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 811-07851
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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: 12/31
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Date of reporting period: 12/31/04
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ITEM 1. REPORTS TO STOCKHOLDERS.
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DECEMBER 31, 2004
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Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER | ASSET ALLOCATION
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[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
Franklin o Templeton o MUTUAL SERIES
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
recognized leader in fixed income investing and
also brings 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. Founded 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.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the annual report
CONTENTS
SHAREHOLDER LETTER ......................................................... 1
ANNUAL REPORT
Economic and Market Overview ............................................... 3
Franklin Templeton Conservative Target Fund ................................ 5
Franklin Templeton Moderate Target Fund .................................... 16
Franklin Templeton Growth Target Fund ...................................... 27
Financial Highlights and Statements of Investments ......................... 38
Financial Statements ....................................................... 53
Notes to Financial Statements .............................................. 60
Report of Independent Registered Public Accounting Firm .................... 72
Tax Designation ............................................................ 73
Board Members and Officers ................................................. 74
Shareholder Information .................................................... 79
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ANNUAL REPORT
ECONOMIC AND MARKET OVERVIEW
During the five months ended December 31, 2004, the domestic economy expanded
solidly and broadly across most industries, sectors and regions, as gross
domestic product (GDP) rose at an estimated annual rate of 3.6% in the latter
half of 2004.(1) However, surging energy and other commodity prices had a
dampening effect. Although consumer confidence remained below pre-recession
levels, consumer spending supported strong auto sales, increased durable goods
consumption and a healthy housing market. Similarly, business spending rose
substantially even as business confidence wavered. The labor market firmed and
unemployment dropped from 5.5% to 5.4% during the period.(2)
The U.S. dollar weakened further during the five-month period and hit an
all-time low against the euro and a multi-year low versus the yen. The widening
trade and current account deficits and possibility for higher import prices
contributed to inflationary pressures. The core inflation rate rose to 2.2% in
2004, or 3.3% including volatile food and energy costs. Aiming to keep inflation
tame, the Federal Reserve Board (Fed) raised the federal funds target rate four
times between August and December, from 1.25% to 2.25%, the highest level in
more than three years.
Despite experiencing some fluctuation, domestic equity markets were essentially
flat from August through early November. After the elections concluded, the
markets enjoyed a strong rally through period-end. The blue chip stocks of the
Dow Jones Industrial Average gained 7.36% for the period under review, while the
broader Standard & Poor's 500 Composite Index (S&P 500) rose 10.85% and the
technology-heavy NASDAQ Composite Index increased 15.26%.(3)
(1) Source: Bureau of Economic Analysis.
(2) Source: Bureau of Labor Statistics.
(3) Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. 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 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 3,000 companies.
Annual Report | 3
Outside the U.S., the global economic recovery continued in 2004, led by growth
in China. The 12-nation euro zone lagged other regions in the current recovery.
However, the European Central Bank projected euro zone growth may be between
1.6% and 2.0% in 2004, compared with only 0.5% in 2003. In Japan, the economy
struggled to emerge from a decade-long deflationary period. Although the
country's consumer and business confidence reached their highest levels since
1991, economic growth slowed in response to higher oil prices and reduced
external demand. The U.S. dollar decline hurt Japanese and European exports to
the U.S., as it made their goods more expensive in the world's biggest market.
For the five-month period ended December 31, 2004, the Morgan Stanley Capital
International (MSCI) World Index's total return was 14.75% in U.S. dollars.(4)
Emerging markets, as measured by the MSCI Emerging Markets Index, had a total
return of 29.23% in U.S. dollars.(5) In local currencies, these indexes had
notably lower total returns of 9.87% and 19.74% for the same period.(4),(5)
During the period, most of the world's currencies strengthened in relation to
the U.S. dollar, which benefited U.S.-based investors of non-U.S. developed and
emerging market equities.
(4) Source: Standard & Poor's Micropal. The MSCI World Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in global developed markets.
(5) Source: Standard & Poor's Micropal. The MSCI Emerging Markets Index is a
free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global emerging markets.
THIS DISCUSSION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2004. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES
CONSIDERED RELIABLE.
4 | Annual Report
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target
Fund seeks the highest level of long-term total return consistent with a lower
level of risk.
[SIDE BAR]
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
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ASSET ALLOCATION
Franklin Templeton Conservative Target Fund
Based on Total Net Assets as of 12/31/04
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity ............................................... 27.7%
Primarily Domestic Fixed Income ......................................... 26.1%
Primarily Foreign Fixed Income .......................................... 13.1%
Primarily Foreign Equity ................................................ 12.3%
Short-Term Investments & Other Net Assets ............................... 20.8%
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We are pleased to bring you Franklin Templeton Conservative Target Fund's annual
report for the five months ended December 31, 2004.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A posted a +8.30% cumulative
total return for the five months under review. 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 (LB)
U.S. Aggregate Index for fixed income, and the P&R 90 Day T-Bill for short-term
investments and other net
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 42.
Annual Report | 5
[SIDE BAR]
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund
12/31/04
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% OF TOTAL
NET ASSETS
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Franklin Strategic Mortgage Portfolio 13.1%
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Templeton Global Bond Fund
- - Advisor Class 13.1%
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Franklin Small Cap Growth Fund II
- - Advisor Class 9.8%
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Franklin Capital Growth Fund
- - Advisor Class 7.1%
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Franklin Total Return Fund
- - Advisor Class 6.0%
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Mutual European Fund
- - Class Z 5.8%
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Mutual Shares Fund
- - Class Z 5.7%
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Franklin U.S Government Securities Fund
- - Advisor Class 5.5%
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Templeton Foreign Fund
- - Advisor Class 3.9%
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Franklin Gold and Precious Metals Fund
- - Advisor Class 2.2%
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assets. For the reporting period, the benchmark returned 6.68%.(1) In previous
reporting periods, the fixed income portion of the hybrid benchmark index was
represented by the LB U.S. Government/Credit Index.(2) We are replacing the LB
U.S. Government/Credit Index with the LB U.S. Aggregate Index because the new
index more closely represents the Fund's income component. For the year under
review, the former hybrid benchmark returned 6.21%.(3) You can find the Fund's
long-term performance data in the Performance Summary beginning on page 9.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying 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
of the Target Funds' results relative to each other. For your reference,
Franklin Templeton Conservative Target Fund seeks to maintain the following
asset class allocations: 40% equity, 40% fixed income, and 20% short-term
investments and other net assets.
(1) Sources: Standard & Poor's Micropal; Lehman Brothers. 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 a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond market, with index components for government and corporate
securities, mortgage pass-through securities and asset-backed securities.
All issues included must have at least one year to final maturity and must
be rated investment grade (Baa3 or better) by Moody's Investors Service.
They must be publicly issued, fixed rate and have at least par amount
outstanding. They must also be dollar denominated and nonconvertible.
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
28%, MSCI EAFE 12%, LB U.S. Aggregate Index 40% and P&R 90 Day T-Bill 20%.
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.
(2) The LB U.S. Government/Credit Index includes U.S. Treasury or Agency
issued securities and publicly issued U.S. corporate and specified foreign
debentures and secured notes that meet the specified maturity, liquidity
and quality requirements. These include public obligations of the U.S.
Treasury with remaining maturity of one year or more and publicly issued
debt of U.S. governmental agencies, quasi-federal corporations, and
corporate or foreign debt. The credit portion includes both corporate and
noncorporate sectors. The corporate sectors are industrial, utility and
finance, which include both U.S. and non-U.S. corporations. The
noncorporate sectors are sovereign, supranational, foreign agency and
foreign local government. All issues included must have at least one year
to final maturity and must be rated investment grade (Baa3 or better) by
Moody's Investors Service. They must also be dollar denominated and
nonconvertible. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
quarterly by market capitalization.
(3) Sources: Standard & Poor's Micropal; Lehman Brothers. The benchmark
index's weightings: S&P 500 25%, MSCI EAFE 10%, LB U.S. Government/Credit
Index 45%, P&R 90 Day T-Bill 20%. 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.
6 | Annual Report
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.
At period-end, Franklin Templeton Conservative Target Fund's domestic equity
exposure was 69.2% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2004, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Franklin Small Cap Growth Fund II - Advisor Class, representing 9.8% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 66.7% of the Fund's total income
weighting, with the balance represented by foreign fixed income. Franklin
Strategic Mortgage Portfolio and Templeton Global Bond Fund - Advisor Class were
our largest fixed income fund weightings, each at 13.1% of total net assets.
Our largest foreign equity holding, Mutual European Fund, outperformed the MSCI
EAFE Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
outperformed the LB U.S. Aggregate Index, and Franklin Strategic Income Fund -
Advisor Class posted strong relative results, largely due to its greater
weighting of high yield securities versus the LB index. However, some funds with
higher quality securities, such as Franklin Strategic Mortgage Portfolio,
underperformed the LB index during the period.
In general, if the value of the U.S. dollar goes up compared with a foreign
currency, an investment traded in that foreign currency will go down in value
because it will be worth fewer U.S. dollars. This can have a negative effect on
Fund performance. Conversely, when the U.S. dollar weakens in relation to a
foreign currency, an investment traded in that foreign currency will increase in
value, which can contribute to Fund performance. For the 12 months ended
December 31, 2004, the U.S. dollar declined in value relative to most non-U.S.
currencies. At the end of the period, a significant portion of the Fund's
underlying funds was invested in securities with non-U.S. currency exposure,
which resulted in a positive effect on Fund performance. However, one cannot
expect the same result in future periods.
Annual Report | 7
Thank you for your continued participation in Franklin Templeton Conservative
Target Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Conservative Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS 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 ADVISER 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.
8 | Annual Report
PERFORMANCE SUMMARY AS OF 12/31/04
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 reinvestment of the Fund's
dividends and capital gain distributions, if any, and any unrealized gains or
losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A CHANGE 12/31/04 7/31/04
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Net Asset Value (NAV) +$0.82 $12.48 $11.66
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DISTRIBUTIONS (8/1/04-12/31/04)
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Dividend Income $0.1443
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CLASS B CHANGE 12/31/04 7/31/04
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Net Asset Value (NAV) +$0.83 $12.46 $11.63
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DISTRIBUTIONS (8/1/04-12/31/04)
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Dividend Income $0.1001
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CLASS C CHANGE 12/31/04 7/31/04
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Net Asset Value (NAV) +$0.83 $12.36 $11.53
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DISTRIBUTIONS (8/1/04-12/31/04)
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Dividend Income $0.0935
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CLASS R CHANGE 12/31/04 7/31/04
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Net Asset Value (NAV) +$0.83 $12.46 $11.63
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DISTRIBUTIONS (8/1/04-12/31/04)
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Dividend Income $0.1284
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Annual Report | 9
PERFORMANCE SUMMARY (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
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CLASS A 5-MONTH(1) 1-YEAR 5-YEAR INCEPTION (12/31/96)
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Cumulative Total Return(2) +8.30% +7.98% +24.48% +71.98%
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Average Annual Total Return(3) +2.09% +1.75% +3.24% +6.22%
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Value of $10,000 Investment(4) $10,209 $10,175 $11,728 $16,209
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CLASS B 5-MONTH(1) 1-YEAR INCEPTION (12/1/03)
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Cumulative Total Return(2) +8.02% +7.26% +9.08%
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Average Annual Total Return(3) +4.02% +3.26% +4.69%
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Value of $10,000 Investment(4) $10,402 $10,326 $10,508
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CLASS C 5-MONTH(1) 1-YEAR 5-YEAR INCEPTION (12/31/96)
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Cumulative Total Return(2) +8.03% +7.20% +19.94% +61.58%
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Average Annual Total Return(3) +7.03% +6.20% +3.70% +6.18%
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Value of $10,000 Investment(4) $10,703 $10,620 $11,994 $16,158
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CLASS R 5-MONTH(1) 1-YEAR INCEPTION (1/1/02)
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Cumulative Total Return(2) +8.27% +7.74% +20.98%
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Average Annual Total Return(3) +7.27% +6.74% +6.57%
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Value of $10,000 Investment(4) $10,727 $10,674 $12,098
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
10 | 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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
U.S.
FT CONSERVATIVE S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/31/1996 $ 9,425 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $ 9,576 $10,624 $ 9,652 $10,031 $10,012 $10,045
2/28/1997 $ 9,585 $10,708 $ 9,813 $10,056 $10,033 $10,083
3/31/1997 $ 9,474 $10,269 $ 9,850 $ 9,944 $ 9,914 $10,126
4/30/1997 $ 9,502 $10,881 $ 9,905 $10,093 $10,059 $10,172
5/31/1997 $ 9,814 $11,543 $10,552 $10,188 $10,153 $10,223
6/30/1997 $10,028 $12,060 $11,136 $10,309 $10,274 $10,261
7/31/1997 $10,293 $13,019 $11,319 $10,587 $10,589 $10,305
8/31/1997 $10,189 $12,290 $10,476 $10,497 $10,470 $10,351
9/30/1997 $10,570 $12,963 $11,065 $10,652 $10,635 $10,399
10/31/1997 $10,351 $12,531 $10,217 $10,806 $10,805 $10,438
11/30/1997 $10,408 $13,110 $10,115 $10,856 $10,862 $10,484
12/31/1997 $10,513 $13,335 $10,206 $10,965 $10,976 $10,530
1/31/1998 $10,503 $13,482 $10,675 $11,106 $11,130 $10,582
2/28/1998 $10,797 $14,454 $11,362 $11,098 $11,108 $10,623
3/31/1998 $11,036 $15,194 $11,715 $11,136 $11,142 $10,675
4/30/1998 $11,095 $15,347 $11,810 $11,194 $11,198 $10,725
5/31/1998 $10,987 $15,083 $11,756 $11,300 $11,318 $10,771
6/30/1998 $10,988 $15,695 $11,847 $11,396 $11,434 $10,815
7/31/1998 $10,850 $15,529 $11,970 $11,420 $11,443 $10,862
8/31/1998 $10,219 $13,286 $10,490 $11,606 $11,666 $10,914
9/30/1998 $10,397 $14,137 $10,171 $11,878 $12,000 $10,970
10/31/1998 $10,526 $15,286 $11,234 $11,815 $11,915 $11,013
11/30/1998 $10,715 $16,212 $11,812 $11,882 $11,986 $11,048
12/31/1998 $10,826 $17,146 $12,281 $11,918 $12,016 $11,094
1/31/1999 $10,898 $17,862 $12,247 $12,003 $12,101 $11,137
2/28/1999 $10,754 $17,307 $11,958 $11,794 $11,813 $11,172
3/31/1999 $10,916 $18,000 $12,460 $11,859 $11,872 $11,220
4/30/1999 $11,185 $18,697 $12,968 $11,896 $11,901 $11,262
5/31/1999 $11,092 $18,256 $12,303 $11,792 $11,779 $11,305
6/30/1999 $11,273 $19,268 $12,786 $11,755 $11,742 $11,347
7/31/1999 $11,200 $18,667 $13,169 $11,705 $11,709 $11,394
8/31/1999 $11,211 $18,575 $13,220 $11,699 $11,700 $11,438
9/30/1999 $11,196 $18,066 $13,356 $11,834 $11,805 $11,488
10/31/1999 $11,501 $19,209 $13,859 $11,878 $11,836 $11,533
11/30/1999 $12,123 $19,600 $14,343 $11,877 $11,829 $11,579
12/31/1999 $13,021 $20,753 $15,633 $11,820 $11,757 $11,632
1/31/2000 $12,881 $19,711 $14,643 $11,781 $11,754 $11,677
2/29/2000 $13,950 $19,338 $15,040 $11,924 $11,902 $11,730
3/31/2000 $13,756 $21,228 $15,626 $12,081 $12,074 $11,789
4/30/2000 $13,245 $20,590 $14,806 $12,046 $12,015 $11,849
5/31/2000 $12,962 $20,169 $14,448 $12,041 $12,004 $11,913
6/30/2000 $13,335 $20,666 $15,016 $12,291 $12,249 $11,964
7/31/2000 $13,302 $20,343 $14,389 $12,403 $12,379 $12,019
8/31/2000 $13,818 $21,606 $14,517 $12,583 $12,553 $12,082
9/30/2000 $13,675 $20,466 $13,813 $12,662 $12,601 $12,148
10/31/2000 $13,487 $20,379 $13,490 $12,746 $12,680 $12,209
11/30/2000 $12,999 $18,773 $12,987 $12,954 $12,896 $12,276
12/31/2000 $13,418 $18,865 $13,451 $13,194 $13,151 $12,347
1/31/2001 $13,781 $19,534 $13,445 $13,410 $13,371 $12,428
2/28/2001 $13,348 $17,754 $12,438 $13,527 $13,509 $12,478
3/31/2001 $13,004 $16,630 $11,614 $13,595 $13,571 $12,540
4/30/2001 $13,416 $17,922 $12,429 $13,538 $13,470 $12,592
5/31/2001 $13,498 $18,042 $12,000 $13,620 $13,547 $12,641
6/30/2001 $13,439 $17,603 $11,514 $13,671 $13,612 $12,678
7/31/2001 $13,380 $17,429 $11,305 $13,977 $13,951 $12,720
8/31/2001 $13,214 $16,339 $11,021 $14,137 $14,131 $12,762
9/30/2001 $12,493 $15,020 $ 9,908 $14,302 $14,261 $12,818
10/31/2001 $12,839 $15,307 $10,161 $14,601 $14,622 $12,851
11/30/2001 $13,150 $16,481 $10,536 $14,400 $14,382 $12,878
12/31/2001 $13,295 $16,625 $10,599 $14,308 $14,269 $12,899
1/31/2002 $13,283 $16,383 $10,037 $14,424 $14,374 $12,917
2/28/2002 $13,271 $16,067 $10,107 $14,564 $14,496 $12,934
3/31/2002 $13,544 $16,671 $10,659 $14,322 $14,202 $12,953
4/30/2002 $13,581 $15,661 $10,736 $14,599 $14,477 $12,973
5/31/2002 $13,532 $15,546 $10,882 $14,723 $14,610 $12,993
6/30/2002 $13,141 $14,439 $10,453 $14,851 $14,735 $13,012
7/31/2002 $12,611 $13,313 $ 9,422 $15,030 $14,912 $13,031
8/31/2002 $12,698 $13,401 $ 9,403 $15,284 $15,247 $13,050
9/30/2002 $12,306 $11,946 $ 8,395 $15,531 $15,574 $13,071
10/31/2002 $12,541 $12,996 $ 8,847 $15,461 $15,426 $13,091
11/30/2002 $12,876 $13,760 $ 9,250 $15,456 $15,435 $13,111
12/31/2002 $12,792 $12,952 $ 8,939 $15,776 $15,844 $13,125
1/31/2003 $12,742 $12,613 $ 8,567 $15,789 $15,843 $13,139
2/28/2003 $12,704 $12,424 $ 8,371 $16,008 $16,125 $13,151
3/31/2003 $12,687 $12,543 $ 8,213 $15,995 $16,104 $13,165
4/30/2003 $13,152 $13,577 $ 9,027 $16,127 $16,277 $13,178
5/31/2003 $13,654 $14,292 $ 9,583 $16,428 $16,739 $13,192
6/30/2003 $13,732 $14,474 $ 9,820 $16,395 $16,672 $13,208
7/31/2003 $13,745 $14,730 $10,059 $15,844 $15,973 $13,217
8/31/2003 $14,047 $15,016 $10,304 $15,949 $16,079 $13,227
9/30/2003 $14,142 $14,857 $10,623 $16,372 $16,588 $13,239
10/31/2003 $14,484 $15,697 $11,286 $16,219 $16,378 $13,249
11/30/2003 $14,712 $15,835 $11,539 $16,258 $16,421 $13,260
12/31/2003 $15,011 $16,665 $12,441 $16,423 $16,583 $13,270
1/31/2004 $15,126 $16,971 $12,617 $16,555 $16,734 $13,281
2/29/2004 $15,266 $17,207 $12,911 $16,734 $16,939 $13,290
3/31/2004 $15,288 $16,947 $12,989 $16,860 $17,094 $13,301
4/30/2004 $14,904 $16,682 $12,706 $16,421 $16,569 $13,311
5/31/2004 $14,993 $16,910 $12,761 $16,355 $16,485 $13,320
6/30/2004 $15,172 $17,239 $13,046 $16,448 $16,552 $13,326
7/31/2004 $14,967 $16,668 $12,624 $16,611 $16,727 $13,338
8/31/2004 $15,082 $16,735 $12,683 $16,928 $17,081 $13,352
9/30/2004 $15,329 $16,916 $13,016 $16,974 $17,141 $13,367
10/31/2004 $15,548 $17,175 $13,461 $17,116 $17,289 $13,382
11/30/2004 $15,948 $17,870 $14,384 $16,979 $17,097 $13,395
12/31/2004 $16,209 $18,477 $15,016 $17,136 $17,279 $13,421
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 12/31/04
- --------------------------------------
1-Year +1.75%
- --------------------------------------
5-Year +3.24%
- --------------------------------------
Since Inception (12/31/96) +6.22%
- --------------------------------------
CLASS B (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
U.S.
FT CONSERVATIVE S&P MSCI LB U.S. LB U.S GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,099 $10,008
1/31/2004 $10,239 $10,717 $10,935 $10,183 $10,190 $10,016
2/29/2004 $10,326 $10,866 $11,189 $10,293 $10,315 $10,023
3/31/2004 $10,337 $10,702 $11,257 $10,370 $10,410 $10,031
4/30/2004 $10,068 $10,534 $11,012 $10,101 $10,090 $10,038
5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,038 $10,045
6/30/2004 $10,237 $10,886 $11,306 $10,117 $10,080 $10,050
7/31/2004 $10,098 $10,526 $10,941 $10,217 $10,186 $10,059
8/31/2004 $10,168 $10,568 $10,991 $10,412 $10,402 $10,069
9/30/2004 $10,329 $10,683 $11,280 $10,440 $10,438 $10,080
10/31/2004 $10,468 $10,846 $11,666 $10,528 $10,529 $10,092
11/30/2004 $10,738 $11,285 $12,466 $10,444 $10,411 $10,102
12/31/2004 $10,508 $11,668 $13,013 $10,540 $10,522 $10,122
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
CLASS B 12/31/04
- ---------------------------------------
1-Year +3.26%
- ---------------------------------------
Since Inception (12/1/03) +4.69%
- ---------------------------------------
Annual Report | 11
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 12/31/04
- --------------------------------------
1-Year +6.20%
- --------------------------------------
5-Year +3.70%
- --------------------------------------
Since Inception (12/31/96) +6.18%
- --------------------------------------
CLASS C (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
U.S.
FT CONSERVATIVE S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,160 $10,624 $ 9,652 $10,031 $10,012 $10,045
2/28/1997 $10,150 $10,708 $ 9,813 $10,056 $10,033 $10,083
3/31/1997 $ 9,998 $10,269 $ 9,850 $ 9,944 $ 9,914 $10,126
4/30/1997 $10,028 $10,881 $ 9,905 $10,093 $10,059 $10,172
5/31/1997 $10,359 $11,543 $10,552 $10,188 $10,153 $10,223
6/30/1997 $10,577 $12,060 $11,136 $10,309 $10,274 $10,261
7/31/1997 $10,848 $13,019 $11,319 $10,587 $10,589 $10,305
8/31/1997 $10,717 $12,290 $10,476 $10,497 $10,470 $10,351
9/30/1997 $11,111 $12,963 $11,065 $10,652 $10,635 $10,399
10/31/1997 $10,879 $12,531 $10,217 $10,806 $10,805 $10,438
11/30/1997 $10,940 $13,110 $10,115 $10,856 $10,862 $10,484
12/31/1997 $11,042 $13,335 $10,206 $10,965 $10,976 $10,530
1/31/1998 $11,021 $13,482 $10,675 $11,106 $11,130 $10,582
2/28/1998 $11,321 $14,454 $11,362 $11,098 $11,108 $10,623
3/31/1998 $11,570 $15,194 $11,715 $11,136 $11,142 $10,675
4/30/1998 $11,621 $15,347 $11,810 $11,194 $11,198 $10,725
5/31/1998 $11,507 $15,083 $11,756 $11,300 $11,318 $10,771
6/30/1998 $11,499 $15,695 $11,847 $11,396 $11,434 $10,815
7/31/1998 $11,343 $15,529 $11,970 $11,420 $11,443 $10,862
8/31/1998 $10,678 $13,286 $10,490 $11,606 $11,666 $10,914
9/30/1998 $10,857 $14,137 $10,171 $11,878 $12,000 $10,970
10/31/1998 $10,983 $15,286 $11,234 $11,815 $11,915 $11,013
11/30/1998 $11,171 $16,212 $11,812 $11,882 $11,986 $11,048
12/31/1998 $11,283 $17,146 $12,281 $11,918 $12,016 $11,094
1/31/1999 $11,348 $17,862 $12,247 $12,003 $12,101 $11,137
2/28/1999 $11,196 $17,307 $11,958 $11,794 $11,813 $11,172
3/31/1999 $11,363 $18,000 $12,460 $11,859 $11,872 $11,220
4/30/1999 $11,623 $18,697 $12,968 $11,896 $11,901 $11,262
5/31/1999 $11,525 $18,256 $12,303 $11,792 $11,779 $11,305
6/30/1999 $11,701 $19,268 $12,786 $11,755 $11,742 $11,347
7/31/1999 $11,625 $18,667 $13,169 $11,705 $11,709 $11,394
8/31/1999 $11,625 $18,575 $13,220 $11,699 $11,700 $11,438
9/30/1999 $11,608 $18,066 $13,356 $11,834 $11,805 $11,488
10/31/1999 $11,916 $19,209 $13,859 $11,878 $11,836 $11,533
11/30/1999 $12,542 $19,600 $14,343 $11,877 $11,829 $11,579
12/31/1999 $13,472 $20,753 $15,633 $11,820 $11,757 $11,632
1/31/2000 $13,314 $19,711 $14,643 $11,781 $11,754 $11,677
2/29/2000 $14,417 $19,338 $15,040 $11,924 $11,902 $11,730
3/31/2000 $14,201 $21,228 $15,626 $12,081 $12,074 $11,789
4/30/2000 $13,669 $20,590 $14,806 $12,046 $12,015 $11,849
5/31/2000 $13,375 $20,169 $14,448 $12,041 $12,004 $11,913
6/30/2000 $13,738 $20,666 $15,016 $12,291 $12,249 $11,964
7/31/2000 $13,704 $20,343 $14,389 $12,403 $12,379 $12,019
8/31/2000 $14,216 $21,606 $14,517 $12,583 $12,553 $12,082
9/30/2000 $14,066 $20,466 $13,813 $12,662 $12,601 $12,148
10/31/2000 $13,871 $20,379 $13,490 $12,746 $12,680 $12,209
11/30/2000 $13,353 $18,773 $12,987 $12,954 $12,896 $12,276
12/31/2000 $13,777 $18,865 $13,451 $13,194 $13,151 $12,347
1/31/2001 $14,140 $19,534 $13,445 $13,410 $13,371 $12,428
2/28/2001 $13,692 $17,754 $12,438 $13,527 $13,509 $12,478
3/31/2001 $13,330 $16,630 $11,614 $13,595 $13,571 $12,540
4/30/2001 $13,743 $17,922 $12,429 $13,538 $13,470 $12,592
5/31/2001 $13,816 $18,042 $12,000 $13,620 $13,547 $12,641
6/30/2001 $13,743 $17,603 $11,514 $13,671 $13,612 $12,678
7/31/2001 $13,682 $17,429 $11,305 $13,977 $13,951 $12,720
8/31/2001 $13,499 $16,339 $11,021 $14,137 $14,131 $12,762
9/30/2001 $12,755 $15,020 $ 9,908 $14,302 $14,261 $12,818
10/31/2001 $13,100 $15,307 $10,161 $14,601 $14,622 $12,851
11/30/2001 $13,408 $16,481 $10,536 $14,400 $14,382 $12,878
12/31/2001 $13,560 $16,625 $10,599 $14,308 $14,269 $12,899
1/31/2002 $13,522 $16,383 $10,037 $14,424 $14,374 $12,917
2/28/2002 $13,497 $16,067 $10,107 $14,564 $14,496 $12,934
3/31/2002 $13,775 $16,671 $10,659 $14,322 $14,202 $12,953
4/30/2002 $13,800 $15,661 $10,736 $14,599 $14,477 $12,973
5/31/2002 $13,737 $15,546 $10,882 $14,723 $14,610 $12,993
6/30/2002 $13,338 $14,439 $10,453 $14,851 $14,735 $13,012
7/31/2002 $12,795 $13,313 $ 9,422 $15,030 $14,912 $13,031
8/31/2002 $12,884 $13,401 $ 9,403 $15,284 $15,247 $13,050
9/30/2002 $12,475 $11,946 $ 8,395 $15,531 $15,574 $13,071
10/31/2002 $12,703 $12,996 $ 8,847 $15,461 $15,426 $13,091
11/30/2002 $13,032 $13,760 $ 9,250 $15,456 $15,435 $13,111
12/31/2002 $12,943 $12,952 $ 8,939 $15,776 $15,844 $13,125
1/31/2003 $12,879 $12,613 $ 8,567 $15,789 $15,843 $13,139
2/28/2003 $12,841 $12,424 $ 8,371 $16,008 $16,125 $13,151
3/31/2003 $12,815 $12,543 $ 8,213 $15,995 $16,104 $13,165
4/30/2003 $13,263 $13,577 $ 9,027 $16,127 $16,277 $13,178
5/31/2003 $13,775 $14,292 $ 9,583 $16,428 $16,739 $13,192
6/30/2003 $13,845 $14,474 $ 9,820 $16,395 $16,672 $13,208
7/31/2003 $13,845 $14,730 $10,059 $15,844 $15,973 $13,217
8/31/2003 $14,140 $15,016 $10,304 $15,949 $16,079 $13,227
9/30/2003 $14,226 $14,857 $10,623 $16,372 $16,588 $13,239
10/31/2003 $14,560 $15,697 $11,286 $16,219 $16,378 $13,249
11/30/2003 $14,778 $15,835 $11,539 $16,258 $16,421 $13,260
12/31/2003 $15,073 $16,665 $12,441 $16,423 $16,583 $13,270
1/31/2004 $15,177 $16,971 $12,617 $16,555 $16,734 $13,281
2/29/2004 $15,306 $17,207 $12,911 $16,734 $16,939 $13,290
3/31/2004 $15,324 $16,947 $12,989 $16,860 $17,094 $13,301
4/30/2004 $14,922 $16,682 $12,706 $16,421 $16,569 $13,311
5/31/2004 $15,013 $16,910 $12,761 $16,355 $16,485 $13,320
6/30/2004 $15,165 $17,239 $13,046 $16,448 $16,552 $13,326
7/31/2004 $14,957 $16,668 $12,624 $16,611 $16,727 $13,338
8/31/2004 $15,061 $16,735 $12,683 $16,928 $17,081 $13,352
9/30/2004 $15,309 $16,916 $13,016 $16,974 $17,141 $13,367
10/31/2004 $15,517 $17,175 $13,461 $17,116 $17,289 $13,382
11/30/2004 $15,907 $17,870 $14,384 $16,979 $17,097 $13,395
12/31/2004 $16,158 $18,477 $15,016 $17,136 $17,279 $13,421
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 12/31/04
- --------------------------------------
1-Year +6.74%
- --------------------------------------
Since Inception (1/1/02) +6.57%
- --------------------------------------
CLASS R (1/1/02-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
U.S.
FT CONSERVATIVE S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,982 $ 9,854 $ 9,469 $10,081 $10,073 $10,014
2/28/2002 $ 9,972 $ 9,664 $ 9,536 $10,179 $10,159 $10,027
3/31/2002 $10,178 $10,028 $10,057 $10,009 $ 9,953 $10,042
4/30/2002 $10,196 $ 9,420 $10,130 $10,203 $10,146 $10,057
5/31/2002 $10,159 $ 9,351 $10,267 $10,290 $10,239 $10,073
6/30/2002 $ 9,869 $ 8,685 $ 9,862 $10,379 $10,326 $10,088
7/31/2002 $ 9,461 $ 8,008 $ 8,889 $10,504 $10,451 $10,102
8/31/2002 $ 9,526 $ 8,061 $ 8,871 $10,682 $10,685 $10,117
9/30/2002 $ 9,232 $ 7,185 $ 7,921 $10,855 $10,915 $10,133
10/31/2002 $ 9,409 $ 7,817 $ 8,347 $10,805 $10,811 $10,149
11/30/2002 $ 9,650 $ 8,277 $ 8,727 $10,802 $10,817 $10,165
12/31/2002 $ 9,591 $ 7,791 $ 8,434 $11,025 $11,104 $10,175
1/31/2003 $ 9,554 $ 7,587 $ 8,083 $11,035 $11,103 $10,186
2/28/2003 $ 9,516 $ 7,473 $ 7,898 $11,188 $11,301 $10,195
3/31/2003 $ 9,510 $ 7,545 $ 7,749 $11,179 $11,286 $10,207
4/30/2003 $ 9,850 $ 8,167 $ 8,517 $11,271 $11,407 $10,217
5/31/2003 $10,228 $ 8,596 $ 9,041 $11,481 $11,731 $10,227
6/30/2003 $10,284 $ 8,706 $ 9,265 $11,459 $11,684 $10,240
7/31/2003 $10,293 $ 8,860 $ 9,491 $11,073 $11,194 $10,247
8/31/2003 $10,511 $ 9,032 $ 9,721 $11,147 $11,268 $10,255
9/30/2003 $10,584 $ 8,937 $10,023 $11,442 $11,625 $10,263
10/31/2003 $10,831 $ 9,442 $10,648 $11,335 $11,478 $10,272
11/30/2003 $11,002 $ 9,525 $10,887 $11,362 $11,508 $10,280
12/31/2003 $11,228 $10,024 $11,738 $11,478 $11,622 $10,288
1/31/2004 $11,314 $10,208 $11,904 $11,570 $11,727 $10,297
2/29/2004 $11,410 $10,350 $12,181 $11,696 $11,871 $10,303
3/31/2004 $11,431 $10,194 $12,255 $11,783 $11,980 $10,312
4/30/2004 $11,134 $10,034 $11,988 $11,477 $11,612 $10,319
5/31/2004 $11,210 $10,171 $12,040 $11,431 $11,553 $10,326
6/30/2004 $11,328 $10,369 $12,308 $11,495 $11,600 $10,331
7/31/2004 $11,174 $10,026 $11,911 $11,609 $11,723 $10,341
8/31/2004 $11,260 $10,066 $11,966 $11,831 $11,971 $10,351
9/30/2004 $11,449 $10,175 $12,280 $11,863 $12,013 $10,363
10/31/2004 $11,604 $10,331 $12,700 $11,962 $12,117 $10,375
11/30/2004 $11,902 $10,749 $13,571 $11,867 $11,982 $10,385
12/31/2004 $12,098 $11,114 $14,167 $11,976 $12,109 $10,405
12 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
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. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION
OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than
Class A shares.
(1) Five-month return has not been annualized. The figures shown are for the
period since the end of the Fund's previous fiscal year on 7/31/04 through
the current fiscal year-end on 12/31/04.
(2) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.
(3) 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.
(4) 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.
(5) Sources: Standard & Poor's Micropal; Lehman Brothers. See page 6 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate
Index and the LB U.S. Government/Credit Index. The value of Treasuries, if
held to maturity, is fixed; principal is guaranteed and interest is fixed.
Annual Report | 13
YOUR FUND'S EXPENSES
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the period indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
14 | Annual Report
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ----------------------------------------------------------------------------------------------------------------------
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT EXPENSES PAID DURING PERIOD*
ACTUAL 7/31/04 VALUE ACTUAL 7/31/04-12/31/04
CLASS A HYPOTHETICAL 6/30/04 12/31/04 HYPOTHETICAL 6/30/04-12/31/04
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.00 $3.58
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.07 $4.18
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,080.20 $6.84
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.29 $7.98
- ----------------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,080.30 $6.85
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.29 $7.98
- ----------------------------------------------------------------------------------------------------------------------
CLASS R
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,082.70 $4.67
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.81 $5.45
- ----------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
0.82%; B: 1.57%; C: 1.57%; and R: 1.07%), multiplied by the average
account value over the period, multiplied by 184/365 (Hypothetical) to
reflect the one-half year period. For actual expenses, the multiplier is
153/365 to reflect the reporting period.
Annual Report | 15
FRANKLIN TEMPLETON
MODERATE TARGET FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund
seeks the highest level of long-term total return consistent with an
intermediate level of risk.
[SIDE BAR]
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET ALLOCATION
Franklin Templeton Moderate Target Fund
Based on Total Net Assets as of 12/31/04
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity .............................................. 38.5%
Primarily Domestic Fixed Income ........................................ 22.9%
Primarily Foreign Equity ............................................... 16.4%
Primarily Foreign Fixed Income ......................................... 11.6%
Short-Term Investments & Other Net Assets .............................. 10.6%
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Moderate Target Fund's annual
report for the five months ended December 31, 2004.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A posted a +10.14% cumulative
total return for the five months under review. 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 (LB)
U.S. Aggregate Index for fixed income, and the P&R 90 Day T-Bill for short-term
investments and other net assets. For the reporting
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 47.
16 | Annual Report
period, the benchmark returned 8.45%.(1) In previous reporting periods, the
fixed income portion of the hybrid benchmark index was represented by the LB
U.S. Government/Credit Index.(2) We are replacing the LB U.S. Government/Credit
Index with the LB U.S. Aggregate Index because the new index more closely
represents the Fund's income component. For the year under review, the former
hybrid benchmark returned 7.87%.(3) You can find the Fund's long-term
performance data in the Performance Summary beginning on page 20.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying 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
of
(1) Sources: Standard & Poor's Micropal; Lehman Brothers. 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 a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond market, with index components for government and corporate
securities, mortgage pass-through securities and asset-backed securities.
All issues included must have at least one year to final maturity and must
be rated investment grade (Baa3 or better) by Moody's Investors Service.
They must be publicly issued, fixed rate and have at least par amount
outstanding. They must also be dollar denominated and nonconvertible.
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
38.5%, MSCI EAFE 16.5%, LB U.S. Aggregate Index 35% and P&R 90 Day T-Bill
10%. 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.
(2) The LB U.S. Government/Credit Index includes U.S. Treasury or Agency
issued securities and publicly issued U.S. corporate and specified foreign
debentures and secured notes that meet the specified maturity, liquidity
and quality requirements. These include public obligations of the U.S.
Treasury with remaining maturity of one year or more and publicly issued
debt of U.S. governmental agencies, quasi-federal corporations, and
corporate or foreign debt. The credit portion includes both corporate and
noncorporate sectors. The corporate sectors are industrial, utility and
finance, which include both U.S. and non-U.S. corporations. The
noncorporate sectors are sovereign, supranational, foreign agency and
foreign local government. All issues included must have at least one year
to final maturity and must be rated investment grade (Baa3 or better) by
Moody's Investors Service. They must also be dollar denominated and
nonconvertible. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
quarterly by market capitalization.
(3) Sources: Standard & Poor's Micropal; Lehman Brothers. The benchmark
index's weightings: S&P 500 35%, MSCI EAFE 15%, LB U.S. Government/Credit
Index 35%, P&R 90 Day T-Bill 15%. 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.
[SIDE BAR]
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund
12/31/04
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 13.4%
- --------------------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 11.6%
- --------------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 11.0%
- --------------------------------------------------------------------------------
Franklin Capital Growth Fund
- - Advisor Class 9.4%
- --------------------------------------------------------------------------------
Mutual Shares Fund
- - Class Z 8.2%
- --------------------------------------------------------------------------------
Mutual European Fund
- - Class Z 7.5%
- --------------------------------------------------------------------------------
Franklin Total Return Fund
- - Advisor Class 5.5%
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities Fund
- - Advisor Class 5.3%
- --------------------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 5.0%
- --------------------------------------------------------------------------------
Franklin Real Estate Securities Fund
- - Advisor Class 3.3%
- --------------------------------------------------------------------------------
Annual Report | 17
the Target Funds' results relative to each other. For your reference, Franklin
Templeton Moderate Target Fund seeks to maintain the following asset class
allocations: 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.
At period-end, Franklin Templeton Moderate Target Fund's domestic equity
exposure was 70.2% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2004, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Franklin Small Cap Growth Fund II - Advisor Class, representing 13.4% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 66.5% of the Fund's total income
weighting, with the balance represented by foreign fixed income. Templeton
Global Bond Fund - Advisor Class was our largest fixed income fund weighting at
11.6% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500, as did our largest domestic value fund
holding, Mutual Shares Fund - Class Z. Our largest foreign equity holding,
Mutual European Fund - Class Z, outperformed the MSCI EAFE Index. On the fixed
income side, Templeton Global Bond Fund - Advisor Class outperformed the LB U.S.
Aggregate Index, and Franklin Strategic Income Fund - Advisor Class posted
strong relative results, largely due to its greater weighting of high yield
securities versus the LB index. However, some funds with higher quality
securities, such as Franklin Strategic Mortgage Portfolio, underperformed the LB
index during the period.
18 | Annual Report
In general, if the value of the U.S. dollar goes up compared with a foreign
currency, an investment traded in that foreign currency will go down in value
because it will be worth fewer U.S. dollars. This can have a negative effect on
Fund performance. Conversely, when the U.S. dollar weakens in relation to a
foreign currency, an investment traded in that foreign currency will increase in
value, which can contribute to Fund performance. For the 12 months ended
December 31, 2004, the U.S. dollar declined in value relative to most non-U.S.
currencies. At the end of the period, a significant portion of the Fund's
underlying funds was invested in securities with non-U.S. currency exposure,
which resulted in a positive effect on Fund performance. However, one cannot
expect the same result in future periods.
Thank you for your continued participation in Franklin Templeton Moderate Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Moderate Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS 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 ADVISER 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 | 19
PERFORMANCE SUMMARY AS OF 12/31/04
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 reinvestment of the Fund's
dividends and capital gain distributions, if any, and any unrealized gains or
losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------------------------------
CLASS A CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.04 $12.69 $11.65
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.1264
- -----------------------------------------------------------------------------------------------------
CLASS B CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.04 $12.66 $11.62
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.0825
- -----------------------------------------------------------------------------------------------------
CLASS C CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.03 $12.50 $11.47
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.0756
- -----------------------------------------------------------------------------------------------------
CLASS R CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.04 $12.66 $11.62
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- -----------------------------------------------------------------------------------------------------
Dividend Income $0.1095
- -----------------------------------------------------------------------------------------------------
20 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- ----------------------------------------------------------------------------------------------
CLASS A 5-MONTH(1) 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return(2) +10.14% +9.64% +17.59% +71.26%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return(3) +3.81% +3.31% +2.07% +6.17%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,381 $10,331 $11,080 $16,142
- ----------------------------------------------------------------------------------------------
CLASS B 5-MONTH(1) 1-YEAR INCEPTION (12/1/03)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return(2) +9.77% +8.92% +10.98%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return(3) +5.77% +4.92% +6.43%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,577 $10,492 $10,698
- ----------------------------------------------------------------------------------------------
CLASS C 5-MONTH(1) 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return(2) +9.75% +8.73% +13.19% +60.14%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return(3) +8.75% +7.73% +2.51% +6.06%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,875 $10,773 $11,319 $16,014
- ----------------------------------------------------------------------------------------------
CLASS R 5-MONTH(1) 1-YEAR INCEPTION (1/1/02)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return(2) +9.92% +9.30% +23.03%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return(3) +8.92% +8.30% +7.17%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,892 $10,830 $12,303
- ----------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 21
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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 12/31/04
- -----------------------------------
1-Year +3.31%
- -----------------------------------
5-Year +2.07%
- -----------------------------------
Since Inception (12/31/96) +6.17%
- -----------------------------------
CLASS A (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT CONSERVATIVE S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/31/1996 $ 9,425 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $ 9,670 $10,624 $ 9,652 $10,031 $10,012 $10,045
2/28/1997 $ 9,670 $10,708 $ 9,813 $10,056 $10,033 $10,083
3/31/1997 $ 9,589 $10,269 $ 9,850 $ 9,944 $ 9,914 $10,126
4/30/1997 $ 9,674 $10,881 $ 9,905 $10,093 $10,059 $10,172
5/31/1997 $10,061 $11,543 $10,552 $10,188 $10,153 $10,223
6/30/1997 $10,286 $12,060 $11,136 $10,309 $10,274 $10,261
7/31/1997 $10,655 $13,019 $11,319 $10,587 $10,589 $10,305
8/31/1997 $10,494 $12,290 $10,476 $10,497 $10,470 $10,351
9/30/1997 $10,966 $12,963 $11,065 $10,652 $10,635 $10,399
10/31/1997 $10,632 $12,531 $10,217 $10,806 $10,805 $10,438
11/30/1997 $10,660 $13,110 $10,115 $10,856 $10,862 $10,484
12/31/1997 $10,771 $13,335 $10,206 $10,965 $10,976 $10,530
1/31/1998 $10,720 $13,482 $10,675 $11,106 $11,130 $10,582
2/28/1998 $11,119 $14,454 $11,362 $11,098 $11,108 $10,623
3/31/1998 $11,451 $15,194 $11,715 $11,136 $11,142 $10,675
4/30/1998 $11,513 $15,347 $11,810 $11,194 $11,198 $10,725
5/31/1998 $11,318 $15,083 $11,756 $11,300 $11,318 $10,771
6/30/1998 $11,318 $15,695 $11,847 $11,396 $11,434 $10,815
7/31/1998 $11,051 $15,529 $11,970 $11,420 $11,443 $10,862
8/31/1998 $ 9,943 $13,286 $10,490 $11,606 $11,666 $10,914
9/30/1998 $10,164 $14,137 $10,171 $11,878 $12,000 $10,970
10/31/1998 $10,381 $15,286 $11,234 $11,815 $11,915 $11,013
11/30/1998 $10,619 $16,212 $11,812 $11,882 $11,986 $11,048
12/31/1998 $10,788 $17,146 $12,281 $11,918 $12,016 $11,094
1/31/1999 $10,884 $17,862 $12,247 $12,003 $12,101 $11,137
2/28/1999 $10,670 $17,307 $11,958 $11,794 $11,813 $11,172
3/31/1999 $10,909 $18,000 $12,460 $11,859 $11,872 $11,220
4/30/1999 $11,241 $18,697 $12,968 $11,896 $11,901 $11,262
5/31/1999 $11,134 $18,256 $12,303 $11,792 $11,779 $11,305
6/30/1999 $11,351 $19,268 $12,786 $11,755 $11,742 $11,347
7/31/1999 $11,243 $18,667 $13,169 $11,705 $11,709 $11,394
8/31/1999 $11,265 $18,575 $13,220 $11,699 $11,700 $11,438
9/30/1999 $11,244 $18,066 $13,356 $11,834 $11,805 $11,488
10/31/1999 $11,667 $19,209 $13,859 $11,878 $11,836 $11,533
11/30/1999 $12,481 $19,600 $14,343 $11,877 $11,829 $11,579
12/31/1999 $13,727 $20,753 $15,633 $11,820 $11,757 $11,632
1/31/2000 $13,561 $19,711 $14,643 $11,781 $11,754 $11,677
2/29/2000 $15,067 $19,338 $15,040 $11,924 $11,902 $11,730
3/31/2000 $14,767 $21,228 $15,626 $12,081 $12,074 $11,789
4/30/2000 $14,055 $20,590 $14,806 $12,046 $12,015 $11,849
5/31/2000 $13,665 $20,169 $14,448 $12,041 $12,004 $11,913
6/30/2000 $14,514 $20,666 $15,016 $12,291 $12,249 $11,964
7/31/2000 $14,369 $20,343 $14,389 $12,403 $12,379 $12,019
8/31/2000 $15,163 $21,606 $14,517 $12,583 $12,553 $12,082
9/30/2000 $14,828 $20,466 $13,813 $12,662 $12,601 $12,148
10/31/2000 $14,286 $20,379 $13,490 $12,746 $12,680 $12,209
11/30/2000 $13,124 $18,773 $12,987 $12,954 $12,896 $12,276
12/31/2000 $13,577 $18,865 $13,451 $13,194 $13,151 $12,347
1/31/2001 $14,063 $19,534 $13,445 $13,410 $13,371 $12,428
2/28/2001 $13,311 $17,754 $12,438 $13,527 $13,509 $12,478
3/31/2001 $12,795 $16,630 $11,614 $13,595 $13,571 $12,540
4/30/2001 $13,434 $17,922 $12,429 $13,538 $13,470 $12,592
5/31/2001 $13,504 $18,042 $12,000 $13,620 $13,547 $12,641
6/30/2001 $13,375 $17,603 $11,514 $13,671 $13,612 $12,678
7/31/2001 $13,212 $17,429 $11,305 $13,977 $13,951 $12,720
8/31/2001 $12,908 $16,339 $11,021 $14,137 $14,131 $12,762
9/30/2001 $11,956 $15,020 $ 9,908 $14,302 $14,261 $12,818
10/31/2001 $12,380 $15,307 $10,161 $14,601 $14,622 $12,851
11/30/2001 $12,803 $16,481 $10,536 $14,400 $14,382 $12,878
12/31/2001 $13,009 $16,625 $10,599 $14,308 $14,269 $12,899
1/31/2002 $12,961 $16,383 $10,037 $14,424 $14,374 $12,917
2/28/2002 $12,876 $16,067 $10,107 $14,564 $14,496 $12,934
3/31/2002 $13,260 $16,671 $10,659 $14,322 $14,202 $12,953
4/30/2002 $13,224 $15,661 $10,736 $14,599 $14,477 $12,973
5/31/2002 $13,139 $15,546 $10,882 $14,723 $14,610 $12,993
6/30/2002 $12,649 $14,439 $10,453 $14,851 $14,735 $13,012
7/31/2002 $11,932 $13,313 $ 9,422 $15,030 $14,912 $13,031
8/31/2002 $12,017 $13,401 $ 9,403 $15,284 $15,247 $13,050
9/30/2002 $11,453 $11,946 $ 8,395 $15,531 $15,574 $13,071
10/31/2002 $11,795 $12,996 $ 8,847 $15,461 $15,426 $13,091
11/30/2002 $12,210 $13,760 $ 9,250 $15,456 $15,435 $13,111
12/31/2002 $12,030 $12,952 $ 8,939 $15,776 $15,844 $13,125
1/31/2003 $11,943 $12,613 $ 8,567 $15,789 $15,843 $13,139
2/28/2003 $11,869 $12,424 $ 8,371 $16,008 $16,125 $13,151
3/31/2003 $11,831 $12,543 $ 8,213 $15,995 $16,104 $13,165
4/30/2003 $12,387 $13,577 $ 9,027 $16,127 $16,277 $13,178
5/31/2003 $12,993 $14,292 $ 9,583 $16,428 $16,739 $13,192
6/30/2003 $13,095 $14,474 $ 9,820 $16,395 $16,672 $13,208
7/31/2003 $13,181 $14,730 $10,059 $15,844 $15,973 $13,217
8/31/2003 $13,578 $15,016 $10,304 $15,949 $16,079 $13,227
9/30/2003 $13,621 $14,857 $10,623 $16,372 $16,588 $13,239
10/31/2003 $14,093 $15,697 $11,286 $16,219 $16,378 $13,249
11/30/2003 $14,379 $15,835 $11,539 $16,258 $16,421 $13,260
12/31/2003 $14,722 $16,665 $12,441 $16,423 $16,583 $13,270
1/31/2004 $14,860 $16,971 $12,617 $16,555 $16,734 $13,281
2/29/2004 $15,023 $17,207 $12,911 $16,734 $16,939 $13,290
3/31/2004 $15,059 $16,947 $12,989 $16,860 $17,094 $13,301
4/30/2004 $14,595 $16,682 $12,706 $16,421 $16,569 $13,311
5/31/2004 $14,745 $16,910 $12,761 $16,355 $16,485 $13,320
6/30/2004 $14,958 $17,239 $13,046 $16,448 $16,552 $13,326
7/31/2004 $14,656 $16,668 $12,624 $16,611 $16,727 $13,338
8/31/2004 $14,769 $16,735 $12,683 $16,928 $17,081 $13,352
9/30/2004 $15,088 $16,916 $13,016 $16,974 $17,141 $13,367
10/31/2004 $15,328 $17,175 $13,461 $17,116 $17,289 $13,382
11/30/2004 $15,821 $17,870 $14,384 $16,979 $17,097 $13,395
12/31/2004 $16,142 $18,477 $15,016 $17,136 $17,279 $13,421
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 12/31/04
- -----------------------------------
1-Year +4.92%
- -----------------------------------
Since Inception (12/1/03) +6.43%
- -----------------------------------
CLASS B (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT MODERATE S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,189 $10,524 $10,782 $10,102 $10,099 $10,008
1/31/2004 $10,284 $10,717 $10,935 $10,183 $10,190 $10,016
2/29/2004 $10,389 $10,866 $11,189 $10,293 $10,315 $10,023
3/31/2004 $10,410 $10,702 $11,257 $10,370 $10,410 $10,031
4/30/2004 $10,088 $10,534 $11,012 $10,101 $10,090 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,038 $10,045
6/30/2004 $10,327 $10,886 $11,306 $10,117 $10,080 $10,050
7/31/2004 $10,110 $10,526 $10,941 $10,217 $10,186 $10,059
8/31/2004 $10,188 $10,568 $10,991 $10,412 $10,402 $10,069
9/30/2004 $10,393 $10,683 $11,280 $10,440 $10,438 $10,080
10/31/2004 $10,550 $10,846 $11,666 $10,528 $10,529 $10,092
11/30/2004 $10,890 $11,285 $12,466 $10,444 $10,411 $10,102
12/31/2004 $10,698 $11,668 $13,013 $10,540 $10,522 $10,122
22 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
CLASS C (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT MODERATE S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,260 $10,624 $ 9,652 $10,031 $10,012 $10,045
2/28/1997 $10,250 $10,708 $ 9,813 $10,056 $10,033 $10,083
3/31/1997 $10,101 $10,269 $ 9,850 $9,944 $9,914 $10,126
4/30/1997 $10,181 $10,881 $ 9,905 $10,093 $10,059 $10,172
5/31/1997 $10,581 $11,543 $10,552 $10,188 $10,153 $10,223
6/30/1997 $10,814 $12,060 $11,136 $10,309 $10,274 $10,261
7/31/1997 $11,184 $13,019 $11,319 $10,587 $10,589 $10,305
8/31/1997 $11,014 $12,290 $10,476 $10,497 $10,470 $10,351
9/30/1997 $11,492 $12,963 $11,065 $10,652 $10,635 $10,399
10/31/1997 $11,139 $12,531 $10,217 $10,806 $10,805 $10,438
11/30/1997 $11,169 $13,110 $10,115 $10,856 $10,862 $10,484
12/31/1997 $11,289 $13,335 $10,206 $10,965 $10,976 $10,530
1/31/1998 $11,213 $13,482 $10,675 $11,106 $11,130 $10,582
2/28/1998 $11,634 $14,454 $11,362 $11,098 $11,108 $10,623
3/31/1998 $11,969 $15,194 $11,715 $11,136 $11,142 $10,675
4/30/1998 $12,012 $15,347 $11,810 $11,194 $11,198 $10,725
5/31/1998 $11,818 $15,083 $11,756 $11,300 $11,318 $10,771
6/30/1998 $11,799 $15,695 $11,847 $11,396 $11,434 $10,815
7/31/1998 $11,518 $15,529 $11,970 $11,420 $11,443 $10,862
8/31/1998 $10,350 $13,286 $10,490 $11,606 $11,666 $10,914
9/30/1998 $10,580 $14,137 $10,171 $11,878 $12,000 $10,970
10/31/1998 $10,797 $15,286 $11,234 $11,815 $11,915 $11,013
11/30/1998 $11,025 $16,212 $11,812 $11,882 $11,986 $11,048
12/31/1998 $11,202 $17,146 $12,281 $11,918 $12,016 $11,094
1/31/1999 $11,292 $17,862 $12,247 $12,003 $12,101 $11,137
2/28/1999 $11,067 $17,307 $11,958 $11,794 $11,813 $11,172
3/31/1999 $11,303 $18,000 $12,460 $11,859 $11,872 $11,220
4/30/1999 $11,640 $18,697 $12,968 $11,896 $11,901 $11,262
5/31/1999 $11,517 $18,256 $12,303 $11,792 $11,779 $11,305
6/30/1999 $11,733 $19,268 $12,786 $11,755 $11,742 $11,347
7/31/1999 $11,620 $18,667 $13,169 $11,705 $11,709 $11,394
8/31/1999 $11,631 $18,575 $13,220 $11,699 $11,700 $11,438
9/30/1999 $11,609 $18,066 $13,356 $11,834 $11,805 $11,488
10/31/1999 $12,040 $19,209 $13,859 $11,878 $11,836 $11,533
11/30/1999 $12,867 $19,600 $14,343 $11,877 $11,829 $11,579
12/31/1999 $14,148 $20,753 $15,633 $11,820 $11,757 $11,632
1/31/2000 $13,963 $19,711 $14,643 $11,781 $11,754 $11,677
2/29/2000 $15,499 $19,338 $15,040 $11,924 $11,902 $11,730
3/31/2000 $15,192 $21,228 $15,626 $12,081 $12,074 $11,789
4/30/2000 $14,451 $20,590 $14,806 $12,046 $12,015 $11,849
5/31/2000 $14,033 $20,169 $14,448 $12,041 $12,004 $11,913
6/30/2000 $14,913 $20,666 $15,016 $12,291 $12,249 $11,964
7/31/2000 $14,738 $20,343 $14,389 $12,403 $12,379 $12,019
8/31/2000 $15,553 $21,606 $14,517 $12,583 $12,553 $12,082
9/30/2000 $15,199 $20,466 $13,813 $12,662 $12,601 $12,148
10/31/2000 $14,626 $20,379 $13,490 $12,746 $12,680 $12,209
11/30/2000 $13,431 $18,773 $12,987 $12,954 $12,896 $12,276
12/31/2000 $13,889 $18,865 $13,451 $13,194 $13,151 $12,347
1/31/2001 $14,380 $19,534 $13,445 $13,410 $13,371 $12,428
2/28/2001 $13,601 $17,754 $12,438 $13,527 $13,509 $12,478
3/31/2001 $13,064 $16,630 $11,614 $13,595 $13,571 $12,540
4/30/2001 $13,713 $17,922 $12,429 $13,538 $13,470 $12,592
5/31/2001 $13,773 $18,042 $12,000 $13,620 $13,547 $12,641
6/30/2001 $13,627 $17,603 $11,514 $13,671 $13,612 $12,678
7/31/2001 $13,458 $17,429 $11,305 $13,977 $13,951 $12,720
8/31/2001 $13,145 $16,339 $11,021 $14,137 $14,131 $12,762
9/30/2001 $12,162 $15,020 $ 9,908 $14,302 $14,261 $12,818
10/31/2001 $12,586 $15,307 $10,161 $14,601 $14,622 $12,851
11/30/2001 $12,999 $16,481 $10,536 $14,400 $14,382 $12,878
12/31/2001 $13,203 $16,625 $10,599 $14,308 $14,269 $12,899
1/31/2002 $13,140 $16,383 $10,037 $14,424 $14,374 $12,917
2/28/2002 $13,054 $16,067 $10,107 $14,564 $14,496 $12,934
3/31/2002 $13,446 $16,671 $10,659 $14,322 $14,202 $12,953
4/30/2002 $13,396 $15,661 $10,736 $14,599 $14,477 $12,973
5/31/2002 $13,297 $15,546 $10,882 $14,723 $14,610 $12,993
6/30/2002 $12,793 $14,439 $10,453 $14,851 $14,735 $13,012
7/31/2002 $12,071 $13,313 $ 9,422 $15,030 $14,912 $13,031
8/31/2002 $12,133 $13,401 $ 9,403 $15,284 $15,247 $13,050
9/30/2002 $11,569 $11,946 $ 8,395 $15,531 $15,574 $13,071
10/31/2002 $11,894 $12,996 $ 8,847 $15,461 $15,426 $13,091
11/30/2002 $12,319 $13,760 $ 9,250 $15,456 $15,435 $13,111
12/31/2002 $12,120 $12,952 $ 8,939 $15,776 $15,844 $13,125
1/31/2003 $12,019 $12,613 $ 8,567 $15,789 $15,843 $13,139
2/28/2003 $11,943 $12,424 $ 8,371 $16,008 $16,125 $13,151
3/31/2003 $11,900 $12,543 $ 8,213 $15,995 $16,104 $13,165
4/30/2003 $12,442 $13,577 $ 9,027 $16,127 $16,277 $13,178
5/31/2003 $13,047 $14,292 $ 9,583 $16,428 $16,739 $13,192
6/30/2003 $13,142 $14,474 $ 9,820 $16,395 $16,672 $13,208
7/31/2003 $13,217 $14,730 $10,059 $15,844 $15,973 $13,217
8/31/2003 $13,608 $15,016 $10,304 $15,949 $16,079 $13,227
9/30/2003 $13,654 $14,857 $10,623 $16,372 $16,588 $13,239
10/31/2003 $14,109 $15,697 $11,286 $16,219 $16,378 $13,249
11/30/2003 $14,387 $15,835 $11,539 $16,258 $16,421 $13,260
12/31/2003 $14,728 $16,665 $12,441 $16,423 $16,583 $13,270
1/31/2004 $14,855 $16,971 $12,617 $16,555 $16,734 $13,281
2/29/2004 $15,007 $17,207 $12,911 $16,734 $16,939 $13,290
3/31/2004 $15,026 $16,947 $12,989 $16,860 $17,094 $13,301
4/30/2004 $14,568 $16,682 $12,706 $16,421 $16,569 $13,311
5/31/2004 $14,695 $16,910 $12,761 $16,355 $16,485 $13,320
6/30/2004 $14,909 $17,239 $13,046 $16,448 $16,552 $13,326
7/31/2004 $14,591 $16,668 $12,624 $16,611 $16,727 $13,338
8/31/2004 $14,693 $16,735 $12,683 $16,928 $17,081 $13,352
9/30/2004 $15,001 $16,916 $13,016 $16,974 $17,141 $13,367
10/31/2004 $15,230 $17,175 $13,461 $17,116 $17,289 $13,382
11/30/2004 $15,715 $17,870 $14,384 $16,979 $17,097 $13,395
12/31/2004 $16,014 $18,477 $15,016 $17,136 $17,279 $13,421
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 12/31/04
- -----------------------------------
1-Year +7.73%
- -----------------------------------
5-Year +2.51%
- -----------------------------------
Since Inception (12/31/96) +6.06%
- -----------------------------------
CLASS R (1/1/02-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT MODERATE S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,954 $ 9,854 $ 9,469 $10,081 $10,073 $10,014
2/28/2002 $ 9,889 $ 9,664 $ 9,536 $10,179 $10,159 $10,027
3/31/2002 $10,182 $10,028 $10,057 $10,009 $ 9,953 $10,042
4/30/2002 $10,154 $ 9,420 $10,130 $10,203 $10,146 $10,057
5/31/2002 $10,089 $ 9,351 $10,267 $10,290 $10,239 $10,073
6/30/2002 $ 9,703 $ 8,685 $ 9,862 $10,379 $10,326 $10,088
7/31/2002 $ 9,162 $ 8,008 $ 8,889 $10,504 $10,451 $10,102
8/31/2002 $ 9,218 $ 8,061 $ 8,871 $10,682 $10,685 $10,117
9/30/2002 $ 8,787 $ 7,185 $ 7,921 $10,855 $10,915 $10,133
10/31/2002 $ 9,040 $ 7,817 $ 8,347 $10,805 $10,811 $10,149
11/30/2002 $ 9,360 $ 8,277 $ 8,727 $10,802 $10,817 $10,165
12/31/2002 $ 9,212 $ 7,791 $ 8,434 $11,025 $11,104 $10,175
1/31/2003 $ 9,146 $ 7,587 $ 8,083 $11,035 $11,103 $10,186
2/28/2003 $ 9,089 $ 7,473 $ 7,898 $11,188 $11,301 $10,195
3/31/2003 $ 9,066 $ 7,545 $ 7,749 $11,179 $11,286 $10,207
4/30/2003 $ 9,483 $ 8,167 $ 8,517 $11,271 $11,407 $10,217
5/31/2003 $ 9,948 $ 8,596 $ 9,041 $11,481 $11,731 $10,227
6/30/2003 $10,021 $ 8,706 $ 9,265 $11,459 $11,684 $10,240
7/31/2003 $10,088 $ 8,860 $ 9,491 $11,073 $11,194 $10,247
8/31/2003 $10,383 $ 9,032 $ 9,721 $11,147 $11,268 $10,255
9/30/2003 $10,420 $ 8,937 $10,023 $11,442 $11,625 $10,263
10/31/2003 $10,772 $ 9,442 $10,648 $11,335 $11,478 $10,272
11/30/2003 $10,991 $ 9,525 $10,887 $11,362 $11,508 $10,280
12/31/2003 $11,256 $10,024 $11,738 $11,478 $11,622 $10,288
1/31/2004 $11,361 $10,208 $11,904 $11,570 $11,727 $10,297
2/29/2004 $11,477 $10,350 $12,181 $11,696 $11,871 $10,303
3/31/2004 $11,500 $10,194 $12,255 $11,783 $11,980 $10,312
4/30/2004 $11,153 $10,034 $11,988 $11,477 $11,612 $10,319
5/31/2004 $11,259 $10,171 $12,040 $11,431 $11,553 $10,326
6/30/2004 $11,424 $10,369 $12,308 $11,495 $11,600 $10,331
7/31/2004 $11,193 $10,026 $11,911 $11,609 $11,723 $10,341
8/31/2004 $11,270 $10,066 $11,966 $11,831 $11,971 $10,351
9/30/2004 $11,507 $10,175 $12,280 $11,863 $12,013 $10,363
10/31/2004 $11,690 $10,331 $12,700 $11,962 $12,117 $10,375
11/30/2004 $12,067 $10,749 $13,571 $11,867 $11,982 $10,385
12/31/2004 $12,303 $11,114 $14,167 $11,976 $12,109 $10,405
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 12/31/04
- -----------------------------------
1-Year +8.30%
- -----------------------------------
Since Inception (1/1/02) +7.17%
- -----------------------------------
Annual Report | 23
PERFORMANCE SUMMARY (CONTINUED)
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. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION
OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in
the prospectus. These shares have higher annual fees and expenses than
Class A shares.
(1) Five-month return has not been annualized. The figures shown are for the
period since the end of the Fund's previous fiscal year on 7/31/04 through
the current fiscal year-end on 12/31/04.
(2) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.
(3) 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.
(4) 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.
(5) Sources: Standard & Poor's Micropal; Lehman Brothers. See page 17 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate
Index and the LB U.S. Government/Credit Index. The value of Treasuries, if
held to maturity, is fixed; principal is guaranteed and interest is fixed.
24 | Annual Report
YOUR FUND'S EXPENSES
FRANKLIN TEMPLETON MODERATE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the period indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 25
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT EXPENSES PAID DURING PERIOD*
ACTUAL 7/31/04 VALUE ACTUAL 7/31/04-12/31/04
CLASS A HYPOTHETICAL 6/30/04 12/31/04 HYPOTHETICAL 6/30/04-12/31/04
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,101.40 $3.57
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.92 $4.33
- ---------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,097.70 $6.86
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.14 $8.13
- ---------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,097.50 $6.86
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.14 $8.13
- ---------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,099.20 $4.66
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.66 $5.60
- ---------------------------------------------------------------------------------------------------------
* Hypothetical expenses are equal to the annualized expense ratio for each
class (A: 0.85%; B: 1.60%; C: 1.60%; and R: 1.10%), multiplied by the
average account value over the period, multiplied by 184/365 to reflect
the one-half year period. For actual expenses, the expense ratios for each
class are A: 0.81%; B: 1.56%; C: 1.56%; and R: 1.10%, and the multiplier
is 153/365 to reflect the reporting period.
26 | Annual Report
FRANKLIN TEMPLETON
GROWTH TARGET FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Growth Target Fund
seeks the highest level of long-term total return consistent with a higher level
of risk.
[SIDE BAR]
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET ALLOCATION
Franklin Templeton Growth Target Fund
Based on Total Net Assets as of 12/31/04
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity .............................................. 55.8%
Primarily Foreign Equity ............................................... 24.2%
Primarily Domestic Fixed Income ........................................ 9.9%
Primarily Foreign Fixed Income ......................................... 4.9%
Short-Term Investments & Other Net Assets .............................. 5.2%
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Growth Target Fund's annual
report for the five months ended December 31, 2004.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A posted a +12.04% cumulative
total return for the five months ended December 31, 2004. 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 (LB) U.S. Aggregate Index for fixed income, and the P&R 90 Day
T-Bill for short-term investments and other net
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 52.
Annual Report | 27
[SIDE BAR]
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund
12/31/04
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 19.5%
- --------------------------------------------------------------------------------
Franklin Capital Growth Fund
- - Advisor Class 14.1%
- --------------------------------------------------------------------------------
Mutual Shares Fund
- - Class Z 11.9%
- --------------------------------------------------------------------------------
Mutual European Fund
- - Class Z 11.3%
- --------------------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 7.5%
- --------------------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 4.9%
- --------------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 4.8%
- --------------------------------------------------------------------------------
Franklin Real Estate Securities Fund
- - Advisor Class 4.5%
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund
- - Advisor Class 4.3%
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund
- - Advisor Class 3.9%
- --------------------------------------------------------------------------------
assets. For the reporting period, the benchmark returned 11.11%.(1) In previous
reporting periods, the fixed income portion of the hybrid benchmark index was
represented by the LB U.S. Government/Credit Index.(2) We are replacing the LB
U.S. Government/Credit Index with the LB U.S. Aggregate Index because the new
index more closely represents the Fund's income component. For the year under
review, the former hybrid benchmark returned 10.22%.(3) You can find the Fund's
long-term performance data in the Performance Summary beginning on page 31.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying 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
of the Target Funds' results relative to each other. For your reference,
Franklin Templeton Growth Target Fund seeks to maintain the following asset
class allocations: 80% equity, 15% fixed income, and 5% short-term investments
and other net assets.
(1) Sources: Standard & Poor's Micropal; Lehman Brothers. 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 a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond market, with index components for government and corporate
securities, mortgage pass-through securities and asset-backed securities.
All issues included must have at least one year to final maturity and must
be rated investment grade (Baa3 or better) by Moody's Investors Service.
They must be publicly issued, fixed rate and have at least par amount
outstanding. They must also be dollar denominated and nonconvertible.
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. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
quarterly by market capitalization. The benchmark index's weightings are
as follows: S&P 500 56%, MSCI EAFE 24%, LB U.S. Aggregate Index 15% and
P&R 90 Day T-Bill 5%. 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.
(2) The LB U.S. Government/Credit Index includes U.S. Treasury or Agency
issued securities and publicly issued U.S. corporate and specified foreign
debentures and secured notes that meet the specified maturity, liquidity
and quality requirements. These include public obligations of the U.S.
Treasury with remaining maturity of one year or more and publicly issued
debt of U.S. governmental agencies, quasi-federal corporations, and
corporate or foreign debt. The credit portion includes both corporate and
noncorporate sectors. The corporate sectors are industrial, utility and
finance, which include both U.S. and non-U.S. corporations. The
noncorporate sectors are sovereign, supranational, foreign agency and
foreign local government. All issues included must have at least one year
to final maturity and must be rated investment grade (Baa3 or better) by
Moody's Investors Service. They must also be dollar denominated and
nonconvertible. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
quarterly by market capitalization.
(3) Sources: Standard & Poor's Micropal; Lehman Brothers. The benchmark
index's weightings: S&P 500 45%, MSCI EAFE 20%, LB U.S. Government/Credit
Index 25%, P&R 90 Day T-Bill 10%. 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.
28 | Annual Report
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.
At period-end, Franklin Templeton Growth Target Fund's domestic equity exposure
was 69.8% of its total equity weighting, with the balance represented by foreign
equity. The portfolio was diversified across capitalization sizes and investment
styles, and on December 31, 2004, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Franklin Small Cap Growth Fund II - Advisor Class, representing 19.5% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 67.0% of the Fund's total income
weighting, with the balance represented by foreign fixed income. Templeton
Global Bond Fund - Advisor Class was our largest fixed income fund weighting at
4.9% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500, as did our largest domestic value fund
holding, Mutual Shares Fund - Class Z. Our largest foreign equity holding,
Mutual European Fund - Class Z, outperformed the MSCI EAFE Index. On the fixed
income side, Templeton Global Bond Fund - Advisor Class outperformed the LB U.S.
Aggregate Index, and Franklin Strategic Income Fund - Advisor Class posted
strong relative results, largely due to its greater weighting of high yield
securities versus the LB index. However, some funds with higher quality
securities, such as Franklin Strategic Mortgage Portfolio, underperformed the LB
index during the period.
In general, if the value of the U.S. dollar goes up compared with a foreign
currency, an investment traded in that foreign currency will go down in value
because it will be worth fewer U.S. dollars. This can have a negative effect on
Fund performance. Conversely, when the U.S. dollar weakens in relation to a
foreign currency, an investment traded in that foreign currency will increase in
value, which can contribute to Fund performance. For the 12 months ended
December 31, 2004, the U.S. dollar declined in value relative to most non-U.S.
currencies. At the end of the period, a significant portion of the Fund's
underlying funds was invested in securities with non-U.S. currency exposure,
which resulted in a positive effect on Fund performance. However, one cannot
expect the same result in future periods.
Annual Report | 29
Thank you for your continued participation in Franklin Templeton Growth Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Growth Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS 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 ADVISER 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.
30 | Annual Report
PERFORMANCE SUMMARY AS OF 12/31/04
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 reinvestment of the Fund's
dividends and capital gain distributions, if any, and any unrealized gains or
losses.
PRICE AND DISTRIBUTION INFORMATION
- -----------------------------------------------------------------------------
CLASS A CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------
Net Asset Value (NAV) +$1.34 $13.17 $11.83
- -----------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- -----------------------------------------------------------------------------
Dividend Income $0.0836
- -----------------------------------------------------------------------------
CLASS B CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------
Net Asset Value (NAV) +$1.34 $13.09 $11.75
- -----------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- -----------------------------------------------------------------------------
Dividend Income $0.0418
- -----------------------------------------------------------------------------
CLASS C CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------
Net Asset Value (NAV) +$1.37 $13.09 $11.72
- -----------------------------------------------------------------------------
CLASS R CHANGE 12/31/04 7/31/04
- -----------------------------------------------------------------------------
Net Asset Value (NAV) +$1.35 $13.11 $11.76
- -----------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- -----------------------------------------------------------------------------
Dividend Income $0.0605
- -----------------------------------------------------------------------------
Annual Report | 31
PERFORMANCE SUMMARY (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- ------------------------------------------------------------------------------------------------------
CLASS A 5-MONTH(1) 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +12.04% +11.28% +3.96% +65.72%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +5.61% +4.86% -0.40% +5.73%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,561 $10,486 $9,801 $15,619
- ------------------------------------------------------------------------------------------------------
CLASS B 5-MONTH(1) 1-YEAR INCEPTION (12/1/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +11.76% +10.45% +12.38%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +7.76% +6.45% +7.72%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,776 $10,645 $10,838
- ------------------------------------------------------------------------------------------------------
CLASS C 5-MONTH(1) 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +11.69% +10.46% +0.17% +56.43%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +10.69% +9.46% +0.03% +5.75%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $11,069 $10,946 $10,017 $15,643
- ------------------------------------------------------------------------------------------------------
CLASS R 5-MONTH(1) 1-YEAR INCEPTION (1/1/02)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +12.00% +11.05% +22.56%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +11.00% +10.05% +7.03%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $11,000 $11,005 $12,256
- ------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
32 | 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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT GROWTH S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/31/1996 $ 9,425 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $ 9,774 $10,624 $ 9,652 $10,031 $10,012 $10,045
2/28/1997 $ 9,708 $10,708 $ 9,813 $10,056 $10,033 $10,083
3/31/1997 $ 9,510 $10,269 $ 9,850 $9,944 $ 9,914 $10,126
4/30/1997 $ 9,585 $10,881 $ 9,905 $10,093 $10,059 $10,172
5/31/1997 $10,047 $11,543 $10,552 $10,188 $10,153 $10,223
6/30/1997 $10,311 $12,060 $11,136 $10,309 $10,274 $10,261
7/31/1997 $10,679 $13,019 $11,319 $10,587 $10,589 $10,305
8/31/1997 $10,490 $12,290 $10,476 $10,497 $10,470 $10,351
9/30/1997 $11,037 $12,963 $11,065 $10,652 $10,635 $10,399
10/31/1997 $10,564 $12,531 $10,217 $10,806 $10,805 $10,438
11/30/1997 $10,573 $13,110 $10,115 $10,856 $10,862 $10,484
12/31/1997 $10,655 $13,335 $10,206 $10,965 $10,976 $10,530
1/31/1998 $10,616 $13,482 $10,675 $11,106 $11,130 $10,582
2/28/1998 $11,107 $14,454 $11,362 $11,098 $11,108 $10,623
3/31/1998 $11,490 $15,194 $11,715 $11,136 $11,142 $10,675
4/30/1998 $11,559 $15,347 $11,810 $11,194 $11,198 $10,725
5/31/1998 $11,294 $15,083 $11,756 $11,300 $11,318 $10,771
6/30/1998 $11,264 $15,695 $11,847 $11,396 $11,434 $10,815
7/31/1998 $10,960 $15,529 $11,970 $11,420 $11,443 $10,862
8/31/1998 $ 9,614 $13,286 $10,490 $11,606 $11,666 $10,914
9/30/1998 $ 9,848 $14,137 $10,171 $11,878 $12,000 $10,970
10/31/1998 $10,134 $15,286 $11,234 $11,815 $11,915 $11,013
11/30/1998 $10,420 $16,212 $11,812 $11,882 $11,986 $11,048
12/31/1998 $10,643 $17,146 $12,281 $11,918 $12,016 $11,094
1/31/1999 $10,809 $17,862 $12,247 $12,003 $12,101 $11,137
2/28/1999 $10,581 $17,307 $11,958 $11,794 $11,813 $11,172
3/31/1999 $10,892 $18,000 $12,460 $11,859 $11,872 $11,220
4/30/1999 $11,326 $18,697 $12,968 $11,896 $11,901 $11,262
5/31/1999 $11,192 $18,256 $12,303 $11,792 $11,779 $11,305
6/30/1999 $11,523 $19,268 $12,786 $11,755 $11,742 $11,347
7/31/1999 $11,388 $18,667 $13,169 $11,705 $11,709 $11,394
8/31/1999 $11,450 $18,575 $13,220 $11,699 $11,700 $11,438
9/30/1999 $11,444 $18,066 $13,356 $11,834 $11,805 $11,488
10/31/1999 $12,049 $19,209 $13,859 $11,878 $11,836 $11,533
11/30/1999 $13,133 $19,600 $14,343 $11,877 $11,829 $11,579
12/31/1999 $15,025 $20,753 $15,633 $11,820 $11,757 $11,632
1/31/2000 $14,776 $19,711 $14,643 $11,781 $11,754 $11,677
2/29/2000 $17,097 $19,338 $15,040 $11,924 $11,902 $11,730
3/31/2000 $16,606 $21,228 $15,626 $12,081 $12,074 $11,789
4/30/2000 $15,488 $20,590 $14,806 $12,046 $12,015 $11,849
5/31/2000 $14,869 $20,169 $14,448 $12,041 $12,004 $11,913
6/30/2000 $16,093 $20,666 $15,016 $12,291 $12,249 $11,964
7/31/2000 $15,778 $20,343 $14,389 $12,403 $12,379 $12,019
8/31/2000 $17,018 $21,606 $14,517 $12,583 $12,553 $12,082
9/30/2000 $16,472 $20,466 $13,813 $12,662 $12,601 $12,148
10/31/2000 $15,607 $20,379 $13,490 $12,746 $12,680 $12,209
11/30/2000 $13,725 $18,773 $12,987 $12,954 $12,896 $12,276
12/31/2000 $14,254 $18,865 $13,451 $13,194 $13,151 $12,347
1/31/2001 $14,905 $19,534 $13,445 $13,410 $13,371 $12,428
2/28/2001 $13,558 $17,754 $12,438 $13,527 $13,509 $12,478
3/31/2001 $12,750 $16,630 $11,614 $13,595 $13,571 $12,540
4/30/2001 $13,637 $17,922 $12,429 $13,538 $13,470 $12,592
5/31/2001 $13,681 $18,042 $12,000 $13,620 $13,547 $12,641
6/30/2001 $13,432 $17,603 $11,514 $13,671 $13,612 $12,678
7/31/2001 $13,105 $17,429 $11,305 $13,977 $13,951 $12,720
8/31/2001 $12,576 $16,339 $11,021 $14,137 $14,131 $12,762
9/30/2001 $11,214 $15,020 $ 9,908 $14,302 $14,261 $12,818
10/31/2001 $11,756 $15,307 $10,161 $14,601 $14,622 $12,851
11/30/2001 $12,343 $16,481 $10,536 $14,400 $14,382 $12,878
12/31/2001 $12,639 $16,625 $10,599 $14,308 $14,269 $12,899
1/31/2002 $12,523 $16,383 $10,037 $14,424 $14,374 $12,917
2/28/2002 $12,350 $16,067 $10,107 $14,564 $14,496 $12,934
3/31/2002 $12,928 $16,671 $10,659 $14,322 $14,202 $12,953
4/30/2002 $12,743 $15,661 $10,736 $14,599 $14,477 $12,973
5/31/2002 $12,604 $15,546 $10,882 $14,723 $14,610 $12,993
6/30/2002 $11,933 $14,439 $10,453 $14,851 $14,735 $13,012
7/31/2002 $10,951 $13,313 $ 9,422 $15,030 $14,912 $13,031
8/31/2002 $10,985 $13,401 $ 9,403 $15,284 $15,247 $13,050
9/30/2002 $10,199 $11,946 $ 8,395 $15,531 $15,574 $13,071
10/31/2002 $10,627 $12,996 $ 8,847 $15,461 $15,426 $13,091
11/30/2002 $11,147 $13,760 $ 9,250 $15,456 $15,435 $13,111
12/31/2002 $10,787 $12,952 $ 8,939 $15,776 $15,844 $13,125
1/31/2003 $10,635 $12,613 $ 8,567 $15,789 $15,843 $13,139
2/28/2003 $10,495 $12,424 $ 8,371 $16,008 $16,125 $13,151
3/31/2003 $10,460 $12,543 $ 8,213 $15,995 $16,104 $13,165
4/30/2003 $11,126 $13,577 $ 9,027 $16,127 $16,277 $13,178
5/31/2003 $11,839 $14,292 $ 9,583 $16,428 $16,739 $13,192
6/30/2003 $11,968 $14,474 $ 9,820 $16,395 $16,672 $13,208
7/31/2003 $12,225 $14,730 $10,059 $15,844 $15,973 $13,217
8/31/2003 $12,727 $15,016 $10,304 $15,949 $16,079 $13,227
9/30/2003 $12,657 $14,857 $10,623 $16,372 $16,588 $13,239
10/31/2003 $13,323 $15,697 $11,286 $16,219 $16,378 $13,249
11/30/2003 $13,686 $15,835 $11,539 $16,258 $16,421 $13,260
12/31/2003 $14,036 $16,665 $12,441 $16,423 $16,583 $13,270
1/31/2004 $14,212 $16,971 $12,617 $16,555 $16,734 $13,281
2/29/2004 $14,389 $17,207 $12,911 $16,734 $16,939 $13,290
3/31/2004 $14,413 $16,947 $12,989 $16,860 $17,094 $13,301
4/30/2004 $13,906 $16,682 $12,706 $16,421 $16,569 $13,311
5/31/2004 $14,095 $16,910 $12,761 $16,355 $16,485 $13,320
6/30/2004 $14,389 $17,239 $13,046 $16,448 $16,552 $13,326
7/31/2004 $13,941 $16,668 $12,624 $16,611 $16,727 $13,338
8/31/2004 $13,988 $16,735 $12,683 $16,928 $17,081 $13,352
9/30/2004 $14,366 $16,916 $13,016 $16,974 $17,141 $13,367
10/31/2004 $14,625 $17,175 $13,461 $17,116 $17,289 $13,382
11/30/2004 $15,249 $17,870 $14,384 $16,979 $17,097 $13,395
12/31/2004 $15,619 $18,477 $15,016 $17,136 $17,279 $13,421
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 12/31/04
- -----------------------------------
1-Year +4.86%
- -----------------------------------
5-Year -0.40%
- -----------------------------------
Since Inception (12/31/96) +5.73%
- -----------------------------------
CLASS B (12/1/03-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT GROWTH S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,175 $10,524 $10,782 $10,102 $10,099 $10,008
1/31/2004 $10,295 $10,717 $10,935 $10,183 $10,190 $10,016
2/29/2004 $10,415 $10,866 $11,189 $10,293 $10,315 $10,023
3/31/2004 $10,424 $10,702 $11,257 $10,370 $10,410 $10,031
4/30/2004 $10,047 $10,534 $11,012 $10,101 $10,090 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,038 $10,045
6/30/2004 $10,389 $10,886 $11,306 $10,117 $10,080 $10,050
7/31/2004 $10,056 $10,526 $10,941 $10,217 $10,186 $10,059
8/31/2004 $10,090 $10,568 $10,991 $10,412 $10,402 $10,069
9/30/2004 $10,355 $10,683 $11,280 $10,440 $10,438 $10,080
10/31/2004 $10,535 $10,846 $11,666 $10,528 $10,529 $10,092
11/30/2004 $10,971 $11,285 $12,466 $10,444 $10,411 $10,102
12/31/2004 $10,838 $11,668 $13,013 $10,540 $10,522 $10,122
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 12/31/04
- -----------------------------------
1-Year +6.45%
- -----------------------------------
Since Inception (12/1/03) +7.72%
- -----------------------------------
Annual Report | 33
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 12/31/04
- -----------------------------------
1-Year +9.46%
- -----------------------------------
5-Year +0.03%
- -----------------------------------
Since Inception (12/31/96) +5.75%
- -----------------------------------
CLASS C (12/31/96-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT GROWTH S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,360 $10,624 $ 9,652 $10,031 $10,012 $10,045
2/28/1997 $10,290 $10,708 $ 9,813 $10,056 $10,033 $10,083
3/31/1997 $10,090 $10,269 $ 9,850 $ 9,944 $ 9,914 $10,126
4/30/1997 $10,170 $10,881 $ 9,905 $10,093 $10,059 $10,172
5/31/1997 $10,650 $11,543 $10,552 $10,188 $10,153 $10,223
6/30/1997 $10,910 $12,060 $11,136 $10,309 $10,274 $10,261
7/31/1997 $11,300 $13,019 $11,319 $10,587 $10,589 $10,305
8/31/1997 $11,090 $12,290 $10,476 $10,497 $10,470 $10,351
9/30/1997 $11,664 $12,963 $11,065 $10,652 $10,635 $10,399
10/31/1997 $11,163 $12,531 $10,217 $10,806 $10,805 $10,438
11/30/1997 $11,173 $13,110 $10,115 $10,856 $10,862 $10,484
12/31/1997 $11,237 $13,335 $10,206 $10,965 $10,976 $10,530
1/31/1998 $11,196 $13,482 $10,675 $11,106 $11,130 $10,582
2/28/1998 $11,705 $14,454 $11,362 $11,098 $11,108 $10,623
3/31/1998 $12,099 $15,194 $11,715 $11,136 $11,142 $10,675
4/30/1998 $12,162 $15,347 $11,810 $11,194 $11,198 $10,725
5/31/1998 $11,871 $15,083 $11,756 $11,300 $11,318 $10,771
6/30/1998 $11,840 $15,695 $11,847 $11,396 $11,434 $10,815
7/31/1998 $11,507 $15,529 $11,970 $11,420 $11,443 $10,862
8/31/1998 $10,085 $13,286 $10,490 $11,606 $11,666 $10,914
9/30/1998 $10,338 $14,137 $10,171 $11,878 $12,000 $10,970
10/31/1998 $10,629 $15,286 $11,234 $11,815 $11,915 $11,013
11/30/1998 $10,920 $16,212 $11,812 $11,882 $11,986 $11,048
12/31/1998 $11,149 $17,146 $12,281 $11,918 $12,016 $11,094
1/31/1999 $11,312 $17,862 $12,247 $12,003 $12,101 $11,137
2/28/1999 $11,073 $17,307 $11,958 $11,794 $11,813 $11,172
3/31/1999 $11,378 $18,000 $12,460 $11,859 $11,872 $11,220
4/30/1999 $11,834 $18,697 $12,968 $11,896 $11,901 $11,262
5/31/1999 $11,682 $18,256 $12,303 $11,792 $11,779 $11,305
6/30/1999 $12,019 $19,268 $12,786 $11,755 $11,742 $11,347
7/31/1999 $11,867 $18,667 $13,169 $11,705 $11,709 $11,394
8/31/1999 $11,932 $18,575 $13,220 $11,699 $11,700 $11,438
9/30/1999 $11,917 $18,066 $13,356 $11,834 $11,805 $11,488
10/31/1999 $12,538 $19,209 $13,859 $11,878 $11,836 $11,533
11/30/1999 $13,660 $19,600 $14,343 $11,877 $11,829 $11,579
12/31/1999 $15,616 $20,753 $15,633 $11,820 $11,757 $11,632
1/31/2000 $15,356 $19,711 $14,643 $11,781 $11,754 $11,677
2/29/2000 $17,755 $19,338 $15,040 $11,924 $11,902 $11,730
3/31/2000 $17,225 $21,228 $15,626 $12,081 $12,074 $11,789
4/30/2000 $16,060 $20,590 $14,806 $12,046 $12,015 $11,849
5/31/2000 $15,403 $20,169 $14,448 $12,041 $12,004 $11,913
6/30/2000 $16,672 $20,666 $15,016 $12,291 $12,249 $11,964
7/31/2000 $16,333 $20,343 $14,389 $12,403 $12,379 $12,019
8/31/2000 $17,612 $21,606 $14,517 $12,583 $12,553 $12,082
9/30/2000 $17,037 $20,466 $13,813 $12,662 $12,601 $12,148
10/31/2000 $16,128 $20,379 $13,490 $12,746 $12,680 $12,209
11/30/2000 $14,173 $18,773 $12,987 $12,954 $12,896 $12,276
12/31/2000 $14,706 $18,865 $13,451 $13,194 $13,151 $12,347
1/31/2001 $15,380 $19,534 $13,445 $13,410 $13,371 $12,428
2/28/2001 $13,974 $17,754 $12,438 $13,527 $13,509 $12,478
3/31/2001 $13,125 $16,630 $11,614 $13,595 $13,571 $12,540
4/30/2001 $14,044 $17,922 $12,429 $13,538 $13,470 $12,592
5/31/2001 $14,078 $18,042 $12,000 $13,620 $13,547 $12,641
6/30/2001 $13,812 $17,603 $11,514 $13,671 $13,612 $12,678
7/31/2001 $13,463 $17,429 $11,305 $13,977 $13,951 $12,720
8/31/2001 $12,917 $16,339 $11,021 $14,137 $14,131 $12,762
9/30/2001 $11,519 $15,020 $ 9,908 $14,302 $14,261 $12,818
10/31/2001 $12,055 $15,307 $10,161 $14,601 $14,622 $12,851
11/30/2001 $12,648 $16,481 $10,536 $14,400 $14,382 $12,878
12/31/2001 $12,945 $16,625 $10,599 $14,308 $14,269 $12,899
1/31/2002 $12,815 $16,383 $10,037 $14,424 $14,374 $12,917
2/28/2002 $12,636 $16,067 $10,107 $14,564 $14,496 $12,934
3/31/2002 $13,219 $16,671 $10,659 $14,322 $14,202 $12,953
4/30/2002 $13,029 $15,661 $10,736 $14,599 $14,477 $12,973
5/31/2002 $12,874 $15,546 $10,882 $14,723 $14,610 $12,993
6/30/2002 $12,185 $14,439 $10,453 $14,851 $14,735 $13,012
7/31/2002 $11,174 $13,313 $ 9,422 $15,030 $14,912 $13,031
8/31/2002 $11,198 $13,401 $ 9,403 $15,284 $15,247 $13,050
9/30/2002 $10,390 $11,946 $ 8,395 $15,531 $15,574 $13,071
10/31/2002 $10,817 $12,996 $ 8,847 $15,461 $15,426 $13,091
11/30/2002 $11,341 $13,760 $ 9,250 $15,456 $15,435 $13,111
12/31/2002 $10,980 $12,952 $ 8,939 $15,776 $15,844 $13,125
1/31/2003 $10,813 $12,613 $ 8,567 $15,789 $15,843 $13,139
2/28/2003 $10,670 $12,424 $ 8,371 $16,008 $16,125 $13,151
3/31/2003 $10,610 $12,543 $ 8,213 $15,995 $16,104 $13,165
4/30/2003 $11,278 $13,577 $ 9,027 $16,127 $16,277 $13,178
5/31/2003 $11,993 $14,292 $ 9,583 $16,428 $16,739 $13,192
6/30/2003 $12,124 $14,474 $ 9,820 $16,395 $16,672 $13,208
7/31/2003 $12,375 $14,730 $10,059 $15,844 $15,973 $13,217
8/31/2003 $12,875 $15,016 $10,304 $15,949 $16,079 $13,227
9/30/2003 $12,804 $14,857 $10,623 $16,372 $16,588 $13,239
10/31/2003 $13,459 $15,697 $11,286 $16,219 $16,378 $13,249
11/30/2003 $13,817 $15,835 $11,539 $16,258 $16,421 $13,260
12/31/2003 $14,161 $16,665 $12,441 $16,423 $16,583 $13,270
1/31/2004 $14,329 $16,971 $12,617 $16,555 $16,734 $13,281
2/29/2004 $14,508 $17,207 $12,911 $16,734 $16,939 $13,290
3/31/2004 $14,508 $16,947 $12,989 $16,860 $17,094 $13,301
4/30/2004 $13,994 $16,682 $12,706 $16,421 $16,569 $13,311
5/31/2004 $14,185 $16,910 $12,761 $16,355 $16,485 $13,320
6/30/2004 $14,460 $17,239 $13,046 $16,448 $16,552 $13,326
7/31/2004 $14,006 $16,668 $12,624 $16,611 $16,727 $13,338
8/31/2004 $14,054 $16,735 $12,683 $16,928 $17,081 $13,352
9/30/2004 $14,412 $16,916 $13,016 $16,974 $17,141 $13,367
10/31/2004 $14,663 $17,175 $13,461 $17,116 $17,289 $13,382
11/30/2004 $15,273 $17,870 $14,384 $16,979 $17,097 $13,395
12/31/2004 $15,643 $18,477 $15,016 $17,136 $17,279 $13,421
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 12/31/04
- -----------------------------------
1-Year +10.05%
- -----------------------------------
Since Inception (1/1/02) +7.03%
- -----------------------------------
CLASS R (1/1/02-12/31/04)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
U.S.
FT GROWTH S&P MSCI LB U.S. LB U.S. GOV'T./ TREASURY
DATE TARGET FUND 500(5) EAFE(5) AGGREGATE INDEX(5) CREDIT INDEX(5) BILLS(5)
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,890 $ 9,854 $ 9,469 $10,081 $10,073 $10,014
2/28/2002 $ 9,753 $ 9,664 $ 9,536 $10,179 $10,159 $10,027
3/31/2002 $10,200 $10,028 $10,057 $10,009 $ 9,953 $10,042
4/30/2002 $10,064 $ 9,420 $10,130 $10,203 $10,146 $10,057
5/31/2002 $ 9,945 $ 9,351 $10,267 $10,290 $10,239 $10,073
6/30/2002 $ 9,425 $ 8,685 $ 9,862 $10,379 $10,326 $10,088
7/31/2002 $ 8,648 $ 8,008 $ 8,889 $10,504 $10,451 $10,102
8/31/2002 $ 8,666 $ 8,061 $ 8,871 $10,682 $10,685 $10,117
9/30/2002 $ 8,036 $ 7,185 $ 7,921 $10,855 $10,915 $10,133
10/31/2002 $ 8,375 $ 7,817 $ 8,347 $10,805 $10,811 $10,149
11/30/2002 $ 8,776 $ 8,277 $ 8,727 $10,802 $10,817 $10,165
12/31/2002 $ 8,501 $ 7,791 $ 8,434 $11,025 $11,104 $10,175
1/31/2003 $ 8,380 $ 7,587 $ 8,083 $11,035 $11,103 $10,186
2/28/2003 $ 8,269 $ 7,473 $ 7,898 $11,188 $11,301 $10,195
3/31/2003 $ 8,232 $ 7,545 $ 7,749 $11,179 $11,286 $10,207
4/30/2003 $ 8,759 $ 8,167 $ 8,517 $11,271 $11,407 $10,217
5/31/2003 $ 9,313 $ 8,596 $ 9,041 $11,481 $11,731 $10,227
6/30/2003 $ 9,415 $ 8,706 $ 9,265 $11,459 $11,684 $10,240
7/31/2003 $ 9,609 $ 8,860 $ 9,491 $11,073 $11,194 $10,247
8/31/2003 $10,016 $ 9,032 $ 9,721 $11,147 $11,268 $10,255
9/30/2003 $ 9,951 $ 8,937 $10,023 $11,442 $11,625 $10,263
10/31/2003 $10,468 $ 9,442 $10,648 $11,335 $11,478 $10,272
11/30/2003 $10,754 $ 9,525 $10,887 $11,362 $11,508 $10,280
12/31/2003 $11,037 $10,024 $11,738 $11,478 $11,622 $10,288
1/31/2004 $11,167 $10,208 $11,904 $11,570 $11,727 $10,297
2/29/2004 $11,306 $10,350 $12,181 $11,696 $11,871 $10,303
3/31/2004 $11,315 $10,194 $12,255 $11,783 $11,980 $10,312
4/30/2004 $10,915 $10,034 $11,988 $11,477 $11,612 $10,319
5/31/2004 $11,074 $10,171 $12,040 $11,431 $11,553 $10,326
6/30/2004 $11,297 $10,369 $12,308 $11,495 $11,600 $10,331
7/31/2004 $10,943 $10,026 $11,911 $11,609 $11,723 $10,341
8/31/2004 $10,981 $10,066 $11,966 $11,831 $11,971 $10,351
9/30/2004 $11,278 $10,175 $12,280 $11,863 $12,013 $10,363
10/31/2004 $11,474 $10,331 $12,700 $11,962 $12,117 $10,375
11/30/2004 $11,957 $10,749 $13,571 $11,867 $11,982 $10,385
12/31/2004 $12,256 $11,114 $14,167 $11,976 $12,109 $10,405
34 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
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. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION
OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in
the prospectus. These shares have higher annual fees and expenses than
Class A shares.
(1) Five-month return has not been annualized. The figures shown are for the
period since the end of the Fund's previous fiscal year on 7/31/04 through
the current fiscal year-end on 12/31/04.
(2) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.
(3) 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.
(4) 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.
(5) Sources: Standard & Poor's Micropal; Lehman Brothers. See page 28 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate
Index and the LB U.S. Government/Credit Index. The value of Treasuries, if
held to maturity, is fixed; principal is guaranteed and interest is fixed.
Annual Report | 35
YOUR FUND'S EXPENSES
FRANKLIN TEMPLETON GROWTH TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the period indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
36 | Annual Report
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------------
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT EXPENSES PAID DURING PERIOD*
ACTUAL 7/31/04 VALUE ACTUAL 7/31/04-12/31/04
CLASS A HYPOTHETICAL 6/30/04 12/31/04 HYPOTHETICAL 6/30/04-12/31/04
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,120.40 $3.78
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.97 $4.28
- ------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,117.60 $7.10
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.19 $8.08
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,116.90 $7.10
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.19 $8.08
- ------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,120.00 $4.89
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.71 $5.55
* Hypothetical expenses are equal to the annualized expense ratio for each
class (A: 0.84%; B: 1.59%; C: 1.59%; and R: 1.09%), multiplied by the
average account value over the period, multiplied by 184/365 to reflect the
one-half year period. For actual expenses, the expense ratios for each
class are A: 0.85%; B: 1.60%; C: 1.60%; and R: 1.10%, and the multiplier is
153/365 to reflect the reporting period.
Annual Report | 37
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
----------------------------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2004(e) 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.66 $ 10.91 $ 10.23 $ 11.30 $ 12.13 $ 10.73
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .12 .23 .23 .31 .54 .58
Net realized and unrealized gains (losses) ... .84 .74 .69 (.95) (.47) 1.41
----------------------------------------------------------------------------------
Total from investment operations .............. .96 .97 .92 (.64) .07 1.99
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.14) (.22) (.24) (.34) (.56) (.53)
Net realized gains ........................... -- -- -- (.09) (.34) (.06)
----------------------------------------------------------------------------------
Total distributions ........................... (.14) (.22) (.24) (.43) (.90) (.59)
----------------------------------------------------------------------------------
Redemption fees ............................... --(f) --(f) -- -- -- --
----------------------------------------------------------------------------------
Net asset value, end of period ................ $ 12.48 $ 11.66 $ 10.91 $ 10.23 $ 11.30 $ 12.13
==================================================================================
Total return(c) ............................... 8.30% 8.89% 8.99% (5.74)% .58% 18.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 139,153 $ 117,013 $ 64,409 $ 35,991 $ 26,523 $ 18,050
Ratios to average net assets:
Expenses(d) .................................. .82%(g) .85% .91% .96% .92% .99%
Expenses net of waiver and payments
by affiliate(d) ............................. .82%(g) .85% .91% .96% .92% .98%
Net investment income(b) ..................... 2.40%(g) 2.00% 2.21% 2.86% 4.61% 4.95%
Portfolio turnover rate ....................... 2.63% 3.71% 18.03% 5.75% 44.98% 103.79%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .71% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
38 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
-------------------------------
PERIOD ENDED
DECEMBER 31, JULY 31,
CLASS B 2004(e) 2004(h)
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................ $ 11.63 $ 11.67
-------------------------------
Income from investment operations:
Net investment income(a),(b) ............................... .09 .07
Net realized and unrealized gains (losses) ................. .84 .04
-------------------------------
Total from investment operations ............................ .93 .11
-------------------------------
Less distributions from net investment income ............... (.10) (.15)
-------------------------------
Redemption fees ............................................. --(f) --(f)
-------------------------------
Net asset value, end of period .............................. $ 12.46 $ 11.63
===============================
Total return(c) ............................................. 8.02% .98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................... $ 5,223 $ 3,567
Ratios to average net assets:
Expenses(d) ................................................ 1.57%(g) 1.60%(g)
Net investment income(b) ................................... 1.65%(g) 1.25%(g)
Portfolio turnover rate ..................................... 2.63% 3.71%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
timing of declaration of dividends by the Underlying Funds in which the
Fund invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .71% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) For the period December 1, 2003 (effective date) to July 31, 2004.
Annual Report | See notes to financial statements. | 39
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
----------------------------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2004(e) 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 11.53 $ 10.80 $ 10.14 $ 11.20 $ 12.03 $ 10.65
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) .................. .08 .14 .15 .23 .44 .50
Net realized and unrealized gains (losses) .... .84 .73 .67 (.94) (.46) 1.39
----------------------------------------------------------------------------------
Total from investment operations ............... .92 .87 .82 (.71) (.02) 1.89
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (.09) (.14) (.16) (.26) (.47) (.45)
Net realized gains ............................ -- -- -- (.09) (.34) (.06)
----------------------------------------------------------------------------------
Total distributions ............................ (.09) (.14) (.16) (.35) (.81) (.51)
----------------------------------------------------------------------------------
Redemption fees................................. --(f) --(f) -- -- -- --
----------------------------------------------------------------------------------
Net asset value, end of period ................. $ 12.36 $ 11.53 $ 10.80 $ 10.14 $ 11.20 $ 12.03
==================================================================================
Total return(c) ................................ 8.03% 8.04% 8.20% (6.48)% (.16)% 17.88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 59,803 $ 52,881 $ 32,344 $ 22,436 $ 17,340 $ 12,548
Ratios to average net assets:
Expenses(d) ................................... 1.57%(g) 1.60% 1.66% 1.70% 1.67% 1.72%
Expenses net of waiver and payments
by affiliate(d) ............................. 1.57%(g) 1.60% 1.66% 1.70% 1.67% 1.71%
Net investment income(b) ...................... 1.65%(g) 1.25% 1.46% 2.15% 3.83% 4.24%
Portfolio turnover rate ........................ 2.63% 3.71% 18.03% 5.75% 44.98% 103.79%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .71% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
40 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2004(e) 2004 2003 2002(h)
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.63 $ 10.89 $ 10.23 $ 10.89
------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .11 .21 .19 .12
------------------------------------------------------------
Net realized and unrealized gains (losses) ... .85 .72 .69 (.70)
------------------------------------------------------------
Total from investment operations .............. .96 .93 .88 (.58)
------------------------------------------------------------
Less distributions from net investment income . (.13) (.19) (.22) (.08)
------------------------------------------------------------
Redemption fees ............................... --(f) --(f) -- --
------------------------------------------------------------
Net asset value, end of period ................ $ 12.46 $ 11.63 $ 10.89 $ 10.23
============================================================
Total return(c) ............................... 8.27% 8.56% 8.79% (5.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 12,199 $ 8,370 $ 5,718 $ 543
Ratios to average net assets:
Expenses(d) .................................. 1.07%(g) 1.10% 1.16% 1.21%(g)
Net investment income(b) ..................... 2.15%(g) 1.75% 1.96% 1.93%(g)
Portfolio turnover rate ....................... 2.63% 3.71% 18.03% 5.75%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .71% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) For the period January 1, 2002 (effective date) to July 31, 2002.
Annual Report | See notes to financial statements. | 41
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004
- ----------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS
LONG TERM INVESTMENTS 79.2%
DOMESTIC EQUITY 27.7%
(a),(b) Franklin Capital Growth Fund, Advisor Class ........................... 1,377,055 $ 15,340,394
(a),(b) Franklin Flex Cap Growth Fund, Advisor Class .......................... 56,145 2,125,631
(a),(b) Franklin Natural Resources Fund, Advisor Class ........................ 167,212 4,095,024
(a) Franklin Real Estate Securities Fund, Advisor Class ................... 173,757 4,588,913
(a),(b) Franklin Small Cap Growth Fund II, Advisor Class ...................... 1,768,499 21,257,360
(a) Mutual Shares Fund, Class Z ........................................... 539,195 12,428,447
---------------
59,835,769
---------------
DOMESTIC FIXED INCOME 26.1%
(a) Franklin Strategic Income Fund, Advisor Class ......................... 335,639 3,564,483
(a) Franklin Strategic Mortgage Portfolio ................................. 2,845,447 28,255,286
(a) Franklin Total Return Fund, Advisor Class ............................. 1,258,083 12,882,774
(a) Franklin U.S. Government Securities Fund, Advisor Class ............... 1,768,851 11,815,927
---------------
56,518,470
---------------
FOREIGN EQUITY 12.3%
(a) Franklin Gold & Precious Metals Fund, Advisor Class ................... 250,488 4,714,191
(a) Mutual European Fund, Class Z ......................................... 631,756 12,470,867
(a) Templeton Foreign Fund, Advisor Class ................................. 685,730 8,413,907
(a) Templeton Global Long Short Fund, Class Z ............................. 92,683 1,065,854
---------------
26,664,819
---------------
FOREIGN FIXED INCOME 13.1%
(a) Templeton Global Bond Fund, Advisor Class ............................. 2,538,367 28,201,254
----------------
TOTAL LONG TERM INVESTMENTS (COST $148,269,724) 171,220,312
----------------
SHORT TERM INVESTMENT (COST $44,402,551) 20.5%
MONEY FUND
(a) Franklin Institutional Fiduciary Trust Money Market Portfolio ......... 44,402,551 44,402,551
----------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $192,672,275) 99.7% ....... 215,622,863
OTHER ASSETS, LESS LIABILITIES .3% .................................... 755,999
----------------
NET ASSETS 100.0% $ 216,378,862
================
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing.
42 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
----------------------------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2004(e) 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.65 $ 10.64 $ 9.83 $ 11.31 $ 12.83 $ 10.44
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .12 .20 .19 .26 .47 .51
Net realized and unrealized gains (losses) ... 1.05 1.00 .81 (1.31) (1.48) 2.35
----------------------------------------------------------------------------------
Total from investment operations .............. 1.17 1.20 1.00 (1.05) (1.01) 2.86
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.13) (.19) (.19) (.29) (.51) (.47)
Net realized gains ........................... -- -- -- (.14) --(h) --
----------------------------------------------------------------------------------
Total distributions ........................... (.13) (.19) (.19) (.43) (.51) (.47)
----------------------------------------------------------------------------------
Redemption fees ............................... --(f) --(f) -- -- -- --
----------------------------------------------------------------------------------
Net asset value, end of period ................ $ 12.69 $ 11.65 $ 10.64 $ 9.83 $ 11.31 $ 12.83
==================================================================================
Total return(c) ............................... 10.14% 11.18% 10.47% (9.69)% (8.05)% 27.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 281,033 $ 219,273 $ 121,617 $ 85,035 $ 70,810 $ 41,348
Ratios to average net assets:
Expenses(d) .................................. .81%(g) .89% .98% .96% .87% .83%
Net investment income(b) ..................... 2.32%(g) 1.75% 1.89% 2.46% 3.95% 4.20%
Portfolio turnover rate ....................... 2.78% 4.13% 15.90% 8.88% 46.01% 85.78%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .78% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) The fund made a capital gain distribution of $.003.
Annual Report | See notes to financial statements. | 43
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
-----------------------------
PERIOD ENDED
DECEMBER 31, JULY 31,
CLASS B 2004(e) 2004(h)
-----------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.62 $ 11.62
-----------------------------
Income from investment operations:
Net investment income(a),(b) ................. .09 .05
Net realized and unrealized gains (losses) ... 1.03 .09
-----------------------------
Total from investment operations .............. 1.12 .14
-----------------------------
Less distributions from net investment income . (.08) (.14)
-----------------------------
Redemption fees ............................... --(f) --(f)
-----------------------------
Net asset value, end of period ................ $ 12.66 $ 11.62
=============================
Total return(c) ............................... 9.77% 1.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 8,700 $ 5,417
Ratios to average net assets:
Expenses(d) .................................. 1.56%(g) 1.64%(g)
Net investment income(b) ..................... 1.57%(g) 1.00%(g)
Portfolio turnover rate ....................... 2.78% 4.13%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the
timing of declaration of dividends by the Underlying Funds in which the
Fund invests.
(c) Total return does not reflect the contingent deferred sales charge, and
is not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .78% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) For the period December 1, 2003 (effective date) to July 31, 2004.
44 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
-----------------------------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2004(e) 2004 2003 2002 2001 2000
-----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.47 $ 10.48 $ 9.69 $ 11.16 $ 12.67 $ 10.31
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .08 .12 .11 .19 .39 .41
Net realized and unrealized gains (losses) ... 1.03 .98 .80 (1.31) (1.48) 2.33
----------------------------------------------------------------------------------
Total from investment operations .............. 1.11 1.10 .91 (1.12) (1.09) 2.74
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.08) (.11) (.12) (.21) (.42) (.38)
Net realized gains ........................... -- -- -- (.14) --(h) --
----------------------------------------------------------------------------------
Total distributions ........................... (.08) (.11) (.12) (.35) (.42) (.38)
----------------------------------------------------------------------------------
Redemption fees ............................... --(f) --(f) -- -- -- --
----------------------------------------------------------------------------------
Net asset value, end of period ................ $ 12.50 $ 11.47 $ 10.48 $ 9.69 $ 11.16 $ 12.67
==================================================================================
Total return(c) ............................... 9.75% 10.39% 9.50% (10.31)% (8.69)% 26.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 105,966 $ 90,988 $ 56,341 $ 39,835 $ 41,535 $ 35,506
Ratios to average net assets:
Expenses(d) .................................. 1.56%(g) 1.64% 1.73% 1.71% 1.62% 1.57%
Net investment income(b) ..................... 1.57%(g) 1.00% 1.14% 1.77% 3.30% 3.40%
Portfolio turnover rate ....................... 2.78% 4.13% 15.90% 8.88% 46.01% 85.78%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .78% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) The fund made a capital gain distribution of $.003.
Annual Report | See notes to financial statements. | 45
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
------------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2004(e) 2004 2003 2002(h)
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........ $ 11.62 $ 10.62 $ 9.82 $ 10.79
------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ............... .11 .18 .13 .09
Net realized and unrealized gains (losses) . 1.04 .98 .85 (.99)
------------------------------------------------------------------
Total from investment operations ............ 1.15 1.16 .98 (.90)
------------------------------------------------------------------
Less distributions from net investment income (.11) (.16) (.18) (.07)
------------------------------------------------------------------
Redemption fees ............................. --(f) --(f) -- --
------------------------------------------------------------------
Net asset value, end of period .............. $ 12.66 $ 11.62 $ 10.62 $ 9.82
==================================================================
Total return(c) ............................. 9.92% 10.95% 10.10% (8.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........... $ 25,162 $ 17,161 $ 10,989 $ 94
Ratios to average net assets:
Expensesd .................................. 1.06%(g) 1.14% 1.23% 1.21%(g)
Net investment income(b) ................... 2.07%(g) 1.50% 1.64% 1.53%(g)
Portfolio turnover rate ..................... 2.78% 4.13% 15.90% 8.88%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .78% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) For the period January 1, 2002 (effective date) to July 31, 2002.
46 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS
LONG TERM INVESTMENTS 89.4%
DOMESTIC EQUITY 38.5%
(a),(b) Franklin Capital Growth Fund, Advisor Class ............................. 3,537,652 $ 39,409,444
(a),(b) Franklin Flex Cap Growth Fund, Advisor Class ............................ 164,531 6,229,128
(a),(b) Franklin Natural Resources Fund, Advisor Class .......................... 470,486 11,522,196
(a) Franklin Real Estate Securities Fund, Advisor Class ..................... 533,475 14,089,076
(a),(b) Franklin Small Cap Growth Fund II, Advisor Class ........................ 4,706,720 56,574,772
(a) Mutual Shares Fund, Class Z ............................................. 1,496,598 34,496,580
--------------
162,321,196
--------------
DOMESTIC FIXED INCOME 22.9%
(a) Franklin Strategic Income Fund, Advisor Class ........................... 473,092 5,024,238
(a) Franklin Strategic Mortgage Portfolio ................................... 4,662,551 46,299,128
(a) Franklin Total Return Fund, Advisor Class ............................... 2,251,888 23,059,330
(a) Franklin U.S. Government Securities Fund, Advisor Class ................. 3,311,333 22,119,705
--------------
96,502,401
--------------
FOREIGN EQUITY 16.4%
(a) Franklin Gold & Precious Metals Fund, Advisor Class ..................... 691,328 13,010,787
(a) Mutual European Fund, Class Z ........................................... 1,598,805 31,560,412
(a) Templeton Foreign Fund, Advisor Class ................................... 1,724,547 21,160,195
(a) Templeton Global Long Short Fund, Class Z ............................... 271,690 3,124,434
--------------
68,855,828
--------------
FOREIGN FIXED INCOME 11.6%
(a) Templeton Global Bond Fund, Advisor Class ............................... 4,373,683 48,591,616
--------------
TOTAL LONG TERM INVESTMENTS (COST $324,864,789) 376,271,041
--------------
SHORT TERM INVESTMENT (COST $44,700,454) 10.6%
MONEY FUND
(a) Franklin Institutional Fiduciary Trust Money Market Portfolio ........... 44,700,454 44,700,454
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $369,565,243) 100.0% ........ 420,971,495
OTHER ASSETS, LESS LIABILITIES .......................................... (109,449)
--------------
NET ASSETS 100.0% $ 420,862,046
==============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing.
Annual Report | See notes to financial statements. | 47
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
---------------------------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2004(e) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.83 $ 10.46 $ 9.47 $ 11.64 $ 14.50 $ 11.01
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .09 .11 .08 .13 .38 .40
Net realized and unrealized gains (losses) ... 1.33 1.36 1.01 (2.01) (2.80) 3.77
---------------------------------------------------------------------------------
Total from investment operations .............. 1.42 1.47 1.09 (1.88) (2.42) 4.17
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.08) (.10) (.10) (.13) (.44) (.39)
Net realized gains ........................... -- -- -- (.16) -- (.29)
---------------------------------------------------------------------------------
Total distributions ........................... (.08) (.10) (.10) (.29) (.44) (.68)
---------------------------------------------------------------------------------
Redemption fees ............................... --(f) --(f) -- -- -- --
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 13.17 $ 11.83 $ 10.46 $ 9.47 $ 11.64 $ 14.50
=================================================================================
Total return(c) ............................... 12.04% 14.04% 11.64% (16.44)% (16.94)% 38.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 202,560 $ 165,500 $ 99,432 $ 69,663 $ 67,186 $ 66,445
Ratios to average net assets:
Expenses(d) .................................. .85%(g) .83% .92% .93% .85% .85%
Expenses net of waiver and payments
by affiliate(d) ............................. .85%(g) .83% .92% .93% .85% .84%
Net investment income(b) ..................... 1.72%(g) .91% .84% 1.20% 2.98% 2.93%
Portfolio turnover rate ....................... 3.98% 3.46% 21.87% 14.24% 59.41% 73.82%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .84% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
48 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
-------------------------------
PERIOD ENDED
DECEMBER 31, JULY 31,
CLASS B 2004(e) 2004(h)
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.75 $ 11.80
-------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .06 (.02)
Net realized and unrealized gains (losses) ... 1.32 .09
-------------------------------
Total from investment operations .............. 1.38 .07
-------------------------------
Less distributions from net investment income . (.04) (.12)
-------------------------------
Redemption fees ............................... --(f) --(f)
-------------------------------
Net asset value, end of period ................ $ 13.09 $ 11.75
===============================
Total return(c) ............................... 11.76% .56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 5,343 $ 3,178
Ratios to average net assets:
Expenses(d) .................................. 1.60%(g) 1.58%(g)
Net investment income(b) ..................... .97%(g) .16%(g)
Portfolio turnover rate ....................... 3.98% 3.46%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .84% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) For the period December 1, 2003 (effective date) to July 31, 2004.
Annual Report | See notes to financial statements. | 49
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
---------------------------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2004(e) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.72 $ 10.38 $ 9.40 $ 11.58 $ 14.43 $ 10.92
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .05 .02 .01 .05 .29 .29
Net realized and unrealized gains (losses) ... 1.32 1.35 1.00 (1.99) (2.79) 3.77
---------------------------------------------------------------------------------
Total from investment operations .............. 1.37 1.37 1.01 (1.94) (2.50) 4.06
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ -- (.03) (.03) (.08) (.35) (.26)
Net realized gains ........................... -- -- -- (.16) -- (.29)
---------------------------------------------------------------------------------
Total distributions ........................... -- (.03) (.03) (.24) (.35) (.55)
---------------------------------------------------------------------------------
Redemption fees ............................... --(f) --(f) -- -- -- --
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 13.09 $ 11.72 $ 10.38 $ 9.40 $ 11.58 $ 14.43
=================================================================================
Total return(c) ............................... 11.69% 13.18% 10.74% (17.00)% (17.57)% 37.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 73,816 $ 61,179 $ 40,829 $ 31,255 $ 37,884 $ 38,666
Ratios to average net assets:
Expenses(d) .................................. 1.60%(g) 1.58% 1.67% 1.68% 1.60% 1.60%
Expenses net of waiver and payments
by affiliate(d) .............................. 1.60%(g) 1.58% 1.67% 1.68% 1.60% 1.59%
Net investment income(b) ..................... .97%(g) .16% .09% .50% 2.24% 2.16%
Portfolio turnover rate ....................... 3.98% 3.46% 21.87% 14.24% 59.41% 73.82%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .84% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
50 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
---------------------------------------------------------------
PERIOD ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2004(e) 2004 2003 2002(h)
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.76 $ 10.40 $ 9.46 $ 10.95
---------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ................. .08 .08 .05 .01
Net realized and unrealized gains (losses) ... 1.33 1.36 1.00 (1.50)
---------------------------------------------------------------
Total from investment operations .............. 1.41 1.44 1.05 (1.49)
---------------------------------------------------------------
Less distributions from net investment income . (.06) (.08) (.11) --
---------------------------------------------------------------
Redemption fees ............................... --(f) --(f) -- --
---------------------------------------------------------------
Net asset value, end of period ................ $ 13.11 $ 11.76 $ 10.40 $ 9.46
===============================================================
Total return(c) ............................... 12.00% 13.89% 11.11% (13.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 15,206 $ 11,714 $ 5,567 $ 141
Ratios to average net assets:
Expenses(d) .................................. 1.10%(g) 1.08% 1.17% 1.18%(g)
Net investment income(b) ..................... 1.47%(g) .66% .59% .18%(g)
Portfolio turnover rate ....................... 3.98% 3.46% 21.87% 14.24%
(a) Based on average daily shares outstanding.
(b) Recognition of net investment income by the Fund is affected by the timing
of declaration of dividends by the Underlying Funds in which the Fund
invests.
(c) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(d) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was .84% for the period ended December 31, 2004.
(e) For the period August 1, 2004 to December 31, 2004. See Note 1.
(f) Amount is less than $.001 per share.
(g) Annualized.
(h) For the period January 1, 2002 (effective date) to July 31, 2002.
Annual Report | See notes to financial statements. | 51
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004
FRANKLIN TEMPLETON GROWTH TARGET FUND
- ---------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS
LONG TERM INVESTMENTS 94.8%
DOMESTIC EQUITY 55.8%
(a),(b) Franklin Capital Growth Fund, Advisor Class ............................. 3,759,295 $ 41,878,544
(a),(b) Franklin Flex Cap Growth Fund, Advisor .................................. 156,698 5,932,598
(a),(b) Franklin Natural Resources Fund, Advisor Class .......................... 471,325 11,542,749
(a) Franklin Real Estate Securities Fund, Advisor Class ..................... 505,566 13,351,989
(a),(b) Franklin Small Cap Growth Fund II, Advisor Class ........................ 4,808,859 57,802,488
(a) Mutual Shares Fund, Class Z ............................................. 1,531,015 35,289,900
-------------
165,798,268
-------------
DOMESTIC FIXED INCOME 9.9%
(a) Franklin Strategic Income Fund, Advisor Class ........................... 172,675 1,833,810
(a) Franklin Strategic Mortgage Portfolio ................................... 1,435,600 14,255,512
(a) Franklin Total Return Fund, Advisor Class ............................... 700,075 7,168,763
(a) Franklin U.S. Government Securities Fund, Advisor Class ................. 935,804 6,251,170
-------------
29,509,255
-------------
FOREIGN EQUITY 24.2%
(a) Franklin Gold & Precious Metals Fund, Advisor Class ..................... 678,532 12,769,973
(a) Mutual European Fund, Class Z ........................................... 1,704,918 33,655,076
(a) Templeton Foreign Fund, Advisor Class ................................... 1,825,811 22,402,696
(a) Templeton Global Long Short Fund, Class Z ............................... 258,798 2,976,176
-------------
71,803,921
-------------
FOREIGN FIXED INCOME 4.9%
(a) Templeton Global Bond Fund, Advisor Class ............................... 1,306,998 14,520,747
-------------
TOTAL LONG TERM INVESTMENTS (COST $234,543,398) ......................... 281,632,191
-------------
SHORT TERM INVESTMENT (COST $16,062,514) 5.4%
MONEY FUND
(a) Franklin Institutional Fiduciary Trust Money Market Portfolio ........... 16,062,514 16,062,514
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $250,605,912) 100.2% ........ 297,694,705
OTHER ASSETS, LESS LIABILITIES (.2)% .................................... (769,302)
-------------
NET ASSETS 100.0% ....................................................... $ 296,925,403
=============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing.
52 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost .................................... $ 192,672,275 $ 369,565,243 $ 250,605,912
===================================================
Value ................................... 215,622,863 420,971,495 297,694,705
Receivables:
Capital shares sold ..................... 1,375,524 1,197,315 820,054
---------------------------------------------------
Total assets ........................ 216,998,387 422,168,810 298,514,759
---------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ................. 413,549 889,579 1,300,064
Affiliates .............................. 152,170 298,921 215,546
Unaffiliated transfer agent fees ........ 37,156 98,874 52,836
Other liabilities ........................ 16,650 19,390 20,910
---------------------------------------------------
Total liabilities ................... 619,525 1,306,764 1,589,356
---------------------------------------------------
Net assets, at value ............... $ 216,378,862 $ 420,862,046 $ 296,925,403
===================================================
Net assets consist of:
Undistributed net investment income ...... $ 200,844 $ 644,931 $ 508,314
Net unrealized appreciation (depreciation) 22,950,588 51,406,252 47,088,793
Accumulated net realized gain (loss) ..... (1,401,171) (4,988,057) (10,486,662)
Capital shares ........................... 194,628,601 373,798,920 259,814,958
---------------------------------------------------
Net assets, at value ............... $ 216,378,862 $ 420,862,046 $ 296,925,403
===================================================
Annual Report | See notes to financial statements. | 53
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2004
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------
CLASS A:
Net assets, at value ................................................ $ 139,153,060 $ 281,033,424 $ 202,560,390
================================================
Shares outstanding .................................................. 11,148,074 22,150,147 15,376,068
================================================
Net asset value per share(a) ........................................ $ 12.48 $ 12.69 $ 13.17
================================================
Maximum offering price per share (net asset value per share / 94.25%) $ 13.24 $ 13.46 $ 13.97
================================================
CLASS B:
Net assets, at value ................................................ $ 5,223,270 $ 8,700,465 $ 5,342,854
================================================
Shares outstanding .................................................. 419,370 687,135 408,183
================================================
Net asset value and maximum offering price per share(a) ............. $ 12.46 $ 12.66 $ 13.09
================================================
CLASS C:
Net assets, at value ................................................ $ 59,803,244 $ 105,966,285 $ 73,816,070
================================================
Shares outstanding .................................................. 4,839,795 8,473,958 5,638,403
================================================
Net asset value and maximum offering price per share(a) ............. $ 12.36 $ 12.50 $ 13.09
================================================
CLASS R:
Net assets, at value ................................................ $ 12,199,288 $ 25,161,872 $ 15,206,089
================================================
Shares outstanding .................................................. 979,263 1,986,813 1,160,288
================================================
Net asset value and maximum offering price per share(a) ............. $ 12.46 $ 12.66 $ 13.11
================================================
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
54 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the period August 1, 2004 to December 31, 2004
and the year ended July 31, 2004
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, JULY 31, DECEMBER 31, JULY 31,
2004 2004 2004 2004
------------------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ....................... $ 2,652,182 $ 4,176,261 $ 4,907,792 $ 7,047,913
------------------------------------------------------------
Expenses:
Asset allocation fees (Note 3) ................................. 163,844 289,629 349,243 595,109
Distribution fees (Note 3)
Class A ....................................................... 132,828 231,214 260,891 434,393
Class B ....................................................... 18,646 12,036 29,028 18,538
Class C ....................................................... 231,006 450,644 407,048 768,536
Class R ....................................................... 20,079 37,244 40,542 77,270
Transfer agent fees (Note 3) ................................... 212,622 485,252 405,167 967,496
Reports to shareholders ........................................ 13,957 13,003 17,642 21,913
Registration and filing fees ................................... 58,906 71,495 80,207 93,211
Professional fees .............................................. 12,081 12,134 13,469 13,398
Trustees' fees and expenses .................................... 162 619 303 1,136
Other .......................................................... 5,153 5,923 10,665 10,721
------------------------------------------------------------
Total expenses ............................................ 869,284 1,609,193 1,614,205 3,001,721
------------------------------------------------------------
Net investment income .................................... 1,782,898 2,567,068 3,293,587 4,046,192
------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of Underlying Funds ..................................... (22,136) (439,785) (1,061,191) (1,442,186)
Capital gain distributions from Underlying Funds ............. 492,445 -- 1,321,788 --
------------------------------------------------------------
Net realized gain (loss) ................................. 470,309 (439,785) 260,597 (1,442,186)
Net change in unrealized appreciation (depreciation) on
Underlying Funds .............................................. 13,430,048 7,325,516 32,639,851 19,079,818
------------------------------------------------------------
Net realized and unrealized gain (loss) ......................... 13,900,357 6,885,731 32,900,448 17,637,632
------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................................ $ 15,683,255 $ 9,452,799 $ 36,194,035 $ 21,683,824
============================================================
Annual Report | See notes to financial statements. | 55
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the period August 1, 2004 to December 31, 2004
and the year ended July 31, 2004
---------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
---------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, JULY 31,
2004 2004
---------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ............................... $ 2,874,913 $ 3,555,492
---------------------------------
Expenses:
Asset allocation fees (Note 3) ......................................... 264,314 481,253
Distribution fees (Note 3)
Class A ............................................................... 191,424 350,293
Class B ............................................................... 17,223 10,464
Class C ............................................................... 276,829 541,938
Class R ............................................................... 27,355 45,734
Transfer agent fees (Note 3) ........................................... 311,470 584,558
Reports to shareholders ................................................ 21,012 23,503
Registration and filing fees ........................................... 56,743 80,645
Professional fees ...................................................... 11,763 12,741
Trustees' fees and expenses ............................................ 217 872
Other .................................................................. 6,632 8,082
---------------------------------
Total expenses .................................................... 1,184,982 2,140,083
---------------------------------
Net investment income ............................................ 1,689,931 1,415,409
---------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of Underlying Funds .............................................. (850,054) (1,964,242)
Capital gain distributions from Underlying Funds ...................... 1,410,866 --
---------------------------------
Net realized gain (loss) ......................................... 560,812 (1,964,242)
Net change in unrealized appreciation (depreciation) on Underlying Funds 28,632,877 21,256,711
---------------------------------
Net realized and unrealized gain (loss) ................................. 29,193,689 19,292,469
---------------------------------
Net increase (decrease) in net assets resulting from operations ......... $ 30,883,620 $ 20,707,878
=================================
56 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the period August 1, 2004 to December 31, 2004
and the years ended July 31, 2004 and 2003
-----------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-----------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004 JULY 31, 2003
-----------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................................. $ 1,782,898 $ 2,567,068 $ 1,458,667
Net realized gain (loss) from Underlying Funds ..................... 470,309 (439,785) (1,300,265)
Net change in unrealized appreciation (depreciation) on
Underlying Funds ................................................. 13,430,048 7,325,516 7,109,450
-----------------------------------------------------
Net increase (decrease) in net assets resulting from operations 15,683,255 9,452,799 7,267,852
Distributions to shareholders from:
Net investment income:
Class A ........................................................... (1,550,016) (1,667,835) (978,809)
Class B ........................................................... (39,691) (10,065) --
Class C ........................................................... (440,506) (509,400) (386,024)
Class R ........................................................... (106,212) (118,453) (44,895)
-----------------------------------------------------
Total distributions to shareholders ................................. (2,136,425) (2,305,753) (1,409,728)
Capital share transactions: (Note 2)
Class A ........................................................... 13,395,041 47,993,126 24,604,134
Class B ........................................................... 1,344,039 3,619,563 --
Class C ........................................................... 3,087,341 18,319,247 8,108,921
Class R ........................................................... 3,173,988 2,280,595 4,929,632
-----------------------------------------------------
Total capital share transactions .................................... 21,000,409 72,212,531 37,642,687
Redemption fees ..................................................... 681 328 --
-----------------------------------------------------
Net increase (decrease) in net assets .......................... 34,547,920 79,359,905 43,500,811
Net assets:
Beginning of period ................................................. 181,830,942 102,471,037 58,970,226
-----------------------------------------------------
End of period ....................................................... $ 216,378,862 $ 181,830,942 $ 102,471,037
=====================================================
Undistributed net investment income included in net assets:
End of period ....................................................... $ 200,844 $ 554,371 $ 293,056
=====================================================
Annual Report | See notes to financial statements. | 57
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the period August 1, 2004 to December 31, 2004
and the years ended July 31, 2004 and 2003
---------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND
---------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004 JULY 31, 2003
---------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................................. $ 3,293,587 $ 4,046,192 $ 2,429,865
Net realized gain (loss) from Underlying Funds ..................... 260,597 (1,442,186) (2,564,790)
Net change in unrealized appreciation (depreciation) on
Underlying Funds ................................................. 32,639,851 19,079,818 16,155,604
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations 36,194,035 21,683,824 16,020,679
Distributions to shareholders from:
Net investment income:
Class A ........................................................... (2,681,591) (2,669,838) (1,809,008)
Class B ........................................................... (51,972) (12,044) --
Class C ........................................................... (629,244) (693,557) (527,698)
Class R ........................................................... (180,867) (211,924) (44,308)
---------------------------------------------------
Total distributions to shareholders ................................. (3,543,674) (3,587,363) (2,381,014)
Capital share transactions: (Note 2)
Class A ........................................................... 39,940,397 86,090,887 27,750,259
Class B ........................................................... 2,668,075 5,505,348 --
Class C ........................................................... 6,462,665 29,167,225 12,516,620
Class R ........................................................... 6,302,177 5,030,879 10,075,694
---------------------------------------------------
Total capital share transactions .................................... 55,373,314 125,794,339 50,342,573
Redemption fees ..................................................... (575) 1,269 --
---------------------------------------------------
Net increase (decrease) in net assets .......................... 88,023,100 143,892,069 63,982,238
Net assets:
Beginning of period ................................................. 332,838,946 188,946,877 124,964,639
---------------------------------------------------
End of period ....................................................... $ 420,862,046 $ 332,838,946 $ 188,946,877
===================================================
Undistributed net investment income included in net assets:
End of period ....................................................... $ 644,931 $ 895,018 $ 436,189
===================================================
58 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the period August 1, 2004 to December 31, 2004
and the years ended July 31, 2004 and 2003
---------------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND
---------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004 JULY 31, 2003
---------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 1,689,931 $ 1,415,409 $ 689,632
Net realized gain (loss) from Underlying Funds .................... 560,812 (1,964,242) (6,860,671)
Net change in unrealized appreciation (depreciation) on
Underlying Funds ................................................ 28,632,877 21,256,711 20,265,992
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations 30,883,620 20,707,878 14,094,953
Distributions to shareholders from:
Net investment income:
Class A .......................................................... (1,278,278) (1,106,714) (779,346)
Class B .......................................................... (16,646) (1,198) --
Class C .......................................................... -- (126,060) (93,410)
Class R .......................................................... (69,188) (60,542) (23,036)
---------------------------------------------------
Total distributions to shareholders ................................ (1,364,112) (1,294,514) (895,792)
Capital share transactions: (Note 2)
Class A .......................................................... 16,953,905 52,682,701 20,819,694
Class B .......................................................... 1,698,909 3,245,275 --
Class C .......................................................... 5,140,322 15,051,453 5,923,783
Class R .......................................................... 2,040,115 5,349,553 4,826,890
---------------------------------------------------
Total capital share transactions ................................... 25,833,251 76,328,982 31,570,367
Redemption fees .................................................... 1,872 245 --
---------------------------------------------------
Net increase (decrease) in net assets ......................... 55,354,631 95,742,591 44,769,528
Net assets:
Beginning of period ................................................ 241,570,772 145,828,181 101,058,653
---------------------------------------------------
End of period ...................................................... $ 296,925,403 $ 241,570,772 $ 145,828,181
===================================================
Undistributed net investment income included in net assets:
End of period ...................................................... $ 508,314 $ 182,495 $ 61,600
===================================================
Annual Report | See notes to financial statements. | 59
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 an open-end investment company, consisting of
six separate series. All funds included in this report (the Funds) are
non-diversified. The financial statements of the remaining funds in the series
are presented separately. The Funds invest primarily in Franklin Templeton
mutual funds (the Underlying Funds). The Funds seek the highest level of
long-term total return that is consistent with an acceptable level of risk.
While assets of each fund are invested in the same Underlying Funds, the
investment manager will vary the Underlying Funds' allocation percentages based
upon each fund's risk/return level.
On December 6, 2004, the Board of Trustees approved the change of the Trust's
fiscal year from July 31 to December 31 effective December 31, 2004.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Net asset value per share is calculated as of the close of trading of the NYSE.
Investments in the Underlying Funds are valued at their net asset value each
trading day.
B. INCOME TAXES
No provision has been made for U.S. income taxes because each fund's policy is
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. 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. The Funds indirectly
bear their proportionate share of expenses from the Underlying Funds. Since the
Underlying Funds have varied expense levels and the Funds may own different
proportions of the Underlying Funds at different times, the amount of expenses
incurred indirectly by the Funds will vary.
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.
60 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. REDEMPTION FEES
Effective June 1, 2004, redemptions and exchanges of the Funds' shares held five
trading daysor less may be subject to the Funds' redemption fee, which is 2% of
the amount redeemed. Such fees are retained by the Funds and accounted for as
additional paid-in capital as noted in the Statements of Changes in Net Assets.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liability arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred. However, based on experience, the
Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
The Funds offer four classes of shares: Class A, Class B, Class C and Class R.
Effective March 1, 2005, Class B shares will no longer be offered except to
existing Class B shareholders through reinvested distributions or exchanges into
other Franklin Templeton funds' Class B shares, as permitted by the applicable
fund prospectus. 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 December 31, 2004, 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:
Period ended December 31, 2004(a)
Shares sold ....................... 2,027,582 $ 24,434,038 4,533,204 $ 54,611,108
Shares issued in reinvestment
of distributions .................. 117,959 1,440,364 212,098 2,620,960
Shares redeemed ................... (1,033,878) (12,479,361) (1,423,431) (17,291,671)
----------------------------------------------------------
Net increase (decrease) ........... 1,111,663 $ 13,395,041 3,321,871 $ 39,940,397
==========================================================
Annual Report | 61
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
----------------------------------------------------------
Year ended July 31, 2004
Shares sold ....................... 6,863,344 $ 79,896,754 9,950,541 $ 115,869,233
Shares issued in reinvestment
of distributions ................. 137,676 1,597,097 227,405 2,627,934
Shares redeemed ................... (2,868,018) (33,500,725) (2,780,146) (32,406,280)
----------------------------------------------------------
Net increase (decrease) ........... 4,133,002 $ 47,993,126 7,397,800 $ 86,090,887
==========================================================
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
==========================================================
CLASS B SHARES:
Period ended December 31, 2004(a)
Shares sold ....................... 121,329 $ 1,446,607 243,458 $ 2,938,248
Shares issued in reinvestment
of distributions ................. 2,782 33,942 3,908 48,430
Shares redeemed ................... (11,486) (136,510) (26,526) (318,603)
----------------------------------------------------------
Net increase (decrease) ........... 112,625 $ 1,344,039 220,840 $ 2,668,075
==========================================================
Period ended July 31, 2004(b)
Shares sold ....................... 323,398 $ 3,814,890 482,307 $ 5,693,134
Shares issued in reinvestment
of distributions ................. 743 8,675 1,010 11,791
Shares redeemed ................... (17,396) (204,002) (17,022) (199,577)
----------------------------------------------------------
Net increase (decrease) ........... 306,745 $ 3,619,563 466,295 $ 5,505,348
==========================================================
CLASS C SHARES:
Period ended December 31, 2004(a)
Shares sold ....................... 778,596 $ 9,316,342 1,071,798 $ 12,778,656
Shares issued in reinvestment
of distributions ................. 32,017 387,625 45,353 554,135
Shares redeemed ................... (556,977) (6,616,626) (577,194) (6,870,126)
----------------------------------------------------------
Net increase (decrease) ........... 253,636 $ 3,087,341 539,957 $ 6,462,665
==========================================================
Year ended July 31, 2004
Shares sold ....................... 2,430,106 $ 27,958,551 3,372,896 $ 38,474,423
Shares issued in reinvestment
of distributions ................. 38,116 437,984 52,852 602,416
Shares redeemed ................... (877,419) (10,077,288) (865,496) (9,909,614)
----------------------------------------------------------
Net increase (decrease) ........... 1,590,803 $ 18,319,247 2,560,252 $ 29,167,225
==========================================================
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
==========================================================
62 | 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:
Period ended December 31, 2004(a)
Shares sold ....................... 486,990 $ 5,875,356 627,973 $ 7,726,790
Shares issued in reinvestment
of distributions ................. 8,719 106,164 14,603 180,370
Shares redeemed ................... (235,979) (2,807,532) (132,547) (1,604,983)
----------------------------------------------------------
Net increase (decrease) ........... 259,730 $ 3,173,988 510,029 $ 6,302,177
==========================================================
Year ended July 31, 2004
Shares sold ....................... 420,014 $ 4,888,406 964,451 $ 11,136,716
Shares issued in reinvestment
of distributions ................. 10,225 118,404 18,368 211,763
Shares redeemed ................... (235,791) (2,726,215) (540,759) (6,317,600)
----------------------------------------------------------
Net increase (decrease) ........... 194,448 $ 2,280,595 442,060 $ 5,030,879
==========================================================
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
==========================================================
----------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------
SHARES AMOUNT
----------------------------
CLASS A SHARES:
Period ended December 31, 2004(a)
Shares sold .................................. 2,599,814 $ 32,084,766
Shares issued in reinvestment of distributions 95,671 1,254,253
Shares redeemed .............................. (1,312,592) (16,385,114)
----------------------------
Net increase (decrease) ...................... 1,382,893 $ 16,953,905
============================
Year ended July 31, 2004
Shares sold .................................. 7,020,538 $ 82,539,246
Shares issued in reinvestment of distributions 92,110 1,084,132
Shares redeemed .............................. (2,629,685) (30,940,677)
----------------------------
Net increase (decrease) ...................... 4,482,963 $ 52,682,701
============================
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
============================
CLASS B SHARES:
Period ended December 31, 2004(a)
Shares sold .................................. 141,432 $ 1,744,152
Shares issued in reinvestment of distributions 1,225 15,958
Shares redeemed .............................. (4,935) (61,201)
----------------------------
Net increase (decrease) ...................... 137,722 $ 1,698,909
============================
Annual Report | 63
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------
SHARES AMOUNT
----------------------------
Period ended July 31, 2004(b)
Shares sold .................................. 278,659 $ 3,342,742
Shares issued in reinvestment of distributions 90 1,053
Shares redeemed .............................. (8,288) (98,520)
----------------------------
Net increase (decrease) ...................... 270,461 $ 3,245,275
============================
CLASS C SHARES:
Period ended December 31, 2004(a)
Shares sold .................................. 801,367 $ 9,868,454
Shares redeemed .............................. (384,726) (4,728,132)
----------------------------
Net increase (decrease) ...................... 416,641 $ 5,140,322
============================
Year ended July 31, 2004
Shares sold .................................. 2,163,958 $ 25,163,209
Shares issued in reinvestment of distributions 9,943 116,425
Shares redeemed .............................. (887,137) (10,228,181)
----------------------------
Net increase (decrease) ...................... 1,286,764 $ 15,051,453
============================
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
============================
CLASS R SHARES:
Period ended December 31, 2004(a)
Shares sold .................................. 222,338 $ 2,749,203
Shares issued in reinvestment of distributions 5,290 69,091
Shares redeemed .............................. (63,718) (778,179)
----------------------------
Net increase (decrease) ...................... 163,910 $ 2,040,115
============================
Year ended July 31, 2004
Shares sold .................................. 630,637 $ 7,339,817
Shares issued in reinvestment of distributions 5,162 60,466
Shares redeemed .............................. (174,455) (2,050,730)
----------------------------
Net increase (decrease) ...................... 461,344 $ 5,349,553
============================
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
============================
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period December 1, 2003 (effective date) to July 31, 2004.
64 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
A. ASSET ALLOCATION FEES
The Funds pay an asset allocation fee to Advisers of .25% per year of the
average daily net assets of each fund for investment advisory services,
consisting principally of determining the allocation of assets of the Funds
among the designated Underlying Funds.
B. ADMINISTRATIVE FEES
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.
C. DISTRIBUTION FEES
The Funds reimburse Distributors up to .25%, 1.00%, 1.00%, and .50% per year of
the average daily net assets of Class A, Class B, Class C and Class R,
respectively, for costs incurred in marketing the Funds' shares under a Rule
12b-1 plan. Under the Class A distribution plan, costs exceeding the maximum for
the current plan year cannot be reimbursed in subsequent periods.
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period ended
December 31, 2004 and the year ended July 31, 2004:
----------------------------------
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
----------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004
----------------------------------
Sales charges received ................... $ 49,919 $ 149,530
Contingent deferred sales charges retained $ 13,544 $ 23,577
----------------------------------
FRANKLIN TEMPLETON
MODERATE TARGET FUND
----------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004
----------------------------------
Sales charges received ..................... $ 84,133 $ 227,786
Contingent deferred sales charges retained . $ 15,912 $ 13,464
Annual Report | 65
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS (CONTINUED)
----------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004
----------------------------------
Sales charges received ..................... $ 40,330 $ 130,040
Contingent deferred sales charges retained . $ 7,565 $ 13,398
E. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statements of Operations for
the period ended December 31, 2004 and the year ended July 31, 2004 of which the
following amounts were paid to Investor Services:
----------------------------------
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
----------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004
----------------------------------
Transfer agent fees ........................ $ 141,483 $ 371,891
----------------------------------
FRANKLIN TEMPLETON
MODERATE TARGET FUND
----------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004
----------------------------------
Transfer agent fees ........................ $ 291,039 $ 586,928
----------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, 2004 JULY 31, 2004
----------------------------------
Transfer agent fees ........................ $ 210,413 $ 430,898
4. INCOME TAXES
At December 31, 2004, the 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:
2009 ......................... $ 26,278 $ 979,398 $ 1,668,758
2010 ......................... 483,682 1,014,315 697,564
2011 ......................... 696,707 1,453,541 5,127,482
2012 ......................... -- 1,130,904 1,400,350
--------------------------------------------
$ 1,206,667 $ 4,578,158 $ 8,894,154
============================================
66 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At December 31, 2004, the Franklin Templeton Moderate Target Fund had deferred
capital losses of $50,685 occurring subsequent to October 31, 2004. For tax
purposes, such losses will be reflected in the year ending December 31, 2005.
The tax character of distributions paid during the period ended December 31,
2004 and the years ended July 31, 2004 and 2003, was as follows:
-------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-------------------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, JULY 31,
2004(a) 2004 2003
-------------------------------------------
Distributions paid from - ordinary income ...... $ 2,136,425 $ 2,305,753 $ 1,409,728
-------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND
-------------------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, JULY 31,
2004(a) 2004 2003
-------------------------------------------
Distributions paid from - ordinary income ...... $ 3,543,674 $ 3,587,363 $ 2,381,014
-------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND
-------------------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, JULY 31,
2004(a) 2004 2003
-------------------------------------------
Distributions paid from - ordinary income ...... $ 1,364,112 $ 1,294,514 $ 895,792
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatment of wash sales.
At December 31, 2004, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income 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 ......................... $ 192,866,781 $ 369,924,458 $ 252,198,420
================================================
Unrealized appreciation ..................... $ 23,327,235 $ 51,780,007 $ 45,716,770
Unrealized depreciation ..................... (571,153) (732,970) (220,485)
------------------------------------------------
Net unrealized appreciation (depreciation) .. $ 22,756,082 $ 51,047,037 $ 45,496,285
================================================
Distributable earnings -
undistributed ordinary income .............. $ 200,844 $ 644,931 $ 508,314
================================================
(a) For the period August 1, 2004 to December 31, 2004.
Annual Report | 67
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 period ended December 31, 2004, were as follows:
-----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------------
Purchases ................... $ 18,713,393 $ 56,062,228 $ 34,184,874
Sales ....................... $ 4,133,000 $ 9,358,000 $ 10,098,000
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At December 31, 2004, the Funds
held the following positions which exceed 5% of the Underlying Fund's shares
outstanding:
- ---------------------------------------------------------------------
NAME OF ISSUER % OF SHARES HELD
- ---------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Franklin Strategic Mortgage Portfolio 7.34%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Natural Resources Fund, Advisor Class 5.58%
Franklin Strategic Mortgage Portfolio 12.08%
Franklin Total Return Fund, Advisor Class 5.34%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Natural Resources Fund, Advisor Class 5.59%
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 management fees paid by the
Sweep Money Fund.
7. REGULATORY MATTERS
INVESTIGATIONS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the
National Association of Securities Dealers, Inc. ("NASD"), relating to certain
practices in the mutual fund industry, including late trading, market timing and
marketing support payments to securities dealers who sell fund shares, Franklin
Resources, Inc. and certain of its subsidiaries (as used in this section,
together, the "Company"),
68 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
INVESTIGATIONS (CONTINUED)
as well as certain current or former executives and employees of the Company,
received subpoenas and/or requests for documents, information and/or testimony.
The Company and its current employees provided documents and information in
response to those requests and subpoenas.
SETTLEMENTS
Beginning in August 2004, the Company entered into settlements with certain
regulators investigating the mutual fund industry practices noted above. The
Company believes that settlement of each of the matters described in this
section is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary,
Franklin Advisers, Inc., reached an agreement with the SEC that resolved the
issues resulting from the SEC investigation into market timing activity. In
connection with that agreement, the SEC issued an "Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the
Investment Company Act of 1940, Making Findings and Imposing Remedial Sanctions
and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned the
activities of a limited number of third parties that ended in 2000 and those
that were the subject of the first Massachusetts administrative complaint
described below.
Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc.
neither admitted nor denied any of the findings contained therein, Franklin
Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil
penalty, to be distributed to shareholders of certain funds in accordance with a
plan to be developed by an independent distribution consultant. At this time, it
is unclear which funds or which shareholders of any particular fund will receive
distributions. The Order also required Franklin Advisers, Inc. to, among other
things, enhance and periodically review compliance policies and procedures.
On September 20, 2004, Franklin Resources, Inc. announced that two of its
subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative
Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of
the Office of the Secretary of the Commonwealth of Massachusetts (the "State of
Massachusetts") related to its administrative complaint filed on February 4,
2004, concerning one instance of market timing that was also a subject of the
August 2, 2004 settlement that Franklin Advisers, Inc. reached with the SEC, as
described above.
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts (the "Massachusetts Consent Order"). The Massachusetts
Consent Order included two different sections: "Statements of Fact" and
"Violations of Massachusetts Securities Laws." Franklin Advisers, Inc. and FTAS
admitted the facts in the Statements of Fact.
Annual Report | 69
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
On October 25, 2004, the State of Massachusetts filed a second administrative
complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing (in which it
described the Massachusetts Consent Order and stated that "Franklin did not
admit or deny engaging in any wrongdoing") failed to state that Franklin
Advisers, Inc. and FTAS admitted the Statements of Fact portion of the
Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc.
reached a second agreement with the State of Massachusetts on November 19, 2004,
resolving the Second Complaint. As a result of the November 19, 2004 settlement,
Franklin Resources, Inc. filed a new Form 8-K. The terms of the Massachusetts
Consent Order did not change and there was no monetary fine associated with this
second settlement.
On November 17, 2004, Franklin Resources, Inc. announced that Franklin/Templeton
Distributors, Inc. ("FTDI") reached an agreement with the CAGO, resolving the
issues resulting from the CAGO's investigation concerning sales and marketing
support payments. Under the terms of the settlement, FTDI neither admitted nor
denied the allegations in the CAGO's complaint and agreed to pay $2 million to
the State of California as a civil penalty, $14 million to the funds, to be
allocated by an independent distribution consultant to be paid for by FTDI, and
$2 million to the CAGO for its investigative costs.
On December 13, 2004, Franklin Resources, Inc. announced that its subsidiaries
FTDI and Franklin Advisers, Inc. reached an agreement with the SEC, resolving
the issues resulting from the SEC's investigation concerning marketing support
payments to securities dealers who sell fund shares. In connection with that
agreement, the SEC issued an "Order Instituting Administrative and
Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions
Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940,
Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Section 15(b)
of the Securities Exchange Act of 1934" (the "Second Order").
Under the terms of the Second Order, in which FTDI and Franklin Advisers, Inc.
neither admitted nor denied the findings contained therein, they agreed to pay
the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and
Franklin Advisers, Inc. also agreed to implement certain measures and
undertakings relating to marketing support payments to broker-dealers for the
promotion or sale of fund shares, including making additional disclosures in the
funds' Prospectuses and Statements of Additional Information. The Second Order
further requires the appointment of an independent distribution consultant, at
the Company's expense, who shall develop a plan for the distribution of the
penalty and disgorgement to the funds.
70 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS
The Trust, in addition to the Company and other funds, and certain current and
former officers, employees, and directors have been named in multiple lawsuits
in different federal courts in Nevada, California, Illinois, New York and
Florida, alleging violations of various federal securities laws and seeking,
among other relief, monetary damages, restitution, removal of fund trustees,
directors, advisers, administrators, and distributors, rescission of management
contracts and 12b-1 Plans, and/or attorneys' fees and costs. Specifically, the
lawsuits claim breach of duty with respect to alleged arrangements to permit
market timing and/or late trading activity, or breach of duty with respect to
the valuation of the portfolio securities of certain Templeton funds managed by
Franklin Resources, Inc. subsidiaries, resulting in alleged market timing
activity. The majority of these lawsuits duplicate, in whole or in part, the
allegations asserted in the February 4, 2004 Massachusetts administrative
complaint and the findings in the SEC's August 2, 2004 Order, as described
above. The lawsuits are styled as class actions, or derivative actions on behalf
of either the named funds or Franklin Resources, Inc.
In addition, the Company, as well as certain current and former officers,
employees, and directors, have been named in multiple lawsuits alleging
violations of various securities laws and pendent state law claims relating to
the disclosure of directed brokerage payments and/or payment of allegedly
excessive advisory, commission, and distribution fees, and seeking, among other
relief, monetary damages, restitution, rescission of advisory contracts,
including recovery of all fees paid pursuant to those contracts, an accounting
of all monies paid to the named advisers, declaratory relief, injunctive relief,
and/or attorneys' fees and costs. These lawsuits are styled as class actions or
derivative actions brought on behalf of certain funds.
The Company and fund management strongly believes that the claims made in each
of the lawsuits identified above are without merit and intends to vigorously
defend against them. The Company cannot predict with certainty, however, the
eventual outcome of the remaining governmental investigations or private
lawsuits, nor whether they will have a material negative impact on the Company.
Public trust and confidence are critical to the Company's business and any
material loss of investor and/or client confidence could result in a significant
decline in assets under management by the Company, which would have an adverse
effect on the Company's future financial results. If the Company finds that it
bears responsibility for any unlawful or inappropriate conduct that caused
losses to the Trust, it is committed to making the Trust or their shareholders
whole, as appropriate. The Company is committed to taking all appropriate
actions to protect the interests of its funds' shareholders.
Annual Report | 71
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE 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 Franklin Templeton Conservative
Target Fund, Franklin Templeton Moderate Target Fund and Franklin Templeton
Growth Fund (separate portfolios of Franklin Templeton Fund Allocator Series,
hereafter referred to as the "Funds") at December 31, 2004, the results of each
of their operations for the period August 1, 2004 to December 31, 2004 and the
year ended July 31, 2004, the changes in each of their net assets for the period
August 1, 2004 to December 31, 2004 and each of the years in the period ended
July 31, 2004, 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 the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits 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 investments in the
Underlying Funds at December 31, 2004, by correspondence with the transfer agent
of the Underlying Funds, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 9, 2005
72 | 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 period ended
December 31, 2004.
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
$630,856 $1,644,044 $1,720,984
In January 2005, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2004.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
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 period ended December 31, 2004.
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
2.77% 4.58% 12.28%
Annual Report | 73
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 (83) 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).
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (72) Trustee Since 1995 142 Director, Bar-S Foods (meat
One Franklin Parkway packing 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 (72) Trustee Since 1995 143 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 (until 2002) (Consultant, 2003).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since 1998 98 Director, Amerada Hess
One Franklin Parkway Corporation (exploration
San Mateo, CA 94403-1906 and refining of oil and
gas), H.J. Heinz Company
(processed foods and
allied products); RTI
International Metals, Inc.
(manufacture and
distribution of titanium);
Canadian National Railway
(railroad) and White
Mountains Insurance Group
Ltd. (holding company).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the 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).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (75) Trustee Since 1995 115 Director, The California
One Franklin Parkway Center for Land Recycling
San Mateo, CA 94403-1906 (redevelopment).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
74 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (76) Trustee Since 1995 142 Director, Martek
One Franklin Parkway Biosciences Corporation;
San Mateo, CA 94403-1906 MedImmune, Inc.
(biotechnology); and
Overstock.com (Internet
services); and FORMERLY,
Director, MCI
Communication Corporation
(subsequently known as MCI
WorldCom, Inc. and
WorldCom, Inc.)
(communications services)
(1988-2002), White
Mountains Insurance Group
Ltd. (holding company)
(1987-2004) and Spacehab,
Inc. (aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004);
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 (71) Trustee and Since 1995 142 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, 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.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (64) Trustee, Trustee since 125 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 75
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (59) Vice President Since 1995 Not Applicable Not Applicable
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.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (52) Chief Since July 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Director, Global Compliance, Franklin Resources, Inc.,
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (42) Treasurer Since July 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 34 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and
Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton
Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (44) Vice President Since 1995 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Co-President and Chief Executive Officer, 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.
- ------------------------------------------------------------------------------------------------------------------------------------
76 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (57) Senior Vice Since 2002 Not Applicable Not Applicable
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.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (57) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior 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 FORMERLY, President, Chief Executive Officer
and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (57) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, Inc.,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment
Services, Inc.; and 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).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 77
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (67) Vice President Since 2002 Not Applicable Not Applicable
600 Fifth Avenue - AML
Rockefeller Center Compliance
New York, NY 10020-2302
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; Director, FTI Banque, Arch Chemicals,
Inc., and Lingnan Foundation; and officer and/or director, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 48 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (67) Vice President Since 2000 Not Applicable Not Applicable
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).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (53) Chief Financial Since May 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin Templeton Services,
LLC; and FORMERLY, Managing Director, RSM McGladrey, Inc.; and Partner, McGladrey & Pullen, LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
* 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 to be
interested persons of the Fund 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 Fund's 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 FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'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 FUND'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 FUND, 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 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.
78 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
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 online at
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. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the Securities and Exchange Commission's
website at sec.gov and reflect the 12-month period beginning July 1, 2003, and
ending June 30, 2004.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 79
This page intentionally left blank.
LITERATURE REQUEST
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF
SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR
SERVICE DEPARTMENTS. 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
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(2)
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(3)
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 Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds
Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund(5)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust(3)
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(5),(6)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
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(7)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(8)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(9)
Colorado
Connecticut
Florida(9)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(8)
Michigan(8)
Minnesota(8)
Missouri
New Jersey
New York(9)
North Carolina
Ohio(8)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(10)
(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 and select retirement
plans.
(3) 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.
(4) Upon reaching approximately $350 million in assets, the fund intends to
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) Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and
strategy remained the same.
(7) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(8) Portfolio of insured municipal securities.
(9) 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).
(10) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
11/04 Not part of the annual report
[LOGO](R)
FRANKLIN(R) TEMPLETON(R) One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o 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
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
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 A2004 02/05
DECEMBER 31, 2004
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[PHOTO OMITTED]
Franklin Templeton
Corefolio Allocation Fund
Franklin Templeton
Founding Funds Allocation Fund
Franklin Templeton
Perspectives Allocation Fund
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER | ASSET ALLOCATION
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FRANKLIN TEMPLETON FASTER VIA EMAIL?
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO OMITTED]
FRANKLIN[R] TEMPLETON[R]
INVESTMENTS
FRANKLIN O TEMPLETON O MUTUAL SERIES
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 recognized leader in fixed income
investing and also brings 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. Founded 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
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER....................... 1
ANNUAL REPORT
Economic and
Market Overview.......................... 4
Franklin Templeton Corefolio
Allocation Fund ......................... 6
Franklin Templeton Founding
Funds Allocation Fund ................... 15
Franklin Templeton Perspectives
Allocation Fund.......................... 24
Financial Highlights and
Statements of Investments ............... 32
Financial Statements .................... 49
Notes to Financial
Statements .............................. 56
Report of Independent
Registered Public
Accounting Firm ......................... 68
Tax Designation.......................... 69
Board Members and
Officers................................. 70
Shareholder Information ................. 75
- --------------------------------------------------------------------------------
Annual Report
Economic and Market Overview
During the five months ended December 31, 2004, the domestic economy expanded
solidly and broadly across most industries, sectors and regions, as gross
domestic product (GDP) rose at an estimated annual rate of 3.6% in the latter
half of 2004.1 However, surging energy and other commodity prices had a
dampening effect. Although consumer confidence remained below pre-recession
levels, consumer spending supported strong auto sales, increased durable goods
consumption and a healthy housing market. Similarly, business spending rose
substantially even as business confidence wavered. The labor market firmed and
unemployment dropped from 5.5% to 5.4% during the period.2
The U.S. dollar weakened further during the five-month period and hit an
all-time low against the euro and a multi-year low versus the yen. The widening
trade and current account deficits and possibility for higher import prices
contributed to inflationary pressures. The core inflation rate rose to 2.2% in
2004, or 3.3% including volatile food and energy costs. Aiming to keep inflation
tame, the Federal Reserve Board raised the federal funds target rate four times
between August and December, from 1.25% to 2.25%, the highest level in more than
three years.
Despite experiencing some fluctuation, domestic equity markets were essentially
flat from August through early November. After the elections concluded, the
markets enjoyed a strong rally through period-end. The blue chip stocks of the
Dow Jones Industrial Average gained 7.36% for the period under review, while the
broader Standard & Poor's 500 Composite Index (S&P 500) rose 10.85% and the
technology-heavy NASDAQ Composite Index increased 15.26%.3
1. Source: Bureau of Economic Analysis.
2. Source: Bureau of Labor Statistics.
3. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is price
weighted based on the average market price of 30 blue chip stocks of companies
that are generally industry leaders. 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 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 3,000
companies.
4 | Annual Report
Outside the U.S., the global economic recovery continued in 2004, led by growth
in China. The 12-nation euro zone lagged other regions in the current recovery.
However, the European Central Bank projected euro zone growth may be between
1.6% and 2.0% in 2004, compared with only 0.5% in 2003. In Japan, the economy
struggled to emerge from a decade-long deflationary period. Although the
country's consumer and business confidence reached their highest levels since
1991, economic growth slowed in response to higher oil prices and reduced
external demand. The U.S. dollar decline hurt Japanese and European exports to
the U.S., as it made their goods more expensive in the world's biggest market.
For the five-month period ended December 31, 2004, the Morgan Stanley Capital
International (MSCI) World Index's total return was 14.75% in U.S. dollars.4
Emerging markets, as measured by the MSCI Emerging Markets Index, had a total
return of 29.23% in U.S. dollars.5 In local currencies, these indexes had
notably lower total returns of 9.87% and 19.74% for the same period. During the
period, most of the world's currencies strengthened in relation to the U.S.
dollar, which benefited U.S.-based investors of non-U.S.
developed and emerging market equities.
4. Source: Standard & Poor's Micropal. The MSCI World Index is a free
float-adjusted, market capitalization-weighted index designed to measure equity
market performance in global developed markets.
5. Source: Standard & Poor's Micropal. The MSCI Emerging Markets Index is a free
float-adjusted, market capitalization-weighted index designed to measure equity
market performance in global emerging markets.
THIS DISCUSSION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2004. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES
CONSIDERED RELIABLE.
Annual Report | 5
Franklin Templeton Corefolio
Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Corefolio Allocation
Fund seeks capital appreciation through investments in an equally weighted
combination of Franklin Growth Fund, Franklin Capital Growth Fund, Mutual Shares
Fund and Templeton Growth Fund.
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Corefolio Allocation Fund covers the
five months ended December 31, 2004.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A posted a +11.77%
cumulative total return for the five months under review. The Fund's return was
comparable to 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) World Index. For the reporting period, the
benchmark returned 11.82%.1 You can find other performance data in the
Performance Summary beginning on page 8.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin
Growth Fund, Franklin Capital Growth Fund, Mutual Shares Fund and Templeton
Growth Fund. These underlying funds, in turn, invest primarily in U.S. and
foreign equity securities, and, to a lesser extent, fixed income and money
market securities. As market conditions affect the underlying funds, we
rebalance the Fund's allocations to maintain the predetermined equal weightings
of approximately 25% of total net assets in each underlying fund whenever the
actual allocations exceed plus or minus 3% of the fixed allocation percentages.
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 World Index
is market capitalization weighted and measures total returns of equity
securities in developed markets globally. The benchmark index's weightings are
as follows: S&P 500 75% and MSCI World Index 25%. 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.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 37.
6 | Annual Report
PORTFOLIO REVIEW
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.
During the reporting period, Franklin Growth Fund - Class A and Mutual Shares
Fund - Class Z outperformed the S&P 500, which helped the Fund's performance.
However, Franklin Capital Growth Fund - Advisor Class underperformed the S&P
500, which hindered the Fund's overall return relative to its hybrid benchmark.
Templeton Growth Fund's Advisor Class return outperformed that of the MSCI World
Index.
In general, if the value of the U.S. dollar goes up compared with a foreign
currency, an investment traded in that foreign currency will go down in value
because it will be worth fewer U.S. dollars. This can have a negative effect on
Fund performance. Conversely, when the U.S. dollar weakens in relation to a
foreign currency, an investment traded in that foreign currency will increase in
value, which can contribute to Fund performance. For the 12 months ended
December 31, 2004, the U.S. dollar declined in value relative to most non-U.S.
currencies. At the end of the period, a significant portion of the Fund's
underlying funds was invested in securities with non-U.S. currency exposure,
which resulted in a positive effect on Fund performance. However, one cannot
expect the same result in future periods.
Thank you for your continued participation in Franklin Templeton Corefolio
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OF T. ANTHONY COFFEY]
/S/T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Corefolio Allocation Fund
PORTFOLIO BREAKDOWN
Franklin Templeton Corefolio Allocation Fund
Based on Total Net Assets as of 12/31/04
[BAR CHART OMITTED]
Primarily Domestic Equity 74.3%
Primarily Foreign Equity 25.2%
Short-Term Investments & Other Net Assets 0.5%
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS 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 ADVISER 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 | 7
Performance Summary as of 12/31/04
FRANKLIN TEMPLETON COREFOLIO ALLOCATION 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 reinvestment of the Fund's
dividends and capital gain distributions, if any, and any unrealized gains or
losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.18 $12.20 $11.02
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0691
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0474
- ---------------------------------------------------------------------------------------------------
TOTAL $0.1165
- ---------------------------------------------------------------------------------------------------
CLASS B CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.17 $12.12 $10.95
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0417
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0474
- ---------------------------------------------------------------------------------------------------
TOTAL $0.0891
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.17 $12.11 $10.94
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0390
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0474
- ---------------------------------------------------------------------------------------------------
TOTAL $0.0864
- ---------------------------------------------------------------------------------------------------
CLASS R CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.18 $12.18 $11.00
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0624
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0474
- ---------------------------------------------------------------------------------------------------
TOTAL $0.1098
- ---------------------------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.19 $12.21 $11.02
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0839
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0474
- ---------------------------------------------------------------------------------------------------
TOTAL $0.1313
- ---------------------------------------------------------------------------------------------------
Franklin Templeton Corefolio Allocation Fund paid distributions derived from
long-term capital gains of 4.74 cents ($0.0474) per share in December 2004. The
Fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- --------------------------------------------------------------------------------------------------------
CLASS A 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +11.77% +11.67% +23.90%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +5.36% +5.27% +11.91%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $10,536 $10,527 $11,677
- --------------------------------------------------------------------------------------------------------
CLASS B 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +11.50% +10.89% +22.68%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +7.50% +6.89% +13.23%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $10,750 $10,689 $11,868
- --------------------------------------------------------------------------------------------------------
CLASS C 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +11.49% +10.88% +22.56%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +10.49% +9.88% +15.91%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $11,049 $10,988 $12,256
- --------------------------------------------------------------------------------------------------------
CLASS R 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +11.73% +11.42% +23.63%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +10.73% +10.42% +15.96%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $11,073 $11,042 $12,263
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +12.09% +11.98% +24.32%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +12.09% +11.98% +17.12%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $11,209 $11,198 $12,432
- --------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 12/31/04
- --------------------------------------
1-Year +5.27%
- --------------------------------------
Since Inception (8/15/03) +11.91%
- --------------------------------------
CLASS A (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton CoreFolio
Allocation Fund - Class A to that of the S&P 500 6 and MSCI World Index 6 based
on a $10,000 investment from 8/15/03 to 12/31/04.
FT Corefolio
Date Allocation Fund - Class A S&P 500 Index MSCI World Index
8/15/03 $9,425 $10,000 $10,000
8/31/03 $9,491 $10,100 $10,113
9/30/03 $9,369 $9,994 $10,177
10/31/03 $9,783 $10,559 $10,783
11/30/03 $9,962 $10,651 $10,950
12/31/03 $10,457 $11,210 $11,639
1/31/04 $10,600 $11,415 $11,829
2/29/04 $10,770 $11,574 $12,031
3/31/04 $10,637 $11,399 $11,956
4/30/04 $10,533 $11,221 $11,718
5/31/04 $10,618 $11,374 $11,832
6/30/04 $10,884 $11,595 $12,080
7/31/04 $10,448 $11,212 $11,689
8/31/04 $10,429 $11,257 $11,745
9/30/04 $10,600 $11,379 $11,971
10/31/04 $10,770 $11,552 $12,267
11/30/04 $11,292 $12,020 $12,917
12/31/04 $11,677 $12,428 $13,414
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 12/31/04
- --------------------------------------
1-Year +6.89%
- --------------------------------------
Since Inception (8/15/03) +13.23%
- --------------------------------------
CLASS B (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton CoreFolio
Allocation Fund - Class B to that of the S&P 500 6 and MSCI World Index 6 based
on a $10,000 investment from 8/15/03 to 12/31/04.
FT Corefolio
Date Allocation Fund - Class B S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,070 $10,100 $10,113
9/30/03 $9,930 $9,994 $10,177
10/31/03 $10,360 $10,559 $10,783
11/30/03 $10,550 $10,651 $10,950
12/31/03 $11,062 $11,210 $11,639
1/31/04 $11,203 $11,415 $11,829
2/29/04 $11,374 $11,574 $12,031
3/31/04 $11,223 $11,399 $11,956
4/30/04 $11,113 $11,221 $11,718
5/31/04 $11,193 $11,374 $11,832
6/30/04 $11,474 $11,595 $12,080
7/31/04 $11,002 $11,212 $11,689
8/31/04 $10,982 $11,257 $11,745
9/30/04 $11,143 $11,379 $11,971
10/31/04 $11,324 $11,552 $12,267
11/30/04 $11,866 $12,020 $12,917
12/31/04 $11,868 $12,428 $13,414
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 12/31/04
- --------------------------------------
1-Year +9.88%
- --------------------------------------
Since Inception (8/15/03) +15.91%
- --------------------------------------
CLASS C (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton CoreFolio
Allocation Fund - Class C to that of the S&P 500 6 and MSCI World Index 6 based
on a $10,000 investment from 8/15/03 to 12/31/04.
FT Corefolio
Date Allocation Fund - Class C S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,070 $10,100 $10,113
9/30/03 $9,930 $9,994 $10,177
10/31/03 $10,360 $10,559 $10,783
11/30/03 $10,540 $10,651 $10,950
12/31/03 $11,054 $11,210 $11,639
1/31/04 $11,194 $11,415 $11,829
2/29/04 $11,365 $11,574 $12,031
3/31/04 $11,215 $11,399 $11,956
4/30/04 $11,104 $11,221 $11,718
5/31/04 $11,194 $11,374 $11,832
6/30/04 $11,466 $11,595 $12,080
7/31/04 $10,993 $11,212 $11,689
8/31/04 $10,973 $11,257 $11,745
9/30/04 $11,144 $11,379 $11,971
10/31/04 $11,315 $11,552 $12,267
11/30/04 $11,858 $12,020 $12,917
12/31/04 $12,256 $12,428 $13,414
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 12/31/04
- --------------------------------------
1-Year +10.42%
- --------------------------------------
Since Inception (8/15/03) +15.96%
- --------------------------------------
CLASS R (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton CoreFolio
Allocation Fund - Class R to that of the S&P 500 6 and MSCI World Index 6 based
on a $10,000 investment from 8/15/03 to 12/31/04.
FT Corefolio
Date Allocation Fund - Class R S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,070 $10,100 $10,113
9/30/03 $9,940 $9,994 $10,177
10/31/03 $10,380 $10,559 $10,783
11/30/03 $10,570 $10,651 $10,950
12/31/03 $11,096 $11,210 $11,639
1/31/04 $11,236 $11,415 $11,829
2/29/04 $11,417 $11,574 $12,031
3/31/04 $11,267 $11,399 $11,956
4/30/04 $11,156 $11,221 $11,718
5/31/04 $11,246 $11,374 $11,832
6/30/04 $11,528 $11,595 $12,080
7/31/04 $11,065 $11,212 $11,689
8/31/04 $11,045 $11,257 $11,745
9/30/04 $11,216 $11,379 $11,971
10/31/04 $11,397 $11,552 $12,267
11/30/04 $11,951 $12,020 $12,917
12/31/04 $12,263 $12,428 $13,414
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
ADVISOR CLASS 12/31/04
- --------------------------------------
1-Year +11.98%
- --------------------------------------
Since Inception (8/15/03) +17.12%
- --------------------------------------
ADVISOR CLASS (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton CoreFolio
Allocation Fund - Advisor Class to that of the S&P 500 6 and MSCI World Index 6
based on a $10,000 investment from 8/15/03 to 12/31/04.
FT Corefolio Allocation
Date Fund - Advisor Class S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,070 $10,100 $10,113
9/30/03 $9,940 $9,994 $10,177
10/31/03 $10,380 $10,559 $10,783
11/30/03 $10,580 $10,651 $10,950
12/31/03 $11,102 $11,210 $11,639
1/31/04 $11,253 $11,415 $11,829
2/29/04 $11,434 $11,574 $12,031
3/31/04 $11,293 $11,399 $11,956
4/30/04 $11,193 $11,221 $11,718
5/31/04 $11,273 $11,374 $11,832
6/30/04 $11,565 $11,595 $12,080
7/31/04 $11,092 $11,212 $11,689
8/31/04 $11,082 $11,257 $11,745
9/30/04 $11,263 $11,379 $11,971
10/31/04 $11,444 $11,552 $12,267
11/30/04 $12,008 $12,020 $12,917
12/31/04 $12,432 $12,428 $13,414
ENDNOTES
BECAUSE THE FUND 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 HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE
LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN
INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND
POLITICAL AND SOCIAL INSTABILITY. INVESTING IN SPECIALIZED INDUSTRY SECTORS,
SUCH AS THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE
SECTORS, INVOLVES SPECIAL CONSIDERATIONS. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Past expense reductions by the Fund's administrator increased the Fund's
total returns. If the administrator had not taken this action, the Fund's total
returns would have been lower.
2. Five-month return has not been annualized. The figures shown are for the
period since the end of the Fund's previous fiscal year on 7/31/04 through the
current fiscal year-end on 12/31/04.
3. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
4. 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.
5. 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.
6. 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 World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets.
12 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the period indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ----------------------------------------------------------------------------------------------------
EXPENSES PAID DURING
PERIOD*
BEGINNING ACCOUNT ACTUAL
VALUE ENDING ACCOUNT 7/31/04-12/31/04
ACTUAL 7/31/04 VALUE HYPOTHETICAL
CLASS A HYPOTHETICAL 6/30/04 12/31/04 6/30/04-12/31/04
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,117.70 $3.02
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31
- ----------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,115.00 $5.90
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.61
- ----------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,114.90 $5.90
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.61
- ----------------------------------------------------------------------------------------------------
CLASS R
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,117.30 $3.68
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.17 $4.08
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------
Actual $1,000 $1,120.90 $1.47
- ----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.69 $1.53
- ----------------------------------------------------------------------------------------------------
*Hypothetical expenses are equal to the annualized expense ratio for each class
(A: 0.65%; B: 1.30%; C: 1.30%; R: 0.80%; and Advisor: 0.30%), multiplied by the
average account value over the period, multiplied by 184/365 to reflect the
one-half year period. For actual expenses, the expense ratios for each class are
A: 0.68%, B: 1.33%, C: 1.33%, R: 0.83%, and Advisor: 0.33%, and the multiplier
is 153/365 to reflect the reporting period.
14 | Annual Report
Franklin Templeton Founding Funds Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Founding Funds
Allocation Fund's principal investment goal is capital appreciation, with a
secondary goal of income. The Fund invests in an equally weighted combination of
Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund.
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Founding Funds Allocation Fund covers
the five months ended December 31, 2004.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A posted a +12.16%
cumulative total return for the five months under review. The Fund's return was
comparable to 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) World Index. For the reporting period, the
benchmark returned 12.13%.1 You can find other performance data in the
Performance Summary beginning on page 17.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin
Income Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities, and, to
a lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
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 World Index
is market capitalization weighted and measures total returns of equity
securities in developed markets globally. The benchmark index's weightings are
as follows: S&P 500 67% and MSCI World Index 33%. 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.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 43.
Annual Report | 15
PORTFOLIO REVIEW
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.
During the reporting period, Mutual Shares Fund - Class Z outperformed the S&P
500, which helped the Fund's performance. However, Franklin Income Fund -
Advisor Class underperformed the S&P 500, which hindered the Fund's overall
return relative to its hybrid benchmark. Templeton Growth Fund's Advisor Class
return outperformed that of the MSCI World Index.
In general, if the value of the U.S. dollar goes up compared with a foreign
currency, an investment traded in that foreign currency will go down in value
because it will be worth fewer U.S. dollars. This can have a negative effect on
Fund performance. Conversely, when the U.S. dollar weakens in relation to a
foreign currency, an investment traded in that foreign currency will increase in
value, which can contribute to Fund performance. For the 12 months ended
December 31, 2004, the U.S. dollar declined in value relative to most non-U.S.
currencies. At the end of the period, a significant portion of the Fund's
underlying funds was invested in securities with non-U.S. currency exposure,
which resulted in a positive effect on Fund performance. However, one cannot
expect the same result in future periods.
Thank you for your continued participation in Franklin Templeton Founding Funds
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OF T. ANTHONY COFFE]
/S/T. Anthony Coffe
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Founding Funds Allocation Fund
PORTFOLIO BREAKDOWN
Franklin Templeton Founding Funds
Allocation Fund
Based on Total Net Assets as of 12/31/04
Primarily Foreign Equity 33.5%
Domestic Hybrid 32.8%
Primarily Domestic Equity 32.8%
Short-Term Investments & Other Net Assets 0.9%
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS 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 ADVISER 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.
16 | Annual Report
Performance Summary as of 12/31/04
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION 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 reinvestment of the Fund's
dividends and capital gain distributions, if any, and any unrealized gains or
losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.07 $12.28 $11.21
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.2328
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0587
- ---------------------------------------------------------------------------------------------------
TOTAL $0.2915
- ---------------------------------------------------------------------------------------------------
CLASS B CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.07 $12.23 $11.16
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1874
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0587
- ---------------------------------------------------------------------------------------------------
TOTAL $0.2461
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.07 $12.23 $11.16
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1861
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0587
- ---------------------------------------------------------------------------------------------------
TOTAL $0.2448
- ---------------------------------------------------------------------------------------------------
CLASS R CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.06 $12.28 $11.22
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.2279
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0587
- ---------------------------------------------------------------------------------------------------
TOTAL $0.2866
- ---------------------------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 12/31/04 7/31/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.07 $12.32 $11.25
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.2552
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0587
- ---------------------------------------------------------------------------------------------------
TOTAL $0.3139
- ---------------------------------------------------------------------------------------------------
Franklin Templeton Founding Funds Allocation Fund paid distributions derived
from long-term capital gains of 5.87 cents ($0.0587) per share in December 2004.
The Fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
Annual Report | 17
Performance Summary (CONTINUED)
PERFORMANCE 1
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- ------------------------------------------------------------------------------------------------------
CLASS A 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +12.16% +13.58% +26.74%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +5.75% +7.01% +13.77%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $10,575 $10,701 $11,945
- ------------------------------------------------------------------------------------------------------
CLASS B 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +11.90% +13.01% +25.76%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +7.90% +9.01% +15.36%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $10,790 $10,901 $12,176
- ------------------------------------------------------------------------------------------------------
CLASS C 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +11.79% +12.91% +25.65%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +10.79% +11.91% +18.02%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $11,079 $11,191 $12,565
- ------------------------------------------------------------------------------------------------------
CLASS R 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +12.02% +13.43% +26.68%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +11.02% +12.43% +18.04%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $11,102 $11,243 $12,568
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5-MONTH 2 1-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 3 +12.32% +14.04% +27.44%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 4 +12.32% +14.04% +19.24%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 5 $11,232 $11,404 $12,744
- ------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
18 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 12/31/04
- --------------------------------------
1-Year +7.01%
- --------------------------------------
Since Inception (8/15/03) +13.77%
- --------------------------------------
CLASS A (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton Founding
Funds Allocation Fund - Class A to that of the S&P 500 6 and MSCI World Index 6
based on a $10,000 investment from 8/15/03 to 12/31/04.
FT Founding Funds
Date Allocation Fund - Class A S&P 500 Index MSCI World Index
8/15/03 $9,425 $10,000 $10,000
8/31/03 $9,463 $10,100 $10,113
9/30/03 $9,519 $9,994 $10,177
10/31/03 $9,811 $10,559 $10,783
11/30/03 $10,019 $10,651 $10,950
12/31/03 $10,517 $11,210 $11,639
1/31/04 $10,650 $11,415 $11,829
2/29/04 $10,850 $11,574 $12,031
3/31/04 $10,774 $11,399 $11,956
4/30/04 $10,631 $11,221 $11,718
5/31/04 $10,641 $11,374 $11,832
6/30/04 $10,802 $11,595 $12,080
7/31/04 $10,650 $11,212 $11,689
8/31/04 $10,783 $11,257 $11,745
9/30/04 $10,954 $11,379 $11,971
10/31/04 $11,135 $11,552 $12,267
11/30/04 $11,610 $12,020 $12,917
12/31/04 $11,945 $12,428 $13,414
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 12/31/04
- --------------------------------------
1-Year +9.01%
- --------------------------------------
Since Inception (8/15/03) +15.36%
- --------------------------------------
CLASS B (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton Founding
Funds Allocation Fund - Class B to that of the S&P 500 6 and MSCI World Index 6
based on a $10,000 investment from 8/15/03 to 12/31/04.
FT Founding Funds
Date Allocation Fund - Class B S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,040 $10,100 $10,113
9/30/03 $10,090 $9,994 $10,177
10/31/03 $10,400 $10,559 $10,783
11/30/03 $10,610 $10,651 $10,950
12/31/03 $11,128 $11,210 $11,639
1/31/04 $11,279 $11,415 $11,829
2/29/04 $11,470 $11,574 $12,031
3/31/04 $11,390 $11,399 $11,956
4/30/04 $11,229 $11,221 $11,718
5/31/04 $11,229 $11,374 $11,832
6/30/04 $11,400 $11,595 $12,080
7/31/04 $11,239 $11,212 $11,689
8/31/04 $11,360 $11,257 $11,745
9/30/04 $11,541 $11,379 $11,971
10/31/04 $11,722 $11,552 $12,267
11/30/04 $12,216 $12,020 $12,917
12/31/04 $12,176 $12,428 $13,414
Annual Report | 19
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 12/31/04
- --------------------------------------
1-Year +11.91%
- --------------------------------------
Since Inception (8/15/03) +18.02%
- --------------------------------------
CLASS C (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton Founding
Funds Allocation Fund - Class C to that of the S&P 500 6 and MSCI World Index 6
based on a $10,000 investment from 8/15/03 to 12/31/04.
FT Founding Funds
Date Allocation Fund - Class C S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,040 $10,100 $10,113
9/30/03 $10,090 $9,994 $10,177
10/31/03 $10,390 $10,559 $10,783
11/30/03 $10,610 $10,651 $10,950
12/31/03 $11,129 $11,210 $11,639
1/31/04 $11,270 $11,415 $11,829
2/29/04 $11,471 $11,574 $12,031
3/31/04 $11,391 $11,399 $11,956
4/30/04 $11,229 $11,221 $11,718
5/31/04 $11,229 $11,374 $11,832
6/30/04 $11,401 $11,595 $12,080
7/31/04 $11,240 $11,212 $11,689
8/31/04 $11,360 $11,257 $11,745
9/30/04 $11,542 $11,379 $11,971
10/31/04 $11,723 $11,552 $12,267
11/30/04 $12,216 $12,020 $12,917
12/31/04 $12,565 $12,428 $13,414
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 12/31/04
- --------------------------------------
1-Year +12.43%
- --------------------------------------
Since Inception (8/15/03) +18.04%
- --------------------------------------
CLASS R (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton Founding
Funds Allocation Fund - Class R to that of the S&P 500 6 and MSCI World Index 6
based on a $10,000 investment from 8/15/03 to 12/31/04.
FT Founding Funds
Date Allocation Fund - Class R S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,040 $10,100 $10,113
9/30/03 $10,100 $9,994 $10,177
10/31/03 $10,410 $10,559 $10,783
11/30/03 $10,630 $10,651 $10,950
12/31/03 $11,168 $11,210 $11,639
1/31/04 $11,319 $11,415 $11,829
2/29/04 $11,521 $11,574 $12,031
3/31/04 $11,440 $11,399 $11,956
4/30/04 $11,279 $11,221 $11,718
5/31/04 $11,289 $11,374 $11,832
6/30/04 $11,471 $11,595 $12,080
7/31/04 $11,309 $11,212 $11,689
8/31/04 $11,440 $11,257 $11,745
9/30/04 $11,622 $11,379 $11,971
10/31/04 $11,803 $11,552 $12,267
11/30/04 $12,307 $12,020 $12,917
12/31/04 $12,568 $12,428 $13,414
20 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
ADVISOR CLASS 12/31/04
- --------------------------------------
1-Year +14.04%
- --------------------------------------
Since Inception (8/15/03) +19.24%
- --------------------------------------
ADVISOR CLASS (8/15/03-12/31/04)
[LINE GRAPH OMITTED]
EDGAR REPRESENTATION OF PLOTS POINTS:
The following graph compares the performance of Franklin Templeton Founding
Funds Allocation Fund - Advisor Class to that of the S&P 500 6 and MSCI World
Index 6 based on a $10,000 investment from 8/15/03 to 12/31/04.
FT Founding Funds Allocation
Date Fund - Advisor Class S&P 500 Index MSCI World Index
8/15/03 $10,000 $10,000 $10,000
8/31/03 $10,040 $10,100 $10,113
9/30/03 $10,100 $9,994 $10,177
10/31/03 $10,420 $10,559 $10,783
11/30/03 $10,640 $10,651 $10,950
12/31/03 $11,175 $11,210 $11,639
1/31/04 $11,326 $11,415 $11,829
2/29/04 $11,538 $11,574 $12,031
3/31/04 $11,457 $11,399 $11,956
4/30/04 $11,306 $11,221 $11,718
5/31/04 $11,326 $11,374 $11,832
6/30/04 $11,508 $11,595 $12,080
7/31/04 $11,346 $11,212 $11,689
8/31/04 $11,477 $11,257 $11,745
9/30/04 $11,669 $11,379 $11,971
10/31/04 $11,861 $11,552 $12,267
11/30/04 $12,375 $12,020 $12,917
12/31/04 $12,744 $12,428 $13,414
ENDNOTES
BECAUSE THE FUND 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 HISTORICALLY HAVE 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. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION FROM INTEREST
RATES. THUS, AS THE PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST
RATES, THE FUND'S SHARE PRICE MAY DECLINE. HIGHER-YIELDING, LOWER-RATED
CORPORATE BONDS ENTAIL A GREATER DEGREE OF CREDIT RISK COMPARED TO
INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS
CURRENCY AND MARKET VOLATILITY AND POLITICAL AND SOCIAL INSTABILITY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Past expense reductions by the Fund's administrator increased the Fund's
total returns. If the administrator had not taken this action, the Fund's total
returns would have been lower.
2. Five-month return has not been annualized. The figures shown are for the
period since the end of the Fund's previous fiscal year on 7/31/04 through the
current fiscal year-end on 12/31/04.
3. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
4. 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.
5. 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.
6. 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 World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets.
Annual Report | 21
Your Fund's Expenses
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the period indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
22 | Annual Report
Your Fund's Expenses (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -----------------------------------------------------------------------------------------------------
EXPENSES PAID DURING
PERIOD*
BEGINNING ACCOUNT ACTUAL
VALUE ENDING ACCOUNT 7/31/04-12/31/04
ACTUAL 7/31/04 VALUE HYPOTHETICAL
CLASS A HYPOTHETICAL 6/30/04 12/31/04 6/30/04-12/31/04
- -----------------------------------------------------------------------------------------------------
Actual $1,000 $1,121.60 $2.67
- -----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.28 $2.96
- -----------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------
Actual $1,000 $1,119.00 $5.55
- -----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.00 $6.26
- -----------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------
Actual $1,000 $1,117.90 $5.55
- -----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.00 $6.26
- -----------------------------------------------------------------------------------------------------
CLASS R
- -----------------------------------------------------------------------------------------------------
Actual $1,000 $1,120.20 $3.33
- -----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.53 $3.72
- -----------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -----------------------------------------------------------------------------------------------------
Actual $1,000 $1,123.20 $1.11
- -----------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.00 $1.22
- -----------------------------------------------------------------------------------------------------
*Hypothetical expenses are equal to the annualized expense ratio for each class
(A: 0.58%; B: 1.23%; C: 1.23%; R: 0.73%; and Advisor: 0.24%), multiplied by the
average account value over the period, multiplied by 184/365 to reflect the
one-half year period. For actual expenses, the expense ratios for each class are
A: 0.60%, B: 1.25%, C: 1.25%, R: 0.75%, and Advisor: 0.25%, and the multiplier
is 153/365 to reflect the reporting period.
Annual Report | 23
Franklin Templeton Perspectives Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Perspectives
Allocation Fund seeks capital appreciation through investments in an equally
weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and
Templeton Growth Fund.
- --------------------------------------------------------------------------------
PORTFOLIO BREAKDOWN
Franklin Templeton Perspectives Allocation Fund
Based on Total Net Assets as of 12/31/04
[PIE CHART]
Primarily Domestic Equity ...................... 64.3%
Primarily Foreign Equity ....................... 32.5%
Short-Term Investments &
Other Net Assets ............................... 3.2%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Perspectives Allocation Fund's
inaugural annual report for the period since inception on August 2, 2004,
through December 31, 2004.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A posted a +12.93%
cumulative total return for the period since inception on August 2, 2004,
through December 31, 2004. The Fund outperformed its hybrid benchmark,
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 48.
24 | Annual Report
which comprised a weighted combination of the Standard & Poor's 500 Composite
Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index.
For the reporting period, the benchmark returned 12.13%.1 You can find other
performance data in the Performance Summary beginning on page 27.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin Flex
Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities, and, to
a lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
PORTFOLIO REVIEW
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.
During the reporting period, the Fund's performance benefited from Franklin Flex
Cap Growth Fund - Advisor Class and Mutual Shares Fund - Class Z shares'
outperformance relative to the S&P 500. In addition, Templeton Growth Fund's
Advisor Class return outperformed that of the MSCI World Index.
In general, if the value of the U.S. dollar goes up compared with a foreign
currency, an investment traded in that foreign currency will go down in value
because it will be worth fewer U.S. dollars. This can have a negative effect on
Fund performance. Conversely, when the U.S. dollar weakens in relation to a
foreign currency, an investment traded in that foreign currency will increase in
value, which can contribute to Fund performance. For the 12 months ended
December 31, 2004, the U.S. dollar declined in value relative to most non-U.S.
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 World Index
is market capitalization weighted and measures total returns of equity
securities in developed markets globally. The benchmark index's weightings are
as follows: S&P 500 67% and MSCI World Index 33%. 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 | 25
currencies. At the end of the period, a significant portion of the Fund's
underlying funds was invested in securities with non-U.S. currency exposure,
which resulted in a positive effect on Fund performance. However, one cannot
expect the same result in future periods.
Thank you for your continued participation in Franklin Templeton Perspectives
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OF T. ANTHONY COFFEY]
/S/T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Perspectives Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS 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 ADVISER 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.
26 | Annual Report
Performance Summary as of 12/31/04
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION 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 reinvestment of the Fund's
dividends and capital gain distributions, if any, and any unrealized gains or
losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 12/31/04 8/2/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.19 $11.19 $10.00
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/2/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0736
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0283
- ---------------------------------------------------------------------------------------------------
TOTAL $0.1019
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 12/31/04 8/2/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.18 $11.18 $10.00
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/2/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0572
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0283
- ---------------------------------------------------------------------------------------------------
TOTAL $0.0855
- ---------------------------------------------------------------------------------------------------
CLASS R CHANGE 12/31/04 8/2/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.18 $11.18 $10.00
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/2/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0724
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0283
- ---------------------------------------------------------------------------------------------------
TOTAL $0.1007
- ---------------------------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 12/31/04 8/2/04
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.19 $11.19 $10.00
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (8/2/04-12/31/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0822
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0283
- ---------------------------------------------------------------------------------------------------
TOTAL $0.1105
- ---------------------------------------------------------------------------------------------------
Franklin Templeton Perspectives Allocation Fund paid distributions derived from
long-term capital gains of 2.83 cents ($0.0283) per share in December 2004. The
Fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Annual Report | 27
Performance Summary (CONTINUED)
PERFORMANCE 1
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED
SALES CHARGE IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AGGREGATE TOTAL RETURN AND VALUE
OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- --------------------------------------------------------------------------------
CLASS A INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +12.93%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +6.43%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,643
- --------------------------------------------------------------------------------
CLASS C INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +12.66%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +11.66%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,166
- --------------------------------------------------------------------------------
CLASS R INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +12.81%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +11.81%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,181
- --------------------------------------------------------------------------------
ADVISOR CLASS INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +13.01%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +13.01%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,301
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
28 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND 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 HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE
LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN
INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND
POLITICAL AND SOCIAL INSTABILITY. INVESTING IN SPECIALIZED INDUSTRY SECTORS,
SUCH AS THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE
SECTORS, INVOLVES SPECIAL CONSIDERATIONS. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: These shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. The Fund's administrator has agreed in advance to limit its fees and assume
as its own expense certain expenses otherwise payable by the Fund. If the
administrator had not taken this action, the Fund's total return would have been
lower. The agreement will be in place until 7/31/05; the administrator may end
this arrangement at any time.
2. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
3. Aggregate total return represents the change in value of an investment since
inception and includes any, applicable maximum sales charge. Because the Fund
has existed for less than one year, average annual total returns are not
provided.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any applicable maximum sales charge.
Annual Report | 29
Your Fund's Expenses
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the period indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 x $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
30 | Annual Report
Your Fund's Expenses (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 8/2/04 VALUE 12/31/04 PERIOD* 8/2/04-12/31/04
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,129.30 $1.73
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.24 $1.99
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,126.60 $4.61
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.96 $5.30
- ------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,128.10 $2.39
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.48 $2.75
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,130.10 $0.18
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,025.00 $0.20
- ------------------------------------------------------------------------------------------------------
*Expenses are equal to the annualized expense ratio, net of expense waivers, for
each class (A: 0.39%; C: 1.04%; R: 0.54%; and Advisor: 0.04%), multiplied by the
average account value over the period, multiplied by 184/365 (Hypothetical) to
reflect the one-half year period. For actual expenses, the multiplier is 152/365
to reflect the number of days since commencement of operations.
Annual Report | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
----------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS A DECEMBER 31, 2004 E JULY 31, 2004 F
----------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $11.02 $10.00
----------------------------------------
Income from investment operations:
Net investment income a,b ........................................ .09 .01
Net realized and unrealized gains (losses) ....................... 1.21 1.07g
----------------------------------------
Total from investment operations .................................. 1.30 1.08
----------------------------------------
Less distributions from:
Net investment income ............................................ (.07) --
Net realized gains ............................................... (.05) --
Tax return of capital ............................................ -- (.06)
----------------------------------------
Total distributions (.12) (.06)
----------------------------------------
Redemption fees ................................................... --h --h
----------------------------------------
Net asset value, end of period .................................... $12.20 $11.02
----------------------------------------
Total return c .................................................... 11.77% 10.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................. $238,564 $157,792
Ratios to average net assets:
Expensesd ........................................................ .68%i .74%i
Expenses net of waiver and payments by affiliate d ............... .68%i .47%i
Net investment income b .......................................... 1.86%i .14%i
Portfolio turnover rate ........................................... 1.02% .62%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.80% for the period ended December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net losses on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
32 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
--------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS B DECEMBER 31, 2004 E JULY 31, 2004 F
--------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................... $10.95 $10.00
--------------------------------------
Income from investment operations:
Net investment income (loss) a,b ...................................... .06 (.06)
Net realized and unrealized gains (losses) ............................ 1.20 1.06g
--------------------------------------
Total from investment operations ....................................... 1.26 1.00
--------------------------------------
Less distributions from:
Net investment income ................................................. (.04) --
Net realized gains .................................................... (.05) --
Tax return of capital ................................................. -- (.05)
--------------------------------------
Total distributions .................................................... (.09) (.05)
--------------------------------------
Redemption fees ........................................................ --h --h
--------------------------------------
Net asset value, end of period ......................................... $12.12 $10.95
--------------------------------------
Total return c ......................................................... 11.50% 10.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................................... $66,562 $44,297
Ratios to average net assets:
Expenses d ............................................................ 1.33%i 1.39%i
Expenses net of waiver and payments by affiliate d .................... 1.33%i 1.12%i
Net investment income (loss) b ........................................ 1.21%i (.51)%i
Portfolio turnover rate ................................................ 1.02% .62%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.80% for the period ended December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net losses on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
Annual Report | See notes to financial statements. | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS C DECEMBER 31, 2004 E JULY 31, 2004 F
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................................. $10.94 $10.00
------------------------------------
Income from investment operations:
Net investment income (loss) a,b ..................................... .06 (.05)
Net realized and unrealized gains (losses) ........................... 1.20 1.04g
------------------------------------
Total from investment operations ...................................... 1.26 .99
------------------------------------
Less distributions from:
Net investment income ................................................ (.04) --
Net realized gains ................................................... (.05) --
Tax return of capital ................................................ -- (.05)
------------------------------------
Total distributions ................................................... (.09) (.05)
------------------------------------
Redemption fees ....................................................... --h --h
------------------------------------
Net asset value, end of period ........................................ $12.11 $10.94
------------------------------------
Total return c ........................................................ 11.49% 9.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................................... $96,487 $73,272
Ratios to average net assets:
Expenses d ........................................................... 1.33%i 1.39%i
Expenses net of waiver and payments by affiliate d ................... 1.33%i 1.12%i
Net investment income (loss) b ....................................... 1.21%i (.51)%i
Portfolio turnover rate ............................................... 1.02% .62%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.80% for the period ended December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net losses on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
34 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS R DECEMBER 31, 2004 E JULY 31, 2004 F
-------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................... $11.00 $10.00
-------------------------------------
Income from investment operations:
Net investment income (loss) a,b .................................................. .08 (.02)
Net realized and unrealized gains (losses) ........................................ 1.21 1.08g
-------------------------------------
Total from investment operations ................................................... 1.29 1.06
-------------------------------------
Less distributions from:
Net investment income ............................................................. (.06) --
Net realized gains ................................................................ (.05) --
Tax return of capital ............................................................. -- (.06)
-------------------------------------
Total distributions ................................................................ (.11) (.06)
-------------------------------------
Redemption fees .................................................................... --h --h
-------------------------------------
Net asset value, end of period ..................................................... $12.18 $11.00
-------------------------------------
Total return c ..................................................................... 11.73% 10.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................................................. $1,944 $1,408
Ratios to average net assets:
Expenses d ........................................................................ .83%i .89%i
Expenses net of waiver and payments by affiliate d ................................ .83%i .62%i
Net investment income (loss) b .................................................... 1.71%i (.01)%i
Portfolio turnover rate ............................................................ 1.02% .62%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.80% for the period ended December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net losses on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
Annual Report | See notes to financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------
PERIOD ENDED PERIOD ENDED
ADVISOR CLASS DECEMBER 31, 2004 E JULY 31, 2004 F
-------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................ $11.02 $10.00
-------------------------------------
Income from investment operations:
Net investment income a,b .......................................... .11 .04
Net realized and unrealized gains (losses) ......................... 1.21 1.05g
-------------------------------------
Total from investment operations .................................... 1.32 1.09
-------------------------------------
Less distributions from:
Net investment income .............................................. (.08) --
Net realized gains ................................................. (.05) --
Tax return of capital .............................................. -- (.07)
-------------------------------------
Total distributions ................................................. (.13) (.07)
-------------------------------------
Redemption fees ..................................................... --h --h
-------------------------------------
Net asset value, end of period ...................................... $12.21 $11.02
-------------------------------------
Total return c ...................................................... 12.09% 10.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................... $2,097 $1,181
Ratios to average net assets:
Expenses d ......................................................... .33%i .39%i
Expenses net of waiver and payments by affiliate d ................. .33%i .12%i
Net investment income b ............................................ 2.21%i .49%i
Portfolio turnover rate ............................................. 1.02% .62%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return is not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.80% for the period ended December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net losses on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
36 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS
LONG TERM INVESTMENTS 99.5%
DOMESTIC EQUITY 74.3%
a,b Franklin Capital Growth Fund, Advisor Class ............................................... 8,891,244 $ 99,048,457
a Franklin Custodian Funds - Franklin Growth Fund, Advisor Class ............................ 2,984,569 100,848,600
a Mutual Shares Fund, Class Z ............................................................... 4,410,305 101,657,533
--------------
301,554,590
--------------
FOREIGN EQUITY 25.2%
a Templeton Growth Fund, Advisor Class ...................................................... 4,467,227 102,254,831
--------------
TOTAL LONG TERM INVESTMENTS (COST $371,589,170) ........................................... 403,809,421
--------------
SHORT TERM INVESTMENTS (COST $1,081,992) .3%
MONEY FUND
a Franklin Institutional Fiduciary Trust Money Market Portfolio ............................. 1,081,992 1,081,992
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $372,671,162) 99.8% ........................... 404,891,413
OTHER ASSETS, LESS LIABILITIES .2% ........................................................ 761,892
--------------
NET ASSETS 100.0% ......................................................................... $405,653,305
--------------
<FN>
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing.
</FN>
Annual Report | See notes to financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS A DECEMBER 31, 2004 E JULY 31, 2004 F
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................... $11.21 $10.00
------------------------------------
Income from investment operations:
Net investment income a,b ......................................... .22 .23
Net realized and unrealized gains (losses) ........................ 1.14 1.07g
------------------------------------
Total from investment operations ................................... 1.36 1.30
------------------------------------
Less distributions from:
Net investment income ............................................. (.23) (.09)
Net realized gains ................................................ (.06) --
------------------------------------
Total distributions ................................................ (.29) (.09)
------------------------------------
Redemption fees .................................................... --h --h
------------------------------------
Net asset value, end of period ..................................... $12.28 $11.21
------------------------------------
Total return c ..................................................... 12.16% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................................. $1,640,876 $882,175
Ratios to average net assets:
Expenses d ........................................................ .60%i .61%i
Expenses net of waiver and payments by affiliate d ................ .60%i .49%i
Net investment income b ........................................... 4.48%i 2.16%i
Portfolio turnover rate ............................................ .37% .71%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.75% for the period ending December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net gains on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
38 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS B DECEMBER 31, 2004 E JULY 31, 2004 F
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................................... $11.16 $10.00
------------------------------------
Income from investment operations:
Net investment income a,b .............................................. .19 .16
Net realized and unrealized gains (losses) ............................. 1.13 1.08g
------------------------------------
Total from investment operations ........................................ 1.32 1.24
------------------------------------
Less distributions from:
Net investment income .................................................. (.19) (.08)
Net realized gains ..................................................... (.06) --
------------------------------------
Total distributions ..................................................... (.25) (.08)
------------------------------------
Redemption fees ......................................................... --h --h
------------------------------------
Net asset value, end of period .......................................... $12.23 $11.16
------------------------------------
Total return c .......................................................... 11.90% 12.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................................... $612,553 $357,282
Ratios to average net assets:
Expenses d ............................................................. 1.25%i 1.26%i
Expenses net of waiver and payments by affiliate d ..................... 1.25%i 1.14%i
Net investment income b ................................................ 3.83%i 1.51%i
Portfolio turnover rate ................................................. .37% .71%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.75% for the period ending December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net gains on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
Annual Report | See notes to financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS C DECEMBER 31, 2004 E JULY 31, 2004 F
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................... $11.16 $10.00
------------------------------------
Income from investment operations:
Net investment income a,b .................................... .19 .17
Net realized and unrealized gains (losses) ................... 1.13 1.07g
------------------------------------
Total from investment operations .............................. 1.32 1.24
------------------------------------
Less distributions from:
Net investment income ........................................ (.19) (.08)
Net realized gains ........................................... (.06) --
------------------------------------
Total distributions ........................................... (.25) (.08)
------------------------------------
Redemption fees ............................................... --h --h
------------------------------------
Net asset value, end of period ................................ $12.23 $11.16
------------------------------------
Total return c ................................................ 11.79% 12.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $927,786 $535,778
Ratios to average net assets:
Expenses d ................................................... 1.25%i 1.26%i
Expenses net of waiver and payments by affiliate d ........... 1.25%i 1.14%i
Net investment income b ...................................... 3.83%i 1.51%i
Portfolio turnover rate ....................................... .37% .71%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.75% for the period ending December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net gains on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
40 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------
PERIOD ENDED PERIOD ENDED
CLASS R DECEMBER 31, 2004 E JULY 31, 2004 F
-------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................ $11.22 $10.00
-------------------------------------
Income from investment operations:
Net investment income a,b .................................................. .22 .20
Net realized and unrealized gains (losses) ................................. 1.13 1.11g
-------------------------------------
Total from investment operations ............................................ 1.35 1.31
-------------------------------------
Less distributions from:
Net investment income ...................................................... (.23) (.09)
Net realized gains ......................................................... (.06) --
-------------------------------------
Total distributions ......................................................... (.29) (.09)
-------------------------------------
Redemption fees ............................................................. --h --h
-------------------------------------
Net asset value, end of period .............................................. $12.28 $11.22
-------------------------------------
Total return c .............................................................. 12.02% 13.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................... $12,101 $5,225
Ratios to average net assets:
Expenses d ................................................................. .75%i .76%i
Expenses net of waiver and payments by affiliate d ......................... .75%i .64%i
Net investment income b .................................................... 4.33%i 2.01%i
Portfolio turnover rate ..................................................... .37% .71%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.75% for the period ending December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net gains on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
Annual Report | See notes to financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
---------------------------------------
PERIOD ENDED PERIOD ENDED
ADVISOR CLASS DECEMBER 31, 2004 E JULY 31, 2004 F
---------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................... $11.25 $10.00
---------------------------------------
Income from investment operations:
Net investment income a,b ............................................. .24 .25
Net realized and unrealized gains (losses) ............................ 1.14 1.09g
---------------------------------------
Total from investment operations ....................................... 1.38 1.34
---------------------------------------
Less distributions from:
Net investment income ................................................. (.25) (.09)
Net realized gains .................................................... (.06) --
---------------------------------------
Total distributions .................................................... (.31) (.09)
---------------------------------------
Redemption fees ........................................................ --h --h
---------------------------------------
Net asset value, end of period ......................................... $12.32 $11.25
---------------------------------------
Total return c ......................................................... 12.32% 13.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................................... $7,792 $4,991
Ratios to average net assets:
Expenses d ............................................................ .25%i .26%i
Expenses net of waiver and payments by affiliate d .................... .25%i .14%i
Net investment income b ............................................... 4.83%i 2.51%i
Portfolio turnover rate ................................................ .37% .71%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return is not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.75% for the period ending December 31, 2004.
e For the period August 1, 2004 to December 31, 2004. See Note 1.
f For the period August 15, 2003 (commencement of operations) to July 31, 2004.
g The amount shown for a share outstanding throughout the period does not
correlate with the aggregate net gains on investments for that period,
because of the timing of sales and repurchases of the Fund shares in relation
to fluctuating market values of the investments of the Fund.
h Amount is less than $0.001 per share.
i Annualized.
</FN>
42 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS
LONG TERM INVESTMENTS 99.1%
DOMESTIC EQUITY 32.8%
a Mutual Shares Fund, Class Z ........................................................... 45,501,648 $1,048,812,978
---------------
DOMESTIC HYBRID 32.8%
a Franklin Custodian Funds - Franklin Income Fund Inc., Advisor Class ................... 418,683,995 1,050,896,827
---------------
FOREIGN EQUITY 33.5%
a Templeton Growth Fund, Advisor Class .................................................. 46,890,776 1,073,329,874
---------------
TOTAL LONG TERM INVESTMENTS (COST $2,968,933,877) ..................................... 3,173,039,679
---------------
SHORT TERM INVESTMENTS (COST $1,123,940)
MONEY FUND
a Franklin Institutional Fiduciary Trust Money Market Portfolio ......................... 1,123,940 1,123,940
---------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $2,970,057,817) 99.1% ..................... 3,174,163,619
OTHER ASSETS, LESS LIABILITIES .9% .................................................... 26,944,431
---------------
NET ASSETS 100.0% ..................................................................... $3,201,108,050
---------------
<FN>
a See Note 6 regarding investments in Underlying Funds.
</FN>
Annual Report | See notes to financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------
PERIOD ENDED
CLASS A DECEMBER 31, 2004 E
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $10.00
-------------------
Income from investment operations:
Net investment income a,b ..................................................... .17
Net realized and unrealized gains ............................................. 1.12
-------------------
Total from investment operations ............................................... 1.29
-------------------
Less distributions from:
Net investment income ......................................................... (.07)
Net realized gains ............................................................ (.03)
-------------------
Total distributions ............................................................ (.10)
-------------------
Redemption fees ................................................................ --f
-------------------
Net asset value, end of period ................................................. $11.19
-------------------
Total return c ................................................................. 12.93%
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $16,155
Ratios to average net assets:
Expenses d .................................................................... 2.31%g
Expenses net of waiver and payments by affiliate d ............................ .39%g
Net investment income b ....................................................... 3.78%g
Portfolio turnover rate ........................................................ .51%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.81% for the period ended December 31, 2004.
e For the period August 2, 2004 (commencement of operations) to December 31,
2004.
f Amount is less than $0.001 per share.
g Annualized.
</FN>
44 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------
PERIOD ENDED
CLASS C DECEMBER 31, 2004 E
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period
Net asset value, beginning of period ........................................... $10.00
-------------------
Income from investment operations:
Net investment income a,b ..................................................... .15
Net realized and unrealized gains ............................................. 1.12
-------------------
Total from investment operations ............................................... 1.27
-------------------
Less distributions from:
Net investment income ......................................................... (.06)
Net realized losses ........................................................... (.03)
-------------------
Total distributions ............................................................ (.09)
-------------------
Redemption fees ................................................................ --f
-------------------
Net asset value, end of period ................................................. $11.18
-------------------
Total return c ................................................................. 12.66%
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $4,558
Ratios to average net assets:
Expenses d .................................................................... 2.96%g
Expenses net of waiver and payments by affiliate d ............................ 1.04%g
Net investment income b ....................................................... 3.13%g
Portfolio turnover rate ........................................................ .51%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.81% for the period ended December 31, 2004.
e For the period August 2, 2004 (commencement of operations) to December 31,
2004.
f Amount is less than $0.001 per share.
g Annualized.
</FN>
Annual Report | See notes to financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------
PERIOD ENDED
CLASS R DECEMBER 31, 2004 E
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................................... $10.00
-------------------
Income from investment operations:
Net investment income a,b .............................................. .15
Net realized and unrealized gains ...................................... 1.13
-------------------
Total from investment operations ........................................ 1.28
-------------------
Less distributions from:
Net investment income .................................................. (.07)
Net realized gains ..................................................... (.03)
-------------------
Total distributions ..................................................... (.10)
-------------------
Redemption fees ......................................................... --f
-------------------
Net asset value, end of period .......................................... $11.18
-------------------
Total return c .......................................................... 12.81%
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................................... $260
Ratios to average net assets:
Expenses d ............................................................. 2.46%g
Expenses net of waiver and payments by affiliate d ..................... .54%g
Net investment income b ................................................ 3.63%g
Portfolio turnover rate ................................................. .51%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.81% for the period ended December 31, 2004.
e For the period August 2, 2004 (commencement of operations) to December 31,
2004.
f Amount is less than $0.001 per share.
g Annualized.
</FN>
46 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------
PERIOD ENDED
ADVISOR CLASS DECEMBER 31, 2004 E
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................. $10.00
-------------------
Income from investment operations:
Net investment income a,b ....................................................... .14
Net realized and unrealized gains ............................................... 1.16
-------------------
Total from investment operations ................................................. 1.30
-------------------
Less distributions from:
Net Investment income ........................................................... (.08)
Net realized gains .............................................................. (.03)
-------------------
Total distributions .............................................................. (.11)
-------------------
Redemption fees .................................................................. --f
-------------------
Net asset value, end of period ................................................... $11.19
-------------------
Total return c ................................................................... 13.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................................ $196
Ratios to average net assets:
Expenses d ...................................................................... 1.96%g
Expenses net of waiver and payments by affiliate d .............................. .04%g
Net investment income b ......................................................... 4.13%g
Portfolio turnover rate .......................................................... .51%
<FN>
a Based on average daily shares outstanding.
b Recognition of net investment income by the Fund is affected by the timing of
declaration of dividends by the Underlying Funds in which the Fund invests.
c Total return is not annualized for periods less than one year.
d Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was
.81% for the period ended December 31, 2004.
e For the period August 2, 2004 (commencement of operations) to December 31,
2004.
f Amount is less than $0.001 per share.
g Annualized.
</FN>
Annual Report | See notes to financial statements. | 47
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004
- -----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS
LONG TERM INVESTMENTS 96.8%
DOMESTIC EQUITY 64.3%
a,b Franklin Flex Cap Growth Fund, Advisor Class ............................................... 180,266 $ 6,824,864
a Mutual Shares Fund, Class Z ................................................................ 294,589 6,790,272
-------------
13,615,136
-------------
FOREIGN EQUITY 32.5%
a Templeton Growth Fund Inc., Advisor Class .................................................. 300,689 6,882,761
-------------
TOTAL LONG TERM INVESTMENTS (COST $19,598,084) ............................................. 20,497,897
-------------
SHORT TERM INVESTMENTS (COST $412,348) 2.0%
MONEY FUND
a Franklin Institutional Fiduciary Trust Money Market Portfolio .............................. 412,348 412,348
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $20,010,432) 98.8% ............................. 20,910,245
OTHER ASSETS, LESS LIABILITIES 1.2% ........................................................ 259,289
-------------
NET ASSETS 100.0% .......................................................................... $ 21,169,534
-------------
<FN>
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing.
</FN>
48 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
-----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ............................................................ $372,671,162 $2,970,057,817 $20,010,432
-----------------------------------------------------
Value ........................................................... 404,891,413 3,174,163,619 20,910,245
Cash ............................................................. -- -- 12,028
Receivables:
Investment securities sold ...................................... 2,018,000 -- --
Capital shares sold ............................................. 2,228,646 44,196,891 640,090
Offering costs ................................................... -- -- 45,435
-----------------------------------------------------
Total assets ................................................ 409,138,059 3,218,360,510 21,607,798
-----------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................................. 3,089,658 12,637,359 409,161
Capital shares redeemed ......................................... 71,520 2,359,085 --
Affiliates ...................................................... 299,778 2,223,603 8,768
Other liabilities ................................................ 23,798 32,413 20,335
-----------------------------------------------------
Total liabilities ........................................... 3,484,754 17,252,460 438,264
-----------------------------------------------------
Net assets, at value ...................................... $405,653,305 $3,201,108,050 $21,169,534
-----------------------------------------------------
Net assets consist of:
Undistributed net investment income .............................. $ 510,830 $ 365,862 $ 7,301
Net unrealized appreciation (depreciation) ....................... 32,220,251 204,105,802 899,813
Accumulated net realized gain (loss) ............................. 3,206,488 37,316,974 174,898
Capital shares ................................................... 369,715,736 2,959,319,412 20,087,522
-----------------------------------------------------
Net assets, at value ...................................... $405,653,305 $3,201,108,050 $21,169,534
-----------------------------------------------------
Annual Report | See notes to financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2004
-----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------
CLASS A:
Net assets, at value ............................................... $238,563,900 $1,640,875,521 $16,155,087
-----------------------------------------------------
Shares outstanding ................................................. 19,550,126 133,587,878 1,443,378
-----------------------------------------------------
Net asset value per share a ........................................ $12.20 $12.28 $11.19
-----------------------------------------------------
Maximum offering price per share (net asset value per share / 94.25%) $12.94 $13.03 $11.87
-----------------------------------------------------
CLASS B:
Net assets, at value ............................................... $ 66,562,168 $ 612,553,213
----------------------------------
Shares outstanding ................................................. 5,492,736 50,069,970
----------------------------------
Net asset value and maximum offering price per sharea .............. $12.12 $12.23
----------------------------------
CLASS C:
Net assets, at value ............................................... $ 96,486,869 $ 927,785,937 $ 4,558,053
-----------------------------------------------------
Shares outstanding ................................................. 7,964,929 75,850,264 407,859
-----------------------------------------------------
Net asset value and maximum offering price per share a ............. $12.11 $12.23 $11.18
-----------------------------------------------------
CLASS R:
Net assets, at value ............................................... $ 1,943,608 $ 12,100,907 $ 259,984
-----------------------------------------------------
Shares outstanding ................................................. 159,593 985,409 23,249
-----------------------------------------------------
Net asset value and maximum offering price per share a ............. $12.18 $12.28 $11.18
-----------------------------------------------------
ADVISOR CLASS:
Net assets, at value ............................................... $ 2,096,760 $ 7,792,472 $ 196,410
-----------------------------------------------------
Shares outstanding ................................................. 171,659 632,624 17,545
-----------------------------------------------------
Net asset value and maximum offering price per share a ............. $12.21 $12.32 $11.19
-----------------------------------------------------
<FN>
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
</FN>
50 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the period August 1, 2004 to December 31, 2004
and the period August 15, 2003 (commencement of operations) to July 31, 2004
---------------------------------------------------------------------
FRANKLIN FRANKLIN
TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, JULY 31, DECEMBER 31, JULY 31,
2004 2004 2004 2004
---------------------------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ......... $ 3,577,264 $ 683,029 $ 50,851,787 $19,078,789
---------------------------------------------------------------------
Expenses:
Administrative fees (Note 3) ..................... 140,355 112,500 997,165 718,312
Distribution fees (Note 3)
Class A ......................................... 283,680 213,337 1,759,412 1,186,797
Class B ......................................... 227,518 171,625 1,974,262 1,436,507
Class C ......................................... 350,907 337,298 2,920,838 2,345,447
Class R ......................................... 3,383 2,181 17,281 9,204
Transfer agent fees (Note 3) ..................... 223,949 158,729 1,025,320 719,955
Reports to shareholders .......................... 3,741 9,993 26,525 44,055
Registration and filing fees ..................... 82,864 71,719 364,435 256,407
Amortization of offering costs ................... -- 67,685 -- 70,583
Professional fees ................................ 6,841 19,533 18,411 24,579
Trustees' fees and expenses ...................... 628 1,508 2,626 2,559
Other ............................................ 8,675 2,567 61,569 14,251
---------------------------------------------------------------------
Total expenses .............................. 1,332,541 1,168,675 9,167,844 6,828,656
Expenses waived/paid by affiliate (Note 3) .. -- (309,234) -- (845,008)
---------------------------------------------------------------------
Net expenses .............................. 1,332,541 859,441 9,167,844 5,983,648
---------------------------------------------------------------------
Net investment income (loss) ............ 2,244,723 (176,412) 41,683,943 13,095,141
---------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of Underlying Funds ........................ (28,559) (21,057) (145,979) (143,100)
Capital gain distributions from Underlying Funds 4,939,759 -- 53,041,071 479,268
---------------------------------------------------------------------
Net realized gain (loss) ................ 4,911,200 (21,057) 52,895,092 336,168
Net change in unrealized appreciation (depreciation) on
Underlying Funds ................................ 32,430,401 (210,150) 193,126,119 10,979,683
---------------------------------------------------------------------
Net realized and unrealized gain (loss) ........... 37,341,601 (231,207) 246,021,211 11,315,851
---------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... $39,586,324 $ (407,619) $287,705,154 $24,410,992
---------------------------------------------------------------------
Annual Report | See notes to financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS (CONTINUED)
for the period August 2, 2004 (commencement of operations) to December 31, 2004
---------------
FRANKLIN
TEMPLETON
PERSPECTIVES
ALLOCATION FUND
---------------
PERIOD ENDED
DECEMBER 31,
2004
---------------
Investment income:
Dividends from Underlying Funds (Note 6) ............................................. $ 138,676
---------------
Expenses:
Administrative fees (Note 3) ......................................................... 3,275
Distribution fees (Note 3)
Class A ............................................................................. 8,746
Class C ............................................................................. 7,575
Class R ............................................................................. 141
Transfer agent fees (Note 3) ......................................................... 9,572
Reports to shareholders .............................................................. 6,177
Registration and filing fees ......................................................... 1,806
Professional fees .................................................................... 12,316
Amortization of offering costs ....................................................... 32,060
Trustees' fees and expenses .......................................................... 10
Other ................................................................................ 123
---------------
Total expenses .................................................................. 81,801
Expenses waived/paid by affiliate (Note 3) ...................................... (64,022)
---------------
Net expenses .................................................................. 17,779
---------------
Net investment income (loss) ................................................ 120,897
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of Underlying Funds ............................................................ (122)
Capital gain distributions from Underlying Funds .................................... 226,911
---------------
Net realized gain (loss) ...................................................... 226,789
Net change in unrealized appreciation (depreciation) on Underlying Funds ............. 899,813
---------------
Net realized and unrealized gain (loss) ............................................... 1,126,602
---------------
Net increase (decrease) in net assets resulting from operations ....................... $ 1,247,499
---------------
52 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the period August 1, 2004 to December 31, 2004
and the period August 15, 2003 (commencement of operations) to July 31, 2004
---------------------------------------------------------------------
FRANKLIN FRANKLIN
TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, JULY 31, DECEMBER 31, JULY 31,
2004 2004 2004 2004
---------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ..................... $ 2,244,723) $ (176,412) $ 41,683,943 $ 13,095,141
Net realized gain (loss) from Underlying Funds ... 4,911,200 (21,057) 52,895,092 336,168
Net unrealized appreciation (depreciation) on
Underlying Funds ................................ 32,430,401 (210,150) 193,126,119 10,979,683
---------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ............................ 39,586,324 (407,619) 287,705,154 24,410,992
Distributions to shareholders from:
Net investment income:
Class A .......................................... (1,319,231) -- (29,522,777) (1,477,369)
Class B .......................................... (224,407) -- (9,055,060) (599,490)
Class C .......................................... (304,395) -- (13,551,966) (1,094,668)
Class R .......................................... (9,798) -- (216,033) (7,674)
Advisor Class .................................... (14,245) -- (151,940) (4,901)
Net realized gains:
Class A .......................................... (904,943) -- (7,444,102) --
Class B .......................................... (255,081) -- (2,836,350) --
Class C .......................................... (369,958) -- (4,274,586) --
Class R .......................................... (7,442) -- (55,643) --
Advisor Class .................................... (8,048) -- (34,949) --
Tax return of capital:
Class A .......................................... -- (180,719) -- --
Class B .......................................... -- (41,268) -- --
Class C .......................................... -- (112,032) -- --
Class R .......................................... -- (911) -- --
Advisor Class .................................... -- (1,532) -- --
---------------------------------------------------------------------
Total distributions to shareholders ................ (3,417,548) (336,462) (67,143,406) (3,184,102)
Annual Report | See notes to financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
for the period August 1, 2004 to December 31, 2004
and the period August 15, 2003 (commencement of operations) to July 31, 2004
---------------------------------------------------------------------
FRANKLIN FRANKLIN
TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A .......................................... $ 59,770,667 $158,377,319 $ 648,779,490 $ 872,224,582
Class B .......................................... 16,357,601 44,569,988 211,117,052 353,450,435
Class C .......................................... 14,277,374 73,131,258 326,859,283 528,405,234
Class R .......................................... 363,929 1,430,776 6,116,010 5,187,546
Advisor Class .................................... 764,575 1,182,550 2,220,681 4,953,545
---------------------------------------------------------------------
Total capital share transactions ................... 91,534,146 278,691,891 1,195,092,516 1,764,221,342
Redemption fees .................................... 281 2,292 3,024 2,530
---------------------------------------------------------------------
Net increase (decrease) in net assets ........ 127,703,203 277,950,102 1,415,657,288 1,785,450,762
Net assets:
Beginning of period ............................... 277,950,102 -- 1,785,450,762 --
---------------------------------------------------------------------
End of period ..................................... $405,653,305 $277,950,102 $3,201,108,050 $1,785,450,762
---------------------------------------------------------------------
Undistributed net investment income included in
net assets:
End of period ..................................... $ (510,830) $ -- $ 365,862 $ 9,911,039
---------------------------------------------------------------------
54 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
for the period August 2, 2004 (commencement of operations) to December 31, 2004
--------------
FRANKLIN
TEMPLETON
PERSPECTIVES
ALLOCATION
FUND
--------------
PERIOD ENDED
DECEMBER 31,
2004
--------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................. $ 120,897
Net realized gain (loss) from Underlying Funds ........................................ 226,789
Net change in unrealized appreciation (depreciation) on Underlying Funds .............. 899,813
--------------
Net increase (decrease) in net assets resulting from operations ................... 1,247,499
Distributions to shareholders from:
Net investment income:
Class A ............................................................................... (94,185)
Class C ............................................................................... (21,357)
Class R ............................................................................... (1,203)
Advisor Class ......................................................................... (1,108)
Net realized gains:
Class A ............................................................................... (36,215)
Class C ............................................................................... (10,567)
Class R ............................................................................... (470)
Advisor Class ......................................................................... (382)
--------------
Total distributions to shareholders ..................................................... (165,487)
Capital share transactions: (Note 2)
Class A ............................................................................... 15,350,923
Class C ............................................................................... 4,303,323
Class R ............................................................................... 251,013
Advisor Class ......................................................................... 182,260
--------------
Total capital share transactions ........................................................ 20,087,519
Redemption fees ......................................................................... 3
--------------
Net increase (decrease) in net assets ............................................. 21,169,534
Net assets:
Beginning of period .................................................................... --
--------------
End of period .......................................................................... $ 21,169,534
--------------
Undistributed net investment income included in net assets:
End of period .......................................................................... $ 7,301
--------------
Annual Report | See notes to financial statements. | 55
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 an open-end investment company, consisting of
six separate series. All funds included in this report (the Funds) are
non-diversified. The financial statements of the remaining funds in the series
are presented separately. The Funds invest primarily in Franklin Templeton
mutual funds (the Underlying Funds). The investment goal of Franklin Templeton
Corefolio Allocation Fund and Franklin Templeton Perspectives Allocation Fund is
capital appreciation. The investment goal of Franklin Templeton Founding Funds
Allocation Fund is capital appreciation, with a secondary goal of income.
On December 6, 2004, the Board of Trustees approved the change of the Trust's
fiscal year end from July 31 to December 31 effective December 31, 2004.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Net asset value per share is calculated as of the close of trading of the NYSE.
Investments in the Underlying Funds are valued at their net asset value each
trading day.
B. INCOME TAXES
No provision has been made for U.S. income taxes because each Fund's policy is
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.
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.
56 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
Funds indirectly bear their proportionate share of expenses from the Underlying
Funds. Since the Underlying Funds have varied expense levels and the Funds may
own different proportions of the Underlying Funds at different times, the amount
of expenses incurred indirectly by the Funds will vary.
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. OFFERING COSTS
Offering costs are amortized on a straight line basis over a twelve month period
from commencement of operations of the Funds.
E. 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.
F. REDEMPTION FEES
Effective June 1, 2004, redemptions and exchanges of Funds' shares held five
trading days or less may be subject to the Funds' redemption fee, which is 2% of
the amount redeemed. Such fees are retained by the Funds and accounted for as
additional paid-in capital as noted in the Statements of Changes in Net Assets.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Funds against certain liability arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred. However, based on experience, the
Trust expects the risk of loss to be remote.
Annual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the Funds are indicated below.
Effective March 1, 2005, Class B shares will no longer be offered except to
existing Class B shareholders through reinvested distributions or exchanges into
other Franklin Templeton funds' Class B shares, as permitted by the applicable
fund prospectus. 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.
- --------------------------------------------------------------------------------
CLASS A, C, R & ADVISOR CLASS CLASS B
- --------------------------------------------------------------------------------
Corefolio Allocation Fund Corefolio Allocation Fund
Founding Funds Allocation Fund Founding Funds Allocation Fund
Perspectives Allocation Fund
At December 31, 2004, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Funds' shares were as follows:
-------------------------------------------------------------
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
CLASS A SHARES:
Period ended December 31, 2004 a
Shares sold .......................... 6,011,266 $ 68,675,228 56,374,001 $664,632,092
Shares issued in reinvestment of
distributions ........................ 173,112 2,105,042 2,814,294 34,362,530
Shares redeemed ...................... (957,402) (11,009,603) (4,265,486) (50,215,132)
-------------------------------------------------------------
Net increase (decrease) .............. 5,226,976 $ 59,770,667 54,922,809 $648,779,490
-------------------------------------------------------------
Period ended July 31, 2004 b
Shares sold .......................... 14,863,511 $164,399,078 81,914,040 $908,640,861
Shares issued in reinvestment of
distributions ........................ 15,362 167,133 124,602 1,358,166
Shares redeemed ...................... (555,723) (6,188,892) (3,373,573) (37,774,445)
-------------------------------------------------------------
Net increase (decrease) .............. 14,323,150 $158,377,319 78,665,069 $872,224,582
-------------------------------------------------------------
CLASS B SHARES:
Period ended December 31, 2004 a
Shares sold .......................... 1,570,713 $ 17,740,936 18,249,527 $212,982,811
Shares issued in reinvestment of
distributions ........................ 38,123 460,521 918,807 11,172,687
Shares redeemed ...................... (162,864) (1,843,856) (1,114,649) (13,038,446)
-------------------------------------------------------------
Net increase (decrease) .............. 1,445,972 $ 16,357,601 18,053,685 $211,117,052
-------------------------------------------------------------
Period ended July 31, 2004 b
Shares sold .......................... 4,161,271 $ 45,825,737 32,905,563 $363,356,716
Shares issued in reinvestment of
distributions ........................ 3,588 38,961 51,917 565,372
Shares redeemed ...................... (118,095) (1,294,710) (941,195) (10,471,653)
-------------------------------------------------------------
Net increase (decrease) .............. 4,046,764 $ 44,569,988 32,016,285 $353,450,435
-------------------------------------------------------------
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------------------------------------
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
CLASS C SHARES:
Period ended December 31, 2004 a
Shares sold .......................... 2,103,780 $23,849,828 28,987,638 $339,687,778
Shares issued in reinvestment of
distributions ........................ 51,436 620,828 1,263,334 15,362,130
Shares redeemed ...................... (887,978) (10,193,282) (2,422,401) (28,190,625)
------------------------------------------------------------
Net increase (decrease) .............. 1,267,238 $14,277,374 27,828,571 $326,859,283
------------------------------------------------------------
Period ended July 31, 2004 b
Shares sold .......................... 6,933,339 $75,723,648 49,769,238 $547,924,862
Shares issued in reinvestment of
distributions ........................ 9,577 103,912 90,545 986,039
Shares redeemed ...................... (245,225) (2,696,302) (1,838,090) (20,505,667)
------------------------------------------------------------
Net increase (decrease) .............. 6,697,691 $73,131,258 48,021,693 $528,405,234
------------------------------------------------------------
CLASS R SHARES:
Period ended December 31, 2004 a
Shares sold .......................... 36,170 $ 414,130 514,529 $ 6,051,359
Shares issued in reinvestment of
distributions ........................ 1,407 17,087 22,271 271,714
Shares redeemed ...................... (5,993) (67,288) (17,175) (207,063)
------------------------------------------------------------
Net increase (decrease) .............. 31,584 $ 363,929 519,625 $ 6,116,010
------------------------------------------------------------
Period ended July 31, 2004 b
Shares sold .......................... 141,795 $ 1,585,641 476,583 $ 5,309,995
Shares issued in reinvestment of
distributions ........................ 78 846 653 7,124
Shares redeemed ...................... (13,864) (155,711) (11,452) (129,573)
------------------------------------------------------------
Net increase (decrease) .............. 128,009 $ 1,430,776 465,784 $ 5,187,546
------------------------------------------------------------
ADVISOR CLASS SHARES:
Period ended December 31, 2004 a
Shares sold .......................... 74,084 $ 868,160 243,405 $ 2,870,998
Shares issued in reinvestment of
distributions ........................ 1,502 18,282 13,837 169,360
Shares redeemed ...................... (11,031) (121,867) (68,287) (819,677)
------------------------------------------------------------
Net increase (decrease) .............. 64,555 $ 764,575 188,955 $ 2,220,681
------------------------------------------------------------
Period ended July 31, 2004 b
Shares sold .......................... 123,321 $ 1,363,823 478,067 $ 5,339,059
Shares issued in reinvestment of
distributions ........................ 134 1,461 431 4,709
Shares redeemed ...................... (16,351) (182,734) (34,829) (390,223)
------------------------------------------------------------
Net increase (decrease) .............. 107,104 $ 1,182,550 443,669 $ 4,953,545
------------------------------------------------------------
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------
PERSPECTIVES
ALLOCATION FUND
---------------------------
SHARES AMOUNT
---------------------------
CLASS A SHARES:
Period ended December 31, 2004 c
Shares sold .......................................... 1,451,180 $15,428,630
Shares issued in reinvestment of
distributions ........................................ 11,285 125,493
Shares redeemed ...................................... (19,087) (203,200)
---------------------------
Net increase (decrease) .............................. 1,443,378 $15,350,923
---------------------------
CLASS C SHARES:
Period ended December 31, 2004 c
Shares sold .......................................... 406,940 $ 4,291,851
Shares issued in reinvestment of
distributions ........................................ 2,808 31,193
Shares redeemed ...................................... (1,889) (19,721)
---------------------------
Net increase (decrease) .............................. 407,859 $ 4,303,323
---------------------------
CLASS R SHARES:
Period ended December 31, 2004 c
Shares sold .......................................... 23,118 $ 249,560
Shares issued in reinvestment of
distributions ........................................ 142 1,573
Shares redeemed ...................................... (11) (120)
---------------------------
Net increase (decrease) .............................. 23,249 $ 251,013
---------------------------
ADVISOR CLASS SHARES:
Period ended December 31, 2004 c
Shares sold .......................................... 17,716 $ 183,806
Shares issued in reinvestment of
distributions ........................................ 124 1,379
Shares redeemed ...................................... (295) (2,925)
---------------------------
Net increase (decrease) .............................. 17,545 $ 182,260
---------------------------
<FN>
a For the period August 1, 2004 to December 31, 2004.
b For the period August 15, 2003 (commencement of operations) to July 31, 2004.
c For the period August 2, 2004 (commencement of operations) to December 31,
2004.
</FN>
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
- -------------------------------------------------------------------------------------
ENTITY AFFILIATION
- -------------------------------------------------------------------------------------
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin/Templeton Distributors Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services LLC (Investor Services) Transfer agent
A. ADMINISTRATIVE FEES
The Funds pay an administrative fee to FT Services of .10% per year of the
Funds' average daily net assets for administrative services including monitoring
and rebalancing the percentage of each Fund's investment in the Underlying
Funds.
FT Services agreed in advance to voluntarily waive administrative fees and
assume payment of other expenses, as noted in the Statement of Operations. Total
expenses waived by FT Services are not subject to reimbursement by the Funds
subsequent to the Fund's fiscal year end.
B. DISTRIBUTION FEES
The Funds reimburse Distributors up to .35%, 1.00%, 1.00%, and .50% per year of
the average daily net assets of Class A, Class B, Class C, and Class R,
respectively, for costs incurred in marketing the Funds' shares under a Rule
12b-1 plan. Under the Class A distribution plan, cost exceeding the maximum for
the current plan year cannot be reimbursed in subsequent periods.
C. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the periods ended
December 31, 2004 and July 31, 2004 as follows:
--------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, JULY 31, DECEMBER 31, JULY 31, DECEMBER 31,
2004 2004 2004 2004 2004
--------------------------------------------------------------------------
Sales charges received ... $353,580 $773,707 $3,530,862 $4,747,903 $76,090
Contingent deferred sales
charges retained ........ $ 64,392 $ 32,542 $ 438,846 $ 312,182 $ 160
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statement of Operations for
the periods ended December 31, 2004 and July 31, 2004 of which the following
amounts were paid to Investor Services:
--------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, JULY 31, DECEMBER 31, JULY 31, DECEMBER 31,
2004 2004 2004 2004 2004
--------------------------------------------------------------------------
Transfer agent fees ..... $155,558 $103,231 $667,406 $532,146 $5,800
4. INCOME TAXES
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales.
At December 31, 2004, 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
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------
Cost of investments .......................... $372,731,704 $2,970,346,560 $20,010,556
-----------------------------------------------------
Unrealized appreciation ...................... $ 32,159,709 $ 203,817,059 $ 899,689
Unrealized depreciation ...................... -- -- --
-----------------------------------------------------
Net unrealized appreciation (depreciation) ... $ 32,159,709 $ 203,817,059 $ 899,689
-----------------------------------------------------
Undistributed ordinary income ................ $ 521,756 $ 365,862 $ 7,301
Undistributed long term capital gains ........ 3,256,104 37,605,718 175,022
-----------------------------------------------------
Distributable earnings ....................... $ 3,777,860 $ 37,971,580 $ 182,323
-----------------------------------------------------
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
The tax character of distributions paid during the period ended December 31,
2004 and the period ended July 31, 2004 was as follows:
--------------------------------------
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND
--------------------------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, 2004 A JULY 31, 2004 B
--------------------------------------
Distributions paid from:
Ordinary income ...................... $1,872,076 $ --
Long term capital gain ............... 1,545,472 --
--------------------------------------
3,417,548 --
Return of capital .................. -- 336,462
--------------------------------------
$3,417,548 $336,462
--------------------------------------
--------------------------------------
FRANKLIN TEMPLETON
FOUNDING FUNDS ALLOCATION FUND
--------------------------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, 2004 A JULY 31, 2004 B
--------------------------------------
Distributions paid from:
Ordinary income ...................... $52,497,776 $3,184,102
Long term capital gain ............... 14,645,630 --
--------------------------------------
$67,143,406 $3,184,102
--------------------------------------
--------------------------------------
PERSPECTIVES ALLOCATION FUND
--------------------------------------
PERIOD ENDED
DECEMBER 31, 2004 C
--------------------------------------
Distributions paid from:
Ordinary income ...................... $117,853
Long term capital gain ............... 47,634
--------------------------------------
$165,487
--------------------------------------
a For the period August 1, 2004 to December 31, 2004.
b For the period August 15, 2003 (commencement of operations) to July 31, 2004.
c For the period August 2, 2004 (commencement of operations) to December 31,
2004.
The return of capital during the period ended July 31, 2004 for Franklin
Templeton Corefolio Allocation Fund results from distributions made in December
2003 in compliance with the requirements of the excise tax rules. The excise tax
distribution requirements differ from the fiscal year distribution requirements
under Subchapter M of the Internal Revenue Code.
Annual Report | 63
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 period ended December 31, 2004, were as follows:
----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
----------------------------------------------------
Purchases ........................ $99,503,751 $1,234,066,549 $19,638,863
Sales ............................ $ 3,401,238 $ 8,794,071 $ 40,654
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by
affiliates of FT Services. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At December 31, 2004, Franklin
Templeton Founding Funds Allocation Fund and Franklin Templeton Corefolio
Allocation Fund held the following positions which exceed 5% of the Underlying
Fund's shares outstanding. Franklin Templeton Perspectives Allocation Fund held
no positions which exceed 5% of the Underlying Funds' shares outstanding:
- --------------------------------------------------------------------------------
NAME OF ISSUER % OF SHARES HELD
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
Franklin Capital Growth Fund, Advisor Class ....... 5.4%
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund, Class Z ....................... 8.4%
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Franklin Advisers Inc. (an affiliate of FT Services). Pursuant to a SEC
exemptive order specific to the Funds' investment in the Sweep Money Fund,
administrative fees are reduced on assets invested in the Sweep Money Fund, in
an amount not to exceed fees paid by the Sweep Money Fund.
64 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS
INVESTIGATIONS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the
National Association of Securities Dealers, Inc. ("NASD"), relating to certain
practices in the mutual fund industry, including late trading, market timing and
marketing support payments to securities dealers who sell fund shares, Franklin
Resources, Inc. and certain of its subsidiaries (as used in this section,
together, the "Company"), as well as certain current or former executives and
employees of the Company, received subpoenas and/or requests for documents,
information and/or testimony. The Company and its current employees provided
documents and information in response to those requests and subpoenas.
SETTLEMENTS
Beginning in August 2004, the Company entered into settlements with certain
regulators investigating the mutual fund industry practices noted above. The
Company believes that settlement of each of the matters described in this
section is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary,
Franklin Advisers, Inc., reached an agreement with the SEC that resolved the
issues resulting from the SEC investigation into market timing activity. In
connection with that agreement, the SEC issued an "Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the
Investment Company Act of 1940, Making Findings and Imposing Remedial Sanctions
and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned the
activities of a limited number of third parties that ended in 2000 and those
that were the subject of the first Massachusetts administrative complaint
described below.
Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc.
neither admitted nor denied any of the findings contained therein, Franklin
Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil
penalty, to be distributed to shareholders of certain funds in accordance with a
plan to be developed by an independent distribution consultant. At this time, it
is unclear which funds or which shareholders of any particular fund will receive
distributions. The Order also required Franklin Advisers, Inc. to, among other
things, enhance and periodically review compliance policies and procedures.
On September 20, 2004, Franklin Resources, Inc. announced that two of its
subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative
Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of
the Office of the Secretary of the Commonwealth of Massachusetts (the "State of
Massachusetts") related to its administrative complaint filed on February 4,
2004, concerning one instance of market timing that was also a subject of the
August 2, 2004 settlement that Franklin Advisers, Inc.
reached with the SEC, as described above.
Annual Report | 65
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts (the "Massachusetts Consent Order"). The Massachusetts
Consent Order included two different sections: "Statements of Fact" and
"Violations of Massachusetts Securities Laws." Franklin Advisers, Inc. and FTAS
admitted the facts in the Statements of Fact.
On October 25, 2004, the State of Massachusetts filed a second administrative
complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing (in which it
described the Massachusetts Consent Order and stated that "Franklin did not
admit or deny engaging in any wrongdoing") failed to state that Franklin
Advisers, Inc. and FTAS admitted the Statements of Fact portion of the
Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc.
reached a second agreement with the State of Massachusetts on November 19, 2004,
resolving the Second Complaint. As a result of the November 19, 2004 settlement,
Franklin Resources, Inc. filed a new Form 8-K. The terms of the Massachusetts
Consent Order did not change and there was no monetary fine associated with this
second settlement.
On November 17, 2004, Franklin Resources, Inc. announced that Franklin/Templeton
Distributors, Inc. ("FTDI") reached an agreement with the CAGO, resolving the
issues resulting from the CAGO's investigation concerning sales and marketing
support payments. Under the terms of the settlement, FTDI neither admitted nor
denied the allegations in the CAGO's complaint and agreed to pay $2 million to
the State of California as a civil penalty, $14 million to the funds, to be
allocated by an independent distribution consultant to be paid for by FTDI, and
$2 million to the CAGO for its investigative costs.
On December 13, 2004, Franklin Resources, Inc. announced that its subsidiaries
FTDI and Franklin Advisers, Inc. reached an agreement with the SEC, resolving
the issues resulting from the SEC's investigation concerning marketing support
payments to securities dealers who sell fund shares. In connection with that
agreement, the SEC issued an "Order Instituting Administrative and
Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions
Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940,
Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Section 15(b)
of the Securities Exchange Act of 1934" (the "Second Order").
Under the terms of the Second Order, in which FTDI and Franklin Advisers, Inc.
neither admitted nor denied the findings contained therein, they agreed to pay
the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and
Franklin Advisers, Inc. also agreed to implement certain measures and
undertakings relating to marketing support payments to broker-dealers for the
promotion or sale of fund shares, including making additional disclosures in the
funds' Prospectuses and Statements of Additional Information. The Second Order
further requires the appointment of an independent distribution consultant, at
the Company's expense, who shall develop a plan for the distribution of the
penalty and disgorgement to the funds.
66 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS
The Trust, in addition to the Company and other funds, and certain current and
former officers, employees, and directors have been named in multiple lawsuits
in different federal courts in Nevada, California, Illinois, New York and
Florida, alleging violations of various federal securities laws and seeking,
among other relief, monetary damages, restitution, removal of fund trustees,
directors, advisers, administrators, and distributors, rescission of management
contracts and 12b-1 Plans, and/or attorneys' fees and costs. Specifically, the
lawsuits claim breach of duty with respect to alleged arrangements to permit
market timing and/or late trading activity, or breach of duty with respect to
the valuation of the portfolio securities of certain Templeton funds managed by
Franklin Resources, Inc. subsidiaries, resulting in alleged market timing
activity. The majority of these lawsuits duplicate, in whole or in part, the
allegations asserted in the February 4, 2004 Massachusetts administrative
complaint and the findings in the SEC's August 2, 2004 Order, as described
above. The lawsuits are styled as class actions, or derivative actions on behalf
of either the named funds or Franklin Resources, Inc.
In addition, the Company, as well as certain current and former officers,
employees, and directors, have been named in multiple lawsuits alleging
violations of various securities laws and pendent state law claims relating to
the disclosure of directed brokerage payments and/or payment of allegedly
excessive advisory, commission, and distribution fees, and seeking, among other
relief, monetary damages, restitution, rescission of advisory contracts,
including recovery of all fees paid pursuant to those contracts, an accounting
of all monies paid to the named advisers, declaratory relief, injunctive relief,
and/or attorneys' fees and costs. These lawsuits are styled as class actions or
derivative actions brought on behalf of certain funds.
The Company and fund management strongly believes that the claims made in each
of the lawsuits identified above are without merit and intends to vigorously
defend against them. The Company cannot predict with certainty, however, the
eventual outcome of the remaining governmental investigations or private
lawsuits, nor whether they will have a material negative impact on the Company.
Public trust and confidence are critical to the Company's business and any
material loss of investor and/or client confidence could result in a significant
decline in assets under management by the Company, which would have an adverse
effect on the Company's future financial results. If the Company finds that it
bears responsibility for any unlawful or inappropriate conduct that caused
losses to the Trust, it is committed to making the Trust or its shareholders
whole, as appropriate. The Company is committed to taking all appropriate
actions to protect the interests of its funds' shareholders.
Annual Report | 67
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statement of assets and liabilities, including
the statement 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 Franklin Templeton Corefolio
Allocation Fund, Franklin Templeton Founding Funds Allocation Fund, and Franklin
Templeton Perspectives Allocation Fund (separate portfolios of Franklin
Templeton Fund Allocator Series, hereafter referred to as the "Funds") at
December 31 2004, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for the period August 1,
2004 to December 31, 2004 and the period August 15, 2003 (commencement of
operations) to July 31, 2004 (for Franklin Templeton Perspectives Allocation
Fund, the results of its operations, the changes in its net assets and the
financial highlights for the period August 2, 2004 (commencement of operations)
through December 31, 2004), 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 investments in the Underlying Funds at December 31, 2004 by
correspondence with the transfer agent of the Underlying Funds, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 9, 2005
68 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended December 31, 2004:
--------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------
$4,801,576 $51,772,084 $222,656
Under Section 854(b)(2) of the 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 December 31, 2004.
--------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------
$3,764,357 $39,898,837 $137,661
In January 2005, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2004.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
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 December 31, 2004.
--------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------
61.24% 100.00% 27.49%
Annual Report | 69
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 (83) 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).
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (72) Trustee Since 1995 142 Director, Bar-S Foods (meat
One Franklin Parkway packing 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 (72) Trustee Since 1995 143 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 (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (52) Trustee Since 1998 98 Director, Amerada Hess
One Franklin Parkway Corporation (exploration and
San Mateo, CA 94403-1906 refining of oil and gas), H.J.
Heinz Company (processed foods
and allied products); RTI
International Metals, Inc.
(manufacture and distribution
of titanium); Canadian
National Railway (railroad)
and White Mountains Insurance
Group Ltd. (holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the 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).
- ------------------------------------------------------------------------------------------------------------------------------------
70 | 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 (75) Trustee Since 1995 115 Director, The California
One Franklin Parkway Center for Land Recycling
San Mateo, CA 94403-1906 (redevelopment).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (76) Trustee Since 1995 142 Director, Martek Biosciences
One Franklin Parkway Corporation; MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology); and
Overstock.com (Internet
services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently
known as MCI WorldCom, Inc.
and WorldCom, Inc.)
(communications services)
(1988-2002), White Mountains
Insurance Group Ltd. (holding
company) (1987-2004) and
Spacehab, Inc. (aerospace
services) (1994-2003).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company)
(2001-2004); 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 (71) Trustee and Since 1995 142 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, 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 | 71
- ------------------------------------------------------------------------------------------------------------------------------------
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. (64) Trustee, Trustee since 125 None
One Franklin Parkway President and 1995, and
San Mateo, CA 94403-1906 Chief Executive President and
Officer - Chief Executive
Investment Officer-
Management Investment
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 (59) Vice President Since 1995 Not Applicable Not Applicable
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.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (52) Chief Since July 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Director, Global Compliance, Franklin
Resources, Inc., and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (42) Treasurer Since July 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 34 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and
Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin
Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (44) Vice President Since 1995 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, 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.
- ------------------------------------------------------------------------------------------------------------------------------------
72 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (57) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 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.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (57) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior 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 FORMERLY, President, Chief
Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (57) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President,
Templeton Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory
Services, Inc., Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor
Services, LLC, Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC,
and Templeton/Franklin Investment Services, Inc.; and 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 (67) Vice President Since 2002 Not Applicable Not Applicable
600 Fifth Avenue -AML
Rockefeller Center Compliance
New York, NY 10020-2302
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; Director, FTI Banque, Arch
Chemicals, Inc. and Lingnan Foundation; and officer and/or director, as the case may be, of some of the other subsidiaries
of Franklin Resources, Inc. and of 48 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (67) Vice President Since 2000 Not Applicable Not Applicable
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).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 73
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (53) Chief Financial Since May 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin Templeton
Services, LLC; and FORMERLY, Managing Director, RSM McGladrey, Inc.; and Partner, McGladrey & Pullen, LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
*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 to be interested
persons of the Fund 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 Fund's 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 FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'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 FUND'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 FUND, 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 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.
74 | Annual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
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 online at
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. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the Securities and Exchange Commission's
website at sec.gov and reflect the 12-month period beginning July 1, 2003, and
ending June 30, 2004.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 75
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN[R] (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF
SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR
SERVICE DEPARTMENTS. 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
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 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
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 Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 5, 6
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
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 7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 9
Colorado
Connecticut
Florida 9
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 8
Michigan 8
Minnesota 8
Missouri
New Jersey
New York 9
North Carolina
Ohio 8
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 10
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 and select retirement plans.
3. 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.
4. Upon reaching approximately $350 million in assets, the fund intends to 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. Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and strategy
remained the same.
7. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
8. Portfolio of insured municipal securities.
9. 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).
10. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
11/04 Not part of the annual report
[LOGO OMITTED]
FRANKLIN[R] TEMPLETON[R] One Franklin Parkway
INVESTMENTS 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
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
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.
FAS2 A2004 02/05
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 11(A), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal 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.
Note: The Registrant changed its fiscal year end from July 31 to December 31.
Information is included for fiscal years ending July 31, 2003 and 2004 and
fiscal period ending December 31, 2004 (August 1, 2004 - December 31, 2004).
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $11,367 for the fiscal year ended December 31, 2004, $98,671 for the fiscal
year ended July 31, 2004 and 47,552 for the fiscal year ended July 31, 2003.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial statements
were $0 for the fiscal year ended December 31, 2004, $48,134 for the fiscal year
ended July 31, 2004 and $0 for the fiscal year ended July 31, 2003. The services
for which these fees were paid included attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31,
2004, $287 for the fiscal year ended July 31, 2004 and $0 for the fiscal year
ended July 31, 2003. The services for which these fees were paid included review
of materials provided to the fund Board in connection with the investment
management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31,
2004, $99,713 for the fiscal year ended July 31, 2004 and $12,972 for the fiscal
year ended July 31, 2003. The services for which these fees were paid included
review of materials provided to the fund Board in connection with the investment
management contract renewal process and a review of an ICI transfer agent
survey.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $0 for the fiscal year ended December 31, 2004, $148,134 for the
fiscal year ended July 31, 2004 and $12,972 for the fiscal year ended July 31,
2003.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 10. 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 11. EXHIBITS.
(A) Code of Ethics
(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
Galen G. Vetter, 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
Galen G. Vetter, 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 February 18, 2005
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 February 18, 2005
By /s/Galen G. Vetter
Chief Financial Officer
Date February 18, 2005