1,786,613
Shares redeemed ...................... (1,412,210) (14,682,120) (2,227,119) (22,018,732)
--------------------------------------------------------------
Net increase (decrease) .............. 2,386,743 $ 24,604,134 2,775,744 $ 27,750,259
--------------------------------------------------------------
Year ended July 31, 2002
Shares sold .......................... 1,937,475 $ 20,840,013 3,753,439 $ 39,648,122
Shares issued in reinvestment of
distributions ........................ 108,551 1,169,882 261,203 2,775,880
Shares redeemed ...................... (876,141) (9,440,408) (1,621,477) (17,087,417)
--------------------------------------------------------------
Net increase (decrease) .............. 1,169,885 $ 12,569,487 2,393,165 $ 25,336,585
--------------------------------------------------------------
CLASS C SHARES:
Year ended July 31, 2003
Shares sold .......................... 1,593,387 $ 16,404,129 2,071,724 $ 20,403,614
Shares issued in reinvestment of
distributions ........................ 32,636 331,999 45,364 438,554
Shares redeemed ...................... (844,205) (8,627,207) (855,493) (8,325,548)
--------------------------------------------------------------
Net increase (decrease) .............. 781,818 $ 8,108,921 1,261,595 $ 12,516,620
--------------------------------------------------------------
Year ended July 31, 2002
Shares sold .......................... 1,258,146 $ 13,440,300 1,155,877 $ 12,152,051
Shares issued in reinvestment of
distributions ........................ 47,575 508,240 111,317 1,167,733
Shares redeemed ...................... (640,930) (6,884,564) (878,042) (9,104,664)
--------------------------------------------------------------
Net increase (decrease) .............. 664,791 $ 7,063,976 389,152 $ 4,215,120
--------------------------------------------------------------
42 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
CLASS R SHARES:
Year ended July 31, 2003
Shares sold ........................... 503,335 $ 5,266,539 1,419,315 $ 13,943,894
Shares issued in reinvestment of
distributions ......................... 4,288 44,690 4,406 44,126
Shares redeemed ....................... (35,617) (381,597) (398,610) (3,912,326)
------------------------------------------------------------
Net increase (decrease) ............... 472,006 $ 4,929,632 1,025,111 $ 10,075,694
------------------------------------------------------------
Year ended July 31, 2002 a
Shares sold ........................... 54,407 $ 590,147 10,243 $ 109,523
Shares issued in reinvestment of
distributions ......................... 320 3,489 30 320
Shares redeemed ....................... (1,648) (19,051) (660) (6,997)
------------------------------------------------------------
Net increase (decrease) ............... 53,079 $ 574,585 9,613 $ 102,846
------------------------------------------------------------
---------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
SHARES AMOUNT
---------------------------
CLASS A SHARES:
Year ended July 31, 2003
Shares sold ............................................................ 4,205,371 $ 40,151,450
Shares issued in reinvestment of distributions ......................... 82,488 766,310
Shares redeemed ........................................................ (2,132,910) (20,098,066)
---------------------------
Net increase (decrease) ................................................ 2,154,949 $ 20,819,694
---------------------------
Year ended July 31, 2002
Shares sold ............................................................ 5,355,444 $ 56,987,348
Shares issued in reinvestment of distributions ......................... 155,581 1,669,465
Shares redeemed ........................................................ (3,928,414) (41,985,088)
---------------------------
Net increase (decrease) ................................................ 1,582,611 $ 16,671,725
---------------------------
CLASS C SHARES:
Year ended July 31, 2003
Shares sold ............................................................ 1,530,406 $ 14,414,068
Shares issued in reinvestment of distributions ......................... 9,384 86,986
Shares redeemed ........................................................ (930,876) (8,577,271)
---------------------------
Net increase (decrease) ................................................ 608,914 $ 5,923,783
---------------------------
Year ended July 31, 2002
Shares sold ............................................................ 859,617 $ 9,186,070
Shares issued in reinvestment of distributions ......................... 69,654 748,092
Shares redeemed ........................................................ (873,939) (9,218,482)
---------------------------
Net increase (decrease) ................................................ 55,332 $ 715,680
---------------------------
Annual Report | 43
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
SHARES AMOUNT
-------------------------
CLASS R SHARES:
Year ended July 31, 2003
Shares sold ............................................................... 648,267 $ 6,010,864
Shares issued in reinvestment of distributions ............................ 2,477 22,937
Shares redeemed ........................................................... (130,564) (1,206,911)
-------------------------
Net increase (decrease) ................................................... 520,180 $ 4,826,890
-------------------------
Year ended July 31, 2002 a
Shares sold ............................................................... 15,778 $ 169,745
Shares redeemed ........................................................... (924) (9,966)
-------------------------
Net increase (decrease) ................................................... 14,854 $ 159,779
-------------------------
aFor the period January 1, 2002 (effective date) to July 31, 2002.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
- -----------------------------------------------------------------------------------------
ENTITY AFFILIATION
- -----------------------------------------------------------------------------------------
Franklin Advisers Inc. (Advisers) Investment manager
Franklin Templeton Services LLC (FT Services) Administrative manager
Franklin/Templeton Distributors Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services LLC (Investor Services) Transfer agent
The Funds pay an asset allocation fee to Advisers of .25% per year of the
average daily net assets of each Fund.
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
The Funds reimburse Distributors up to .25%, 1.00%, and .50% per year of the
average daily net assets of Class A, Class C, and Class R, respectively, for
costs incurred in marketing the Funds' shares.
44 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Distributors paid net commissions on sales of the Funds' shares, and received
contingent deferred sales charges for the year as follows:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------
Net commissions paid ........................................ $234,152 $375,231 $236,236
Contingent deferred sales charges ........................... $ 15,116 $ 7,919 $ 7,673
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were paid to Investor Services:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------
Transfer agent fees ......................................... $193,785 $320,569 $263,745
4. INCOME TAXES
At July 31, 2003, certain funds had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------
Capital loss carryovers expiring in:
2010 ....................................................... $ 61,769 $ 979,398 $1,668,758
2011 ....................................................... 483,682 1,014,315 697,564
-----------------------------------------
............................................................ $545,451 $1,993,713 $2,366,322
-----------------------------------------
At July 31, 2003, the following funds had deferred capital losses occurring
subsequent to October 31, 2002. For tax purposes, such losses will be reflected
in the year ending July 31, 2004.
----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------
$696,706 $1,453,541 $5,127,482
Annual Report | 45
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
The tax character of distributions paid during the years ended July 31, 2003 and
2002, was as follows:
----------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE MODERATE
TARGET FUND TARGET FUND
----------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------
Distributions paid from:
Ordinary income .......................... $ 1,409,728 $ 1,403,420 $2,381,014 $2,720,500
Long-term capital gain ................... -- 404,811 -- 1,397,975
----------------------------------------------------------
$ 1,409,728 $ 1,808,231 $2,381,014 $4,118,475
----------------------------------------------------------
--------------------------
FRANKLIN TEMPLETON
GROWTH
TARGET FUND
--------------------------
2003 2002
--------------------------
Distributions paid from:
Ordinary income ......................................................... $ 895,792 $ 906,532
Long-term capital gain .................................................. -- 1,567,932
--------------------------
$ 895,792 $ 2,474,464
--------------------------
At July 31, 2003, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long-term
capital gains for income tax purposes were as follows:
-----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------------
Cost of investments ............................ $ 100,392,319 $ 188,857,462 $ 149,570,588
-----------------------------------------------
Unrealized appreciation ........................ $ 3,318,512 $ 5,146,986 $ 4,082,148
Unrealized depreciation ........................ (1,313,027) (5,819,618) (8,472,371)
-----------------------------------------------
Net unrealized appreciation (depreciation) ..... $ 2,005,485 $ (672,632) $ (4,390,223)
-----------------------------------------------
Undistributed ordinary income .................. $ 293,056 $ 436,189 $ 61,600
Undistributed long-term capital gains .......... -- -- --
-----------------------------------------------
Distributable earnings ......................... $ 293,056 $ 436,189 $ 61,600
-----------------------------------------------
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatment of wash sales.
46 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short-term securities) for
the year ended July 31, 2003, were as follows:
-------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------
Purchases ................................................ $40,017,221 $63,380,005 $51,129,543
Sales .................................................... $10,749,182 $21,002,483 $23,508,021
6. INVESTMENT IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Pursuant to a SEC exemptive order specific to the Funds' investment in
the Sweep Money Fund, asset allocation fees are reduced on assets invested in
the Sweep Money Fund, in an amount not to exceed the asset allocation fees paid
by the Sweep Money Fund.
The Funds earned dividend income from investment in the Sweep Money Fund as
follows:
--------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------
$168,092 $167,437 $66,327
7. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by
Advisers. The Funds do not invest in the Underlying Funds for the purpose of
exercising management or control. At July 31, 2003, the Funds held the following
positions which exceed 5% of the Underlying Fund's shares outstanding:
- ---------------------------------------------------------------
NAME OF ISSUER % OF SHARES HELD
- ---------------------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Technology Fund, Advisor Class 8.63%
Franklin Strategic Mortgage Portfolio 6.89%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Technology Fund, Advisor Class 8.86%
Annual Report | 47
Franklin Templeton Fund Allocator Series
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting the Franklin Templeton Fund Allocator Series (hereafter
referred to as the "Funds") at July 31, 2003, the results of each of their
operations for the year then ended, the changes in each of their 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 accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' 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 auditing standards
generally accepted in the United States of America, 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 July
31, 2003 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
September 4, 2003
48 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 854(b)(2) of the Internal Revenue Code (Code), the Funds hereby
designate the following maximum amounts as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
July 31, 2003. In January 2004, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2003. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
-------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------
$46,863 $97,993 $74,347
Under Section 854(b)(2) of the Code, the Funds hereby designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended July 31, 2003.
-------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------
5.36% 6.27% 12.01%
Annual Report | 49
Board Members and Officers
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, principal occupations during the
past five years and number of portfolios overseen in the Franklin Templeton
Investments fund complex are shown below. Each board member will serve until
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------------------
Frank H. Abbott, III (82) Trustee Since 1995 113 None
One Franklin Parkway
San Mateo, CA 94403-1906
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company); and
formerly, Director, MotherLode Gold Mines Consolidated (gold mining) (until
1996) and Vacu-Dry Co. (food processing) (until 1996).
- -------------------------------------------------------------------------------------------------------------------------------
Harris J. Ashton (71) Trustee Since 1995 140 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank
holding company) (until 2002); and President, Chief Executive Officer and
Chairman of the Board, General Host Corporation (nursery and craft centers)
(until 1998).
- -------------------------------------------------------------------------------------------------------------------------------
S. Joseph Fortunato (71) Trustee Since 1995 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and formerly, member of the law firm of Pitney, Hardin, Kipp & Szuch.
- -------------------------------------------------------------------------------------------------------------------------------
Edith E. Holiday (51) Trustee Since 1998 90 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil and
San Mateo, CA 94403-1906 gas); Hercules Incorporated (chemi-
cals, fibers and resins); Beverly
Enterprises, Inc. (health care); H.J.
Heinz Company (processed foods and
allied products); RTI International
Metals, Inc. (manufacture and distri-
bution of titanium); and Canadian
National Railway (railroad).
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and Assistant to the
President of the formerly, United States and Secretary of the Cabinet
(1990-1993); General Counsel to the United States Treasury Department
(1989-1990); and Counselor to the Secretary and Assistant Secretary for Public
Affairs and Public Liaison-United States Treasury Department (1988-1989).
- -------------------------------------------------------------------------------------------------------------------------------
50 | Annual Report
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------------------
Frank W.T. LaHaye (74) Trustee Since 1995 113 Director, The California Center for
One Franklin Parkway Land Recycling (redevelopment).
San Mateo, CA 94403-1906
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and Chairman, Peregrine
Venture Management formerly, Company (venture capital).
- -------------------------------------------------------------------------------------------------------------------------------
Gordon S. Macklin (75) Trustee Since 1995 140 Director, White Mountains Insurance
One Franklin Parkway Group, Ltd. (holding company);
San Mateo, CA 94403-1906 Martek Biosciences Corporation;
MedImmune, Inc. (biotechnology);
Overstock.com (Internet services);
and Spacehab, Inc. (aerospace serv-
ices); and formerly, Director, MCI
Communication Corporation (subse-
quently known as MCI WorldCom,
Inc. and WorldCom, Inc.) (communi-
cations services) (1988-2002).
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and
formerly, Chairman, White River Corporation (financial services) (1993-1998) and
Hambrecht & Quist Group (investment banking) (1987-1992); and President,
National Association of Securities Dealers, Inc. (1970-1987).
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------------------
**Charles B. Johnson (70) Trustee and Since 1995 140 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer
and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies
in Franklin Templeton Investments.
Annual Report | 51
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------------------------------------------------------
**Rupert H. Johnson, Jr. (62) Trustee and Trustee since 123 None
One Franklin Parkway President and 1995, and
San Mateo, CA 94403-1906 Chief President and
Executive Chief Executive
Officer - Officer -
Investment Investment
Management Management
since 2002
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 49 of the investment companies in Franklin
Templeton Investments.
- -------------------------------------------------------------------------------------------------------------------------------
Harmon E. Burns (58) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc.; and officer and/or director or trustee, as the case may
be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of
the investment companies in Franklin Templeton Investments.
- -------------------------------------------------------------------------------------------------------------------------------
Martin L. Flanagan (43) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Resources, Inc.; Senior Vice President and Chief Financial
Officer, Franklin Mutual Advisers, LLC; Executive Vice President, Chief
Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC;
President and Director, Franklin Advisers, Inc.; Executive Vice President,
Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor
Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC;
Chairman, Franklin Templeton Services, LLC; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 49 of the investment companies in Franklin Templeton
Investments.
- -------------------------------------------------------------------------------------------------------------------------------
Jimmy D. Gambill (55) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton
Worldwide, Inc.; and officer of 51 of the investment companies in Franklin
Templeton Investments.
- -------------------------------------------------------------------------------------------------------------------------------
52 | Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
David P. Goss (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
- ----------------------------------------------------------------------------------------------------------------------------------
Associate General Counsel, Franklin Resources, Inc.; officer and director of one
of the subsidiaries of Franklin Resources, Inc.; officer of 51 of the investment
companies in Franklin Templeton Investments; and President, Chief Executive
Officer and Director, Property formerly, Resources Equity Trust (until 1999) and
Franklin Select Realty Trust (until 2000).
- ----------------------------------------------------------------------------------------------------------------------------------
Barbara J. Green (55) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
- ----------------------------------------------------------------------------------------------------------------------------------
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice
President, Templeton Worldwide, Inc.; officer of some of the other subsidiaries
of Franklin Resources, Inc. and of 51 of the investment companies in Franklin
Templeton Investments; and formerly, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to
the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial
Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ----------------------------------------------------------------------------------------------------------------------------------
Michael O. Magdol (66) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch
600 Fifth Avenue - AML Chemicals, Inc. and Lingnan
Rockefeller Center Compliance Foundation.
New York, NY 10048-0772
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
- ----------------------------------------------------------------------------------------------------------------------------------
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company
International; and officer and/or director, as the case may be, of some of the
other subsidiaries of Franklin Resources, Inc. and of 47 of the investment
companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
Kimberley H. Monasterio (39) Treasurer and Treasurer since Not Applicable None
One Franklin Parkway Chief Financial 2000 and Chief
San Mateo, CA 94403-1906 Officer Financial
Officer
since 2002
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; and officer of 51 of
the investment companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Report | 53
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ---------------------------------------------------------------------------------------------------------------------------------
Murray L. Simpson (66) Vice President Since 2000 Not Applicable None
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director, as the case may be, of some of the subsidiaries of Franklin
Resources, Inc. and of 51 of the investment companies in Franklin Templeton
Investments; and formerly, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until 2000); and
Director, Templeton Asset Management Ltd. (until 1999).
- ---------------------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the U.S. registered
investment companies within the Franklin Templeton Investments fund complex.
These portfolios have a common investment adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested
persons of the Trust under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources Inc., which
is the parent company of the Funds' adviser and distributor.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE TRUST TO DISCLOSE WHETHER THE TRUST'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE TRUST'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE TRUST'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE TRUST, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE FUND HAS ESTABLISHED PROXY VOTING POLICIES AND PROCEDURES ("POLICIES") THAT
THE FUND USES TO DETERMINE HOW TO VOTE PROXIES RELATING TO PORTFOLIO SECURITIES.
SHAREHOLDERS MAY VIEW THE FUND'S COMPLETE POLICIES ON-LINE AT
WWW.FRANKLINTEMPLETON.COM. ALTERNATIVELY, SHAREHOLDERS MAY REQUEST COPIES OF THE
POLICIES FREE OF CHARGE BY CALLING THE PROXY GROUP COLLECT AT 1-954-847-2268 OR
BY SENDING A WRITTEN REQUEST TO: FRANKLIN TEMPLETON COMPANIES, LLC, 500 EAST
BROWARD BOULEVARD, SUITE 1500, FORT LAUDERDALE, FL 33394, ATTENTION: PROXY
GROUP.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
54 | Annual Report
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Literature Request
For a brochure and prospectus, which contains more complete information,
including charges and expenses, call Franklin Templeton Investments at
1-800/DIAL BEN (R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. To ensure the highest quality of service, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be identified by the presence of a regular beeping
tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 3
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 7
Franklin Income Fund
Franklin Money Fund 5, 6
Franklin Short-Intermediate
U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 8
Double Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 9
Tax-Exempt Money Fund 5, 6
STATE-SPECIFIC TAX-FREE INCOME 8
Alabama
Arizona
California 10
Colorado
Connecticut
Florida 10
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 9
Michigan 9
Minnesota 9
Missouri
New Jersey
New York 10
North Carolina
Ohio 9
Oregon
Pennsylvania
Tennessee
Virginia
VARIABLE INSURANCE PRODUCTS FUNDS
Franklin Templeton Variable Insurance
Products Trust 11
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders as well as select retirement
plans.
3. Effective June 30, 2003, the fund reopened to all new investors.
4. Upon reaching approximately $350 million in assets, the fund will close to
all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
7. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
8. For investors subject to the alternative minimum tax, a small portion of
these dividends may be taxable. Distributions of capital gains are generally
taxable. 9. Portfolio of insured municipal securities.
10. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY). 11. The
funds of the Franklin Templeton Variable Insurance Products Trust are generally
available only through insurance company variable contracts.
09/03 Not part of the annual report
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
One Franklin Parkway
San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
Franklin Templeton
Fund Allocator Series
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN (R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Franklin Templeton
Fund Allocator Series prospectus, which contains more complete information
including charges and expenses.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS A2003 09/03
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 10(a), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers financial
and accounting officer.
Item 3. Audit Committee Financial Expert.
(a)(1) The registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W.T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
Item 4. Principal Accountant Fees and Services. N/A
Item 5. Audit Committee of Listed Registrants. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A
Item 9. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) Changes in Internal Controls. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
Item 10. Exhibits.
(A) Code of Ethics for Principal Executive and Senior Financial Officers.
(B)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Kimberley H. Monasterio, Chief Financial Officer
(B(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Kimberley H. Monasterio, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 26, 2003
By /s/Kimberley H. Monasterio
Chief Financial Officer
Date September 26, 2003