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)
CRAIG S. TYLE, 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: 12/31/05
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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DECEMBER 31, 2005
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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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WANT TO RECEIVE
THIS DOCUMENT
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FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE(R)
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 offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
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, accurate and personal service that has
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 ........................................... 4
Franklin Templeton Conservative Target Fund ............................ 6
Franklin Templeton Moderate Target Fund ................................ 16
Franklin Templeton Growth Target Fund .................................. 26
Financial Highlights and Statements of Investments ..................... 36
Financial Statements ................................................... 54
Notes to Financial Statements .......................................... 60
Report of Independent Registered Public Accounting Firm ................ 71
Tax Designation ........................................................ 72
Board Members and Officers ............................................. 73
Shareholder Information. ............................................... 78
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ANNUAL REPORT
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended December 31, 2005, U.S. economic expansion was driven
by strength across most industries, sectors and regions. Gross domestic product
(GDP) rose during the period, benefiting primarily from increased personal
consumption, business investment and federal spending. The U.S. dollar rallied
in 2005, supported by relatively strong domestic economic growth and rising
short-term domestic interest rates, as the Federal Reserve Board raised the
federal funds target rate from 2.25% to 4.25% during the period. Compared with
the rise in short-term interest rates, long-term rates remained relatively
stable, supporting overall robust housing and commercial real estate activity,
which contributed to economic growth.
Oil prices remained high during the period, and natural gas prices rose during
the second half of 2005. Despite these high commodity prices, inflation remained
relatively contained for the 12 months ended December 31, 2005, as measured by
the 2.2% rise for the core Consumer Price Index (CPI).(1) In this environment,
the blue chip stocks of the Dow Jones Industrial Average posted a one-year total
return of +1.72%, while the broader Standard & Poor's 500 Index (S&P 500) and
the technology-heavy NASDAQ Composite Index returned +4.91% and +2.12%.(2)
Outside the U.S., the global economy overcame fears of derailment generated by
higher energy costs and advanced at a solid clip during 2005, with Europe
surpassing expectations. Excluding the volatile energy and food sectors,
inflation remained relatively subdued worldwide. In addition to high energy
prices, prices for other commodities such as industrial metals also rose. This
contributed to economic growth in countries that are tied to mining and
industrial commodities, such as Australia and Canada, and some Asian and Latin
American emerging markets.
(1) Source: Bureau of Labor Statistics. Core CPI excludes food and energy
costs.
(2) 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 NASDAQ
domestic and international based common type stocks listed on The NASDAQ
Stock Market. The index is market value weighted and includes more than
3,000 companies.
4 | Annual Report
For the 12 months under review, equity markets outside the U.S. performed
strongly. The Morgan Stanley Capital International (MSCI) All Country (AC) World
ex US Index rose +17.11%.(3) In terms of sectors, energy and materials led
equity market performance, and telecommunication services and consumer-related
sectors lagged.
(3) Source: Standard & Poor's Micropal. The MSCI AC World ex US Index is a
free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed and emerging markets
excluding the U.S.
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2005. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
Annual Report | 5
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.(1)
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PERFORMANCE DATA 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 Assests as of 12/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity .......................... 29.3%
Primarily Domestic Fixed Income .................... 28.7%
Primarily Foreign Equity ........................... 12.8%
Primarily Foreign Fixed Income ..................... 11.6%
Short-Term Investments & Other Net Assets .......... 17.6%
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We are pleased to bring you Franklin Templeton Conservative Target Fund's annual
report for the fiscal year ended December 31, 2005.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A posted a +4.70% cumulative
total return for the 12 months under review. The Fund outperformed its hybrid
benchmark, which comprised a weighted combination of the S&P 500 and the 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
(1) The risk/reward potential is based on the Fund's goal and level of risk.
It is not indicative of the Fund's actual or implied performance or
portfolio composition, which may change on a continuous basis.
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 41.
6 | Annual Report
period, the hybrid benchmark returned +4.66%.(2) 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 one another. 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.
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 69.7% 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, 2005, 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 9.5% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund
12/31/05
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% OF TOTAL
NET ASSETS
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Templeton Global Bond Fund
- - Advisor Class 11.7%
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Franklin Strategic Mortgage Portfolio 11.2%
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Franklin Small Cap Growth Fund II
- - Advisor Class 9.5%
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Franklin U.S. Government Securities Fund
- - Advisor Class 8.8%
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Franklin Total Return Fund
- - Advisor Class 6.7%
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Franklin Mutual Shares Fund
- - Class Z 6.6%
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Franklin Mutual European Fund
- - Class Z 6.5%
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Franklin Flex Cap Growth Fund
- - Advisor Class 6.5%
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Templeton Foreign Fund
- - Advisor Class 3.3%
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Franklin Capital Growth Fund
- - Advisor Class 2.9%
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(2) Sources: Standard & Poor's Micropal; Lehman Brothers Inc. 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 markets, 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 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.
Annual Report | 7
71.2% 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 11.7% of total net assets.
Our largest primarily domestic growth fund holding, Franklin Small Cap Growth
Fund II - Advisor Class, underperformed the S&P 500 during the 12-month
reporting period, while our largest primarily domestic value fund holding,
Mutual Shares Fund - Class Z, outperformed the S&P 500. Our largest foreign
equity fund holding, Mutual European Fund - Class Z, outperformed the MSCI EAFE
Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
underperformed the LB U.S. Aggregate Index.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
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, 2005, the U.S. dollar increased in value relative to most
non-U.S. currencies. As a result, the Fund's performance was negatively affected
by the portion of the portfolio's underlying funds' investments in securities
with non-U.S. currency exposure.
Thank you for your continued participation in Franklin Templeton Conservative
Target Fund. We look forward to serving your future investment needs.
[PHOTO] /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, 2005, 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 12/31/05
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
that a shareholder would pay 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 (SYMBOL: FTCIX) CHANGE 12/31/05 12/31/04
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Net Asset Value (NAV) + $0.26 $ 12.74 $ 12.48
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DISTRIBUTIONS (1/1/05-12/31/05)
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Dividend Income $ 0.3215
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CLASS B (SYMBOL: N/A) CHANGE 12/31/05 12/31/04
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Net Asset Value (NAV) +$ 0.25 $ 12.71 $ 12.46
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DISTRIBUTIONS (1/1/05-12/31/05)
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Dividend Income $ 0.2291
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CLASS C (SYMBOL: FTCCX) CHANGE 12/31/05 12/31/04
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Net Asset Value (NAV) +$ 0.24 $ 12.60 $ 12.36
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DISTRIBUTIONS (1/1/05-12/31/05)
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Dividend Income $ 0.2303
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CLASS R (SYMBOL: FTCRX) CHANGE 12/31/05 12/31/04
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Net Asset Value (NAV) +$ 0.25 $ 12.71 $ 12.46
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DISTRIBUTIONS (1/1/05-12/31/05)
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Dividend Income $ 0.2901
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ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/05 12/1/05
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Net Asset Value (NAV) -$ 0.09 $ 12.72 $ 12.81
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DISTRIBUTIONS (12/1/05-12/31/05)
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Dividend Income $ 0.1769
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Annual Report | 9
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.
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CLASS A 1-YEAR 5-YEAR INCEPTION (12/31/96)
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Cumulative Total Return(2) +4.70% +26.48% +80.07%
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Average Annual Total Return(3) -1.31% +3.58% +6.05%
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Value of $10,000 Investment(4) $ 9,869 $ 11,920 $ 16,971
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CLASS B 1-YEAR INCEPTION (12/1/03)
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Cumulative Total Return(2) +3.87% +13.30%
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Average Annual Total Return(3) -0.13% +4.82%
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Value of $10,000 Investment(4) $ 9,987 $ 11,030
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CLASS C 1-YEAR 5-YEAR INCEPTION (12/31/96)
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Cumulative Total Return(2) +3.83% +21.77% +67.76%
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Average Annual Total Return(3) +2.83% +4.02% +5.92%
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Value of $10,000 Investment(4) $ 10,283 $ 12,177 $ 16,776
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CLASS R 1-YEAR 3-YEAR INCEPTION (1/1/02)
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Cumulative Total Return(2) +4.37% +31.64% +26.26%
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Average Annual Total Return(3) +3.37% +9.60% +6.01%
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Value of $10,000 Investment(4) $ 10,337 $ 13,164 $ 12,626
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ADVISOR CLASS(5) 1-YEAR 5-YEAR INCEPTION (12/31/96)
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Cumulative Total Return(2) +4.62% +26.38% +79.93%
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Average Annual Total Return(3) +4.62% +4.79% +6.74%
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Value of $10,000 Investment(4) $ 10,462 $ 12,638 $ 17,993
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PERFORMANCE DATA 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(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
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CLASS A 12/31/05
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1-Year -1.31%
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5-Year +3.58%
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Since Inception (12/31/96) +6.05%
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CLASS A (12/31/96-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED AS LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON LEHMAN BROTHERS
CONSERVATIVE S&P 500(6) MSCI EAFE(6) U.S. AGGREGATE U.S. TREASURY
DATE TARGET FUND INDEX INDEX INDEX(6) BILLS(6)
- ---------- ------------------ ---------- ------------ ------------------ --------------
12/31/1996 $9,425 $10,000 $10,000 $10,000 $10,000
1/31/1997 $9,576 $10,624 $9,652 $10,031 $10,045
2/28/1997 $9,585 $10,708 $9,813 $10,056 $10,083
3/31/1997 $9,474 $10,269 $9,850 $9,944 $10,126
4/30/1997 $9,502 $10,881 $9,905 $10,093 $10,172
5/31/1997 $9,814 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,028 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,293 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,189 $12,290 $10,476 $10,497 $10,351
9/30/1997 $10,570 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,351 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,408 $13,110 $10,115 $10,856 $10,484
12/31/1997 $10,513 $13,335 $10,206 $10,965 $10,530
1/31/1998 $10,503 $13,482 $10,675 $11,106 $10,582
2/28/1998 $10,797 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,036 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,095 $15,347 $11,810 $11,194 $10,725
5/31/1998 $10,987 $15,083 $11,756 $11,300 $10,771
6/30/1998 $10,988 $15,695 $11,847 $11,396 $10,815
7/31/1998 $10,850 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,219 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,397 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,526 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,715 $16,212 $11,812 $11,882 $11,048
12/31/1998 $10,826 $17,146 $12,281 $11,918 $11,094
1/31/1999 $10,898 $17,862 $12,247 $12,003 $11,137
2/28/1999 $10,754 $17,307 $11,958 $11,794 $11,172
3/31/1999 $10,916 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,185 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,092 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,273 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,200 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,211 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,196 $18,066 $13,356 $11,834 $11,488
10/31/1999 $11,501 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,123 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,021 $20,753 $15,633 $11,820 $11,632
1/31/2000 $12,881 $19,711 $14,643 $11,781 $11,677
2/29/2000 $13,950 $19,338 $15,040 $11,924 $11,730
3/31/2000 $13,756 $21,228 $15,626 $12,081 $11,789
4/30/2000 $13,245 $20,590 $14,806 $12,046 $11,849
5/31/2000 $12,962 $20,169 $14,448 $12,041 $11,913
6/30/2000 $13,335 $20,666 $15,016 $12,291 $11,964
7/31/2000 $13,302 $20,343 $14,389 $12,403 $12,019
8/31/2000 $13,818 $21,606 $14,517 $12,583 $12,082
9/30/2000 $13,675 $20,466 $13,813 $12,662 $12,148
10/31/2000 $13,487 $20,379 $13,490 $12,746 $12,209
11/30/2000 $12,999 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,418 $18,865 $13,451 $13,194 $12,347
1/31/2001 $13,781 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,348 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,004 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,416 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,498 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,439 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,380 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,214 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,493 $15,020 $9,908 $14,302 $12,818
10/31/2001 $12,839 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,150 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,295 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,283 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,271 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,544 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,581 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,532 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,141 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,611 $13,313 $9,422 $15,030 $13,031
8/31/2002 $12,698 $13,401 $9,403 $15,284 $13,050
9/30/2002 $12,306 $11,946 $8,395 $15,531 $13,071
10/31/2002 $12,541 $12,996 $8,847 $15,461 $13,091
11/30/2002 $12,876 $13,760 $9,250 $15,456 $13,111
12/31/2002 $12,792 $12,952 $8,939 $15,776 $13,125
1/31/2003 $12,742 $12,613 $8,567 $15,789 $13,139
2/28/2003 $12,704 $12,424 $8,371 $16,008 $13,151
3/31/2003 $12,687 $12,543 $8,213 $15,995 $13,165
4/30/2003 $13,152 $13,577 $9,027 $16,127 $13,178
5/31/2003 $13,654 $14,292 $9,583 $16,428 $13,192
6/30/2003 $13,732 $14,474 $9,820 $16,395 $13,208
7/31/2003 $13,745 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,047 $15,016 $10,304 $15,949 $13,227
9/30/2003 $14,142 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,484 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,712 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,011 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,126 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,266 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,288 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,904 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,993 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,172 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,967 $16,668 $12,624 $16,611 $13,338
8/31/2004 $15,082 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,329 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,548 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,948 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,209 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,001 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,248 $18,406 $15,381 $17,142 $13,461
3/31/2005 $16,028 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,859 $17,738 $14,665 $17,284 $13,521
5/31/2005 $16,093 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,238 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,486 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,552 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,674 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,424 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,766 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,971 $19,384 $17,120 $17,552 $13,809
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
CLASS B 12/31/05
- -----------------------------------------
1-Year -0.13%
- -----------------------------------------
Since Inception (12/1/03) +4.82%
- -----------------------------------------
CLASS B (12/1/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED AS LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON LEHMAN BROTHERS
CONSERVATIVE S&P 500(6) MSCI EAFE(6) U.S. AGGREGATE U.S. TREASURY
DATE TARGET FUND INDEX INDEX INDEX(6) BILLS(6)
- ---------- ------------------ ---------- ------------ ------------------ --------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,239 $10,717 $10,935 $10,183 $10,016
2/29/2004 $10,326 $10,866 $11,189 $10,293 $10,023
3/31/2004 $10,337 $10,702 $11,257 $10,370 $10,031
4/30/2004 $10,068 $10,534 $11,012 $10,101 $10,038
5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,237 $10,886 $11,306 $10,117 $10,050
7/31/2004 $10,098 $10,526 $10,941 $10,217 $10,059
8/31/2004 $10,168 $10,568 $10,991 $10,412 $10,069
9/30/2004 $10,329 $10,683 $11,280 $10,440 $10,080
10/31/2004 $10,468 $10,846 $11,666 $10,528 $10,092
11/30/2004 $10,738 $11,285 $12,466 $10,444 $10,102
12/31/2004 $10,908 $11,668 $13,013 $10,540 $10,122
1/31/2005 $10,751 $11,384 $12,775 $10,606 $10,136
2/28/2005 $10,917 $11,624 $13,330 $10,544 $10,151
3/31/2005 $10,757 $11,418 $13,001 $10,489 $10,175
4/30/2005 $10,643 $11,201 $12,710 $10,631 $10,196
5/31/2005 $10,792 $11,558 $12,729 $10,746 $10,220
6/30/2005 $10,878 $11,574 $12,903 $10,805 $10,243
7/31/2005 $11,045 $12,004 $13,299 $10,707 $10,265
8/31/2005 $11,080 $11,895 $13,639 $10,844 $10,293
9/30/2005 $11,150 $11,991 $14,250 $10,732 $10,323
10/31/2005 $10,982 $11,791 $13,834 $10,647 $10,347
11/30/2005 $11,194 $12,237 $14,177 $10,694 $10,381
12/31/2005 $11,030 $12,241 $14,837 $10,796 $10,414
Annual Report | 11
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
CLASS C 12/31/05
- -----------------------------------------
1-Year +2.83%
- -----------------------------------------
5-Year +4.02%
- -----------------------------------------
Since Inception (12/31/96) +5.92%
- -----------------------------------------
CLASS C (12/31/96-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED AS LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON LEHMAN BROTHERS
CONSERVATIVE S&P 500(6) MSCI EAFE(6) U.S. AGGREGATE U.S. TREASURY
DATE TARGET FUND INDEX INDEX INDEX(6) BILLS(6)
- ---------- ------------------ ---------- ------------ ------------------ --------------
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,160 $10,624 $9,652 $10,031 $10,045
2/28/1997 $10,150 $10,708 $9,813 $10,056 $10,083
3/31/1997 $9,998 $10,269 $9,850 $9,944 $10,126
4/30/1997 $10,028 $10,881 $9,905 $10,093 $10,172
5/31/1997 $10,359 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,577 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,848 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,717 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,111 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,879 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,940 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,042 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,021 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,321 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,570 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,621 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,507 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,499 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,343 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,678 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,857 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,983 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,171 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,283 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,348 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,196 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,363 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,623 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,525 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,701 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,625 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,625 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,608 $18,066 $13,356 $11,834 $11,488
10/31/1999 $11,916 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,542 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,472 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,314 $19,711 $14,643 $11,781 $11,677
2/29/2000 $14,417 $19,338 $15,040 $11,924 $11,730
3/31/2000 $14,201 $21,228 $15,626 $12,081 $11,789
4/30/2000 $13,669 $20,590 $14,806 $12,046 $11,849
5/31/2000 $13,375 $20,169 $14,448 $12,041 $11,913
6/30/2000 $13,738 $20,666 $15,016 $12,291 $11,964
7/31/2000 $13,704 $20,343 $14,389 $12,403 $12,019
8/31/2000 $14,216 $21,606 $14,517 $12,583 $12,082
9/30/2000 $14,066 $20,466 $13,813 $12,662 $12,148
10/31/2000 $13,871 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,353 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,777 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,140 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,692 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,330 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,743 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,816 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,743 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,682 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,499 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,755 $15,020 $9,908 $14,302 $12,818
10/31/2001 $13,100 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,408 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,560 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,522 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,497 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,775 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,800 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,737 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,338 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,795 $13,313 $9,422 $15,030 $13,031
8/31/2002 $12,884 $13,401 $9,403 $15,284 $13,050
9/30/2002 $12,475 $11,946 $8,395 $15,531 $13,071
10/31/2002 $12,703 $12,996 $8,847 $15,461 $13,091
11/30/2002 $13,032 $13,760 $9,250 $15,456 $13,111
12/31/2002 $12,943 $12,952 $8,939 $15,776 $13,125
1/31/2003 $12,879 $12,613 $8,567 $15,789 $13,139
2/28/2003 $12,841 $12,424 $8,371 $16,008 $13,151
3/31/2003 $12,815 $12,543 $8,213 $15,995 $13,165
4/30/2003 $13,263 $13,577 $9,027 $16,127 $13,178
5/31/2003 $13,775 $14,292 $9,583 $16,428 $13,192
6/30/2003 $13,845 $14,474 $9,820 $16,395 $13,208
7/31/2003 $13,845 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,140 $15,016 $10,304 $15,949 $13,227
9/30/2003 $14,226 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,560 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,778 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,073 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,177 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,306 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,324 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,922 $16,682 $12,706 $16,421 $13,311
5/31/2004 $15,013 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,165 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,957 $16,668 $12,624 $16,611 $13,338
8/31/2004 $15,061 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,309 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,517 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,907 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,158 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,923 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,171 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,943 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,773 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,983 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,124 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,360 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,413 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,519 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,269 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,585 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,776 $19,384 $17,120 $17,552 $13,809
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
CLASS R 12/31/05
- -----------------------------------------
1-Year +3.37%
- -----------------------------------------
3-Year +9.60%
- -----------------------------------------
Since Inception (1/1/02) +6.01%
- -----------------------------------------
CLASS R (1/1/02-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED AS LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON LEHMAN BROTHERS
CONSERVATIVE S&P 500(6) MSCI EAFE(6) U.S. AGGREGATE U.S. TREASURY
DATE TARGET FUND INDEX INDEX INDEX(6) BILLS(6)
- ---------- ------------------ ---------- ------------ ------------------ --------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $9,991 $9,854 $9,469 $10,081 $10,014
2/28/2002 $9,981 $9,664 $9,536 $10,179 $10,027
3/31/2002 $10,187 $10,028 $10,057 $10,009 $10,042
4/30/2002 $10,205 $9,420 $10,130 $10,203 $10,057
5/31/2002 $10,168 $9,351 $10,267 $10,290 $10,073
6/30/2002 $9,878 $8,685 $9,862 $10,379 $10,088
7/31/2002 $9,470 $8,008 $8,889 $10,504 $10,102
8/31/2002 $9,535 $8,061 $8,871 $10,682 $10,117
9/30/2002 $9,240 $7,185 $7,921 $10,855 $10,133
10/31/2002 $9,417 $7,817 $8,347 $10,805 $10,149
11/30/2002 $9,659 $8,277 $8,727 $10,802 $10,165
12/31/2002 $9,600 $7,791 $8,434 $11,025 $10,175
1/31/2003 $9,563 $7,587 $8,083 $11,035 $10,186
2/28/2003 $9,525 $7,473 $7,898 $11,188 $10,195
3/31/2003 $9,519 $7,545 $7,749 $11,179 $10,207
4/30/2003 $9,859 $8,167 $8,517 $11,271 $10,217
5/31/2003 $10,237 $8,596 $9,041 $11,481 $10,227
6/30/2003 $10,293 $8,706 $9,265 $11,459 $10,240
7/31/2003 $10,302 $8,860 $9,491 $11,073 $10,247
8/31/2003 $10,520 $9,032 $9,721 $11,147 $10,255
9/30/2003 $10,594 $8,937 $10,023 $11,442 $10,263
10/31/2003 $10,841 $9,442 $10,648 $11,335 $10,272
11/30/2003 $11,012 $9,525 $10,887 $11,362 $10,280
12/31/2003 $11,238 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,324 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,420 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,441 $10,194 $12,255 $11,783 $10,312
4/30/2004 $11,144 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,220 $10,171 $12,040 $11,431 $10,326
6/30/2004 $11,338 $10,369 $12,308 $11,495 $10,331
7/31/2004 $11,184 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,270 $10,066 $11,966 $11,831 $10,351
9/30/2004 $11,459 $10,175 $12,280 $11,863 $10,363
10/31/2004 $11,614 $10,331 $12,700 $11,962 $10,375
11/30/2004 $11,913 $10,749 $13,571 $11,867 $10,385
12/31/2004 $12,109 $11,114 $14,167 $11,976 $10,405
1/31/2005 $11,943 $10,843 $13,908 $12,051 $10,420
2/28/2005 $12,128 $11,071 $14,512 $11,980 $10,436
3/31/2005 $11,959 $10,876 $14,153 $11,919 $10,460
4/30/2005 $11,832 $10,669 $13,837 $12,080 $10,482
5/31/2005 $12,007 $11,009 $13,858 $12,211 $10,506
6/30/2005 $12,108 $11,024 $14,047 $12,277 $10,530
7/31/2005 $12,294 $11,434 $14,479 $12,165 $10,553
8/31/2005 $12,343 $11,330 $14,849 $12,321 $10,582
9/30/2005 $12,426 $11,422 $15,513 $12,194 $10,612
10/31/2005 $12,239 $11,231 $15,061 $12,098 $10,636
11/30/2005 $12,485 $11,655 $15,433 $12,151 $10,672
12/31/2005 $12,626 $11,660 $16,153 $12,267 $10,705
12 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
ADVISOR CLASS(5) 12/31/05
- -----------------------------------------
1-Year +4.62%
- -----------------------------------------
5-Year +4.79%
- -----------------------------------------
Since Inception (12/31/96) +6.74%
- -----------------------------------------
ADVISOR CLASS (12/31/96-12/31/05)(5)
[THE FOLLOWING TABLE WAS REPRESENTED AS LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON LEHMAN BROTHERS
CONSERVATIVE S&P 500(6) MSCI EAFE(6) U.S. AGGREGATE U.S. TREASURY
DATE TARGET FUND INDEX INDEX INDEX(6) BILLS(6)
- ---------- ------------------ ---------- ------------ ------------------ --------------
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,160 $10,624 $9,652 $10,031 $10,045
2/28/1997 $10,170 $10,708 $9,813 $10,056 $10,083
3/31/1997 $10,051 $10,269 $9,850 $9,944 $10,126
4/30/1997 $10,082 $10,881 $9,905 $10,093 $10,172
5/31/1997 $10,413 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,639 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,921 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,810 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,215 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,982 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,043 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,155 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,144 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,456 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,709 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,771 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,657 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,659 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,512 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,842 $13,286 $10,490 $11,606 $10,914
9/30/1998 $11,031 $14,137 $10,171 $11,878 $10,970
10/31/1998 $11,168 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,369 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,486 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,563 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,410 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,582 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,868 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,769 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,961 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,884 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,895 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,879 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,203 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,862 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,815 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,666 $19,711 $14,643 $11,781 $11,677
2/29/2000 $14,801 $19,338 $15,040 $11,924 $11,730
3/31/2000 $14,595 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,053 $20,590 $14,806 $12,046 $11,849
5/31/2000 $13,753 $20,169 $14,448 $12,041 $11,913
6/30/2000 $14,149 $20,666 $15,016 $12,291 $11,964
7/31/2000 $14,114 $20,343 $14,389 $12,403 $12,019
8/31/2000 $14,661 $21,606 $14,517 $12,583 $12,082
9/30/2000 $14,509 $20,466 $13,813 $12,662 $12,148
10/31/2000 $14,309 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,792 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,237 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,622 $19,534 $13,445 $13,410 $12,428
2/28/2001 $14,162 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,798 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,234 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,322 $18,042 $12,000 $13,620 $12,641
6/30/2001 $14,259 $17,603 $11,514 $13,671 $12,678
7/31/2001 $14,196 $17,429 $11,305 $13,977 $12,720
8/31/2001 $14,020 $16,339 $11,021 $14,137 $12,762
9/30/2001 $13,255 $15,020 $9,908 $14,302 $12,818
10/31/2001 $13,622 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,952 $16,481 $10,536 $14,400 $12,878
12/31/2001 $14,106 $16,625 $10,599 $14,308 $12,899
1/31/2002 $14,093 $16,383 $10,037 $14,424 $12,917
2/28/2002 $14,080 $16,067 $10,107 $14,564 $12,934
3/31/2002 $14,370 $16,671 $10,659 $14,322 $12,953
4/30/2002 $14,409 $15,661 $10,736 $14,599 $12,973
5/31/2002 $14,357 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,942 $14,439 $10,453 $14,851 $13,012
7/31/2002 $13,381 $13,313 $9,422 $15,030 $13,031
8/31/2002 $13,472 $13,401 $9,403 $15,284 $13,050
9/30/2002 $13,056 $11,946 $8,395 $15,531 $13,071
10/31/2002 $13,306 $12,996 $8,847 $15,461 $13,091
11/30/2002 $13,661 $13,760 $9,250 $15,456 $13,111
12/31/2002 $13,572 $12,952 $8,939 $15,776 $13,125
1/31/2003 $13,519 $12,613 $8,567 $15,789 $13,139
2/28/2003 $13,479 $12,424 $8,371 $16,008 $13,151
3/31/2003 $13,461 $12,543 $8,213 $15,995 $13,165
4/30/2003 $13,954 $13,577 $9,027 $16,127 $13,178
5/31/2003 $14,487 $14,292 $9,583 $16,428 $13,192
6/30/2003 $14,570 $14,474 $9,820 $16,395 $13,208
7/31/2003 $14,583 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,904 $15,016 $10,304 $15,949 $13,227
9/30/2003 $15,005 $14,857 $10,623 $16,372 $13,239
10/31/2003 $15,367 $15,697 $11,286 $16,219 $13,249
11/30/2003 $15,609 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,927 $16,665 $12,441 $16,423 $13,270
1/31/2004 $16,049 $16,971 $12,617 $16,555 $13,281
2/29/2004 $16,198 $17,207 $12,911 $16,734 $13,290
3/31/2004 $16,220 $16,947 $12,989 $16,860 $13,301
4/30/2004 $15,813 $16,682 $12,706 $16,421 $13,311
5/31/2004 $15,908 $16,910 $12,761 $16,355 $13,320
6/30/2004 $16,098 $17,239 $13,046 $16,448 $13,326
7/31/2004 $15,880 $16,668 $12,624 $16,611 $13,338
8/31/2004 $16,002 $16,735 $12,683 $16,928 $13,352
9/30/2004 $16,264 $16,916 $13,016 $16,974 $13,367
10/31/2004 $16,497 $17,175 $13,461 $17,116 $13,382
11/30/2004 $16,921 $17,870 $14,384 $16,979 $13,395
12/31/2004 $17,198 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,978 $18,027 $14,741 $17,243 $13,440
2/28/2005 $17,239 $18,406 $15,381 $17,142 $13,461
3/31/2005 $17,006 $18,081 $15,001 $17,053 $13,492
4/30/2005 $16,826 $17,738 $14,665 $17,284 $13,521
5/31/2005 $17,075 $18,302 $14,688 $17,471 $13,552
6/30/2005 $17,228 $18,328 $14,888 $17,567 $13,582
7/31/2005 $17,492 $19,009 $15,346 $17,407 $13,612
8/31/2005 $17,562 $18,836 $15,738 $17,630 $13,649
9/30/2005 $17,691 $18,988 $16,442 $17,448 $13,688
10/31/2005 $17,426 $18,672 $15,963 $17,310 $13,720
11/30/2005 $17,788 $19,377 $16,358 $17,387 $13,765
12/31/2005 $17,993 $19,384 $17,120 $17,552 $13,809
ENDNOTES
THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND BECAUSE IT INVESTS IN 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 would have differed.
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) The Fund's manager and administrator have agreed in advance to waive all
or a portion of their fees and to make certain payments to reduce
expenses. If the manager and administrator had not taken this action, the
Fund's total returns would have been lower. The manager and 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) 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) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), aggregate total return of Advisor Class shares
was +0.68%. Aggregate total return represents the change in value of an
investment for the period indicated.
(6) Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 7 for
descriptions of the S&P 500, the MSCI EAFE Index and the LB U.S. Aggregate
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 six months 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 ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/05 VALUE 12/31/05 PERIOD* 7/1/05-12/31/05
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,045.20 $3.09
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.18 $3.06
- ---------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,041.50 $6.95
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.40 $6.87
- ---------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,040.40 $6.89
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.45 $6.82
- ---------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------
Actual $1,000 $1,043.70 $4.38
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.92 $4.33
- ---------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------
Actual (12/1/05-12/31/05) $1,000 $1,006.80 $0.21
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.44 $1.79
- ---------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.60%; B: 1.35%; C: 1.34%; R: 0.85%; and
Advisor: 0.35%) multiplied by the average account value over the period,
multiplied by 184/365 for Classes A, B, C, R (actual and hypothetical) and
Advisor Class (hypothetical only) to reflect the one-half year period. For
actual Advisor Class expenses, the annualized expense ratio is 0.25% and
the multiplier is 31/365 to reflect the number of days since inception.
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 a moderate
level of risk.(1)
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 12/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity ..................... 39.3%
Primarily Domestic Fixed Income ............... 25.3%
Primarily Foreign Equity ...................... 17.1%
Primarily Foreign Fixed Income ................ 10.5%
Short-Term Investments &
Other Net Assets .............................. 7.8%
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Moderate Target Fund's annual
report for the fiscal year ended December 31, 2005.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A posted a +5.94% cumulative
total return for the 12 months under review. The Fund outperformed its hybrid
benchmark, which comprised a weighted combination of the S&P 500 and the 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
(1) The risk/reward potential is based on the Fund's goal and level of risk.
It is not indicative of the Fund's actual or implied performance or
portfolio composition, which may change on a continuous basis.
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 hybrid benchmark returned +5.40%.(2) You can find the Fund's
long-term performance data in the Performance Summary beginning on page 19.
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 one another. 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 69.7% 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, 2005, 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 12.5% of
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund
12/31/05
- ----------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- ----------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 12.5%
- ----------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 10.5%
- ----------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 10.0%
- ----------------------------------------------------------------------
Franklin Mutual Shares Fund
- - Class Z 8.5%
- ----------------------------------------------------------------------
Franklin Mutual European Fund
- - Class Z 8.4%
- ----------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 8.4%
- ----------------------------------------------------------------------
Franklin U.S. Government Securities Fund
- - Advisor Class 7.8%
- ----------------------------------------------------------------------
Franklin Total Return Fund
- - Advisor Class 5.9%
- ----------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 5.0%
- ----------------------------------------------------------------------
Franklin Capital Growth Fund
- - Advisor Class 4.1%
- ----------------------------------------------------------------------
(2) Sources: Standard & Poor's Micropal; Lehman Brothers Inc. 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 markets, 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 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.
Annual Report | 17
the Fund's total net assets, was our largest equity fund weighting at
period-end. On the fixed income side, domestic exposure was 70.7% 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 10.5% of total net assets.
Our largest primarily domestic growth fund holding, Franklin Small Cap Growth
Fund II - Advisor Class, underperformed the S&P 500 during the 12-month
reporting period, while our largest primarily domestic value fund holding,
Mutual Shares Fund - Class Z, outperformed the S&P 500. Our largest foreign
equity fund holding, Mutual European Fund - Class Z, outperformed the MSCI EAFE
Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
underperformed the LB U.S. Aggregate Index.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
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, 2005, the U.S. dollar increased in value relative to most
non-U.S. currencies. As a result, the Fund's performance was negatively affected
by the portion of the portfolio's underlying funds' investments in securities
with non-U.S. currency exposure.
Thank you for your continued participation in Franklin Templeton Moderate Target
Fund. We look forward to serving your future investment needs.
[PHOTO] /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, 2005, 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.
18 | Annual Report
PERFORMANCE SUMMARY AS OF 12/31/05
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
that a shareholder would pay 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 (SYMBOL: FMTIX) CHANGE 12/31/05 12/31/04
- -----------------------------------------------------------------------------------------------
Net Asset Value (NAV) + $0.45 $ 13.14 $ 12.69
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- -----------------------------------------------------------------------------------------------
Dividend Income $ 0.2990
- -----------------------------------------------------------------------------------------------
CLASS B (SYMBOL: N/A) CHANGE 12/31/05 12/31/04
- -----------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.44 $ 13.10 $ 12.66
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- -----------------------------------------------------------------------------------------------
Dividend Income $ 0.2133
- -----------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FTMTX) CHANGE 12/31/05 12/31/04
- -----------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.44 $ 12.94 $ 12.50
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- -----------------------------------------------------------------------------------------------
Dividend Income $ 0.2141
- -----------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FTMRX) CHANGE 12/31/05 12/31/04
- -----------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.45 $ 13.11 $ 12.66
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- -----------------------------------------------------------------------------------------------
Dividend Income $ 0.2707
- -----------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/05 12/1/05
- -----------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$ 0.08 $ 13.15 $ 13.23
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS (12/1/05-12/31/05)
- -----------------------------------------------------------------------------------------------
Dividend Income $ 0.1803
- -----------------------------------------------------------------------------------------------
Annual Report | 19
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 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +5.94% +25.96% +81.44%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) -0.12% +3.48% +6.14%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 9,988 $ 11,867 $ 17,101
- ------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR INCEPTION (12/1/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +5.18% +16.73%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +1.18% +6.37%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,118 $ 11,373
- ------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +5.25% +21.35% +68.54%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +4.25% +3.95% +5.97%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,425 $ 12,135 $ 16,854
- ------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (1/1/02)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +5.73% +41.20% +30.07%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +4.73% +12.19% +6.80%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,473 $ 14,120 $ 13,007
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS(5) 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +6.01% +26.03% +81.55%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +6.01% +4.74% +6.85%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,601 $ 12,603 $ 18,155
- ------------------------------------------------------------------------------------------------------
PERFORMANCE DATA 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.
20 | 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 12/31/05
- ------------------------------------------
1-Year -0.12%
- ------------------------------------------
5-Year +3.48%
- ------------------------------------------
Since Inception (12/31/96) +6.14%
- ------------------------------------------
CLASS A (12/31/96-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Templeton Lehman Brothers U.S.
Moderate S&P 500 MSCI EAFE U.S. Aggregate Treasury
Date Target Fund Index(6) Index(6) Index(6) Bills(6)
---------- ------------------ -------- --------- --------------- --------
12/31/1996 $9,425 $10,000 $10,000 $10,000 $10,000
1/31/1997 $9,670 $10,624 $9,652 $10,031 $10,045
2/28/1997 $9,670 $10,708 $9,813 $10,056 $10,083
3/31/1997 $9,589 $10,269 $9,850 $9,944 $10,126
4/30/1997 $9,674 $10,881 $9,905 $10,093 $10,172
5/31/1997 $10,061 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,286 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,655 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,494 $12,290 $10,476 $10,497 $10,351
9/30/1997 $10,966 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,632 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,660 $13,110 $10,115 $10,856 $10,484
12/31/1997 $10,771 $13,335 $10,206 $10,965 $10,530
1/31/1998 $10,720 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,119 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,451 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,513 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,318 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,318 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,051 $15,529 $11,970 $11,420 $10,862
8/31/1998 $9,943 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,164 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,381 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,619 $16,212 $11,812 $11,882 $11,048
12/31/1998 $10,788 $17,146 $12,281 $11,918 $11,094
1/31/1999 $10,884 $17,862 $12,247 $12,003 $11,137
2/28/1999 $10,670 $17,307 $11,958 $11,794 $11,172
3/31/1999 $10,909 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,241 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,134 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,351 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,243 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,265 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,244 $18,066 $13,356 $11,834 $11,488
10/31/1999 $11,667 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,481 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,727 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,561 $19,711 $14,643 $11,781 $11,677
2/29/2000 $15,067 $19,338 $15,040 $11,924 $11,730
3/31/2000 $14,767 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,055 $20,590 $14,806 $12,046 $11,849
5/31/2000 $13,665 $20,169 $14,448 $12,041 $11,913
6/30/2000 $14,514 $20,666 $15,016 $12,291 $11,964
7/31/2000 $14,369 $20,343 $14,389 $12,403 $12,019
8/31/2000 $15,163 $21,606 $14,517 $12,583 $12,082
9/30/2000 $14,828 $20,466 $13,813 $12,662 $12,148
10/31/2000 $14,286 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,124 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,577 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,063 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,311 $17,754 $12,438 $13,527 $12,478
3/31/2001 $12,795 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,434 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,504 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,375 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,212 $17,429 $11,305 $13,977 $12,720
8/31/2001 $12,908 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,956 $15,020 $9,908 $14,302 $12,818
10/31/2001 $12,380 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,803 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,009 $16,625 $10,599 $14,308 $12,899
1/31/2002 $12,961 $16,383 $10,037 $14,424 $12,917
2/28/2002 $12,876 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,260 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,224 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,139 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,649 $14,439 $10,453 $14,851 $13,012
7/31/2002 $11,932 $13,313 $9,422 $15,030 $13,031
8/31/2002 $12,017 $13,401 $9,403 $15,284 $13,050
9/30/2002 $11,453 $11,946 $8,395 $15,531 $13,071
10/31/2002 $11,795 $12,996 $8,847 $15,461 $13,091
11/30/2002 $12,210 $13,760 $9,250 $15,456 $13,111
12/31/2002 $12,030 $12,952 $8,939 $15,776 $13,125
1/31/2003 $11,943 $12,613 $8,567 $15,789 $13,139
2/28/2003 $11,869 $12,424 $8,371 $16,008 $13,151
3/31/2003 $11,831 $12,543 $8,213 $15,995 $13,165
4/30/2003 $12,387 $13,577 $9,027 $16,127 $13,178
5/31/2003 $12,993 $14,292 $9,583 $16,428 $13,192
6/30/2003 $13,095 $14,474 $9,820 $16,395 $13,208
7/31/2003 $13,181 $14,730 $10,059 $15,844 $13,217
8/31/2003 $13,578 $15,016 $10,304 $15,949 $13,227
9/30/2003 $13,621 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,093 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,379 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,722 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,860 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,023 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,059 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,595 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,745 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,958 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,656 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,769 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,088 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,328 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,821 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,142 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,849 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,180 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,911 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,656 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,962 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,163 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,521 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,585 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,752 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,431 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,867 $19,377 $16,358 $17,387 $13,765
12/31/2005 $17,101 $19,384 $17,120 $17,552 $13,809
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS B 12/31/05
- ------------------------------------------
1-Year +1.18%
- ------------------------------------------
Since Inception (12/1/03) +6.37%
- ------------------------------------------
ClASS B (12/1/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Templeton Lehman Brothers U.S.
Moderate S&P 500 MSCI EAFE U.S. Aggregate Treasury
Date Target Fund Index(6) Index(6) Index(6) Bills(6)
---------- ------------------ -------- --------- --------------- --------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,189 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,284 $10,717 $10,935 $10,183 $10,016
2/29/2004 $10,389 $10,866 $11,189 $10,293 $10,023
3/31/2004 $10,410 $10,702 $11,257 $10,370 $10,031
4/30/2004 $10,088 $10,534 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,327 $10,886 $11,306 $10,117 $10,050
7/31/2004 $10,110 $10,526 $10,941 $10,217 $10,059
8/31/2004 $10,188 $10,568 $10,991 $10,412 $10,069
9/30/2004 $10,393 $10,683 $11,280 $10,440 $10,080
10/31/2004 $10,550 $10,846 $11,666 $10,528 $10,092
11/30/2004 $10,890 $11,285 $12,466 $10,444 $10,102
12/31/2004 $11,098 $11,668 $13,013 $10,540 $10,122
1/31/2005 $10,896 $11,384 $12,775 $10,606 $10,136
2/28/2005 $11,115 $11,624 $13,330 $10,544 $10,151
3/31/2005 $10,917 $11,418 $13,001 $10,489 $10,175
4/30/2005 $10,742 $11,201 $12,710 $10,631 $10,196
5/31/2005 $10,944 $11,558 $12,729 $10,746 $10,220
6/30/2005 $11,079 $11,574 $12,903 $10,805 $10,243
7/31/2005 $11,317 $12,004 $13,299 $10,707 $10,265
8/31/2005 $11,352 $11,895 $13,639 $10,844 $10,293
9/30/2005 $11,454 $11,991 $14,250 $10,732 $10,323
10/31/2005 $11,225 $11,791 $13,834 $10,647 $10,347
11/30/2005 $11,516 $12,237 $14,177 $10,694 $10,381
12/31/2005 $11,373 $12,241 $14,837 $10,796 $10,414
Annual Report | 21
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS C 12/31/05
- ------------------------------------------
1-Year +4.25%
- ------------------------------------------
5-Year +3.95%
- ------------------------------------------
Since Inception (12/31/96) +5.97%
- ------------------------------------------
CLASS C (12/31/96-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lehman Brothers U.S.
Franklin Templeton Moderate S&P 500 MSCI EAFE U.S. Aggregate Treasury
Date Target Fund Index(6) Index(6) Index(6) Bills(6)
---------- --------------------------- ------- ---------- --------------- --------
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,260 $10,624 $9,652 $10,031 $10,045
2/28/1997 $10,250 $10,708 $9,813 $10,056 $10,083
3/31/1997 $10,101 $10,269 $9,850 $9,944 $10,126
4/30/1997 $10,181 $10,881 $9,905 $10,093 $10,172
5/31/1997 $10,581 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,814 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,184 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,014 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,492 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,139 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,169 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,289 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,213 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,634 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,969 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,012 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,818 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,799 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,518 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,350 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,580 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,797 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,025 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,202 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,292 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,067 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,303 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,640 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,517 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,733 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,620 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,631 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,609 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,040 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,867 $19,600 $14,343 $11,877 $11,579
12/31/1999 $14,148 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,963 $19,711 $14,643 $11,781 $11,677
2/29/2000 $15,499 $19,338 $15,040 $11,924 $11,730
3/31/2000 $15,192 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,451 $20,590 $14,806 $12,046 $11,849
5/31/2000 $14,033 $20,169 $14,448 $12,041 $11,913
6/30/2000 $14,913 $20,666 $15,016 $12,291 $11,964
7/31/2000 $14,738 $20,343 $14,389 $12,403 $12,019
8/31/2000 $15,553 $21,606 $14,517 $12,583 $12,082
9/30/2000 $15,199 $20,466 $13,813 $12,662 $12,148
10/31/2000 $14,626 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,431 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,889 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,380 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,601 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,064 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,713 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,773 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,627 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,458 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,145 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,162 $15,020 $9,908 $14,302 $12,818
10/31/2001 $12,586 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,999 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,203 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,140 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,054 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,446 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,396 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,297 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,793 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,071 $13,313 $9,422 $15,030 $13,031
8/31/2002 $12,133 $13,401 $9,403 $15,284 $13,050
9/30/2002 $11,569 $11,946 $8,395 $15,531 $13,071
10/31/2002 $11,894 $12,996 $8,847 $15,461 $13,091
11/30/2002 $12,319 $13,760 $9,250 $15,456 $13,111
12/31/2002 $12,120 $12,952 $8,939 $15,776 $13,125
1/31/2003 $12,019 $12,613 $8,567 $15,789 $13,139
2/28/2003 $11,943 $12,424 $8,371 $16,008 $13,151
3/31/2003 $11,900 $12,543 $8,213 $15,995 $13,165
4/30/2003 $12,442 $13,577 $9,027 $16,127 $13,178
5/31/2003 $13,047 $14,292 $9,583 $16,428 $13,192
6/30/2003 $13,142 $14,474 $9,820 $16,395 $13,208
7/31/2003 $13,217 $14,730 $10,059 $15,844 $13,217
8/31/2003 $13,608 $15,016 $10,304 $15,949 $13,227
9/30/2003 $13,654 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,109 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,387 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,728 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,855 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,007 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,026 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,568 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,695 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,909 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,591 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,693 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,001 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,230 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,715 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,014 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,719 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,039 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,762 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,505 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,801 $18,302 $14,688 $17,471 $13,552
6/30/2005 $15,986 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,333 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,385 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,534 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,199 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,624 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,854 $19,384 $17,120 $17,552 $13,809
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS R 12/31/05
- ------------------------------------------
1-Year +4.73%
- ------------------------------------------
3-Year +12.19%
- ------------------------------------------
Since Inception (1/1/02) +6.80%
- ------------------------------------------
CLASS R (1/1/02-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lehman Brothers U.S.
Franklin Templeton Moderate S&P 500 MSCI EAFE U.S. Aggregate Treasury
Date Target Fund Index(6) Index(6) Index(6) Bills(6)
---------- --------------------------- ------- ---------- --------------- --------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $9,963 $9,854 $9,469 $10,081 $10,014
2/28/2002 $9,898 $9,664 $9,536 $10,179 $10,027
3/31/2002 $10,191 $10,028 $10,057 $10,009 $10,042
4/30/2002 $10,163 $9,420 $10,130 $10,203 $10,057
5/31/2002 $10,098 $9,351 $10,267 $10,290 $10,073
6/30/2002 $9,712 $8,685 $9,862 $10,379 $10,088
7/31/2002 $9,170 $8,008 $8,889 $10,504 $10,102
8/31/2002 $9,226 $8,061 $8,871 $10,682 $10,117
9/30/2002 $8,795 $7,185 $7,921 $10,855 $10,133
10/31/2002 $9,048 $7,817 $8,347 $10,805 $10,149
11/30/2002 $9,368 $8,277 $8,727 $10,802 $10,165
12/31/2002 $9,220 $7,791 $8,434 $11,025 $10,175
1/31/2003 $9,154 $7,587 $8,083 $11,035 $10,186
2/28/2003 $9,097 $7,473 $7,898 $11,188 $10,195
3/31/2003 $9,074 $7,545 $7,749 $11,179 $10,207
4/30/2003 $9,492 $8,167 $8,517 $11,271 $10,217
5/31/2003 $9,957 $8,596 $9,041 $11,481 $10,227
6/30/2003 $10,030 $8,706 $9,265 $11,459 $10,240
7/31/2003 $10,097 $8,860 $9,491 $11,073 $10,247
8/31/2003 $10,392 $9,032 $9,721 $11,147 $10,255
9/30/2003 $10,429 $8,937 $10,023 $11,442 $10,263
10/31/2003 $10,782 $9,442 $10,648 $11,335 $10,272
11/30/2003 $11,001 $9,525 $10,887 $11,362 $10,280
12/31/2003 $11,266 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,371 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,487 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,510 $10,194 $12,255 $11,783 $10,312
4/30/2004 $11,163 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,269 $10,171 $12,040 $11,431 $10,326
6/30/2004 $11,434 $10,369 $12,308 $11,495 $10,331
7/31/2004 $11,203 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,280 $10,066 $11,966 $11,831 $10,351
9/30/2004 $11,517 $10,175 $12,280 $11,863 $10,363
10/31/2004 $11,701 $10,331 $12,700 $11,962 $10,375
11/30/2004 $12,078 $10,749 $13,571 $11,867 $10,385
12/31/2004 $12,314 $11,114 $14,167 $11,976 $10,405
1/31/2005 $12,090 $10,843 $13,908 $12,051 $10,420
2/28/2005 $12,343 $11,071 $14,512 $11,980 $10,436
3/31/2005 $12,133 $10,876 $14,153 $11,919 $10,460
4/30/2005 $11,938 $10,669 $13,837 $12,080 $10,482
5/31/2005 $12,172 $11,009 $13,858 $12,211 $10,506
6/30/2005 $12,328 $11,024 $14,047 $12,277 $10,530
7/31/2005 $12,592 $11,434 $14,479 $12,165 $10,553
8/31/2005 $12,641 $11,330 $14,849 $12,321 $10,582
9/30/2005 $12,760 $11,422 $15,513 $12,194 $10,612
10/31/2005 $12,515 $11,231 $15,061 $12,098 $10,636
11/30/2005 $12,848 $11,655 $15,433 $12,151 $10,672
12/31/2005 $13,007 $11,660 $16,153 $12,267 $10,705
22 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
ADVISOR CLASS(5) 12/31/05
- ------------------------------------------
1-Year +6.01%
- ------------------------------------------
5-Year +4.74%
- ------------------------------------------
Since Inception (12/31/96) +6.85%
- ------------------------------------------
ADVISOR CLASS (12/31/96-12/31/05)(5)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lehman Brothers U.S.
Franklin Templeton Moderate S&P 500 MSCI EAFE U.S. Aggregate Treasury
Date Target Fund Index(6) Index(6) Index(6) Bills(6)
---------- --------------------------- ------- ---------- --------------- --------
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,260 $10,624 $9,652 $10,031 $10,045
2/28/1997 $10,260 $10,708 $9,813 $10,056 $10,083
3/31/1997 $10,174 $10,269 $9,850 $9,944 $10,126
4/30/1997 $10,264 $10,881 $9,905 $10,093 $10,172
5/31/1997 $10,675 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,914 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,305 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,134 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,634 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,280 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,311 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,428 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,374 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,797 $14,454 $11,362 $11,098 $10,623
3/31/1998 $12,150 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,215 $15,347 $11,810 $11,194 $10,725
5/31/1998 $12,009 $15,083 $11,756 $11,300 $10,771
6/30/1998 $12,008 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,725 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,549 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,784 $14,137 $10,171 $11,878 $10,970
10/31/1998 $11,014 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,266 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,446 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,548 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,321 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,574 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,927 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,813 $18,256 $12,303 $11,792 $11,305
6/30/1999 $12,044 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,929 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,952 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,930 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,379 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,243 $19,600 $14,343 $11,877 $11,579
12/31/1999 $14,564 $20,753 $15,633 $11,820 $11,632
1/31/2000 $14,388 $19,711 $14,643 $11,781 $11,677
2/29/2000 $15,987 $19,338 $15,040 $11,924 $11,730
3/31/2000 $15,668 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,912 $20,590 $14,806 $12,046 $11,849
5/31/2000 $14,499 $20,169 $14,448 $12,041 $11,913
6/30/2000 $15,399 $20,666 $15,016 $12,291 $11,964
7/31/2000 $15,245 $20,343 $14,389 $12,403 $12,019
8/31/2000 $16,088 $21,606 $14,517 $12,583 $12,082
9/30/2000 $15,733 $20,466 $13,813 $12,662 $12,148
10/31/2000 $15,158 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,925 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,405 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,921 $19,534 $13,445 $13,410 $12,428
2/28/2001 $14,123 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,576 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,254 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,328 $18,042 $12,000 $13,620 $12,641
6/30/2001 $14,191 $17,603 $11,514 $13,671 $12,678
7/31/2001 $14,018 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,695 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,685 $15,020 $9,908 $14,302 $12,818
10/31/2001 $13,135 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,584 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,802 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,751 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,661 $16,067 $10,107 $14,564 $12,934
3/31/2002 $14,069 $16,671 $10,659 $14,322 $12,953
4/30/2002 $14,031 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,941 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,420 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,659 $13,313 $9,422 $15,030 $13,031
8/31/2002 $12,750 $13,401 $9,403 $15,284 $13,050
9/30/2002 $12,151 $11,946 $8,395 $15,531 $13,071
10/31/2002 $12,514 $12,996 $8,847 $15,461 $13,091
11/30/2002 $12,954 $13,760 $9,250 $15,456 $13,111
12/31/2002 $12,763 $12,952 $8,939 $15,776 $13,125
1/31/2003 $12,672 $12,613 $8,567 $15,789 $13,139
2/28/2003 $12,593 $12,424 $8,371 $16,008 $13,151
3/31/2003 $12,553 $12,543 $8,213 $15,995 $13,165
4/30/2003 $13,143 $13,577 $9,027 $16,127 $13,178
5/31/2003 $13,786 $14,292 $9,583 $16,428 $13,192
6/30/2003 $13,894 $14,474 $9,820 $16,395 $13,208
7/31/2003 $13,986 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,406 $15,016 $10,304 $15,949 $13,227
9/30/2003 $14,452 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,953 $15,697 $11,286 $16,219 $13,249
11/30/2003 $15,256 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,620 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,767 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,940 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,978 $16,947 $12,989 $16,860 $13,301
4/30/2004 $15,485 $16,682 $12,706 $16,421 $13,311
5/31/2004 $15,645 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,870 $17,239 $13,046 $16,448 $13,326
7/31/2004 $15,550 $16,668 $12,624 $16,611 $13,338
8/31/2004 $15,670 $16,735 $12,683 $16,928 $13,352
9/30/2004 $16,008 $16,916 $13,016 $16,974 $13,367
10/31/2004 $16,263 $17,175 $13,461 $17,116 $13,382
11/30/2004 $16,786 $17,870 $14,384 $16,979 $13,395
12/31/2004 $17,126 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,816 $18,027 $14,741 $17,243 $13,440
2/28/2005 $17,167 $18,406 $15,381 $17,142 $13,461
3/31/2005 $16,882 $18,081 $15,001 $17,053 $13,492
4/30/2005 $16,611 $17,738 $14,665 $17,284 $13,521
5/31/2005 $16,936 $18,302 $14,688 $17,471 $13,552
6/30/2005 $17,149 $18,328 $14,888 $17,567 $13,582
7/31/2005 $17,529 $19,009 $15,346 $17,407 $13,612
8/31/2005 $17,597 $18,836 $15,738 $17,630 $13,649
9/30/2005 $17,774 $18,988 $16,442 $17,448 $13,688
10/31/2005 $17,433 $18,672 $15,963 $17,310 $13,720
11/30/2005 $17,896 $19,377 $16,358 $17,387 $13,765
12/31/2005 $18,155 $19,384 $17,120 $17,552 $13,809
ENDNOTES
THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND BECAUSE IT INVESTS IN 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 would have differed.
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) The Fund's manager and administrator have agreed in advance to waive all
or a portion of their fees and to make certain payments to reduce
expenses. If the manager and administrator had not taken this action, the
Fund's total returns would have been lower. The manager and 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) 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) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), aggregate total return of Advisor Class shares
was +0.68%. Aggregate total return represents the change in value of an
investment for the period indicated.
(6) Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 17 for
descriptions of the S&P 500, the MSCI EAFE Index and the LB U.S. Aggregate
Index. The value of Treasuries, if held to maturity, is fixed; principal
is guaranteed and interest is fixed.
Annual Report | 23
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 six months 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.
24 | 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 ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/05 VALUE 12/31/05 PERIOD* 7/1/05-12/31/05
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,058.00 $3.11
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.18 $3.06
- --------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,053.50 $6.99
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.40 $6.87
- --------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,054.30 $6.94
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.45 $6.82
- --------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,056.00 $4.40
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.92 $4.33
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
Actual (12/1/05-12/31/05) $1,000 $1,014.50 $0.21
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.44 $1.79
- --------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.60%; B: 1.35%; C: 1.34%; R: 0.85%; and
Advisor: 0.35%), multiplied by the average account value over the period,
multiplied by 184/365 for Classes A, B, C, R (actual and hypothetical) and
Advisor Class (hypothetical only) to reflect the one-half year period. For
actual Advisor Class expenses, the annualized expense ratio is 0.25% and
the multiplier is 31/365 to reflect the number of days since inception.
Annual Report | 25
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.(1)
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 12/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity .................... 58.5%
Primarily Foreign Equity ..................... 25.2%
Primarily Domestic Fixed Income ............. 10.6%
Primarily Foreign Fixed Income ............... 4.5%
Short-Term Investments & Other Net Assets .... 1.2%
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Growth Target Fund's annual
report for the fiscal year ended December 31, 2005.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A posted a +8.47% cumulative total
return for the 12 months under review. The Fund outperformed its hybrid
benchmark, which comprised a weighted combination of the S&P 500 and the 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
(1) The risk/reward potential is based on the Fund's goal and level of risk.
It is not indicative of the Fund's actual or implied performance or
portfolio composition, which may change on a continuous basis.
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 53.
26 | Annual Report
period, the hybrid benchmark returned +6.65%.(2) You can find the Fund's
long-term performance data in the Performance Summary beginning on page 29.
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 one another. 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.
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 69.9% 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, 2005, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund
12/31/05
- -------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- -------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 17.8%
- -------------------------------------------------------------------
Franklin Mutual Shares Fund
- - Class Z 13.2%
- -------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 12.6%
- -------------------------------------------------------------------
Franklin Mutual European Fund
- - Class Z 12.4%
- -------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 7.6%
- -------------------------------------------------------------------
Franklin Capital Growth Fund
- - Advisor Class 6.4%
- -------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 4.5%
- -------------------------------------------------------------------
Franklin Real Estate Securities Fund
- - Advisor Class 4.4%
- -------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 4.2%
- -------------------------------------------------------------------
Franklin Natural Resources Fund
- - Advisor Class 4.1%
- -------------------------------------------------------------------
(2) Sources: Standard & Poor's Micropal; Lehman Brothers Inc. 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 markets, 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 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 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.
Annual Report | 27
and value styles. Franklin Small Cap Growth Fund II - Advisor Class,
representing 17.8% of the Fund's total net assets, was our largest equity fund
weighting at period-end. On the fixed income side, domestic exposure was 70% 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 4.5% of total net assets.
Our largest primarily domestic growth fund holding, Franklin Small Cap Growth
Fund II - Advisor Class, underperformed the S&P 500 during the 12 month
reporting period, while our largest primarily domestic value fund holding,
Mutual Shares Fund - Class Z, outperformed the S&P 500. Our largest foreign
equity fund holding, Mutual European Fund - Class Z, outperformed the MSCI EAFE
Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
underperformed the LB U.S. Aggregate Index.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
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, 2005, the U.S. dollar increased in value relative to most
non-U.S. currencies. As a result, the Fund's performance was negatively affected
by the portion of the portfolio's underlying funds' investments in securities
with non-U.S. currency exposure.
Thank you for your continued participation in Franklin Templeton Growth Target
Fund. We look forward to serving your future investment needs.
[PHOTO] /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, 2005, 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.
28 | Annual Report
PERFORMANCE SUMMARY AS OF 12/31/05
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
that a shareholder would pay 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 (SYMBOL: FGTIX) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.93 $ 14.10 $ 13.17
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1737
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: N/A) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.88 $ 13.97 $ 13.09
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1192
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTGTX) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.88 $ 13.97 $ 13.09
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1183
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FGTRX) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.91 $ 14.02 $ 13.11
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1507
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/05 12/1/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$ 0.08 $ 14.10 $ 14.18
- --------------------------------------------------------------------------------
DISTRIBUTIONS (12/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1574
- --------------------------------------------------------------------------------
Annual Report | 29
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 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +8.47% +18.86% +79.75%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +2.26% +2.30% +6.03%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,226 $11,206 $16,942
- --------------------------------------------------------------------------------
CLASS B 1-YEAR INCEPTION (12/1/03)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +7.63% +20.96%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +3.63% +8.26%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,363 $11,796
- --------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +7.63% +14.48% +68.36%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +6.63% +2.74% +5.96%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,663 $11,448 $16,836
- --------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (1/1/02)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +8.10% +55.86% +32.49%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +7.10% +15.94% +7.30%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,710 $15,586 $13,249
- --------------------------------------------------------------------------------
ADVISOR CLASS(5) 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +8.48% +18.87% +79.77%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +8.48% +3.52% +6.73%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,848 $11,887 $17,977
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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.
30 | 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 12/31/05
- -----------------------------------
1-Year +2.26%
- -----------------------------------
5-Year +2.30%
- -----------------------------------
Since Inception (12/31/96) +6.03%
- -----------------------------------
CLASS A (12/31/96-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Templeton
Growth Target S&P 500 MSCI EAFE Lehman Brothers U.S. U.S. Treasury
Date Fund Index(6) Index(6) Aggregate Index(6) Bills(6)
- ---------- ------------------ -------- --------- ------------------- -------------
12/31/1996 $9,425 $10,000 $10,000 $10,000 $10,000
1/31/1997 $9,774 $10,624 $9,652 $10,031 $10,045
2/28/1997 $9,708 $10,708 $9,813 $10,056 $10,083
3/31/1997 $9,510 $10,269 $9,850 $9,944 $10,126
4/30/1997 $9,585 $10,881 $9,905 $10,093 $10,172
5/31/1997 $10,047 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,311 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,679 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,490 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,037 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,564 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,573 $13,110 $10,115 $10,856 $10,484
12/31/1997 $10,655 $13,335 $10,206 $10,965 $10,530
1/31/1998 $10,616 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,107 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,490 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,559 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,294 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,264 $15,695 $11,847 $11,396 $10,815
7/31/1998 $10,960 $15,529 $11,970 $11,420 $10,862
8/31/1998 $9,614 $13,286 $10,490 $11,606 $10,914
9/30/1998 $9,848 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,134 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,420 $16,212 $11,812 $11,882 $11,048
12/31/1998 $10,643 $17,146 $12,281 $11,918 $11,094
1/31/1999 $10,809 $17,862 $12,247 $12,003 $11,137
2/28/1999 $10,581 $17,307 $11,958 $11,794 $11,172
3/31/1999 $10,892 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,326 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,192 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,523 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,388 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,450 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,444 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,049 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,133 $19,600 $14,343 $11,877 $11,579
12/31/1999 $15,025 $20,753 $15,633 $11,820 $11,632
1/31/2000 $14,776 $19,711 $14,643 $11,781 $11,677
2/29/2000 $17,097 $19,338 $15,040 $11,924 $11,730
3/31/2000 $16,606 $21,228 $15,626 $12,081 $11,789
4/30/2000 $15,488 $20,590 $14,806 $12,046 $11,849
5/31/2000 $14,869 $20,169 $14,448 $12,041 $11,913
6/30/2000 $16,093 $20,666 $15,016 $12,291 $11,964
7/31/2000 $15,778 $20,343 $14,389 $12,403 $12,019
8/31/2000 $17,018 $21,606 $14,517 $12,583 $12,082
9/30/2000 $16,472 $20,466 $13,813 $12,662 $12,148
10/31/2000 $15,607 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,725 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,254 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,905 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,558 $17,754 $12,438 $13,527 $12,478
3/31/2001 $12,750 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,637 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,681 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,432 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,105 $17,429 $11,305 $13,977 $12,720
8/31/2001 $12,576 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,214 $15,020 $9,908 $14,302 $12,818
10/31/2001 $11,756 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,343 $16,481 $10,536 $14,400 $12,878
12/31/2001 $12,639 $16,625 $10,599 $14,308 $12,899
1/31/2002 $12,523 $16,383 $10,037 $14,424 $12,917
2/28/2002 $12,350 $16,067 $10,107 $14,564 $12,934
3/31/2002 $12,928 $16,671 $10,659 $14,322 $12,953
4/30/2002 $12,743 $15,661 $10,736 $14,599 $12,973
5/31/2002 $12,604 $15,546 $10,882 $14,723 $12,993
6/30/2002 $11,933 $14,439 $10,453 $14,851 $13,012
7/31/2002 $10,951 $13,313 $9,422 $15,030 $13,031
8/31/2002 $10,985 $13,401 $9,403 $15,284 $13,050
9/30/2002 $10,199 $11,946 $8,395 $15,531 $13,071
10/31/2002 $10,627 $12,996 $8,847 $15,461 $13,091
11/30/2002 $11,147 $13,760 $9,250 $15,456 $13,111
12/31/2002 $10,787 $12,952 $8,939 $15,776 $13,125
1/31/2003 $10,635 $12,613 $8,567 $15,789 $13,139
2/28/2003 $10,495 $12,424 $8,371 $16,008 $13,151
3/31/2003 $10,460 $12,543 $8,213 $15,995 $13,165
4/30/2003 $11,126 $13,577 $9,027 $16,127 $13,178
5/31/2003 $11,839 $14,292 $9,583 $16,428 $13,192
6/30/2003 $11,968 $14,474 $9,820 $16,395 $13,208
7/31/2003 $12,225 $14,730 $10,059 $15,844 $13,217
8/31/2003 $12,727 $15,016 $10,304 $15,949 $13,227
9/30/2003 $12,657 $14,857 $10,623 $16,372 $13,239
10/31/2003 $13,323 $15,697 $11,286 $16,219 $13,249
11/30/2003 $13,686 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,036 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,212 $16,971 $12,617 $16,555 $13,281
2/29/2004 $14,389 $17,207 $12,911 $16,734 $13,290
3/31/2004 $14,413 $16,947 $12,989 $16,860 $13,301
4/30/2004 $13,906 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,095 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,389 $17,239 $13,046 $16,448 $13,326
7/31/2004 $13,941 $16,668 $12,624 $16,611 $13,338
8/31/2004 $13,988 $16,735 $12,683 $16,928 $13,352
9/30/2004 $14,366 $16,916 $13,016 $16,974 $13,367
10/31/2004 $14,625 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,249 $17,870 $14,384 $16,979 $13,395
12/31/2004 $15,619 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,228 $18,027 $14,741 $17,243 $13,440
2/28/2005 $15,667 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,335 $18,081 $15,001 $17,053 $13,492
4/30/2005 $14,967 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,383 $18,302 $14,688 $17,471 $13,552
6/30/2005 $15,656 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,167 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,202 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,496 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,068 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,662 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,942 $19,384 $17,120 $17,552 $13,809
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 12/31/05
- -----------------------------------
1-Year +3.63%
- -----------------------------------
Since Inception (12/1/03) +8.26%
- -----------------------------------
CLASS B (12/1/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Templeton
Growth Target S&P 500 MSCI EAFE Lehman Brothers U.S. U.S. Treasury
Date Fund Index(6) Index(6) Aggregate Index(6) Bills(6)
- ---------- ------------------ -------- --------- ------------------- -------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,175 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,295 $10,717 $10,935 $10,183 $10,016
2/29/2004 $10,415 $10,866 $11,189 $10,293 $10,023
3/31/2004 $10,424 $10,702 $11,257 $10,370 $10,031
4/30/2004 $10,047 $10,534 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,389 $10,886 $11,306 $10,117 $10,050
7/31/2004 $10,056 $10,526 $10,941 $10,217 $10,059
8/31/2004 $10,090 $10,568 $10,991 $10,412 $10,069
9/30/2004 $10,355 $10,683 $11,280 $10,440 $10,080
10/31/2004 $10,535 $10,846 $11,666 $10,528 $10,092
11/30/2004 $10,971 $11,285 $12,466 $10,444 $10,102
12/31/2004 $11,238 $11,668 $13,013 $10,540 $10,122
1/31/2005 $10,946 $11,384 $12,775 $10,606 $10,136
2/28/2005 $11,255 $11,624 $13,330 $10,544 $10,151
3/31/2005 $11,012 $11,418 $13,001 $10,489 $10,175
4/30/2005 $10,737 $11,201 $12,710 $10,631 $10,196
5/31/2005 $11,029 $11,558 $12,729 $10,746 $10,220
6/30/2005 $11,218 $11,574 $12,903 $10,805 $10,243
7/31/2005 $11,578 $12,004 $13,299 $10,707 $10,265
8/31/2005 $11,596 $11,895 $13,639 $10,844 $10,293
9/30/2005 $11,793 $11,991 $14,250 $10,732 $10,323
10/31/2005 $11,484 $11,791 $13,834 $10,647 $10,347
11/30/2005 $11,913 $12,237 $14,177 $10,694 $10,381
12/31/2005 $11,796 $12,241 $14,837 $10,796 $10,414
Annual Report | 31
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 12/31/05
- -----------------------------------
1-Year +6.63%
- -----------------------------------
5-Year +2.74%
- -----------------------------------
Since Inception (12/31/96) +5.96%
- -----------------------------------
CLASS C (12/31/96-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Templeton
Growth Target S&P 500 MSCI EAFE Lehman Brothers U.S. U.S. Treasury
Date Fund Index(6) Index(6) Aggregate Index(6) Bills(6)
- ---------- ------------------ -------- --------- ------------------- -------------
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,360 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,290 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $10,090 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $10,170 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,650 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,910 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,300 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,090 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,664 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,163 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,173 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,237 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,196 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,705 $14,454 $11,362 $11,098 $10,623
3/31/1998 $12,099 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,162 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,871 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,840 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,507 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,085 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,338 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,629 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,920 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,149 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,312 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,073 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,378 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,834 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,682 $18,256 $12,303 $11,792 $11,305
6/30/1999 $12,019 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,867 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,932 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,917 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,538 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,660 $19,600 $14,343 $11,877 $11,579
12/31/1999 $15,616 $20,753 $15,633 $11,820 $11,632
1/31/2000 $15,356 $19,711 $14,643 $11,781 $11,677
2/29/2000 $17,755 $19,338 $15,040 $11,924 $11,730
3/31/2000 $17,225 $21,228 $15,626 $12,081 $11,789
4/30/2000 $16,060 $20,590 $14,806 $12,046 $11,849
5/31/2000 $15,403 $20,169 $14,448 $12,041 $11,913
6/30/2000 $16,672 $20,666 $15,016 $12,291 $11,964
7/31/2000 $16,333 $20,343 $14,389 $12,403 $12,019
8/31/2000 $17,612 $21,606 $14,517 $12,583 $12,082
9/30/2000 $17,037 $20,466 $13,813 $12,662 $12,148
10/31/2000 $16,128 $20,379 $13,490 $12,746 $12,209
11/30/2000 $14,173 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,706 $18,865 $13,451 $13,194 $12,347
1/31/2001 $15,380 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,974 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,125 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,044 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,078 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,812 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,463 $17,429 $11,305 $13,977 $12,720
8/31/2001 $12,917 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,519 $15,020 $9,908 $14,302 $12,818
10/31/2001 $12,055 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,648 $16,481 $10,536 $14,400 $12,878
12/31/2001 $12,945 $16,625 $10,599 $14,308 $12,899
1/31/2002 $12,815 $16,383 $10,037 $14,424 $12,917
2/28/2002 $12,636 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,219 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,029 $15,661 $10,736 $14,599 $12,973
5/31/2002 $12,874 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,185 $14,439 $10,453 $14,851 $13,012
7/31/2002 $11,174 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $11,198 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $10,390 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $10,817 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $11,341 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $10,980 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $10,813 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $10,670 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $10,610 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $11,278 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $11,993 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $12,124 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $12,375 $14,730 $10,059 $15,844 $13,217
8/31/2003 $12,875 $15,016 $10,304 $15,949 $13,227
9/30/2003 $12,804 $14,857 $10,623 $16,372 $13,239
10/31/2003 $13,459 $15,697 $11,286 $16,219 $13,249
11/30/2003 $13,817 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,161 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,329 $16,971 $12,617 $16,555 $13,281
2/29/2004 $14,508 $17,207 $12,911 $16,734 $13,290
3/31/2004 $14,508 $16,947 $12,989 $16,860 $13,301
4/30/2004 $13,994 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,185 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,460 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,006 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,054 $16,735 $12,683 $16,928 $13,352
9/30/2004 $14,412 $16,916 $13,016 $16,974 $13,367
10/31/2004 $14,663 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,273 $17,870 $14,384 $16,979 $13,395
12/31/2004 $15,643 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,237 $18,027 $14,741 $17,243 $13,440
2/28/2005 $15,667 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,327 $18,081 $15,001 $17,053 $13,492
4/30/2005 $14,945 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,351 $18,302 $14,688 $17,471 $13,552
6/30/2005 $15,614 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,116 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,152 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,415 $18,988 $16,442 $17,448 $13,688
10/31/2005 $15,985 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,571 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,836 $19,384 $17,120 $17,552 $13,809
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 12/31/05
- -----------------------------------
1-Year +7.10%
- -----------------------------------
3-Year +15.94%
- -----------------------------------
Since Inception (1/1/02) +7.30%
- -----------------------------------
CLASS R (1/1/02-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Templeton
Growth Target S&P 500 MSCI EAFE Lehman Brothers U.S. U.S. Treasury
Date Fund Index(6) Index(6) Aggregate Index(6) Bills(6)
- ---------- ------------------ -------- --------- ------------------- -------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,908 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,771 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,219 $10,028 $10,057 $10,009 $10,042
4/30/2002 $10,082 $ 9,420 $10,130 $10,203 $10,057
5/31/2002 $ 9,963 $ 9,351 $10,267 $10,290 $10,073
6/30/2002 $ 9,442 $ 8,685 $ 9,862 $10,379 $10,088
7/31/2002 $ 8,664 $ 8,008 $ 8,889 $10,504 $10,102
8/31/2002 $ 8,682 $ 8,061 $ 8,871 $10,682 $10,117
9/30/2002 $ 8,051 $ 7,185 $ 7,921 $10,855 $10,133
10/31/2002 $ 8,390 $ 7,817 $ 8,347 $10,805 $10,149
11/30/2002 $ 8,792 $ 8,277 $ 8,727 $10,802 $10,165
12/31/2002 $ 8,516 $ 7,791 $ 8,434 $11,025 $10,175
1/31/2003 $ 8,395 $ 7,587 $ 8,083 $11,035 $10,186
2/28/2003 $ 8,284 $ 7,473 $ 7,898 $11,188 $10,195
3/31/2003 $ 8,247 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 8,775 $ 8,167 $ 8,517 $11,271 $10,217
5/31/2003 $ 9,330 $ 8,596 $ 9,041 $11,481 $10,227
6/30/2003 $ 9,432 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $ 9,626 $ 8,860 $ 9,491 $11,073 $10,247
8/31/2003 $10,034 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $ 9,969 $ 8,937 $10,023 $11,442 $10,263
10/31/2003 $10,487 $ 9,442 $10,648 $11,335 $10,272
11/30/2003 $10,774 $ 9,525 $10,887 $11,362 $10,280
12/31/2003 $11,057 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,187 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,327 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,336 $10,194 $12,255 $11,783 $10,312
4/30/2004 $10,935 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,094 $10,171 $12,040 $11,431 $10,326
6/30/2004 $11,318 $10,369 $12,308 $11,495 $10,331
7/31/2004 $10,963 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,001 $10,066 $11,966 $11,831 $10,351
9/30/2004 $11,299 $10,175 $12,280 $11,863 $10,363
10/31/2004 $11,495 $10,331 $12,700 $11,962 $10,375
11/30/2004 $11,979 $10,749 $13,571 $11,867 $10,385
12/31/2004 $12,278 $11,114 $14,167 $11,976 $10,405
1/31/2005 $11,960 $10,843 $13,908 $12,051 $10,420
2/28/2005 $12,297 $11,071 $14,512 $11,980 $10,436
3/31/2005 $12,040 $10,876 $14,153 $11,919 $10,460
4/30/2005 $11,740 $10,669 $13,837 $12,080 $10,482
5/31/2005 $12,068 $11,009 $13,858 $12,211 $10,506
6/30/2005 $12,284 $11,024 $14,047 $12,277 $10,530
7/31/2005 $12,678 $11,434 $14,479 $12,165 $10,553
8/31/2005 $12,706 $11,330 $14,849 $12,321 $10,582
9/30/2005 $12,931 $11,422 $15,513 $12,194 $10,612
10/31/2005 $12,594 $11,231 $15,061 $12,098 $10,636
11/30/2005 $13,062 $11,655 $15,433 $12,151 $10,672
12/31/2005 $13,249 $11,660 $16,153 $12,267 $10,705
32 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
ADVISOR CLASS(5) 12/31/05
- -----------------------------------
1-Year +8.48%
- -----------------------------------
5-Year +3.52%
- -----------------------------------
Since Inception (12/31/96) +6.73%
- -----------------------------------
ADVISOR CLASS (12/31/96-12/31/05)(5)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Templeton S&P 500 MSCI EAFE Lehman Brothers U.S. U.S. Treasury
Date Growth Target Index(6) Index(6) Aggregate Index(6) Bills(6)
- ---------- ------------------ -------- --------- ------------------- -------------
12/31/1996 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,370 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,300 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $10,090 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $10,170 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,660 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,940 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,330 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,130 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,710 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,208 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,218 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,305 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,264 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,785 $14,454 $11,362 $11,098 $10,623
3/31/1998 $12,191 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,264 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,983 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,951 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,628 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,201 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,449 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,752 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,056 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,293 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,468 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,227 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,556 $18,000 $12,460 $11,859 $11,220
4/30/1999 $12,017 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,874 $18,256 $12,303 $11,792 $11,305
6/30/1999 $12,226 $19,268 $12,786 $11,755 $11,347
7/31/1999 $12,083 $18,667 $13,169 $11,705 $11,394
8/31/1999 $12,149 $18,575 $13,220 $11,699 $11,438
9/30/1999 $12,142 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,784 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,934 $19,600 $14,343 $11,877 $11,579
12/31/1999 $15,942 $20,753 $15,633 $11,820 $11,632
1/31/2000 $15,677 $19,711 $14,643 $11,781 $11,677
2/29/2000 $18,140 $19,338 $15,040 $11,924 $11,730
3/31/2000 $17,619 $21,228 $15,626 $12,081 $11,789
4/30/2000 $16,432 $20,590 $14,806 $12,046 $11,849
5/31/2000 $15,776 $20,169 $14,448 $12,041 $11,913
6/30/2000 $17,075 $20,666 $15,016 $12,291 $11,964
7/31/2000 $16,740 $20,343 $14,389 $12,403 $12,019
8/31/2000 $18,056 $21,606 $14,517 $12,583 $12,082
9/30/2000 $17,477 $20,466 $13,813 $12,662 $12,148
10/31/2000 $16,559 $20,379 $13,490 $12,746 $12,209
11/30/2000 $14,562 $18,773 $12,987 $12,954 $12,276
12/31/2000 $15,123 $18,865 $13,451 $13,194 $12,347
1/31/2001 $15,814 $19,534 $13,445 $13,410 $12,428
2/28/2001 $14,385 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,528 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,468 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,516 $18,042 $12,000 $13,620 $12,641
6/30/2001 $14,251 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,905 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,343 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,898 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $12,473 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,096 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,410 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,287 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,103 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,716 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,520 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,373 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,661 $14,439 $10,453 $14,851 $13,012
7/31/2002 $11,619 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $11,655 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $10,821 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $11,275 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $11,827 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $11,445 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $11,284 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $11,135 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $11,098 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $11,805 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $12,561 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $12,698 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $12,970 $14,730 $10,059 $15,844 $13,217
8/31/2003 $13,504 $15,016 $10,304 $15,949 $13,227
9/30/2003 $13,429 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,136 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,520 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,892 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,079 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,267 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,292 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,754 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,954 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,267 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,792 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,842 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,242 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,517 $17,175 $13,461 $17,116 $13,382
11/30/2004 $16,180 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,572 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,157 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,623 $18,406 $15,381 $17,142 $13,461
3/31/2005 $16,271 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,880 $17,738 $14,665 $17,284 $13,521
5/31/2005 $16,321 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,611 $18,328 $14,888 $17,567 $13,582
7/31/2005 $17,153 $19,009 $15,346 $17,407 $13,612
8/31/2005 $17,191 $18,836 $15,738 $17,630 $13,649
9/30/2005 $17,502 $18,988 $16,442 $17,448 $13,688
10/31/2005 $17,048 $18,672 $15,963 $17,310 $13,720
11/30/2005 $17,678 $19,377 $16,358 $17,387 $13,765
12/31/2005 $17,977 $19,384 $17,120 $17,552 $13,809
ENDNOTES
THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND BECAUSE IT INVESTS IN 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 would have differed.
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) The Fund's manager and administrator have agreed in advance to waive all
or a portion of their fees and to make certain payments to reduce
expenses. If the manager and administrator had not taken this action, the
Fund's total returns would have been lower. The manager and 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) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes any current,
applicable, 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) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), aggregate total return of Advisor Class shares
was +0.54%. Aggregate total return represents the change in value of an
investment for the period indicated.
(6) Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 27 for
descriptions of the S&P 500, the MSCI EAFE Index and the LB U.S. Aggregate
Index. The value of Treasuries, if held to maturity, is fixed; principal
is guaranteed and interest is fixed.
Annual Report | 33
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 six months 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.
34 | 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 ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/05 VALUE 12/31/05 PERIOD* 7/1/05-12/31/05
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,082.10 $3.36
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.98 $3.26
- -------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,078.30 $7.28
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.20 $7.07
- -------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,078.30 $7.23
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.25 $7.02
- -------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,080.50 $4.67
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.72 $4.53
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
Actual (12/1/05-12/31/05) $1,000 $1,005.50 $0.21
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.24 $1.99
- -------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.64%; B: 1.39%; C: 1.38%; R: 0.89%; and
Advisor: 0.35%), multiplied by the average account value over the period,
multiplied by 184/365 for Classes A, B, C, R (actual and hypothetical) and
Advisor Class (hypothetical only) to reflect the one-half year period. For
actual Advisor Class expenses, the annualized expense ratio is 0.25% and
the multiplier is 31/365 to reflect the number of days since inception.
Annual Report | 35
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2005 2004(f) 2004 2003 2002 2001
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 12.48 $ 11.66 $ 10.91 $ 10.23 $ 11.30 $ 12.13
------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) .................... 0.29 0.12 0.23 0.23 0.31 0.54
Net realized and unrealized gains (losses) ...... 0.29 0.84 0.74 0.69 (0.95) (0.47)
------------------------------------------------------------------------
Total from investment operations ................. 0.58 0.96 0.97 0.92 (0.64) 0.07
------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.32) (0.14) (0.22) (0.24) (0.34) (0.56)
Net realized gains .............................. -- -- -- -- (0.09) (0.34)
------------------------------------------------------------------------
Total distributions .............................. (0.32) (0.14) (0.22) (0.24) (0.43) (0.90)
------------------------------------------------------------------------
Redemption fees .................................. --(e) --(e) --(e) -- -- --
------------------------------------------------------------------------
Net asset value, end of year ..................... $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23 $ 11.30
========================================================================
Total return(c) .................................. 4.70% 8.30% 8.89% 8.99% (5.74)% 0.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $162,079 $139,153 $117,013 $ 64,409 $ 35,991 $ 26,523
Ratios to average net assets:
Expenses(d) ..................................... 0.73% 0.82%(g) 0.85% 0.91% 0.96% 0.92%
Expenses net of waiver and payments
by affiliate(d) ............................... 0.69% 0.82%(g) 0.85% 0.91% 0.96% 0.92%
Net investment income(b) ........................ 2.31% 2.40%(g) 2.00% 2.21% 2.86% 4.61%
Portfolio turnover rate .......................... 8.16% 2.63% 3.71% 18.03% 5.75% 44.98%
(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 0.69% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
36 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
-----------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, JULY 31,
CLASS B 2005 2004(f) 2004(h)
-----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 12.46 $ 11.63 $ 11.67
-----------------------------------------------
Income from investment operations:
Net investment income(a),(b) ......................... 0.19 0.09 0.07
Net realized and unrealized gains (losses) ........... 0.29 0.84 0.04
-----------------------------------------------
Total from investment operations ...................... 0.48 0.93 0.11
-----------------------------------------------
Less distributions from net investment income ......... (0.23) (0.10) (0.15)
-----------------------------------------------
Redemption fees ....................................... --(e) --(e) --(e)
-----------------------------------------------
Net asset value, end of year .......................... $ 12.71 $ 12.46 $ 11.63
===============================================
Total return(c) ....................................... 3.87% 8.02% 0.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 6,202 $ 5,223 $ 3,567
Ratios to average net assets:
Expenses(d) .......................................... 1.48% 1.57%(g) 1.60%(g)
Expenses net of waiver and payments by affiliate(d) .. 1.44% 1.57%(g) 1.60%(g)
Net investment income(b) ............................. 1.56% 1.65%(g) 1.25%(g)
Portfolio turnover rate ............................... 8.16% 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
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 0.69% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period December 1, 2003 (effective date) to July 31, 2004.
Annual Report | See notes to financial statements. | 37
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
-------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2005 2004(f) 2004 2003 2002 2001
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 12.36 $ 11.53 $ 10.80 $ 10.14 $ 11.20 $ 12.03
-------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) .................... 0.19 0.08 0.14 0.15 0.23 0.44
Net realized and unrealized gains (losses) ...... 0.28 0.84 0.73 0.67 (0.94) (0.46)
-------------------------------------------------------------------------
Total from investment operations ................. 0.47 0.92 0.87 0.82 (0.71) (0.02)
-------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.23) (0.09) (0.14) (0.16) (0.26) (0.47)
Net realized gains .............................. -- -- -- -- (0.09) (0.34)
-------------------------------------------------------------------------
Total distributions .............................. (0.23) (0.09) (0.14) (0.16) (0.35) (0.81)
-------------------------------------------------------------------------
Redemption fees .................................. --(e) --(e) --(e) -- -- --
-------------------------------------------------------------------------
Net asset value, end of year ..................... $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14 $ 11.20
=========================================================================
Total return(c) .................................. 3.83% 8.03% 8.04% 8.20% (6.48)% (0.16)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $ 63,298 $ 59,803 $ 52,881 $ 32,344 $ 22,436 $ 17,340
Ratios to average net assets:
Expenses(d) ..................................... 1.47% 1.57%(g) 1.60% 1.66% 1.70% 1.67%
Expenses net of waiver and payments
by affiliate(d) ............................... 1.43% 1.57%(g) 1.60% 1.66% 1.70% 1.67%
Net investment income(b) ........................ 1.57% 1.65%(g) 1.25% 1.46% 2.15% 3.83%
Portfolio turnover rate .......................... 8.16% 2.63% 3.71% 18.03% 5.75% 44.98%
(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 0.69% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
38 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONTINUED)
-----------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2005 2004(f) 2004 2003 2002(h)
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.46 $ 11.63 $ 10.89 $ 10.23 $ 10.89
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ...................... 0.26 0.11 0.21 0.19 0.12
Net realized and unrealized gains (losses) ........ 0.28 0.85 0.72 0.69 (0.70)
-----------------------------------------------------------------------------
Total from investment operations ................... 0.54 0.96 0.93 0.88 (0.58)
-----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.29) (0.13) (0.19) (0.22) (0.08)
-----------------------------------------------------------------------------
Redemption fees .................................... --(e) --(e) --(e) -- --
-----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 12.71 $ 12.46 $ 11.63 $ 10.89 $ 10.23
=============================================================================
Total return(c) .................................... 4.37% 8.27% 8.56% 8.79% (5.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 14,112 $ 12,199 $ 8,370 $ 5,718 $ 543
Ratios to average net assets:
Expenses(d) ....................................... 0.98% 1.07%(g) 1.10% 1.16% 1.21%(g)
Expenses net of waiver and payments by affiliate(d) 0.94% 1.07%(g) 1.10% 1.16% 1.21%(g)
Net investment income(b) .......................... 2.06% 2.15%(g) 1.75% 1.96% 1.93%(g)
Portfolio turnover rate ............................ 8.16% 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 0.69% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period January 1, 2002 (effective date) to July 31, 2002.
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,
ADVISOR CLASS 2005(e)
------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $ 12.81
--------
Income from investment operations:
Net investment income(a),(b) .............................. 0.07
Net realized and unrealized gains (losses) ................ 0.02
--------
Total from investment operations............................ 0.09
--------
Less distributions from net investment income .............. (0.18)
--------
Redemption fees ............................................ --(f)
--------
Net asset value, end of period.............................. $ 12.72
========
Total return(c) ............................................ 0.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................... $ 753
Ratios to average net assets:
Expenses(d) ............................................... 0.48%(g)
Expenses net of waiver and payments by affiliate(d) ....... 0.44%(g)
Net investment income(b) .................................. 2.56%(g)
Portfolio turnover rate .................................... 8.16%
(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 0.69% for the year ended December 31, 2005.
(e) For the period December 1, 2005 (effective date) to December 31, 2005.
(f) Amount is less than $0.01 per share.
(g) Annualized.
40 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS(a)
LONG TERM INVESTMENTS 82.4%
DOMESTIC EQUITY 29.3%
Franklin Capital Growth Fund, Advisor Class ............................... 634,622 $ 7,120,462
(b) Franklin Flex Cap Growth Fund, Advisor Class .............................. 394,592 15,905,988
Franklin Natural Resources Fund, Advisor Class ............................ 134,067 4,371,928
Franklin Real Estate Securities Fund, Advisor Class ....................... 201,795 5,208,318
(b) Franklin Small Cap Growth Fund II, Advisor Class .......................... 1,866,765 23,502,573
Mutual Shares Fund, Class Z ............................................... 676,457 16,201,141
--------------
72,310,410
--------------
DOMESTIC FIXED INCOME 28.7%
Franklin Strategic Income Fund, Advisor Class ............................. 468,066 4,750,867
Franklin Strategic Mortgage Portfolio ..................................... 2,860,694 27,634,307
Franklin Total Return Fund, Advisor Class ................................. 1,668,704 16,603,601
Franklin U.S. Government Securities Fund, Advisor Class ................... 3,331,235 21,752,965
--------------
70,741,740
--------------
FOREIGN EQUITY 12.8%
Franklin Gold and Precious Metals Fund, Advisor Class ..................... 187,668 4,933,783
Mutual European Fund, Class Z ............................................. 752,878 16,036,300
Templeton China World Fund, Advisor Class ................................. 104,017 2,392,391
Templeton Foreign Fund, Advisor Class ..................................... 640,185 8,098,339
--------------
31,460,813
--------------
FOREIGN FIXED INCOME 11.6%
Templeton Global Bond Fund, Advisor Class ................................. 2,780,726 28,613,675
--------------
TOTAL LONG TERM INVESTMENTS (COST $178,274,388)............................ 203,126,638
--------------
SHORT TERM INVESTMENT (COST $50,600,396) 20.5%
MONEY FUND 20.5%
Franklin Institutional Fiduciary Trust Money Market Portfolio ............. 50,600,396 50,600,396
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $228,874,784) 102.9%........... 253,727,034
OTHER ASSETS, LESS LIABILITIES (2.9)%...................................... (7,282,775)
--------------
NET ASSETS 100.0%.......................................................... $ 246,444,259
==============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing.
Annual Report | See notes to financial statements. | 41
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
--------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2005 2004(f) 2004 2003 2002 2001
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 12.69 $ 11.65 $ 10.64 $ 9.83 $ 11.31 $ 12.83
--------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) .................... 0.25 0.12 0.20 0.19 0.26 0.47
Net realized and unrealized gains (losses) ...... 0.50 1.05 1.00 0.81 (1.31) (1.48)
--------------------------------------------------------------------------
Total from investment operations ................. 0.75 1.17 1.20 1.00 (1.05) (1.01)
--------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.30) (0.13) (0.19) (0.19) (0.29) (0.51)
Net realized gains .............................. -- -- -- -- (0.14) --(h)
--------------------------------------------------------------------------
Total distributions .............................. (0.30) (0.13) (0.19) (0.19) (0.43) (0.51)
--------------------------------------------------------------------------
Redemption fees .................................. --(e) --(e) --(e) -- -- --
--------------------------------------------------------------------------
Net asset value, end of year ..................... $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83 $ 11.31
==========================================================================
Total return(c) .................................. 5.94% 10.14% 11.18% 10.47% (9.69)% (8.05)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $316,754 $281,033 $219,273 $121,617 $ 85,035 $ 70,810
Ratios to average net assets:
Expenses(d) ..................................... 0.74% 0.81%(g) 0.89% 0.98% 0.96% 0.87%
Expenses net of waiver and payments
by affiliate(d) ............................... 0.69% 0.81%(g) 0.89% 0.98% 0.96% 0.87%
Net investment income(b) ........................ 1.93% 2.32%(g) 1.75% 1.89% 2.46% 3.95%
Portfolio turnover rate .......................... 10.59% 2.78% 4.13% 15.90% 8.88% 46.01%
(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 0.75% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) The Fund made a capital gain distribution of $0.003.
42 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
-----------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, JULY 31,
CLASS B 2005 2004(f) 2004(h)
-----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 12.66 $ 11.62 $ 11.62
-----------------------------------------------
Income from investment operations:
Net investment income(a),(b) ......................... 0.15 0.09 0.05
Net realized and unrealized gains (losses) ........... 0.50 1.03 0.09
-----------------------------------------------
Total from investment operations ...................... 0.65 1.12 0.14
-----------------------------------------------
Less distributions from net investment income ......... (0.21) (0.08) (0.14)
-----------------------------------------------
Redemption fees ....................................... --(e) --(e) --(e)
-----------------------------------------------
Net asset value, end of year .......................... $ 13.10 $ 12.66 $ 11.62
===============================================
Total return(c) ....................................... 5.18% 9.77% 1.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 10,170 $ 8,700 $ 5,417
Ratios to average net assets:
Expenses(d) .......................................... 1.49% 1.56%(g) 1.64%(g)
Expenses net of waiver and payments by affiliate(d) .. 1.44% 1.56%(g) 1.64%(g)
Net investment income(b) ............................. 1.18% 1.57%(g) 1.00%(g)
Portfolio turnover rate ............................... 10.59% 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 0.75% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period December 1, 2003 (effective date) to July 31, 2004.
Annual Report | See notes to financial statements. | 43
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
--------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2005 2004(f) 2004 2003 2002 2001
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 12.50 $ 11.47 $ 10.48 $ 9.69 $ 11.16 $ 12.67
--------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) .................... 0.15 0.08 0.12 0.11 0.19 0.39
Net realized and unrealized gains (losses) ...... 0.50 1.03 0.98 0.80 (1.31) (1.48)
--------------------------------------------------------------------------
Total from investment operations ................. 0.65 1.11 1.10 0.91 (1.12) (1.09)
--------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.21) (0.08) (0.11) (0.12) (0.21) (0.42)
Net realized gains .............................. -- -- -- -- (0.14) --(h)
--------------------------------------------------------------------------
Total distributions .............................. (0.21) (0.08) (0.11) (0.12) (0.35) (0.42)
--------------------------------------------------------------------------
Redemption fees .................................. --(e) --(e) --(e) -- -- --
--------------------------------------------------------------------------
Net asset value, end of year ..................... $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69 $ 11.16
==========================================================================
Total return(c) .................................. 5.25% 9.75% 10.39% 9.50% (10.31)% (8.69)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $112,294 $105,966 $ 90,988 $ 56,341 $ 39,835 $ 41,535
Ratios to average net assets:
Expenses(d) ..................................... 1.48% 1.56%(g) 1.64% 1.73% 1.71% 1.62%
Expenses net of waiver and payments
by affiliate(d) ............................... 1.43% 1.56%(g) 1.64% 1.73% 1.71% 1.62%
Net investment income(b) ........................ 1.19% 1.57%(g) 1.00% 1.14% 1.77% 3.30%
Portfolio turnover rate .......................... 10.59% 2.78% 4.13% 15.90% 8.88% 46.01%
(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 0.75% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) The Fund made a capital gain distribution of $0.003.
44 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONTINUED)
-----------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2005 2004(f) 2004 2003 2002(h)
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.66 $ 11.62 $ 10.62 $ 9.82 $ 10.79
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ...................... 0.21 0.11 0.18 0.13 0.09
Net realized and unrealized gains (losses) ........ 0.51 1.04 0.98 0.85 (0.99)
-----------------------------------------------------------------------------
Total from investment operations ................... 0.72 1.15 1.16 0.98 (0.90)
-----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.27) (0.11) (0.16) (0.18) (0.07)
-----------------------------------------------------------------------------
Redemption fees .................................... --(e) --(e) --(e) -- --
-----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82
=============================================================================
Total return(c) .................................... 5.73% 9.92% 10.95% 10.10% (8.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 30,403 $ 25,162 $ 17,161 $ 10,989 $ 94
Ratios to average net assets:
Expenses(d) ....................................... 0.99% 1.06%(g) 1.14% 1.23% 1.21%(g)
Expenses net of waiver and payments by affiliate(d) 0.94% 1.06%(g) 1.14% 1.23% 1.21%(g)
Net investment income(b) .......................... 1.68% 2.07%(g) 1.50% 1.64% 1.53%(g)
Portfolio turnover rate ............................ 10.59% 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 0.75% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period January 1, 2002 (effective date) to July 31, 2002.
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,
ADVISOR CLASS 2005(e)
------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $ 13.23
--------
Income from investment operations:
Net investment income(a),(b) .............................. 0.08
Net realized and unrealized gains (losses) ................ 0.02
--------
Total from investment operations............................ 0.10
--------
Less distributions from net investment income .............. (0.18)
--------
Redemption fees ............................................ --(f)
--------
Net asset value, end of period ............................. $ 13.15
========
Total return(c) ............................................ 0.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................... $ 3,890
Ratios to average net assets:
Expenses(d) ............................................... 0.49%(g)
Expenses net of waiver and payments by affiliate(d) ....... 0.44%(g)
Net investment income(b) .................................. 2.18%(g)
Portfolio turnover rate .................................... 10.59%
(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 0.75% for the year ended December 31, 2005.
(e) For the period December 1, 2005 (effective date) to December 31, 2005.
(f) Amount is less than $0.01 per share.
(g) Annualized.
46 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS(a)
LONG TERM INVESTMENTS 92.2%
DOMESTIC EQUITY 39.3%
Franklin Capital Growth Fund, Advisor Class ............................... 1,728,582 $ 19,394,693
(b) Franklin Flex Cap Growth Fund, Advisor Class .............................. 990,486 39,926,491
Franklin Natural Resources Fund, Advisor Class ............................ 413,879 13,496,587
Franklin Real Estate Securities Fund, Advisor Class ....................... 533,216 13,762,295
(b) Franklin Small Cap Growth Fund II, Advisor Class .......................... 4,702,632 59,206,135
Mutual Shares Fund, Class Z ............................................... 1,689,665 40,467,484
--------------
186,253,685
--------------
DOMESTIC FIXED INCOME 25.3%
Franklin Strategic Income Fund, Advisor Class ............................. 721,041 7,318,564
Franklin Strategic Mortgage Portfolio ..................................... 4,901,838 47,351,775
Franklin Total Return Fund, Advisor Class ................................. 2,814,049 27,999,785
Franklin U.S. Government Securities Fund, Advisor Class ................... 5,642,216 36,843,669
--------------
119,513,793
--------------
FOREIGN EQUITY 17.1%
Franklin Gold and Precious Metals Fund, Advisor Class ..................... 452,711 11,901,767
Mutual European Fund, Class Z ............................................. 1,876,263 39,964,403
Templeton China World Fund, Advisor Class ................................. 247,934 5,702,485
Templeton Foreign Fund, Advisor Class ..................................... 1,855,706 23,474,677
--------------
81,043,332
--------------
FOREIGN FIXED INCOME 10.5%
Templeton Global Bond Fund, Advisor Class ................................. 4,821,784 49,616,155
--------------
TOTAL LONG TERM INVESTMENTS (COST $375,829,653)............................ 436,426,965
--------------
SHORT TERM INVESTMENT (COST $48,333,250) 10.2%
MONEY FUND 10.2%
Franklin Institutional Fiduciary Trust Money Market Portfolio ............. 48,333,250 48,333,250
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $424,162,903) 102.4%........... 484,760,215
OTHER ASSETS, LESS LIABILITIES (2.4)%...................................... (11,250,249)
--------------
NET ASSETS 100.0%.......................................................... $ 473,509,966
==============
(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
------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2005 2004(f) 2004 2003 2002 2001
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 13.17 $ 11.83 $ 10.46 $ 9.47 $ 11.64 $ 14.50
------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) .................... 0.14 0.09 0.11 0.08 0.13 0.38
Net realized and unrealized gains (losses) ...... 0.96 1.33 1.36 1.01 (2.01) (2.80)
------------------------------------------------------------------------
Total from investment operations ................. 1.10 1.42 1.47 1.09 (1.88) (2.42)
------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.17) (0.08) (0.10) (0.10) (0.13) (0.44)
Net realized gains .............................. -- -- -- -- (0.16) --
------------------------------------------------------------------------
Total distributions .............................. (0.17) (0.08) (0.10) (0.10) (0.29) (0.44)
------------------------------------------------------------------------
Redemption fees .................................. --(e) --(e) --(e) -- -- --
------------------------------------------------------------------------
Net asset value, end of year ..................... $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47 $ 11.64
========================================================================
Total return(c) .................................. 8.47% 12.04% 14.04% 11.64% (16.44)% (16.94)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $230,686 $202,560 $165,500 $ 99,432 $ 69,663 $ 67,186
Ratios to average net assets:
Expenses(d) ..................................... 0.79% 0.85%(g) 0.83% 0.92% 0.93% 0.85%
Expenses net of waiver and payments
by affiliate(d) ................................. 0.72% 0.85%(g) 0.83% 0.92% 0.93% 0.85%
Net investment income(b) ........................ 1.07% 1.72%(g) 0.91% 0.84% 1.20% 2.98%
Portfolio turnover rate .......................... 10.50% 3.98% 3.46% 21.87% 14.24% 59.41%
(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 0.81% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
48 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
----------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, JULY 31,
CLASS B 2005 2004(f) 2004(h)
----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 13.09 $ 11.75 $ 11.80
----------------------------------------------
Income from investment operations:
Net investment income(a),(b) ......................... 0.04 0.06 (0.02)
Net realized and unrealized gains (losses) ........... 0.96 1.32 0.09
----------------------------------------------
Total from investment operations ...................... 1.00 1.38 0.07
----------------------------------------------
Less distributions from net investment income ......... (0.12) (0.04) (0.12)
----------------------------------------------
Redemption fees ....................................... --(e) --(e) --(e)
----------------------------------------------
Net asset value, end of year .......................... $ 13.97 $ 13.09 $ 11.75
==============================================
Total return(c) ....................................... 7.63% 11.76% 0.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 6,468 $ 5,343 $ 3,178
Ratios to average net assets:
Expenses(d) .......................................... 1.54% 1.60%(g) 1.58%(g)
Expenses net of waiver and payments by affiliate(d) .. 1.47% 1.60%(g) 1.58%(g)
Net investment income(b) ............................. 0.32% 0.97%(g) 0.16%(g)
Portfolio turnover rate ............................... 10.50% 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 0.81% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(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)
-------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2005 2004(f) 2004 2003 2002 2001
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 13.09 $ 11.72 $ 10.38 $ 9.40 $ 11.58 $ 14.43
-------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) .................... 0.04 0.05 0.02 0.01 0.05 0.29
Net realized and unrealized gains (losses) ...... 0.96 1.32 1.35 1.00 (1.99) (2.79)
-------------------------------------------------------------------------
Total from investment operations ................. 1.00 1.37 1.37 1.01 (1.94) (2.50)
-------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.12) -- (0.03) (0.03) (0.08) (0.35)
Net realized gains .............................. -- -- -- -- (0.16) --
-------------------------------------------------------------------------
Total distributions .............................. (0.12) -- (0.03) (0.03) (0.24) (0.35)
-------------------------------------------------------------------------
Redemption fees .................................. --(e) --(e) --(e) -- -- --
-------------------------------------------------------------------------
Net asset value, end of year ..................... $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40 $ 11.58
==================================================================-======
Total return(c) .................................. 7.63% 11.69% 13.18% 10.74% (17.00)% (17.57)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $ 88,986 $ 73,816 $ 61,179 $ 40,829 $ 31,255 $ 37,884
Ratios to average net assets:
Expenses(d) ..................................... 1.54% 1.60%(g) 1.58% 1.67% 1.68% 1.60%
Expenses net of waiver and payments
by affiliate(d) ................................ 1.47% 1.60%(g) 1.58% 1.67% 1.68% 1.60%
Net investment income(b) ........................ 0.32% 0.97%(g) 0.16% 0.09% 0.50% 2.24%
Portfolio turnover rate .......................... 10.50% 3.98% 3.46% 21.87% 14.24% 59.41%
(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 0.81% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
50 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
-----------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2005 2004(f) 2004 2003 2002(h)
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.11 $ 11.76 $ 10.40 $ 9.46 $ 10.95
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a),(b) ...................... 0.11 0.08 0.08 0.05 0.01
Net realized and unrealized gains (losses) ........ 0.95 1.33 1.36 1.00 (1.50)
-----------------------------------------------------------------------------
Total from investment operations ................... 1.06 1.41 1.44 1.05 (1.49)
-----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.15) (0.06) (0.08) (0.11) --
-----------------------------------------------------------------------------
Redemption fees .................................... --(e) --(e) --(e) -- --
-----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 14.02 $ 13.11 $ 11.76 $ 10.40 $ 9.46
=============================================================================
Total return(c) .................................... 8.10% 12.00% 13.89% 11.11% (13.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 19,461 $ 15,206 $ 11,714 $ 5,567 $ 141
Ratios to average net assets:
Expenses(d) ....................................... 1.04% 1.10%(g) 1.08% 1.17% 1.18%(g)
Expenses net of waiver and payments by affiliate(d) 0.97% 1.10%(g) 1.08% 1.17% 1.18%(g)
Net investment income(b) .......................... 0.82% 1.47%(g) 0.66% 0.59% 0.18%(g)
Portfolio turnover rate ............................ 10.50% 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 0.81% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(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
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONTINUED)
PERIOD ENDED
DECEMBER 31,
ADVISOR CLASS 2005(e)
------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $ 14.18
--------
Income from investment operations:
Net investment income(a),(b) ............................. 0.11
Net realized and unrealized gains (losses) ............... (0.03)
--------
Total from investment operations............................ 0.08
--------
Less distributions from net investment income .............. (0.16)
--------
Redemption fees ............................................ --(f)
--------
Net asset value, end of period ............................. $ 14.10
========
Total return(c) ............................................ 0.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................... $ 3,320
Ratios to average net assets:
Expenses(d) .............................................. 0.54%(g)
Expenses net of waiver and payments by affiliate(d) ...... 0.47%(g)
Net investment income(b) ................................. 1.32%(g)
Portfolio turnover rate .................................... 10.50%
(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 0.81% for the year ended December 31, 2005.
(e) For the period December 1, 2005 (effective date) to December 31, 2005.
(f) Amount is less than $0.01 per share.
(g) Annualized.
52 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS(a)
LONG TERM INVESTMENTS 98.8%
DOMESTIC EQUITY 58.5%
Franklin Capital Growth Fund, Advisor Class ............................... 2,003,604 $ 22,480,435
(b) Franklin Flex Cap Growth Fund, Advisor Class .............................. 1,089,287 43,909,145
Franklin Natural Resources Fund, Advisor Class ............................ 434,239 14,160,521
Franklin Real Estate Securities Fund, Advisor Class ....................... 592,858 15,301,658
(b) Franklin Small Cap Growth Fund II, Advisor Class .......................... 4,933,053 62,107,139
Mutual Shares Fund, Class Z ............................................... 1,922,256 46,038,037
--------------
203,996,935
--------------
DOMESTIC FIXED INCOME 10.6%
Franklin Strategic Income Fund, Advisor Class ............................. 183,841 1,865,988
Franklin Strategic Mortgage Portfolio ..................................... 1,509,278 14,579,623
Franklin Total Return Fund, Advisor Class ................................. 899,848 8,953,491
Franklin U.S. Government Securities Fund, Advisor Class ................... 1,746,973 11,407,733
--------------
36,806,835
--------------
FOREIGN EQUITY 25.2%
Franklin Gold and Precious Metals Fund, Advisor Class ..................... 504,461 13,262,279
Mutual European Fund, Class Z ............................................. 2,032,267 43,287,296
Templeton China World Fund, Advisor Class ................................. 214,009 4,922,196
Templeton Foreign Fund, Advisor Class ..................................... 2,097,670 26,535,521
--------------
88,007,292
--------------
FOREIGN FIXED INCOME 4.5%
Templeton Global Bond Fund, Advisor Class ................................. 1,530,539 15,749,246
--------------
TOTAL LONG TERM INVESTMENTS (COST $281,716,201)............................ 344,560,308
--------------
SHORT TERM INVESTMENT (COST $19,284,338) 5.5%
MONEY FUND 5.5%
Franklin Institutional Fiduciary Trust Money Market Portfolio ............. 19,284,338 19,284,338
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $301,000,539) 104.3%........... 363,844,646
OTHER ASSETS, LESS LIABILITIES (4.3)%...................................... (14,924,142)
--------------
NET ASSETS 100.0%.......................................................... $ 348,920,504
==============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing.
Annual Report | See notes to financial statements. | 53
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2005
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost................................................................. $ 228,874,784 $ 424,162,903 $ 301,000,539
=================================================
Value................................................................ $ 253,727,034 $ 484,760,215 $ 363,844,646
Receivables:
Capital shares sold.................................................. 616,801 1,341,135 1,070,066
-------------------------------------------------
Total assets..................................................... 254,343,835 486,101,350 364,914,712
-------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed.............................................. 7,357,803 11,769,823 15,505,717
Affiliates........................................................... 225,245 421,700 272,453
Distributions to shareholders........................................ 257,632 239,683 130,171
Accrued expenses and other liabilities................................ 58,896 160,178 85,867
-------------------------------------------------
Total liabilities................................................ 7,899,576 12,591,384 15,994,208
-------------------------------------------------
Net assets, at value............................................ $ 246,444,259 $ 473,509,966 $ 348,920,504
=================================================
Net assets consist of:
Paid-in capital....................................................... $ 219,790,541 $ 410,696,117 $ 289,233,495
Undistributed net investment income................................... 17,582 23,790 1,027,161
Net unrealized appreciation (depreciation)............................ 24,852,250 60,597,312 62,844,107
Accumulated net realized gain (loss).................................. 1,783,886 2,192,747 (4,184,259)
-------------------------------------------------
Net assets, at value............................................ $ 246,444,259 $ 473,509,966 $ 348,920,504
=================================================
54 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2005
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------------
CLASS A:
Net assets, at value.................................................. $ 162,078,635 $ 316,753,634 $ 230,686,150
=================================================
Shares outstanding.................................................... 12,724,711 24,101,042 16,357,011
=================================================
Net asset value per share(a).......................................... $ 12.74 $ 13.14 $ 14.10
=================================================
Maximum offering price per share (net asset value per share/94.25%) $ 13.52 $ 13.94 $ 14.96
=================================================
CLASS B:
Net assets, at value.................................................. $ 6,202,470 $ 10,169,519 $ 6,467,754
=================================================
Shares outstanding.................................................... 488,155 776,250 463,002
=================================================
Net asset value and maximum offering price per share(a) .............. $ 12.71 $ 13.10 $ 13.97
=================================================
CLASS C:
Net assets, at value.................................................. $ 63,297,718 $ 112,293,509 $ 88,985,557
=================================================
Shares outstanding.................................................... 5,021,864 8,678,974 6,371,617
=================================================
Net asset value and maximum offering price per share(a) .............. $ 12.60 $ 12.94 $ 13.97
=================================================
CLASS R:
Net assets, at value.................................................. $ 14,112,373 $ 30,403,387 $ 19,460,719
=================================================
Shares outstanding.................................................... 1,110,203 2,318,317 1,388,308
=================================================
Net asset value and maximum offering price per share(a) .............. $ 12.71 $ 13.11 $ 14.02
=================================================
ADVISOR CLASS:
Net assets, at value.................................................. $ 753,063 $ 3,889,917 $ 3,320,324
=================================================
Shares outstanding.................................................... 59,189 295,921 235,545
=================================================
Net asset value and maximum offering price per share.................. $ 12.72 $ 13.15 $ 14.10
=================================================
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
Annual Report | See notes to financial statements. | 55
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2005
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6).............................. $ 6,925,631 $ 11,570,719 $ 5,776,994
-------------------------------------------------
Expenses:
Asset allocation fees (Note 3a)....................................... 462,500 995,178 762,553
Distribution fees: (Note 3c)
Class A.............................................................. 375,705 740,368 544,085
Class B.............................................................. 60,015 94,185 57,740
Class C.............................................................. 601,141 1,055,669 793,432
Class R.............................................................. 70,314 144,544 89,914
Transfer agent fees (Note 3e)......................................... 502,946 960,047 800,294
Reports to shareholders............................................... 34,865 73,231 61,540
Registration and filing fees.......................................... 83,846 97,639 83,209
Professional fees..................................................... 16,965 16,408 16,737
Trustees' fees and expenses........................................... 594 1,149 820
Other................................................................. 7,021 10,123 8,816
-------------------------------------------------
Total expenses................................................... 2,215,912 4,188,541 3,219,140
Expenses waived/paid by affiliates (Note 3f)..................... (98,063) (194,474) (225,854)
-------------------------------------------------
Net expenses.................................................... 2,117,849 3,994,067 2,993,286
-------------------------------------------------
Net investment income.......................................... 4,807,782 7,576,652 2,783,708
-------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds.............................. 996,140 1,448,874 72,178
Realized gain distributions by Underlying Funds...................... 2,826,887 7,387,586 7,972,988
-------------------------------------------------
Net realized gain (loss) from Underlying Funds................. 3,823,027 8,836,460 8,045,166
-------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds..................................................... 1,901,662 9,191,060 15,755,314
-------------------------------------------------
Net realized and unrealized gain (loss)................................ 5,724,689 18,027,520 23,800,480
-------------------------------------------------
Net increase (decrease) in net assets resulting from operations........ $ 10,532,471 $ 25,604,172 $ 26,584,188
=================================================
56 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
----------------------------------------------------
FOR THE PERIOD
YEAR ENDED AUGUST 1, 2004 TO YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004 JULY 31, 2004
----------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income................................................ $ 4,807,782 $ 1,782,898 $ 2,567,068
Net realized gain (loss) from Underlying Funds....................... 3,823,027 470,309 (439,785)
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds................................................. 1,901,662 13,430,048 7,325,516
----------------------------------------------------
Net increase (decrease) in net assets resulting
from operations................................................. 10,532,471 15,683,255 9,452,799
----------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A............................................................. (4,035,513) (1,550,016) (1,667,835)
Class B............................................................. (111,536) (39,691) (10,065)
Class C............................................................. (1,140,064) (440,506) (509,400)
Class R............................................................. (331,572) (106,212) (118,453)
Advisor Class....................................................... (10,329) -- --
----------------------------------------------------
Total distributions to shareholders................................... (5,629,014) (2,136,425) (2,305,753)
----------------------------------------------------
Capital share transactions: (Note 2)
Class A............................................................. 19,673,591 13,395,041 47,993,126
Class B............................................................. 850,070 1,344,039 3,619,563
Class C............................................................. 2,290,697 3,087,341 18,319,247
Class R............................................................. 1,584,439 3,173,988 2,280,595
Advisor Class....................................................... 760,697 -- --
----------------------------------------------------
Total capital share transactions...................................... 25,159,494 21,000,409 72,212,531
----------------------------------------------------
Redemption fees....................................................... 2,446 681 328
----------------------------------------------------
Net increase (decrease) in net assets............................ 30,065,397 34,547,920 79,359,905
Net assets:
Beginning of year..................................................... 216,378,862 181,830,942 102,471,037
----------------------------------------------------
End of year........................................................... $ 246,444,259 $ 216,378,862 $ 181,830,942
====================================================
Undistributed net investment income included in net assets:
End of year........................................................... $ 17,582 $ 200,844 $ 554,371
====================================================
Annual Report | See notes to financial statements. | 57
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
----------------------------------------------------
FOR THE PERIOD
YEAR ENDED AUGUST 1, 2004 TO YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004 JULY 31, 2004
----------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income................................................ $ 7,576,652 $ 3,293,587 $ 4,046,192
Net realized gain (loss) from Underlying Funds....................... 8,836,460 260,597 (1,442,186)
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds................................................. 9,191,060 32,639,851 19,079,818
----------------------------------------------------
Net increase (decrease) in net assets resulting
from operations................................................. 25,604,172 36,194,035 21,683,824
----------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A............................................................. (7,181,993) (2,681,591) (2,669,838)
Class B............................................................. (162,211) (51,972) (12,044)
Class C............................................................. (1,825,865) (629,244) (693,557)
Class R............................................................. (630,744) (180,867) (211,924)
Advisor Class....................................................... (52,636) -- --
----------------------------------------------------
Total distributions to shareholders................................... (9,853,449) (3,543,674) (3,587,363)
----------------------------------------------------
Capital share transactions: (Note 2)
Class A............................................................. 25,091,859 39,940,397 86,090,887
Class B............................................................. 1,129,090 2,668,075 5,505,348
Class C............................................................. 2,608,138 6,462,665 29,167,225
Class R............................................................. 4,134,667 6,302,177 5,030,879
Advisor Class....................................................... 3,930,604 -- --
----------------------------------------------------
Total capital share transactions...................................... 36,894,358 55,373,314 125,794,339
----------------------------------------------------
Redemption fees....................................................... 2,839 (575) 1,269
----------------------------------------------------
Net increase (decrease) in net assets............................ 52,647,920 88,023,100 143,892,069
Net assets:
Beginning of year..................................................... 420,862,046 332,838,946 188,946,877
----------------------------------------------------
End of year........................................................... $ 473,509,966 $ 420,862,046 $ 332,838,946
====================================================
Undistributed net investment income included in net assets:
End of year........................................................... $ 23,790 $ 644,931 $ 895,018
====================================================
58 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------
FOR THE PERIOD
YEAR ENDED AUGUST 1, 2004 TO YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004 JULY 31, 2004
----------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income................................................ $ 2,783,708 $ 1,689,931 $ 1,415,409
Net realized gain (loss) from Underlying Funds....................... 8,045,166 560,812 (1,964,242)
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds................................................. 15,755,314 28,632,877 21,256,711
----------------------------------------------------
Net increase (decrease) in net assets resulting
from operations................................................. 26,584,188 30,883,620 20,707,878
----------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A............................................................. (2,957,561) (1,278,278) (1,106,714)
Class B............................................................. (54,650) (16,646) (1,198)
Class C............................................................. (744,924) -- (126,060)
Class R............................................................. (213,905) (69,188) (60,542)
Advisor Class....................................................... (36,584) -- --
----------------------------------------------------
Total distributions to shareholders................................... (4,007,624) (1,364,112) (1,294,514)
----------------------------------------------------
Capital share transactions: (Note 2)
Class A............................................................. 12,665,336 16,953,905 52,682,701
Class B............................................................. 739,433 1,698,909 3,245,275
Class C............................................................. 9,702,929 5,140,322 15,051,453
Class R............................................................. 2,953,654 2,040,115 5,349,553
Advisor Class....................................................... 3,350,378 -- --
----------------------------------------------------
Total capital share transactions...................................... 29,411,730 25,833,251 76,328,982
----------------------------------------------------
Redemption fees....................................................... 6,807 1,872 245
----------------------------------------------------
Net increase (decrease) in net assets............................ 51,995,101 55,354,631 95,742,591
Net assets:
Beginning of year..................................................... 296,925,403 241,570,772 145,828,181
----------------------------------------------------
End of year........................................................... $ 348,920,504 $ 296,925,403 $ 241,570,772
====================================================
Undistributed net investment income included in net assets:
End of year........................................................... $ 1,027,161 $ 508,314 $ 182,495
====================================================
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).
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 closing 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 continue to qualify as a regulated investment company under the Internal
Revenue Code and to distribute to shareholders substantially all of its taxable
income and net realized gains.
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 is
recorded on the ex-dividend date. Distributions to shareholders are recorded on
the ex-dividend date and are determined according to income tax regulations (tax
basis). Distributable earnings determined on a tax basis may differ from
earnings recorded in accordance with generally accepted accounting principles.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
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 of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
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.
60 | 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)
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
D. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
E. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Funds and accounted for as an addition to paid-in
capital.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities 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 five classes of shares: Class A, Class B, Class C, Class R, and
Advisor Class. Effective March 1, 2005, Class B shares are only offered to
existing Class B shareholders in the form of reinvested distributions and
certain exchanges from other Franklin Templeton Class B shares. Effective
December 1, 2005, the Funds began offering a new class of shares, Advisor Class.
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.
Annual Report | 61
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
At December 31, 2005, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
CLASS A SHARES:
Year ended December 31, 2005
Shares sold.......................... 4,700,208 $ 58,731,887 8,741,947 $ 111,231,407
Shares issued in reinvestment
of distributions ................... 295,015 3,730,391 538,713 7,009,845
Shares redeemed ..................... (3,418,586) (42,788,687) (7,329,765) (93,149,393)
----------------------------------------------------------
Net increase (decrease).............. 1,576,637 $ 19,673,591 1,950,895 $ 25,091,859
==========================================================
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
==========================================================
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
==========================================================
CLASS B SHARES:
Year ended December 31, 2005
Shares sold ......................... 126,621 $ 1,569,848 177,044 $ 2,231,881
Shares issued in reinvestment
of distributions ................... 7,008 88,480 11,226 146,083
Shares redeemed ..................... (64,844) (808,258) (99,155) (1,248,874)
----------------------------------------------------------
Net increase (decrease).............. 68,785 $ 850,070 89,115 $ 1,129,090
==========================================================
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
==========================================================
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 C SHARES:
Year ended December 31, 2005
Shares sold ......................... 1,402,940 $ 17,329,727 2,264,680 $ 28,333,362
Shares issued in reinvestment
of distributions ................... 80,743 1,011,875 127,401 1,638,002
Shares redeemed ..................... (1,301,614) (16,050,905) (2,187,065) (27,363,226)
----------------------------------------------------------
Net increase (decrease).............. 182,069 $ 2,290,697 205,016 $ 2,608,138
==========================================================
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
==========================================================
CLASS R SHARES:
Year ended December 31, 2005
Shares sold ......................... 574,711 $ 7,126,545 871,013 $ 11,010,434
Shares issued in reinvestment
of distributions ................... 26,232 331,034 48,317 627,950
Shares redeemed ..................... (470,003) (5,873,140) (587,826) (7,503,717)
----------------------------------------------------------
Net increase (decrease).............. 130,940 $ 1,584,439 331,504 $ 4,134,667
==========================================================
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
==========================================================
ADVISOR CLASS SHARES:
Period ended December 31, 2005(c)
Shares sold ......................... 58,390 $ 750,506 298,490 $ 3,965,456
Shares issued in reinvestment
of distributions ................... 799 10,191 3,983 52,500
Shares redeemed ..................... -- -- (6,552) (87,352)
----------------------------------------------------------
Net increase (decrease).............. 59,189 $ 760,697 295,921 $ 3,930,604
==========================================================
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
---------------------------
CLASS A SHARES:
Year ended December 31, 2005
Shares sold .............................................. 5,719,599 $ 76,098,416
Shares issued in reinvestment of distributions ........... 205,782 2,886,413
Shares redeemed .......................................... (4,944,438) (66,319,493)
---------------------------
Net increase (decrease)................................... 980,943 $ 12,665,336
===========================
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
===========================
CLASS B SHARES:
Year ended December 31, 2005
Shares sold .............................................. 106,430 $ 1,419,587
Shares issued in reinvestment of distributions ........... 3,679 51,404
Shares redeemed .......................................... (55,290) (731,558)
---------------------------
Net increase (decrease)................................... 54,819 $ 739,433
===========================
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
===========================
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:
Year ended December 31, 2005
Shares sold .............................................. 1,819,222 $ 23,985,733
Shares issued in reinvestment of distributions ........... 47,927 669,884
Shares redeemed .......................................... (1,133,935) (14,952,688)
---------------------------
Net increase (decrease)................................... 733,214 $ 9,702,929
===========================
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
===========================
64 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON
GROWTH TARGET FUND
---------------------------
SHARES AMOUNT
---------------------------
CLASS C SHARES: (CONTINUED)
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
===========================
CLASS R SHARES:
Year ended December 31, 2005
Shares sold .............................................. 621,409 $ 8,193,434
Shares issued in reinvestment of distributions ........... 15,240 212,944
Shares redeemed .......................................... (408,629) (5,452,724)
---------------------------
Net increase (decrease)................................... 228,020 $ 2,953,654
===========================
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
===========================
ADVISOR CLASS SHARES:
Period ended December 31, 2005(c)
Shares sold .............................................. 233,824 $ 3,326,187
Shares issued in reinvestment of distributions ........... 2,578 36,473
Shares redeemed .......................................... (857) (12,282)
---------------------------
Net increase (decrease)................................... 235,545 $ 3,350,378
===========================
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period December 1, 2003 (effective date) to July 31, 2004.
(c) For the period December 1, 2005 (effective date) to December 31, 2005.
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of some of the
Underlying Funds and the following subsidiaries:
SUBSIDIARY 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
Annual Report | 65
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. ASSET ALLOCATION FEES
The Funds pay an asset allocation fee to Advisers of 0.25% per year of the
average daily net assets of each of the Funds 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 Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the
Funds reimburse Distributors up to 0.25% per year of Class A's average daily net
assets for costs incurred in connection with the sale and distribution of the
Funds' shares. Under the Class A reimbursement distribution plans, costs
exceeding the maximum for the current plan year cannot be reimbursed in
subsequent periods.
Under the Funds' compensation distribution plans, the Funds pay Distributors for
costs incurred in connection with the sale and distribution of the Funds' shares
up to a certain percentage per year of their average daily net assets of each
class as follows:
Class B .......................................... 1.00%
Class C .......................................... 1.00%
Class R .......................................... 0.50%
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 year:
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------
Net sales charges received(a) ................. $ 117,016 $ 232,809 $ 142,553
Contingent deferred sales charges retained .... $ 31,121 $ 34,510 $ 27,717
(a) Net of commissions paid to unaffiliated broker/dealers.
66 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were retained by Investor Services:
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------
Transfer agent fees ........................... $ 297,950 $ 631,436 $ 504,798
F. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS
Advisers agreed in advance to voluntarily waive a portion of asset allocation
fees, as noted in the Statement of Operations. Total expenses waived by Advisers
are not subject to reimbursement by the Funds subsequent to the Funds' fiscal
year end.
4. INCOME TAXES
At December 31, 2005, the Funds had tax basis capital losses which may be
carried over to offset future capital gains, if any. During the year ended
December 31, 2005, the Franklin Templeton Conservative Target Fund, the Franklin
Templeton Moderate Target Fund and the Franklin Templeton Growth Target Fund
utilized $1,206,667, $4,578,158 and $6,302,403, respectively, of capital loss
carryforwards. At December 31, 2005, the capital loss carryforwards were as
follows:
------------
FRANKLIN
TEMPLETON
GROWTH
TARGET FUND
------------
Capital loss carryforwards expiring in:
2011 ......................................... $ 1,191,401
2012 ......................................... 1,400,350
------------
$ 2,591,751
============
The tax character of distributions paid during the years ended December 31,
2005, 2004 and July 31, 2004, was as follows:
--------------------------------------------
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
--------------------------------------------
2005 2004(a) 2004
--------------------------------------------
Distributions paid from ordinary income ....... $ 5,629,014 $ 2,136,425 $ 2,305,753
--------------------------------------------
Annual Report | 67
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
--------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND
--------------------------------------------
2005 2004(a) 2004
--------------------------------------------
Distributions paid from ordinary income ........ $ 9,853,449 $ 3,543,674 $ 3,587,363
--------------------------------------------
--------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND
--------------------------------------------
2005 2004(a) 2004
--------------------------------------------
Distributions paid from ordinary income ........ $ 4,007,624 $ 1,364,112 $ 1,294,514
--------------------------------------------
(a) For the period August 1, 2004 to December 31, 2004.
At December 31, 2005, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------
Cost of investments ........................... $229,084,698 $424,532,831 $302,593,047
============================================
Unrealized appreciation ....................... $ 26,319,881 $ 62,942,626 $ 62,048,957
Unrealized depreciation ....................... (1,677,545) (2,715,242) (797,358)
--------------------------------------------
Net unrealized appreciation (depreciation) .... $ 24,642,336 $ 60,227,384 $ 61,251,599
============================================
Undistributed ordinary income ................. $ 17,582 $ 23,790 $ 1,027,161
Undistributed long term capital gains ......... 1,993,800 2,562,673 --
--------------------------------------------
Distributable earnings ........................ $ 2,011,382 $ 2,586,463 $ 1,027,161
============================================
Net investment income differ for financial statements and tax purposes primarily
due to differing treatment of short term capital gain distributions from
Underlying Funds.
Net realized gains (losses) differ for financial statements and tax purposes
primarily due to differing treatments of short term capital gain distributions
from Underlying Funds and wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2005, were as follows:
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------
Purchases ..................................... $ 44,124,719 $ 91,787,876 $ 79,234,093
Sales ......................................... $ 15,116,196 $ 42,271,886 $ 32,133,468
68 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2005, 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 8.03%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Strategic Mortgage Portfolio 13.78%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Small Cap Growth Fund II 5.07%
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 and
administrative fees paid by the Sweep Money Fund.
7. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, 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 (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop a plan for distribution of the
respective settlement monies. The CAGO approved the distribution plan under the
CAGO Settlement and, in accordance with the terms and conditions of that
settlement, the monies were disbursed to the relevant funds. The Trust did not
participate in the CAGO Settlement. The SEC has not yet approved the
distribution plan pertaining to the December 13, 2004 SEC Order. When approved,
disbursements of settlement monies will be made promptly to the relevant funds,
in accordance with the terms and conditions of that order. The IDC continues to
develop the plan of distribution under the August 2, 2004 SEC Order that
resolved the SEC's market timing investigation.
Annual Report | 69
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company 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.
70 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF THE 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 Target Fund (separate portfolios of Franklin Templeton Fund Allocator
Series, hereafter referred to as the "Funds") at December 31, 2005, the results
of each of their operations for the year then ended and the changes in each of
their net assets 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 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, 2005, by correspondence with the transfer agent
of the Underlying Funds, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 10, 2006
Annual Report | 71
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
capital gain dividends for the fiscal year ended December 31, 2005:
--------------------------
FRANKLIN FRANKLIN
TEMPLETON TEMPLETON
CONSERVATIVE MODERATE
TARGET FUND TARGET FUND
--------------------------
$1,993,800 $2,562,673
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following 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, 2005.
----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------
$933,748 $2,432,887 $2,672,547
In January 2006, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2005.
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 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, 2005.
----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------
3.36% 4.79% 13.14%
Under Section 871(k)(1)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as interest-related dividends
for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2005.
----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------
$1,025,030 $1,285,044 $561,041
72 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, 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
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 140 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since July 2005 56 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems
(CALPERS); and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1995 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 136 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil and
San Mateo, CA 94403-1906 gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc. (manufac-
ture 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).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 73
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 114 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
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 (1928) Trustee Since 1995 140 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 com-
pany) (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
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 140 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, 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 42 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 124 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.; 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 45 of
the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
74 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (1945) 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.; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 31 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).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) 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 47 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) 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 47 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).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 75
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
STEVEN J. GRAY (1955) Secretary Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Resources, Inc.; officer of 33 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Chief Legal Counsel, Atlas Advisers, Inc. (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) 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, LLC,
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 47 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 (1937) 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, Franklin Templeton
Institutional Suisse S.A., 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 45 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
76 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 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:
Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* 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 TRUST'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE 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.
Annual Report | 77
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust'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 Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. 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.
78 | Annual Report
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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 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 MidCap Value Fund
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
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(4)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(4)
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(4)
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME(5)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
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(7)
Colorado
Connecticut
Florida(7)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(6)
Michigan(6)
Minnesota(6)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
(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) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(6) Portfolio of insured municipal securities.
(7) 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).
(8) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/05 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON 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 A2005 02/06
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
DECEMBER 31,2005
- --------------------------------------------------------------------------------
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
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE(R)
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 offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL Series. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
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, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC 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 ......................... 25
Financial Highlights and Statements of Investments ...................... 35
Financial Statements .................................................... 52
Notes to Financial Statements ........................................... 58
Report of Independent Registered Public Accounting Firm ................. 69
Tax Designation ......................................................... 70
Board Members and Officers .............................................. 71
Shareholder Information ................................................. 76
- --------------------------------------------------------------------------------
Annual Report
Economic and Market Overview
During the 12 months ended December 31, 2005, U.S. economic expansion was driven
by strength across most industries, sectors and regions. Gross domestic product
(GDP) rose during the period, benefiting primarily from increased personal
consumption, business investment and federal spending. The U.S. dollar rallied
in 2005, supported by relatively strong domestic economic growth and rising
short-term domestic interest rates, as the Federal Reserve Board raised the
federal funds target rate from 2.25% to 4.25% during the period. Compared with
the rise in short-term interest rates, long-term rates remained relatively
stable, supporting overall robust housing and commercial real estate activity,
which contributed to economic growth.
Oil prices remained high during the period, and natural gas prices rose during
the second half of the period. Despite these high commodity prices, inflation
remained relatively contained for the 12 months ended December 31, 2005, as
measured by the 2.2% rise for the core Consumer Price Index (CPI).(1) In this
environment, the blue chip stocks of the Dow Jones Industrial Average posted a
one-year total return of +1.72%, while the broader Standard & Poor's 500 Index
(S&P 500) and the technology-heavy NASDAQ Composite Index returned +4.91% and
+2.12%.(2)
Outside the U.S., the global economy overcame fears of derailment generated by
higher energy costs and advanced at a solid clip during 2005, with Europe
surpassing expectations. Excluding the volatile energy and food sectors,
inflation remained relatively subdued worldwide.
(1) Source: Bureau of Labor Statistics. Core CPI excludes food and energy
costs.
(2) 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 NASDAQ
domestic and international based common type stocks listed on The NASDAQ
Stock Market. The index is market value weighted and includes more than
3,000 companies.
4 | Annual Report
In addition to high energy prices, prices for other commodities such as
industrial metals also rose. This contributed to economic growth in countries
that are tied to mining and industrial commodities, such as Australia and
Canada, and some Asian and Latin American emerging markets. For the 12 months
under review, equity markets outside the U.S. performed strongly. The Morgan
Stanley Capital International (MSCI) All Country (AC) World ex US Index rose
+17.11%.(3) In terms of sectors, energy and materials led equity market
performance, and telecommunication services and consumer-related sectors lagged.
(3) Source: Standard & Poor's Micropal. The MSCI AC World ex US Index is a
free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed and emerging markets
excluding the U.S.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
2005. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE 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 Capital Growth Fund, Franklin Growth Fund, Mutual Shares
Fund and Templeton Growth Fund.
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 Corefolio Allocation Fund's
annual report for the fiscal year ended December 31, 2005.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A posted a +6.63%
cumulative total return for the year under review. The Fund outperformed its
hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark returned +6.18%.(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
Capital Growth Fund, Franklin 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 a free float-adjusted, market capitalization
-weighted index designed to measure equity market performance in global
developed markets. 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 40.
6 | Annual Report
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
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 year under review, the Fund's performance benefited most from Mutual
Shares Fund - Class Z. Second in terms of performance was Franklin Growth Fund -
Advisor Class. However, Franklin Capital Growth Fund - Advisor Class hindered
the Fund's overall return relative to its hybrid benchmark.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
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, 2005, the U.S. dollar rose in value relative to most non-U.S.
currencies. As a result, the Fund's performance was negatively affected by the
portion of the portfolio's underlying funds' investments in securities with
non-U.S. currency exposure.
Thank you for your continued participation in Franklin Templeton Corefolio
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED]
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Corefolio Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2005, 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.
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund Based on Total Net Assets as of
12/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity 74.7%
Primarily Foreign Equity 25.2%
Short-Term Investments & Other Net Assets 0.1%
Annual Report | 7
Performance Summary as of 12/31/05
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
that a shareholder would pay 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 (SYMBOL: FTCOX) CHANGE 12/31/05 12/31/04
- ---------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.51 $ 12.71 $ 12.20
- ---------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ---------------------------------------------------------------------------
Dividend Income $ 0.1018
- ---------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0003
- ---------------------------------------------------------------------------
Long-Term Capital Gain $ 0.1898
- ---------------------------------------------------------------------------
TOTAL $ 0.2919
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
CLASS B (SYMBOL: FBCOX) CHANGE 12/31/05 12/31/04
- ---------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.50 $ 12.62 $ 12.12
- ---------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ---------------------------------------------------------------------------
Dividend Income $ 0.0165
- ---------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0003
- ---------------------------------------------------------------------------
Long-Term Capital Gain $ 0.1898
- ---------------------------------------------------------------------------
TOTAL $ 0.2066
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
CLASS C (SYMBOL: FTCLX) CHANGE 12/31/05 12/31/04
- ---------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.50 $ 12.61 $ 12.11
- ---------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ---------------------------------------------------------------------------
Dividend Income $ 0.0316
- ---------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0003
- ---------------------------------------------------------------------------
Long-Term Capital Gain $ 0.1898
- ---------------------------------------------------------------------------
TOTAL $ 0.2217
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/05 12/31/04
- ---------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.51 $ 12.69 $ 12.18
- ---------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ---------------------------------------------------------------------------
Dividend Income $ 0.0755
- ---------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0003
- ---------------------------------------------------------------------------
Long-Term Capital Gain $ 0.1898
- ---------------------------------------------------------------------------
TOTAL $ 0.2656
- ---------------------------------------------------------------------------
8 | Annual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- ---------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/05 12/31/04
- ---------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.52 $ 12.73 $ 12.21
- ---------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ---------------------------------------------------------------------------
Dividend Income $ 0.1397
- ---------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0003
- ---------------------------------------------------------------------------
Long-Term Capital Gain $ 0.1898
- ---------------------------------------------------------------------------
TOTAL $ 0.3298
- ---------------------------------------------------------------------------
Franklin Templeton Corefolio Allocation Fund paid distributions derived from
long-term capital gains of 18.98 cents ($0.1898) per share in March 2005. The
Fund designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3)(C).
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 1-YEAR INCEPTION (8/15/03)
- ---------------------------------------------------------------------------
Cumulative Total Return(2) +6.63% +32.11%
- ---------------------------------------------------------------------------
Average Annual Total Return(3) +0.53% +9.66%
- ---------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,053 $12,452
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
CLASS B 1-YEAR INCEPTION (8/15/03)
- ---------------------------------------------------------------------------
Cumulative Total Return(2) +5.89% +29.90%
- ---------------------------------------------------------------------------
Average Annual Total Return(3) +1.89% +10.54%
- ---------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,189 $12,690
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/15/03)
- ---------------------------------------------------------------------------
Cumulative Total Return(2) +6.02% +29.94%
- ---------------------------------------------------------------------------
Average Annual Total Return(3) +5.02% +11.64%
- ---------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,502 $12,994
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/15/03)
- ---------------------------------------------------------------------------
Cumulative Total Return(2) +6.43% +31.58%
- ---------------------------------------------------------------------------
Average Annual Total Return(3) +5.43% +12.23%
- ---------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,543 $13,158
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/15/03)
- ---------------------------------------------------------------------------
Cumulative Total Return(2) +6.93% +32.94%
- ---------------------------------------------------------------------------
Average Annual Total Return(3) +6.93% +12.72%
- ---------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,693 $13,294
- ---------------------------------------------------------------------------
PERFORMANCE DATA 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 12/31/05
- --------------------------------------
1-Year +0.53%
- --------------------------------------
Since Inception (8/15/03) +9.66%
- --------------------------------------
CLASS A (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS A INDEX(5) INDEX(5)
---------- -------------------- ---------- ----------
8/15/2003 $ 9,425 $10,000 $10,000
8/31/2003 $ 9,491 $10,100 $10,113
9/30/2003 $ 9,369 $ 9,994 $10,177
10/31/2003 $ 9,783 $10,559 $10,783
11/30/2003 $ 9,962 $10,651 $10,950
12/31/2003 $10,457 $11,210 $11,639
1/31/2004 $10,600 $11,415 $11,829
2/29/2004 $10,770 $11,574 $12,031
3/31/2004 $10,637 $11,399 $11,956
4/30/2004 $10,533 $11,221 $11,718
5/31/2004 $10,618 $11,374 $11,832
6/30/2004 $10,884 $11,595 $12,080
7/31/2004 $10,448 $11,212 $11,689
8/31/2004 $10,429 $11,257 $11,745
9/30/2004 $10,600 $11,379 $11,971
10/31/2004 $10,770 $11,552 $12,267
11/30/2004 $11,292 $12,020 $12,917
12/31/2004 $11,677 $12,428 $13,414
1/31/2005 $11,333 $12,126 $13,114
2/28/2005 $11,591 $12,381 $13,536
3/31/2005 $11,439 $12,162 $13,280
4/30/2005 $11,237 $11,931 $12,999
5/31/2005 $11,526 $12,310 $13,239
6/30/2005 $11,546 $12,328 $13,360
7/31/2005 $11,951 $12,786 $13,830
8/31/2005 $11,951 $12,670 $13,940
9/30/2005 $12,067 $12,772 $14,306
10/31/2005 $11,845 $12,559 $13,962
11/30/2005 $12,260 $13,034 $14,435
12/31/2005 $12,452 $13,038 $14,758
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 12/31/05
- --------------------------------------
1-Year +1.89%
- --------------------------------------
Since Inception (8/15/03) +10.54%
- --------------------------------------
CLASS B (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS B INDEX(5) INDEX(5)
---------- -------------------- ---------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $ 9,930 $ 9,994 $10,177
10/31/2003 $10,360 $10,559 $10,783
11/30/2003 $10,550 $10,651 $10,950
12/31/2003 $11,062 $11,210 $11,639
1/31/2004 $11,203 $11,415 $11,829
2/29/2004 $11,374 $11,574 $12,031
3/31/2004 $11,223 $11,399 $11,956
4/30/2004 $11,113 $11,221 $11,718
5/31/2004 $11,193 $11,374 $11,832
6/30/2004 $11,474 $11,595 $12,080
7/31/2004 $11,002 $11,212 $11,689
8/31/2004 $10,982 $11,257 $11,745
9/30/2004 $11,143 $11,379 $11,971
10/31/2004 $11,324 $11,552 $12,267
11/30/2004 $11,866 $12,020 $12,917
12/31/2004 $12,268 $12,428 $13,414
1/31/2005 $11,893 $12,126 $13,114
2/28/2005 $12,156 $12,381 $13,536
3/31/2005 $11,996 $12,162 $13,280
4/30/2005 $11,781 $11,931 $12,999
5/31/2005 $12,077 $12,310 $13,239
6/30/2005 $12,087 $12,328 $13,360
7/31/2005 $12,506 $12,786 $13,830
8/31/2005 $12,496 $12,670 $13,940
9/30/2005 $12,608 $12,772 $14,306
10/31/2005 $12,373 $12,559 $13,962
11/30/2005 $12,802 $13,034 $14,435
12/31/2005 $12,690 $13,038 $14,758
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 12/31/05
- --------------------------------------
1-Year +5.02%
- --------------------------------------
Since Inception (8/15/03) +11.64%
- --------------------------------------
CLASS C (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS C INDEX(5) INDEX(5)
---------- -------------------- ---------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $ 9,930 $ 9,994 $10,177
10/31/2003 $10,360 $10,559 $10,783
11/30/2003 $10,540 $10,651 $10,950
12/31/2003 $11,054 $11,210 $11,639
1/31/2004 $11,194 $11,415 $11,829
2/29/2004 $11,365 $11,574 $12,031
3/31/2004 $11,215 $11,399 $11,956
4/30/2004 $11,104 $11,221 $11,718
5/31/2004 $11,194 $11,374 $11,832
6/30/2004 $11,466 $11,595 $12,080
7/31/2004 $10,993 $11,212 $11,689
8/31/2004 $10,973 $11,257 $11,745
9/30/2004 $11,144 $11,379 $11,971
10/31/2004 $11,315 $11,552 $12,267
11/30/2004 $11,858 $12,020 $12,917
12/31/2004 $12,256 $12,428 $13,414
1/31/2005 $11,892 $12,126 $13,114
2/28/2005 $12,155 $12,381 $13,536
3/31/2005 $11,995 $12,162 $13,280
4/30/2005 $11,770 $11,931 $12,999
5/31/2005 $12,066 $12,310 $13,239
6/30/2005 $12,087 $12,328 $13,360
7/31/2005 $12,495 $12,786 $13,830
8/31/2005 $12,495 $12,670 $13,940
9/30/2005 $12,597 $12,772 $14,306
10/31/2005 $12,362 $12,559 $13,962
11/30/2005 $12,801 $13,034 $14,435
12/31/2005 $12,994 $13,038 $14,758
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 12/31/05
- --------------------------------------
1-Year +5.43%
- --------------------------------------
Since Inception (8/15/03) +12.23%
- --------------------------------------
CLASS R (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS R INDEX(5) INDEX(5)
---------- -------------------- ---------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $ 9,940 $ 9,994 $10,177
10/31/2003 $10,380 $10,559 $10,783
11/30/2003 $10,570 $10,651 $10,950
12/31/2003 $11,096 $11,210 $11,639
1/31/2004 $11,236 $11,415 $11,829
2/29/2004 $11,417 $11,574 $12,031
3/31/2004 $11,267 $11,399 $11,956
4/30/2004 $11,156 $11,221 $11,718
5/31/2004 $11,246 $11,374 $11,832
6/30/2004 $11,528 $11,595 $12,080
7/31/2004 $11,065 $11,212 $11,689
8/31/2004 $11,045 $11,257 $11,745
9/30/2004 $11,216 $11,379 $11,971
10/31/2004 $11,397 $11,552 $12,267
11/30/2004 $11,951 $12,020 $12,917
12/31/2004 $12,363 $12,428 $13,414
1/31/2005 $11,998 $12,126 $13,114
2/28/2005 $12,262 $12,381 $13,536
3/31/2005 $12,111 $12,162 $13,280
4/30/2005 $11,886 $11,931 $12,999
5/31/2005 $12,193 $12,310 $13,239
6/30/2005 $12,213 $12,328 $13,360
7/31/2005 $12,633 $12,786 $13,830
8/31/2005 $12,633 $12,670 $13,940
9/30/2005 $12,756 $12,772 $14,306
10/31/2005 $12,520 $12,559 $13,962
11/30/2005 $12,971 $13,034 $14,435
12/31/2005 $13,158 $13,038 $14,758
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
ADVISOR CLASS 12/31/05
- --------------------------------------
1-Year +6.93%
- --------------------------------------
Since Inception (8/15/03) +12.72%
- --------------------------------------
ADVISOR CLASS R (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS ADVISOR INDEX(5) INDEX(5)
---------- -------------------- ---------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $ 9,940 $ 9,994 $10,177
10/31/2003 $10,380 $10,559 $10,783
11/30/2003 $10,580 $10,651 $10,950
12/31/2003 $11,102 $11,210 $11,639
1/31/2004 $11,253 $11,415 $11,829
2/29/2004 $11,434 $11,574 $12,031
3/31/2004 $11,293 $11,399 $11,956
4/30/2004 $11,193 $11,221 $11,718
5/31/2004 $11,273 $11,374 $11,832
6/30/2004 $11,565 $11,595 $12,080
7/31/2004 $11,092 $11,212 $11,689
8/31/2004 $11,082 $11,257 $11,745
9/30/2004 $11,263 $11,379 $11,971
10/31/2004 $11,444 $11,552 $12,267
11/30/2004 $12,008 $12,020 $12,917
12/31/2004 $12,432 $12,428 $13,414
1/31/2005 $12,066 $12,126 $13,114
2/28/2005 $12,341 $12,381 $13,536
3/31/2005 $12,190 $12,162 $13,280
4/30/2005 $11,974 $11,931 $12,999
5/31/2005 $12,282 $12,310 $13,239
6/30/2005 $12,313 $12,328 $13,360
7/31/2005 $12,734 $12,786 $13,830
8/31/2005 $12,744 $12,670 $13,940
9/30/2005 $12,867 $12,772 $14,306
10/31/2005 $12,631 $12,559 $13,962
11/30/2005 $13,083 $13,034 $14,435
12/31/2005 $13,294 $13,038 $14,758
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS 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) The Fund's manager and administrator have agreed in advance to waive all
or a portion of their fees and to make certain payments to reduce
expenses. If the manager and administrator had not taken this action, the
Fund's total return would have been lower. The manager and 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) 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) 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 six months 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.
- ----------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/05 VALUE 12/31/05 PERIOD* 7/1/05-12/31/05
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,066.30 $3.44
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.88 $3.36
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,058.90 $6.80
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.67
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,060.20 $6.70
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.56
- ----------------------------------------------------------------------------------------------------------
CLASS R
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,064.30 $4.21
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.12 $4.13
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $1,069.30 $1.62
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.64 $1.58
- ----------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.58%; B: 1.23%; C: 1.21%; R: 0.73%; and
Advisor: 0.23%) multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year 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 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 fiscal year ended December 31, 2005.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A posted a +6.31%
cumulative total return for the year under review. The Fund slightly
underperformed its hybrid benchmark, which comprised a weighted combination of
the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital
International (MSCI) World Index. For the reporting period, the hybrid
benchmark's total return was +6.59%.(1) You can find other performance data in
the Performance Summary beginning on page 18.
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 a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed markets. 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 46.
Annual Report | 15
ASSET ALLOCATION
Franklin Templeton Founding Funds
Allocation Fund
Based on Total Net Assets as of 12/31/05
(THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.)
Primarily Domestic Equity 33.1%
Domestic Hybrid 33.2%
Primarily Foreign Equity 33.3%
Short-Term Investments & Other Net Assets 0.4%
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
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 year under review, the Fund's performance benefited most from Mutual
Shares Fund - Class Z. Second in terms of performance was Templeton Growth Fund
- - Advisor Class. However, Franklin Income Fund - Advisor Class hindered the
Fund's overall return relative to its hybrid benchmark.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
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, 2005, the U.S. dollar rose in value relative to most non-U.S.
currencies. As a result, the Fund's performance was negatively affected by the
portion of the portfolio's underlying funds' investments in securities with
non-U.S. currency exposure.
16 | Annual Report
Thank you for your continued participation in Franklin Templeton Founding Funds
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED]
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Founding Funds Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 2005, 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 | 17
Performance Summary as of 12/31/05
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
that a shareholder would pay 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 (SYMBOL: FFALX) CHANGE 12/31/05 12/31/04
- ----------------------------------------------------------------------------
Net Asset Value (NAV) +$0.22 $ 12.50 $ 12.28
- ----------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ----------------------------------------------------------------------------
Dividend Income $ 0.3047
- ----------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- ----------------------------------------------------------------------------
Long-Term Capital Gain $ 0.2456
- ----------------------------------------------------------------------------
TOTAL $ 0.5504
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
CLASS B (SYMBOL: FFABX) CHANGE 12/31/05 12/31/04
- ----------------------------------------------------------------------------
Net Asset Value (NAV) +$0.23 $ 12.46 $ 12.23
- ----------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ----------------------------------------------------------------------------
Dividend Income $ 0.2123
- ----------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- ----------------------------------------------------------------------------
Long-Term Capital Gain $ 0.2456
- ----------------------------------------------------------------------------
TOTAL $ 0.4580
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
CLASS C (SYMBOL: FFACX) CHANGE 12/31/05 12/31/04
- ----------------------------------------------------------------------------
Net Asset Value (NAV) +$0.13 $ 12.36 $ 12.23
- ----------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ----------------------------------------------------------------------------
Dividend Income $ 0.3083
- ----------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- ----------------------------------------------------------------------------
Long-Term Capital Gain $ 0.2456
- ----------------------------------------------------------------------------
TOTAL $ 0.5540
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
CLASS R (SYMBOL: FFARX) CHANGE 12/31/05 12/31/04
- ----------------------------------------------------------------------------
Net Asset Value (NAV) +$0.22 $ 12.50 $ 12.28
- ----------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ----------------------------------------------------------------------------
Dividend Income $ 0.2809
- ----------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- ----------------------------------------------------------------------------
Long-Term Capital Gain $ 0.2456
- ----------------------------------------------------------------------------
TOTAL $ 0.5266
- ----------------------------------------------------------------------------
18 | Annual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- ----------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 12/31/05 12/31/04
- ----------------------------------------------------------------------------
Net Asset Value (NAV) +$0.23 $ 12.55 $ 12.32
- ----------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- ----------------------------------------------------------------------------
Dividend Income $ 0.3361
- ----------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- ----------------------------------------------------------------------------
Long-Term Capital Gain $ 0.2456
- ----------------------------------------------------------------------------
TOTAL $ 0.5818
- ----------------------------------------------------------------------------
Franklin Templeton Founding Funds Allocation Fund paid distributions derived
from long-term capital gains of 24.56 cents ($0.2456) per share in March 2005.
The Fund designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3)(C).
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 1-YEAR INCEPTION (8/15/03)
- ----------------------------------------------------------------------------
Cumulative Total Return(2) +6.31% +34.74%
- ----------------------------------------------------------------------------
Average Annual Total Return(3) +0.19% +10.57%
- ----------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,019 $12,700
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
CLASS B 1-YEAR INCEPTION (8/15/03)
- ----------------------------------------------------------------------------
Cumulative Total Return(2) +5.58% +32.77%
- ----------------------------------------------------------------------------
Average Annual Total Return(3) +1.58% +11.58%
- ----------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,158 $12,977
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/15/03)
- ----------------------------------------------------------------------------
Cumulative Total Return(2) +5.63% +32.72%
- ----------------------------------------------------------------------------
Average Annual Total Return(3) +4.63% +12.64%
- ----------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,463 $13,272
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/15/03)
- ----------------------------------------------------------------------------
Cumulative Total Return(2) +6.12% +34.44%
- ----------------------------------------------------------------------------
Average Annual Total Return(3) +5.12% +13.25%
- ----------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,512 $13,444
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/15/03)
- ----------------------------------------------------------------------------
Cumulative Total Return(2) +6.63% +35.89%
- ----------------------------------------------------------------------------
Average Annual Total Return(3) +6.63% +13.76%
- ----------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,663 $13,589
- ----------------------------------------------------------------------------
PERFORMANCE DATA 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 | 19
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 12/31/05
- -------------------------------------------
1-Year +0.19%
- -------------------------------------------
Since Inception (8/15/03) +10.57%
- -------------------------------------------
CLASS A (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON FOUNDING S&P 500 MSCI WORLD
DATE FUNDS ALLOCATION FUND - CLASS A INDEX(5) INDEX(5)
- ---------- ------------------------------- ------------- ----------
8/15/2003 $ 9,425 $10,000 $10,000
8/31/2003 $ 9,463 $10,100 $10,113
9/30/2003 $ 9,519 $ 9,994 $10,177
10/31/2003 $ 9,811 $10,559 $10,783
11/30/2003 $10,019 $10,651 $10,950
12/31/2003 $10,517 $11,210 $11,639
1/31/2004 $10,650 $11,415 $11,829
2/29/2004 $10,850 $11,574 $12,031
3/31/2004 $10,774 $11,399 $11,956
4/30/2004 $10,631 $11,221 $11,718
5/31/2004 $10,641 $11,374 $11,832
6/30/2004 $10,802 $11,595 $12,080
7/31/2004 $10,650 $11,212 $11,689
8/31/2004 $10,783 $11,257 $11,745
9/30/2004 $10,954 $11,379 $11,971
10/31/2004 $11,135 $11,552 $12,267
11/30/2004 $11,610 $12,020 $12,917
12/31/2004 $11,945 $12,428 $13,414
1/31/2005 $11,693 $12,126 $13,114
2/28/2005 $12,082 $12,381 $13,536
3/31/2005 $11,903 $12,162 $13,280
4/30/2005 $11,727 $11,931 $12,999
5/31/2005 $11,903 $12,310 $13,239
6/30/2005 $12,119 $12,328 $13,360
7/31/2005 $12,404 $12,786 $13,830
8/31/2005 $12,473 $12,670 $13,940
9/30/2005 $12,601 $12,772 $14,306
10/31/2005 $12,237 $12,559 $13,962
11/30/2005 $12,404 $13,034 $14,435
12/31/2005 $12,700 $13,038 $14,758
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
CLASS B 12/31/05
- -------------------------------------------
1-Year +1.58%
- -------------------------------------------
Since Inception (8/15/03) +11.58%
- -------------------------------------------
CLASS B (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON FOUNDING S&P 500 MSCI WORLD
DATE FUNDS ALLOCATION FUND - CLASS B INDEX(5) INDEX(5)
- ---------- ------------------------------- ------------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,090 $ 9,994 $10,177
10/31/2003 $10,400 $10,559 $10,783
11/30/2003 $10,610 $10,651 $10,950
12/31/2003 $11,128 $11,210 $11,639
1/31/2004 $11,279 $11,415 $11,829
2/29/2004 $11,470 $11,574 $12,031
3/31/2004 $11,390 $11,399 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,374 $11,832
6/30/2004 $11,400 $11,595 $12,080
7/31/2004 $11,239 $11,212 $11,689
8/31/2004 $11,360 $11,257 $11,745
9/30/2004 $11,541 $11,379 $11,971
10/31/2004 $11,722 $11,552 $12,267
11/30/2004 $12,216 $12,020 $12,917
12/31/2004 $12,576 $12,428 $13,414
1/31/2005 $12,298 $12,126 $13,114
2/28/2005 $12,689 $12,381 $13,536
3/31/2005 $12,501 $12,162 $13,280
4/30/2005 $12,303 $11,931 $12,999
5/31/2005 $12,490 $12,310 $13,239
6/30/2005 $12,708 $12,328 $13,360
7/31/2005 $12,998 $12,786 $13,830
8/31/2005 $13,061 $12,670 $13,940
9/30/2005 $13,185 $12,772 $14,306
10/31/2005 $12,801 $12,559 $13,962
11/30/2005 $12,967 $13,034 $14,435
12/31/2005 $12,977 $13,038 $14,758
20 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
CLASS C 12/31/05
- -------------------------------------------
1-Year +4.63%
- -------------------------------------------
Since Inception (8/15/03) +12.64%
- -------------------------------------------
CLASS C (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON FOUNDING S&P 500 MSCI WORLD
DATE FUNDS ALLOCATION FUND - CLASS C INDEX(5) INDEX(5)
- ---------- ------------------------------- ------------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,090 $ 9,994 $10,177
10/31/2003 $10,390 $10,559 $10,783
11/30/2003 $10,610 $10,651 $10,950
12/31/2003 $11,129 $11,210 $11,639
1/31/2004 $11,270 $11,415 $11,829
2/29/2004 $11,471 $11,574 $12,031
3/31/2004 $11,391 $11,399 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,374 $11,832
6/30/2004 $11,401 $11,595 $12,080
7/31/2004 $11,240 $11,212 $11,689
8/31/2004 $11,360 $11,257 $11,745
9/30/2004 $11,542 $11,379 $11,971
10/31/2004 $11,723 $11,552 $12,267
11/30/2004 $12,216 $12,020 $12,917
12/31/2004 $12,565 $12,428 $13,414
1/31/2005 $12,298 $12,126 $13,114
2/28/2005 $12,688 $12,381 $13,536
3/31/2005 $12,500 $12,162 $13,280
4/30/2005 $12,303 $11,931 $12,999
5/31/2005 $12,490 $12,310 $13,239
6/30/2005 $12,697 $12,328 $13,360
7/31/2005 $12,998 $12,786 $13,830
8/31/2005 $13,060 $12,670 $13,940
9/30/2005 $13,185 $12,772 $14,306
10/31/2005 $12,801 $12,559 $13,962
11/30/2005 $12,967 $13,034 $14,435
12/31/2005 $13,272 $13,038 $14,758
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
CLASS R 12/31/05
- -------------------------------------------
1-Year +5.12%
- -------------------------------------------
Since Inception (8/15/03) +13.25%
- -------------------------------------------
CLASS R (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON FOUNDING S&P 500 MSCI WORLD
DATE FUNDS ALLOCATION FUND - CLASS R INDEX(5) INDEX(5)
- ---------- ------------------------------- ------------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,100 $ 9,994 $10,177
10/31/2003 $10,410 $10,559 $10,783
11/30/2003 $10,630 $10,651 $10,950
12/31/2003 $11,168 $11,210 $11,639
1/31/2004 $11,319 $11,415 $11,829
2/29/2004 $11,521 $11,574 $12,031
3/31/2004 $11,440 $11,399 $11,956
4/30/2004 $11,279 $11,221 $11,718
5/31/2004 $11,289 $11,374 $11,832
6/30/2004 $11,471 $11,595 $12,080
7/31/2004 $11,309 $11,212 $11,689
8/31/2004 $11,440 $11,257 $11,745
9/30/2004 $11,622 $11,379 $11,971
10/31/2004 $11,803 $11,552 $12,267
11/30/2004 $12,307 $12,020 $12,917
12/31/2004 $12,668 $12,428 $13,414
1/31/2005 $12,400 $12,126 $13,114
2/28/2005 $12,803 $12,381 $13,536
3/31/2005 $12,624 $12,162 $13,280
4/30/2005 $12,426 $11,931 $12,999
5/31/2005 $12,614 $12,310 $13,239
6/30/2005 $12,843 $12,328 $13,360
7/31/2005 $13,145 $12,786 $13,830
8/31/2005 $13,207 $12,670 $13,940
9/30/2005 $13,343 $12,772 $14,306
10/31/2005 $12,957 $12,559 $13,962
11/30/2005 $13,134 $13,034 $14,435
12/31/2005 $13,444 $13,038 $14,758
Annual Report | 21
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
ADVISOR CLASS 12/31/05
- -------------------------------------------
1-Year +6.63%
- -------------------------------------------
Since Inception (8/15/03) +13.76%
- -------------------------------------------
ADVISOR CLASS (8/15/03-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON FOUNDING FUNDS S&P 500 MSCI WORLD
DATE ALLOCATION FUND - CLASS ADVISOR INDEX(5) INDEX(5)
- ---------- --------------------------------- ------------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,100 $ 9,994 $10,177
10/31/2003 $10,420 $10,559 $10,783
11/30/2003 $10,640 $10,651 $10,950
12/31/2003 $11,175 $11,210 $11,639
1/31/2004 $11,326 $11,415 $11,829
2/29/2004 $11,538 $11,574 $12,031
3/31/2004 $11,457 $11,399 $11,956
4/30/2004 $11,306 $11,221 $11,718
5/31/2004 $11,326 $11,374 $11,832
6/30/2004 $11,508 $11,595 $12,080
7/31/2004 $11,346 $11,212 $11,689
8/31/2004 $11,477 $11,257 $11,745
9/30/2004 $11,669 $11,379 $11,971
10/31/2004 $11,861 $11,552 $12,267
11/30/2004 $12,375 $12,020 $12,917
12/31/2004 $12,744 $12,428 $13,414
1/31/2005 $12,475 $12,126 $13,114
2/28/2005 $12,889 $12,381 $13,536
3/31/2005 $12,710 $12,162 $13,280
4/30/2005 $12,511 $11,931 $12,999
5/31/2005 $12,710 $12,310 $13,239
6/30/2005 $12,940 $12,328 $13,360
7/31/2005 $13,253 $12,786 $13,830
8/31/2005 $13,326 $12,670 $13,940
9/30/2005 $13,472 $12,772 $14,306
10/31/2005 $13,086 $12,559 $13,962
11/30/2005 $13,263 $13,034 $14,435
12/31/2005 $13,589 $13,038 $14,758
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS 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
INTER EST 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) The Fund's manager and administrator have agreed in advance to waive all
or a portion of their fees and to make certain payments to reduce
expenses. If the manager and administrator had not taken this action, the
Fund's total return would have been lower. The manager and 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) 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) 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.
22 | Annual Report
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 six months 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 | 23
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.
- -------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/05 VALUE 12/31/05 PERIOD* 7/1/05-12/31/05
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,063.10 $3.02
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.28 $2.96
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,055.80 $6.37
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.00 $6.26
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,056.30 $6.22
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.16 $6.11
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,061.20 $3.79
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.53 $3.72
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,066.30 $1.20
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $1.17
- -------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.54%; B: 1.19%; C: 1.16%; R: 0.69%; and
Advisor: 0.19%) multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
24 | Annual Report
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.
- --------------------------------------------------------------------------------
ASSET ALLOCATION
Franklin Templeton Perspectives Allocation Fund
Based on Total Net Assets as of 12/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity .......................... 65.9%
Primarily Foreign Equity ........................... 32.8%
Short-Term Investments & Other Net Assets .......... 1.3%
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Perspectives Allocation Fund's
annual report for the fiscal year ended December 31, 2005.
PERFORMANCE DATA 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.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A posted a +7.93%
cumulative total return for the year under review. The Fund outperformed its
hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark's total return was
+6.59%.(1) You can find other performance data in the Performance Summary
beginning on page 28.
(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 a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed markets. 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 51.
Annual Report | 25
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 relatively
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 year under review, the Fund's performance benefited most from Mutual
Shares Fund - Class Z's positive results. Second in terms of performance was
Templeton Growth Fund - Advisor Class. However, Franklin Flex Cap Growth Fund -
Advisor Class hindered the Fund's overall return relative to its hybrid
benchmark.
It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
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, 2005, the U.S. dollar rose in value relative to most non-U.S.
currencies. As a result, the Fund's performance was negatively affected by the
portion of the portfolio's underlying funds' investments in securities with
non-U.S. currency exposure.
26 | Annual Report
Thank you for your continued participation in Franklin Templeton Perspectives
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED]
/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, 2005, 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 | 27
Performance Summary as of 12/31/05
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
that a shareholder would pay 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 (SYMBOL: FPAAX) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.60 $11.79 $11.19
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.1298
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1550
- --------------------------------------------------------------------------------
TOTAL $0.2848
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FPCAX) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.56 $11.74 $11.18
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.0895
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1550
- --------------------------------------------------------------------------------
TOTAL $0.2445
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.61 $11.79 $11.18
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.1109
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1550
- --------------------------------------------------------------------------------
TOTAL $0.2659
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.62 $11.81 $11.19
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/05-12/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.1526
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1550
- --------------------------------------------------------------------------------
TOTAL $0.3076
- --------------------------------------------------------------------------------
Franklin Templeton Perspectives Allocation Fund paid distributions derived from
long-term capital gains of 15.50 cents ($0.1550) per share in March 2005. The
Fund designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3)(C).
28 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED
SALES CHARGE (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 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +7.93% +21.88%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +1.75% +10.31%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,175 $ 11,488
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +7.22% +20.80%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +6.22% +14.30%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,622 $ 12,080
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +7.86% +21.68%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +6.86% +14.22%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,686 $ 12,068
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return(2) +8.31% +22.41%
- --------------------------------------------------------------------------------
Average Annual Total Return(3) +8.31% +15.37%
- --------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 10,831 $ 12,241
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 | 29
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 12/31/05
- -------------------------------------
1-Year +1.75%
- -------------------------------------
Since Inception (8/2/04) +10.31%
- -------------------------------------
CLASS A (8/2/04-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS A INDEX(5) INDEX(5)
---------- ---------------------------- -------- ----------
8/2/2004 $ 9,425 $10,000 $10,000
8/31/2004 $ 9,510 $10,040 $10,048
9/30/2004 $ 9,670 $10,149 $10,241
10/31/2004 $ 9,840 $10,304 $10,494
11/30/2004 $10,311 $10,721 $11,050
12/31/2004 $10,643 $11,085 $11,475
1/31/2005 $10,367 $10,815 $11,219
2/28/2005 $10,681 $11,043 $11,580
3/31/2005 $10,519 $10,847 $11,361
4/30/2005 $10,328 $10,642 $11,120
5/31/2005 $10,566 $10,980 $11,326
6/30/2005 $10,624 $10,996 $11,429
7/31/2005 $10,958 $11,404 $11,831
8/31/2005 $11,006 $11,300 $11,926
9/30/2005 $11,168 $11,392 $12,239
10/31/2005 $10,910 $11,202 $11,944
11/30/2005 $11,273 $11,625 $12,349
12/31/2005 $11,488 $11,629 $12,626
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
CLASS C 12/31/05
- -------------------------------------
1-Year +6.22%
- -------------------------------------
Since Inception (8/2/04) +14.30%
- -------------------------------------
CLASS C (8/2/04-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS C INDEX(5) INDEX(5)
---------- ---------------------------- -------- ----------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,430 $10,304 $10,494
11/30/2004 $10,910 $10,721 $11,050
12/31/2004 $11,266 $11,085 $11,475
1/31/2005 $10,964 $10,815 $11,219
2/28/2005 $11,286 $11,043 $11,580
3/31/2005 $11,115 $10,847 $11,361
4/30/2005 $10,902 $10,642 $11,120
5/31/2005 $11,155 $10,980 $11,326
6/30/2005 $11,206 $10,996 $11,429
7/31/2005 $11,550 $11,404 $11,831
8/31/2005 $11,591 $11,300 $11,926
9/30/2005 $11,763 $11,392 $12,239
10/31/2005 $11,479 $11,202 $11,944
11/30/2005 $11,854 $11,625 $12,349
12/31/2005 $12,080 $11,629 $12,626
30 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
CLASS R 12/31/05
- -------------------------------------
1-Year +6.86%
- -------------------------------------
Since Inception (8/2/04) +14.22%
- -------------------------------------
CLASS R (8/2/04-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS R INDEX(5) INDEX(5)
---------- ---------------------------- -------- ----------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,080 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,440 $10,304 $10,494
11/30/2004 $10,930 $10,721 $11,050
12/31/2004 $11,281 $11,085 $11,475
1/31/2005 $10,989 $10,815 $11,219
2/28/2005 $11,322 $11,043 $11,580
3/31/2005 $11,159 $10,847 $11,361
4/30/2005 $10,946 $10,642 $11,120
5/31/2005 $11,199 $10,980 $11,326
6/30/2005 $11,260 $10,996 $11,429
7/31/2005 $11,605 $11,404 $11,831
8/31/2005 $11,655 $11,300 $11,926
9/30/2005 $11,828 $11,392 $12,239
10/31/2005 $11,554 $11,202 $11,944
11/30/2005 $11,939 $11,625 $12,349
12/31/2005 $12,068 $11,629 $12,626
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
ADVISOR CLASS 12/31/05
- -------------------------------------
1-Year +8.31%
- -------------------------------------
Since Inception (8/2/04) +15.37%
- -------------------------------------
ADVISOR CLASS (8/2/04-12/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION S&P 500 MSCI WORLD
DATE FUND - CLASS ADVISOR INDEX(5) INDEX(5)
---------- ----------------------- -------- ----------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,260 $10,149 $10,241
10/31/2004 $10,450 $10,304 $10,494
11/30/2004 $10,950 $10,721 $11,050
12/31/2004 $11,301 $11,085 $11,475
1/31/2005 $11,008 $10,815 $11,219
2/28/2005 $11,341 $11,043 $11,580
3/31/2005 $11,178 $10,847 $11,361
4/30/2005 $10,975 $10,642 $11,120
5/31/2005 $11,239 $10,980 $11,326
6/30/2005 $11,300 $10,996 $11,429
7/31/2005 $11,655 $11,404 $11,831
8/31/2005 $11,705 $11,300 $11,926
9/30/2005 $11,888 $11,392 $12,239
10/31/2005 $11,614 $11,202 $11,944
11/30/2005 $12,010 $11,625 $12,349
12/31/2005 $12,241 $11,629 $12,626
Annual Report | 31
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS 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. THE PORTFOLIO MAY INCLUDE INVESTMENTS IN
THE TECHNOLOGY SECTOR, WHICH HAS BEEN HIGHLY VOLATILE AND INVOLVES SPECIAL
RISKS. FRANKLIN FLEX CAP GROWTH FUND NORMALLY INVESTS A MAJORITY OF ITS ASSETS
IN SECURITIES LINKED TO THE STATE OF CALIFORNIA, WHICH MAY INVOLVE INCREASED
VOLATILITY ASSOCIATED WITH ECONOMIC OR REGULATORY DEVELOPMENTS IN THE STATE.
SMALLER OR RELATIVELY NEW OR UNSEASONED COMPANIES CAN BE PARTICULARLY SENSITIVE
TO CHANGING ECONOMIC CONDITIONS, AND THEIR PROSPECTS FOR GROWTH ARE LESS THAN
CERTAIN THAN THOSE OF LARGER, MORE ESTABLISHED COMPANIES. 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 manager and administrator have agreed in advance to waive all
or a portion of their fees and to make certain payments to reduce
expenses. If the manager and administrator had not taken this action, the
Fund's total return would have been lower. The manager and 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) Average annual total return represents the 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 applicable maximum
sales charge.
(5) 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.
32 | Annual Report
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 six months 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 | 33
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 7/1/05 VALUE 12/31/05 PERIOD* 7/1/05-12/31/05
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,079.30 $2.41
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.89 $2.35
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,072.20 $5.80
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.61 $5.65
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,078.60 $3.20
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.13 $3.11
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.10 $0.58
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.65 $0.56
- --------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.46%; C: 1.11%; R: 0.61%; and Advisor:
0.11%), multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
34 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS A 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.20 $ 11.02 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.09 0.09 0.01
Net realized and unrealized gains (losses) ............ 0.71 1.21 1.07(i)
---------------------------------------------------
Total from investment operations ......................... 0.80 1.30 1.08
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.10) (0.07) --
Tax return of capital ................................. -- -- (0.06)
Net realized gains (losses) ........................... (0.19) (0.05) --
---------------------------------------------------
Total distributions ...................................... (0.29) (0.12) (0.06)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.71 $ 12.20 $ 11.02
===================================================
Total return(c) .......................................... 6.63% 11.77% 10.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 353,016 $ 238,564 $ 157,792
Ratios to average net assets:
Expenses(d) ........................................... 0.66% 0.68%(g) 0.74%(g)
Expenses net of waiver and payments by affiliate(d) ... 0.58% 0.68%(g) 0.47%(g)
Net investment income (loss)(b) ....................... 0.72% 1.86%(g) 0.14%(g)
Portfolio turnover rate .................................. 2.49% 1.02% 0.62%
(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 0.76% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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.
Annual Report | See notes to financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS B 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.12 $ 10.95 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income (loss)(a,b) ..................... 0.01 0.06 (0.06)
Net realized and unrealized gains (losses) ............ 0.70 1.20 1.06(i)
---------------------------------------------------
Total from investment operations ......................... 0.71 1.26 1.00
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.02) (0.04) --
Tax return of capital ................................. -- -- (0.05)
Net realized gains (losses) ........................... (0.19) (0.05) --
---------------------------------------------------
Total distributions ...................................... (0.21) (0.09) (0.05)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.62 $ 12.12 $ 10.95
===================================================
Total return(c) .......................................... 5.89% 11.50% 10.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 71,496 $ 66,562 $ 44,297
Ratios to average net assets:
Expenses(d) ........................................... 1.31% 1.33%(g) 1.39%(g)
Expenses net of waiver and payments by affiliate(d) ... 1.23% 1.33%(g) 1.12%(g)
Net investment income (loss)(b) ....................... 0.07% 1.21%(g) (0.51)%(g)
Portfolio turnover rate .................................. 2.49% 1.02% 0.62%
(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 0.76% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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.
36 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS C 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.11 $ 10.94 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.01 0.06 0.05
Net realized and unrealized gains (losses) ............ 0.71 1.20 1.04(i)
---------------------------------------------------
Total from investment operations ......................... 0.72 1.26 0.99
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.03) (0.04) --
Tax return of capital ................................. -- -- (0.05)
Net realized gains (losses) ........................... (0.19) (0.05) --
---------------------------------------------------
Total distributions ...................................... (0.22) (0.09) (0.05)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.61 $ 12.11 $ 10.94
===================================================
Total return(c) .......................................... 6.02% 11.49% 9.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 132,459 $ 96,487 $ 73.272
Ratios to average net assets:
Expenses(d) ........................................... 1.29% 1.33%(g) 1.39%(g)
Expenses net of waiver and payments by affiliate(d) ... 1.21% 1.33%(g) 1.12%(g)
Net investment income (loss)(b) ....................... 0.09% 1.21%(g) (0.51)%(g)
Portfolio turnover rate 2.49% 1.02% 0.62%
(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 0.76% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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.
Annual Report | See notes to financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS R 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.18 $ 11.00 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income (loss)(a,b) ..................... 0.05 0.08 (0.02)
Net realized and unrealized gains (losses) ............ 0.73 1.21 1.08(i)
---------------------------------------------------
Total from investment operations ......................... 0.78 1.29 1.06
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.08) (0.06) --
Tax return of capital ................................. -- -- (0.06)
Net realized gains (losses) ........................... (0.19) (0.05) --
---------------------------------------------------
Total distributions ...................................... (0.27) (0.11) (0.06)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.69 $ 12.18 $ 11.00
===================================================
Total return(c) .......................................... 6.43% 11.73% 10.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 2,190 $ 1,944 $ 1,408
Ratios to average net assets:
Expenses(d) ........................................... 0.81% 0.83%(g) 0.89%(g)
Expenses net of waiver and payments by affiliate(d) ... 0.73% 0.83%(g) 0.62%(g)
Net investment income (loss)(b) ....................... 0.57% 1.71%(g) (0.01)%(g)
Portfolio turnover rate .................................. 2.49% 1.02% 0.62%
(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 0.76% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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.
38 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
ADVISOR CLASS 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.21 $ 11.02 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.13 0.11 0.04
Net realized and unrealized gains (losses) ............ 0.72 1.21 1.05(i)
---------------------------------------------------
Total from investment operations ......................... 0.85 1.32 1.09
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.14) (0.08) --
Tax return of capital ................................. -- -- (0.07)
Net realized gains (losses) ........................... (0.19) (0.05) --
---------------------------------------------------
Total distributions ...................................... (0.33) (0.13) (0.07)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.73 $ 12.21 $ 11.02
===================================================
Total return(c) .......................................... 6.93% 12.09% 10.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 2,792 $ 2,097 $ 1,181
Ratios to average net assets:
Expenses(d) ........................................... 0.31% 0.33%(g) 0.39%(g)
Expenses net of waiver and payments by affiliate(d) ... 0.23% 0.33%(g) 0.12%(g)
Net investment income (loss)(b) ....................... 1.07% 2.21%(g) 0.49%(g)
Portfolio turnover rate .................................. 2.49% 1.02% 0.62%
(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 0.76% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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.
Annual Report | See notes to financial statements. | 39
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005
- ---------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS(a)
LONG TERM INVESTMENTS 99.9%
DOMESTIC EQUITY 74.7%
Franklin Capital Growth Fund, Advisor Class ..................... 12,387,061 $ 138,982,828
Franklin Growth Fund, Advisor Class ............................. 3,840,312 140,401,793
Mutual Shares Fund, Class Z ..................................... 5,861,386 140,380,205
---------------
419,764,826
---------------
FOREIGN EQUITY 25.2%
Templeton Growth Fund, Inc., Advisor Class ...................... 6,154,896 141,254,871
---------------
TOTAL LONG TERM INVESTMENTS (COST $510,216,397) ................. 561,019,697
---------------
SHORT TERM INVESTMENTS (COST $654,399) 0.1%
MONEY FUND 0.1%
Franklin Institutional Fiduciary Trust Money Market Portfolio ... 654,399 654,399
---------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS
(COST $510,870,796) 100.0% ................................... 561,674,096
OTHER ASSETS, LESS LIABILITIES 0.0%(b) .......................... 278,429
---------------
NET ASSETS 100.0% ............................................... $ 561,952,525
===============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Rounds to less than 0.05% of net assets.
40 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS A 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.28 $ 11.21 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.37 0.22 0.23
Net realized and unrealized gains (losses) ............ 0.40 1.14 1.07(i)
---------------------------------------------------
Total from investment operations ......................... 0.77 1.36 1.30
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.30) (0.23) (0.09)
Net realized gains (losses) ........................... (0.25) (0.06) --
---------------------------------------------------
Total distributions ...................................... (0.55) (0.29) (0.09)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.50 $ 12.28 $ 11.21
===================================================
Total return(c) .......................................... 6.31% 12.16% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 4,051,695 $ 1,640,876 $ 882,175
Ratios to average net assets:
Expenses(d) ........................................... 0.58% 0.60%(g) 0.61%(g)
Expenses net of waiver and payments by affiliate(d) ... 0.54% 0.60%(g) 0.49%(g)
Net investment income(b) .............................. 2.98% 4.48%(g) 2.16%(g)
Portfolio turnover rate .................................. 0.74% 0.37% 0.71%
(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 0.71% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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 repurchase of the Fund shares in
relation to fluctuating market value of the investments of the Fund.
Annual Report | See notes to financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS B 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.23 $ 11.16 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.26 0.19 0.16
Net realized and unrealized gains (losses) ............ 0.43 1.13 1.08(i)
---------------------------------------------------
Total from investment operations ......................... 0.69 1.32 1.24
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.21) (0.19) (0.08)
Net realized gains (losses) ........................... (0.25) (0.06) --
---------------------------------------------------
Total distributions ...................................... (0.46) (0.25) (0.08)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.46 $ 12.23 $ 11.16
===================================================
Total return(c) .......................................... 5.58% 11.90% 12.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 688,590 $ 612,553 $ 357,282
Ratios to average net assets:
Expenses(d) ........................................... 1.23% 1.25%(g) 1.26%(g)
Expenses net of waiver and payments by affiliate(d) ... 1.19% 1.25%(g) 1.14%(g)
Net investment income(b) .............................. 2.33% 3.83%(g) 1.51%(g)
Portfolio turnover rate .................................. 0.74% 0.37% 0.71%
(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 0.71% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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 repurchase of the Fund shares in
relation to fluctuating market value of the investments of the Fund.
42 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS C 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.23 $ 11.16 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.29 0.19 0.17
Net realized and unrealized gains (losses) ............ 0.39 1.13 1.07(i)
---------------------------------------------------
Total from investment operations ......................... 0.68 1.32 1.24
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.30) (0.19) (0.08)
Net realized gains (losses) ........................... (0.25) (0.06) --
---------------------------------------------------
Total distributions ...................................... (0.55) (0.25) (0.08)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.36 $ 12.23 $ 11.16
===================================================
Total return(c) .......................................... 5.63% 11.79% 12.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 2,075,041 $ 927,786 $ 535,778
Ratios to average net assets:
Expenses(d) ........................................... 1.20% 1.25%(g) 1.26%(g)
Expenses net of waiver and payments by affiliate(d) ... 1.16% 1.25%(g) 1.14%(g)
Net investment income(b) .............................. 2.36% 3.83%(g) 1.51%(g)
Portfolio turnover rate .................................. 0.74% 0.37% 0.71%
(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 0.71% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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 repurchase of the Fund shares in
relation to fluctuating market value of the investments of the Fund.
Annual Report | See notes to financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
CLASS R 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.28 $ 11.22 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.33 0.22 0.20
Net realized and unrealized gains (losses) ............ 0.42 1.13 1.11(i)
---------------------------------------------------
Total from investment operations ......................... 0.75 1.35 1.31
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.28) (0.23) (0.09)
Net realized gains (losses) ........................... (0.25) (0.06) --
---------------------------------------------------
Total distributions ...................................... (0.53) (0.29) (0.09)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.50 $ 12.28 $ 11.22
===================================================
Total return(c) .......................................... 6.12% 12.02% 13.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 17,247 $ 12,101 $ 5,225
Ratios to average net assets:
Expenses(d) ........................................... 0.73% 0.75%(g) 0.76%(g)
Expenses net of waiver and payments by affiliate(d) ... 0.69% 0.75%(g) 0.64%(g)
Net investment income(b) .............................. 2.83% 4.33%(g) 2.01%(g)
Portfolio turnover rate .................................. 0.74% 0.37% 0.71%
(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 0.71% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(i) 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 repurchase of the Fund shares in
relation to fluctuating market value of the investments of the Fund.
44| See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
---------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
ADVISOR CLASS 2005 2004(f) 2004(h)
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 12.32 $ 11.25 $ 10.00
---------------------------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.39 0.24 0.25
Net realized and unrealized gains (losses) ............ 0.42 1.14 1.09(i)
---------------------------------------------------
Total from investment operations ......................... 0.81 1.38 1.34
---------------------------------------------------
Less distributions from:
Net investment income ................................. (0.33) (0.25) (0.09)
Net realized gains (losses) ........................... (0.25) (0.06) --
---------------------------------------------------
Total distributions ...................................... (0.58) (0.31) (0.09)
---------------------------------------------------
Redemption fees .......................................... --(e) --(e) --(e)
---------------------------------------------------
Net asset value, end of year ............................. $ 12.55 $ 12.32 $ 11.25
===================================================
Total return(c) .......................................... 6.63% 12.32% 13.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 12,535 $ 7,792 $ 4,991
Ratios to average net assets:
Expenses(d) ........................................... 0.23% 0.25%(g) 0.26%(g)
Expenses net of waiver and payments by affiliate(d) ... 0.19% 0.25%(g) 0.14%(g)
Net investment income(b) .............................. 3.33% 4.83%(g) 2.51%(g)
Portfolio turnover rate .................................. 0.74% 0.37% 0.71%
(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 0.71% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 1, 2004 to December 31, 2004. See Note 1.
(g) Annualized.
(h) For the August 15, 2003 (commencement of operations) to July 31, 2004.
(i) 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 repurchase of the Fund shares in
relation to fluctuating market value of the investments of the Fund.
Annual Report | See notes to financial statements. | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005
- ------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS(A)
LONG TERM INVESTMENTS 99.6%
DOMESTIC EQUITY 33.1%
Mutual Shares Fund, Class Z ..................................... 94,711,314 $ 2,268,335,976
---------------
DOMESTIC HYBRID 33.2%
Franklin Income Fund, Advisor Class ............................. 950,454,720 2,271,586,780
---------------
FOREIGN EQUITY 33.3%
Templeton Growth Fund, Inc., Advisor Class ...................... 99,176,751 2,276,106,431
---------------
TOTAL LONG TERM INVESTMENTS (COST $6,632,300,663) ............... 6,816,029,187
---------------
SHORT TERM INVESTMENTS (COST $10,646,854) 0.1%
MONEY FUND 0.1%
Franklin Institutional Fiduciary Trust Money Market Portfolio ... 10,646,854 10,646,854
---------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS
(COST $6,642,947,517) 99.7% .................................. 6,826,676,041
OTHER ASSETS, LESS LIABILITIES 0.3% ............................. 18,432,661
---------------
NET ASSETS 100.0% ............................................... $ 6,845,108,702
===============
(a) See Note 6 regarding investments in Underlying Funds.
46 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
CLASS A 2005 2004(f)
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 11.19 $ 10.00
--------------------------------
Income from investment operations:
Net investment income(a,b) ........................... 0.16 0.17
Net realized and unrealized gains (losses) ........... 0.73 1.12
--------------------------------
Total from investment operations ........................ 0.89 1.29
--------------------------------
Less distributions from:
Net investment income ................................ (0.13) (0.07)
Net realized gains (losses) .......................... (0.16) (0.03)
--------------------------------
Total distributions ..................................... (0.29) (0.10)
--------------------------------
Redemption fees ......................................... --(e) --(e)
--------------------------------
Net asset value, end of year ............................ $ 11.79 $ 11.19
================================
Total return(c) ......................................... 7.93% 12.93%
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................... $ 103,348 $ 16,155
Ratios to average net assets:
Expenses(d) .......................................... 0.90% 2.31%(g)
Expenses net of waiver and payments by affiliate(d) .. 0.46% 0.39%(g)
Net investment income (loss)(b) ...................... 1.41% 3.78%(g)
Portfolio turnover rate ................................. 0.68% 0.51%
(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 0.78% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(g) Annualized.
Annual Report | See notes to financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
CLASS C 2005 2004(f)
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 11.18 $ 10.00
--------------------------------
Income from investment operations:
Net investment income(a,b) ............................ 0.09 0.15
Net realized and unrealized gains (losses) ............ 0.72 1.12
--------------------------------
Total from investment operations ......................... 0.81 1.27
--------------------------------
Less distributions from:
Net investment income ................................. (0.09) (0.06)
Net realized gains (losses) ........................... (0.16) (0.03)
--------------------------------
Total distributions ...................................... (0.25) (0.09)
--------------------------------
Redemption fees .......................................... --(e) --(e)
--------------------------------
Net asset value, end of year ............................. $ 11.74 $ 11.18
================================
Total return(c) .......................................... 7.22% 12.66%
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $ 36,568 $ 4,558
Ratios to average net assets:
Expenses(d) ........................................... 1.55% 2.96%(g)
Expenses net of waiver and payments by affiliate(d) ... 1.11% 1.04%(g)
Net investment income (loss)(b) ....................... 0.76% 3.13%(g)
Portfolio turnover rate .................................. 0.68% 0.51%
(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 0.78% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(g) Annualized.
48 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
CLASS R 2005 2004(f)
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 11.18 $ 10.00
--------------------------------
Income from investment operations:
Net investment income(a,b) ........................... 0.11 0.15
Net realized and unrealized gains (losses) ........... 0.77 1.13
--------------------------------
Total from investment operations ........................ 0.88 1.28
--------------------------------
Less distributions from:
Net investment income ................................ (0.11) (0.07)
Net realized gains (losses) .......................... (0.16) (0.03)
--------------------------------
Total distributions ..................................... (0.27) (0.10)
--------------------------------
Redemption fees ......................................... --(e) --(e)
--------------------------------
Net asset value, end of year ............................ $ 11.79 $ 11.18
================================
Total return(c) ......................................... 7.86% 12.81%
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................... $ 1,287 $ 260
Ratios to average net assets:
Expenses(d) .......................................... 1.05% 2.46%(g)
Expenses net of waiver and payments by affiliate(d) .. 0.61% 0.54%(g)
Net investment income (loss)(b) ...................... 1.26% 3.63%(g)
Portfolio turnover rate ................................. 0.68% 0.51%
(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 0.78% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(g) Annualized.
Annual Report | See notes to financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
ADVISOR CLASS 2005 2004(f)
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 11.19 $ 10.00
--------------------------------
Income from investment operations:
Net investment income(a,b) ........................... 0.11 0.14
Net realized and unrealized gains (losses) ........... 0.82 1.16
--------------------------------
Total from investment operations ........................ 0.93 1.30
--------------------------------
Less distributions from:
Net investment income ................................ (0.15) (0.08)
Net realized gains (losses) .......................... (0.16) (0.03)
--------------------------------
Total distributions ..................................... (0.31) (0.11)
--------------------------------
Redemption fees ......................................... --(e) --(e)
--------------------------------
Net asset value, end of year ............................ $ 11.81 $ 11.19
================================
Total return(c) ......................................... 8.31% 13.01%
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................... $ 1,104 $ 196
Ratios to average net assets:
Expenses(d) .......................................... 0.55% 1.96%(g)
Expenses net of waiver and payments by affiliate(d) .. 0.11% 0.04%(g)
Net investment income (loss)(b) ...................... 1.76% 4.13%(g)
Portfolio turnover rate ................................. 0.68% 0.51%
(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 0.78% for the year ended December 31, 2005.
(e) Amount is less than $0.01 per share.
(f) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(g) Annualized.
50 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2005
- ---------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------
INVESTMENT IN UNDERLYING FUNDS(a)
LONG TERM INVESTMENTS 98.7%
DOMESTIC EQUITY 65.9%
(b)Franklin Flex Cap Growth Fund, Advisor Class ..................... 1,148,794 $ 46,307,906
Mutual Shares Fund, Class Z ...................................... 1,980,034 47,421,806
------------
93,729,712
------------
FOREIGN EQUITY 32.8%
Templeton Growth Fund, Inc., Advisor Class ....................... 2,034,641 46,695,003
------------
TOTAL LONG TERM INVESTMENTS (COST $135,791,381) .................. 140,424,715
------------
SHORT TERM INVESTMENTS (COST $508,553) 0.3%
MONEY FUND 0.3%
Franklin Institutional Fiduciary Trust Money Market Portfolio .... 508,553 508,553
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $136,299,934) 99.0% .. 140,933,268
OTHER ASSETS, LESS LIABILITIES 1.0% .............................. 1,374,510
------------
NET ASSETS 100.0% ................................................ $142,307,778
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing.
Annual Report | See notes to financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2005
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ....................................... $ 510,870,796 $ 6,642,947,517 $ 136,299,934
===================================================
Value ...................................... 561,674,096 6,826,676,041 140,933,268
Receivables:
Capital shares sold ........................ 2,025,983 53,356,780 1,618,502
Affiliates ................................. 187,917 895,247 276,249
---------------------------------------------------
Total assets ............................... 563,887,996 6,880,928,068 142,828,019
---------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed .................... 982,897 9,167,064 169,240
Affiliates ................................. 552,916 6,691,854 143,248
Distributions to shareholders .............. 366,037 19,731,474 141,218
Reports to shareholders .................... -- -- 62,420
Accrued expenses and other liabilities ........ 33,621 228,974 4,115
---------------------------------------------------
Total liabilities .......................... 1,935,471 35,819,366 520,241
---------------------------------------------------
Net assets, at value .................... $ 561,952,525 $ 6,845,108,702 $ 142,307,778
===================================================
Net assets consist of:
Paid-in capital ............................... $ 502,828,622 $ 6,527,330,386 $ 135,141,075
Undistributed net investment income ........... 940,742 6,654,521 13,510
Net unrealized appreciation (depreciation) .... 50,803,300 183,728,524 4,633,334
Accumulated net realized gain (loss) .......... 7,379,861 127,395,271 2,519,859
---------------------------------------------------
Net assets, at value .................... $ 561,952,525 $ 6,845,108,702 $ 142,307,778
===================================================
52 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2005
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------
CLASS A:
Net assets, at value ........................................ $ 353,015,967 $ 4,051,695,132 $ 103,348,412
===================================================
Shares outstanding .......................................... 27,770,262 324,084,072 8,762,759
===================================================
Net asset value per share(a) ................................ $ 12.71 $ 12.50 $ 11.79
===================================================
Maximum offering price per share (net asset value per
share / 94.25%) .......................................... $ 13.49 $ 13.26 $ 12.51
===================================================
CLASS B:
Net assets, at value ........................................ $ 71,495,785 $ 688,590,004
=================================
Shares outstanding .......................................... 5,663,582 55,272,158
=================================
Net asset value and maximum offering price per share(a) ..... $ 12.62 $ 12.46
=================================
CLASS C:
Net assets, at value ........................................ $ 132,459,297 $ 2,075,041,256 $ 36,568,079
===================================================
Shares outstanding .......................................... 10,507,720 167,846,918 3,115,119
===================================================
Net asset value and maximum offering price per share(a) ..... $ 12.61 $ 12.36 $ 11.74
===================================================
CLASS R:
Net assets, at value ........................................ $ 2,189,818 $ 17,247,154 $ 1,287,459
===================================================
Shares outstanding .......................................... 172,508 1,379,382 109,193
===================================================
Net asset value and maximum offering price per share(a) ..... $ 12.69 $ 12.50 $ 11.79
===================================================
ADVISOR CLASS:
Net assets, at value ........................................ $ 2,791,658 $ 12,535,156 $ 1,103,828
===================================================
Shares outstanding .......................................... 219,300 998,531 93,473
===================================================
Net asset value and maximum offering price per share(a) ..... $ 12.73 $ 12.55 $ 11.81
===================================================
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
Annual Report | See notes to financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2005
----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
----------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ................................. $ 6,268,499 $ 175,875,536 $ 1,485,194
----------------------------------------------------
Expenses:
Administrative fees (Note 3a) ............................................ 483,810 4,992,471 79,291
Distribution fees (Note 3b)
Class A ............................................................... 1,035,627 9,837,629 202,311
Class B ............................................................... 692,198 6,673,748 --
Class C ............................................................... 1,120,481 14,516,548 198,521
Class R ............................................................... 10,933 73,717 4,525
Transfer agent fees (Note 3d) ............................................ 786,804 5,088,209 174,398
Reports to shareholders .................................................. 119,277 516,312 60,989
Registration and filing fees ............................................. 100,627 615,960 61,986
Amortization of offering costs ........................................... -- -- 45,435
Professional fees ........................................................ 16,012 46,773 14,347
Trustees' fees and expenses .............................................. 1,272 11,745 124
Other .................................................................... 13,471 111,097 2,706
----------------------------------------------------
Total expenses ........................................................ 4,380,512 42,484,209 844,633
Expenses waived/paid by affiliates (Note 3e) .......................... (427,243) (1,906,059) (354,117)
----------------------------------------------------
Net expenses ....................................................... 3,953,269 40,578,150 490,516
----------------------------------------------------
Net investment income (loss) .................................... 2,315,230 135,297,386 994,678
----------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ............................... (305,351) (1,055,805) (13,858)
Realized gain distributions by Underlying Funds ....................... 13,457,017 225,129,178 4,198,688
----------------------------------------------------
Net realized gain (loss) from Underlying Funds .................. 13,151,666 224,073,373 4,184,830
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds ...................................................... 18,583,049 (20,377,278) 3,733,521
----------------------------------------------------
Net realized and unrealized gain (loss) ..................................... 31,734,715 203,696,095 7,918,351
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations ............. $ 34,049,945 $ 338,993,481 $ 8,913,029
====================================================
54 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------
YEAR ENDED FOR THE PERIOD PERIOD ENDED
DECEMBER 31, AUGUST 1, 2004 TO JULY 31,
2005 DECEMBER 31, 2004 2004(a)
---------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ........................................... $ 2,315,230 $ 2,244,723 $ (176,412)
Net realized gain (loss) from Underlying Funds ......................... 13,151,666 4,911,200 (21,057)
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ................................................. 18,583,049 32,430,401 (210,150)
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations .. 34,049,945 39,586,324 (407,619)
---------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................. (2,706,666) (1,319,231) --
Class B ............................................................. (95,540) (224,407) --
Class C ............................................................. (304,721) (304,395) --
Class R ............................................................. (13,374) (9,798) --
Advisor Class ....................................................... (29,711) (14,245) --
Net realized gains:
Class A ............................................................. (4,722,069) (904,943) --
Class B ............................................................. (1,090,043) (255,081) --
Class C ............................................................. (1,827,556) (369,958) --
Class R ............................................................. (35,570) (7,442) --
Advisor Class (38,361) (8,048) --
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 ....................................... (10,863,611) (3,417,548) (336,462)
---------------------------------------------------
Capital share transactions: (Note 2)
Class A ............................................................. 99,800,451 59,770,667 158,377,319
Class B ............................................................. 2,004,829 16,357,601 44,569,988
Class C ............................................................. 30,562,322 14,277,374 73,131,258
Class R ............................................................. 157,640 363,929 1,430,776
Advisor Class ....................................................... 586,231 764,575 1,182,550
---------------------------------------------------
Total capital share transactions .......................................... 133,111,473 91,534,146 278,691,891
---------------------------------------------------
Redemption fees ........................................................... 1,413 281 2,292
---------------------------------------------------
Net increase (decrease) in net assets ................................ 156,299,220 127,703,203 277,950,102
Net assets:
Beginning of year ...................................................... 405,653,305 277,950,102 --
---------------------------------------------------
End of year ............................................................ $ 561,952,525 $ 405,653,305 $ 277,950,102
===================================================
Undistributed net investment income included in net assets:
End of year ............................................................ $ 940,742 $ 510,830 $ --
===================================================
(a) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Annual Report | See notes to financial statements. | 55
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
----------------------------------------------------
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
----------------------------------------------------
YEAR ENDED FOR THE PERIOD PERIOD ENDED
DECEMBER 31, AUGUST 1, 2004 TO JULY 31,
2005 DECEMBER 31, 2004 2004(a)
----------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................. $ 135,297,386 $ 41,683,943 $ 13,095,141
Net realized gain (loss) from Underlying Funds ........................ 224,073,373 52,895,092 336,168
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ................................................ (20,377,278) 193,126,119 10,979,683
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations .. 338,993,481 287,705,154 24,410,992
----------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................ (95,113,986) (29,522,777) (1,477,369)
Class B ............................................................ (11,435,618) (9,055,060) (599,490)
Class C ............................................................ (49,892,165) (13,551,966) (1,094,668)
Class R ............................................................ (376,341) (216,033) (7,674)
Advisor Class ...................................................... (324,505) (151,940) (4,901)
Net realized gains:
Class A ............................................................ (60,077,962) (7,444,102) --
Class B ............................................................ (13,364,975) (2,836,350) --
Class C ............................................................ (31,902,414) (4,274,586) --
Class R ............................................................ (307,043) (55,643) --
Advisor Class ...................................................... (208,794) (34,949) --
----------------------------------------------------
Total distributions to shareholders ...................................... (263,003,803) (67,143,406) (3,184,102)
----------------------------------------------------
Capital share transactions: (Note 2)
Class A ............................................................ 2,363,047,363 648,779,490 872,224,582
Class B ............................................................ 63,159,382 211,117,052 353,450,435
Class C ............................................................ 1,132,276,775 326,859,283 528,405,234
Class R ............................................................ 4,908,962 6,116,010 5,187,546
Advisor Class ...................................................... 4,573,450 2,220,681 4,953,545
----------------------------------------------------
Total capital share transactions ......................................... 3,567,965,932 1,195,092,516 1,764,221,342
----------------------------------------------------
Redemption fees .......................................................... 45,042 3,024 2,530
----------------------------------------------------
Net increase (decrease) in net assets .................................. 3,644,000,652 1,415,657,288 1,785,450,762
Net assets:
Beginning of year ........................................................ 3,201,108,050 1,785,450,762 --
----------------------------------------------------
End of year .............................................................. $6,845,108,702 $ 3,201,108,050 $1,785,450,762
====================================================
Undistributed net investment income included in net assets:
End of year .............................................................. $ 6,654,521 $ 365,862 $ 9,911,039
====================================================
(a) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
56 | See notes to financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
-----------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
-----------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
2005 2004(a)
-----------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................. $ 994,678 $ 120,897
Net realized gain (loss) from Underlying Funds ........................ 4,184,830 226,789
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ................................................ 3,733,521 899,813
-----------------------------
Net increase (decrease) in net assets resulting from
operations ................................................... 8,913,029 1,247,499
-----------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................ (1,096,845) (94,185)
Class C ............................................................ (266,589) (21,357)
Class R ............................................................ (11,813) (1,203)
Advisor Class ...................................................... (14,047) (1,108)
Net realized gains:
Class A ............................................................ (1,039,446) (36,215)
Class C ............................................................ (369,003) (10,567)
Class R ............................................................ (14,705) (470)
Advisor Class ...................................................... (16,038) (382)
-----------------------------
Total distributions to shareholders ................................... (2,828,486) (165,487)
-----------------------------
Capital share transactions: (Note 2)
Class A ............................................................ 82,792,372 15,350,923
Class C ............................................................ 30,465,502 4,303,323
Class R ............................................................ 964,795 251,013
Advisor Class ...................................................... 830,434 182,260
-----------------------------
Total capital share transactions ......................................... 115,053,103 20,087,519
-----------------------------
Redemption fees .......................................................... 598 3
-----------------------------
Net increase (decrease) in net assets ........................... 121,138,244 21,169,534
Net assets:
Beginning of year ..................................................... 21,169,534 --
-----------------------------
End of year ........................................................... $ 142,307,778 $ 21,169,534
-----------------------------
Undistributed net investment income included in net assets:
End of year ........................................................... $ 13,510 $ 7,301
=============================
(a) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
Annual Report | See notes to financial statements. | 57
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).
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 closing 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 continue to qualify as a regulated investment company under the
Internal Revenue Code and to distribute to shareholders substantially all of
its taxable income and net realized gains.
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 is recorded on the ex-dividend date. Distributions to shareholders are
recorded on the ex-dividend date and are determined according to income tax
regulations (tax basis). Distributable earnings determined on a tax basis may
differ from earnings recorded in accordance with generally accepted
accounting principles. These differences may be permanent or temporary.
Permanent differences are reclassified among capital accounts to reflect
their tax character. These reclassifications have no impact on net assets or
the results of operations. Temporary differences are not reclassified, as
they may reverse in subsequent periods.
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 of the Trust.
Fund specific expenses are charged directly to the fund that incurred the
expense.
58 | 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)
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.
D. OFFERING COSTS
Offering costs are amortized on a straight line basis over twelve months.
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
A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Funds and accounted for as an addition to paid-in
capital.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and Trustees are
indemnified by the Trust against certain liabilities 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 | 59
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 are only offered to existing Class B
shareholders in the form of reinvested distributions and certain exchanges from
other Franklin Templeton Class B shares. 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, 2005, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
-----------------------------------------------------------
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
CLASS A SHARES:
Year ended December 31, 2005
Shares sold ..................................... 11,802,924 $ 143,272,069 205,902,418 $ 2,554,554,739
Shares issued in reinvestment of distributions .. 564,044 7,056,287 11,595,629 145,008,575
Shares redeemed ................................. (4,146,832) (50,527,905) (27,001,853) (336,515,951)
-----------------------------------------------------------
Net increase (decrease) ......................... 8,220,136 $ 99,800,451 190,496,194 $ 2,363,047,363
===========================================================
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:
Year ended December 31, 2005
Shares sold ..................................... 645,771 $ 7,713,279 7,897,683 $ 96,144,049
Shares issued in reinvestment of distributions .. 92,725 1,135,896 1,870,110 23,230,543
Shares redeemed ................................. (567,650) (6,844,346) (4,565,605) (56,215,210)
-----------------------------------------------------------
Net increase (decrease) ......................... 170,846 $ 2,004,829 5,202,188 $ 63,159,382
===========================================================
60 | 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 B SHARES (CONTINUED):
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
===========================================================
CLASS C SHARES:
Year ended December 31, 2005
Shares sold ..................................... 3,974,019 $ 47,718,754 98,797,473 $ 1,216,236,357
Shares issued in reinvestment of distributions .. 160,950 1,981,215 5,708,288 70,631,355
Shares redeemed ................................. (1,592,178) (19,137,647) (12,509,107) (154,590,937)
-----------------------------------------------------------
Net increase (decrease) ......................... 2,542,791 $ 30,562,322 91,996,654 $ 1,132,276,775
===========================================================
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:
Year ended December 31, 2005
Shares sold ..................................... 67,774 $ 812,103 519,654 $ 6,419,637
Shares issued in reinvestment of distributions .. 3,923 48,574 54,182 676,457
Shares redeemed ................................. (58,782) (703,037) (179,863) (2,187,132)
-----------------------------------------------------------
Net increase (decrease) ......................... 12,915 $ 157,640 393,973 $ 4,908,962
===========================================================
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
===========================================================
Annual Report | 61
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 R SHARES (CONTINUED):
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:
Year ended December 31, 2005
Shares sold ..................................... 64,949 $ 791,637 463,739 $ 5,801,455
Shares issued in reinvestment of distributions .. 5,243 65,758 39,624 497,040
Shares redeemed ................................. (22,551) (271,164) (137,456) (1,725,045)
-----------------------------------------------------------
Net increase (decrease) ......................... 47,641 $ 586,231 365,907 $ 4,573,450
===========================================================
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
===========================================================
------------------------------
PERSPECTIVES
ALLOCATION FUND
------------------------------
SHARES AMOUNT
------------------------------
CLASS A SHARES:
Year ended December 31, 2005
Shares sold ..................................... 7,590,421 $ 85,816,339
Shares issued in reinvestment of distributions .. 172,606 2,037,347
Shares redeemed ................................. (443,646) (5,061,314)
------------------------------
Net increase (decrease) ......................... 7,319,381 $ 82,792,372
==============================
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
==============================
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------
PERSPECTIVES
ALLOCATION FUND
------------------------------
SHARES AMOUNT
------------------------------
CLASS C SHARES:
Year ended December 31, 2005
Shares sold ........................................ 2,775,287 $ 31,221,952
Shares issued in reinvestment of distributions ..... 49,625 582,828
Shares redeemed .................................... (117,652) (1,339,278)
------------------------------
Net increase (decrease) ............................ 2,707,260 $ 30,465,502
==============================
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:
Year ended December 31, 2005
Shares sold ........................................ 89,527 $ 1,003,624
Shares issued in reinvestment of distributions ..... 2,251 26,469
Shares redeemed .................................... (5,834) (65,298)
------------------------------
Net increase (decrease) ............................ 85,944 $ 964,795
==============================
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:
Year ended December 31, 2005
Shares sold ........................................ 192,680 $ 2,146,894
Shares issued in reinvestment of distributions ..... 2,508 29,357
Shares redeemed .................................... (119,260) (1,345,817)
------------------------------
Net increase (decrease) ............................ 75,928 $ 830,434
==============================
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
==============================
(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.
Annual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of some of the
Underlying Funds and the following subsidiaries:
- -----------------------------------------------------------------------------------------
SUBSIDIARY 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 0.10% per year of each of
the Fund's average daily net assets for administrative services including
monitoring and rebalancing the percentage of each Fund's investment in the
Underlying Funds.
B. DISTRIBUTION FEES
The Trusts' Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor class shares, pursuant to Rule 12b-1 under
the 1940 Act.
Under the Funds' compensation distribution plans, the Funds pay Distributors for
costs incurred in connection with the sale and distribution of each Fund's
shares up to a certain percentage per year of their average daily net assets of
each class as follows:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
Class A ........................ 0.35% 0.35% 0.35%
Class B ........................ 1.00% 1.00% --
Class C ........................ 1.00% 1.00% 1.00%
Class R ........................ 0.50% 0.50% 0.50%
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 year:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
Net sales charge received(a) ... $814,229 $14,347,515 $469,301
Contingent deferred sales
charges retained ............ $192,782 $ 1,689,135 $ 7,244
(a) Net of commissions paid to unaffiliated broker/dealers.
64 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
D. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were retained by Investor Services:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
Transfer agent fees ............ $594,628 $4,071,679 $142,719
E. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS
FT Services agreed in advance to voluntarily waive administrative fees and
assume payment of other expenses for Franklin Templeton Perspectives Allocation
Fund, as noted in the Statement of Operations. Effective August 1, 2005 FT
Services agreed in advance to voluntarily waive administrative fees and assume
payment of other expenses for Franklin Templeton Corefolio Allocation Fund, and
Franklin Templeton Founding Funds Allocation Fund, as noted in the Statement of
Operations. Total expenses waived/paid by FT Services are not subject to
reimbursement by the Funds subsequent to the Funds' fiscal year end.
4. INCOME TAXES
The tax character of distributions paid during the year ended December 31, 2005
and the periods ended December 31, 2004, and July 31, 2004, was as follows:
-----------------------------------------------------------------
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004(a) JULY 31, 2004(b)
-----------------------------------------------------------------
Distributions paid from:
Ordinary income ............. $ 3,161,106 $1,872,076 $ --
Long term capital gain ...... 7,702,505 1,545,472 --
-----------------------------------------------------------------
10,863,611 3,417,548 --
Return of capital ........... -- -- 336,462
-----------------------------------------------------------------
$ 10,863,611 $3,417,548 $ 336,462
=================================================================
Annual Report | 65
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
---------------------------------------------------------------------
FRANKLIN TEMPLETON
FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004(a) JULY 31, 2004(b)
---------------------------------------------------------------------
Distributions paid from:
Ordinary income ............. $157,142,615 $52,497,776 $3,184,102
Long term capital gain ...... 105,861,188 14,645,630 --
---------------------------------------------------------------------
$263,003,803 $67,143,406 $3,184,102
=====================================================================
----------------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
YEAR ENDED PERIOD ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004(c)
----------------------------------------
Distributions paid from:
Ordinary income ............. $1,389,294 $117,853
Long term capital gain. ..... 1,439,192 47,634
----------------------------------------
$2,828,486 $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 at fiscal year end 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.
At December 31, 2005, 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 ........................... $ 511,247,400 $6,644,297,872 $136,309,686
====================================================
Unrealized appreciation ....................... $ 50,426,696 $ 205,788,554 $ 4,623,582
Unrealized depreciation ....................... -- (23,410,385) --
----------------------------------------------------
Net unrealized appreciation (depreciation) .... $ 50,426,696 $ 182,378,169 $ 4,623,582
====================================================
Undistributed ordinary income ................. $ 956,661 $ 6,654,521 $ 13,510
Undistributed long term capital gains ......... 7,740,547 128,745,626 2,529,611
----------------------------------------------------
Distributable earnings ........................ $ 8,697,208 $ 135,400,147 $ 2,543,121
====================================================
66 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of short-term capital gain distributions from
Underlying Funds.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of short-term capital gain distributions
from Underlying Funds and wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2005, were as follows:
------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------
Purchases ............. $150,937,470 $3,701,095,102 $116,748,888
Sales ................. $ 12,003,922 $ 36,672,511 $ 541,733
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Franklin
Advisers, Inc. (Advisers), an affiliate of FT Services, or by an affiliate of
Advisers. The Funds do not invest in the Underlying Funds for the purpose of
exercising management or control. At December 31, 2005, the Funds held the
following positions which exceed 5% of the Underlying Fund's shares outstanding:
- --------------------------------------------------------------------------------
NAME OF ISSUER % OF SHARES HELD
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
Franklin Capital Growth Fund, Advisor Class .............. 8.68%
Franklin Growth Fund, Advisor Class ...................... 6.01%
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund, Class Z .............................. 14.36%
Templeton Growth Fund, Inc., Advisor Class .............. 8.23%
Franklin Income Fund, Advisor Class ...................... 5.80%
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, administrative fees are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management and administrative
fees paid by the Sweep Money Fund.
67 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, 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 (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop a plan for distribution of the
respective settlement monies. The CAGO approved the distribution plan under the
CAGO Settlement and, in accordance with the terms and conditions of that
settlement, the monies were disbursed to the relevant funds. The Trust did not
participate in the CAGO Settlement. The SEC has not yet approved the
distribution plan pertaining to the December 13, 2004 SEC Order. When approved,
disbursements of settlement monies will be made promptly to the relevant funds,
in accordance with the terms and conditions of that order. The IDC continues to
develop the plan of distribution under the August 2, 2004 SEC Order that
resolved the SEC's market timing investigation.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company 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.
68 | Annual Report
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 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 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, 2005, the results of each of their operations for the year then
ended and the changes in each of their net assets 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 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, 2005 by
correspondence with the transfer agent of the Underlying Funds, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 10, 2006
Annual Report | 69
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
capital gain dividends for the fiscal year ended December 31, 2005:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$12,186,948 $197,001,096 $3,793,575
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following 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, 2005.
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$7,445,347 $128,428,824 $1,849,893
In January 2006, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2005.
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 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, 2005.
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
73.12% 36.67% 38.87%
Under Section 871(k)(1)(C) of the Code, the Fund designates the maximum amount
allowable but no less than the following amounts as interest-related dividends
for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2005.
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$603,775 $25,856,567 $206,151
Under Section 871(k)(2)(C) of the Code, the Fund designates the maximum amount
allowable but no less than the following amounts as a short-term capital gain
dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended December 31, 2005.
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$16,087 $5,807 $206
70 | Annual Report
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth 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
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 140 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since July 2005 56 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS);
and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and
Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1995 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 136 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).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 71
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 114 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906
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 (1928) Trustee Since 1995 140 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
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 140 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, 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 42 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
72 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. Trustee, Trustee since 124 None
(1940) President 1995, and
One Franklin Parkway and Chief President and
San Mateo, CA 94403-1906 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.; 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 45 of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (1945) 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.; and officer and/or director or trustee, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton
Investments; and
FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 31 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).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President
Suite 2100 and 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 47 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 73
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) 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 47 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).
- ------------------------------------------------------------------------------------------------------------------------------------
STEVEN J. GRAY (1955) Secretary Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Resources, Inc.; officer of 33 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Chief Legal Counsel, Atlas Advisers, Inc. (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) 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, LLC,
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 47 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 (1937) 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, Franklin Templeton Institutional
Suisse S.A., 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 45 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
74 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Financial
Suite 2100 Officer and
Fort Lauderdale, FL 33394-3091 Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* 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.
Annual Report | 75
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust'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 Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. 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.
76 | Annual Report
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 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 MidCap Value Fund
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
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(4)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(4)
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(4)
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME(5)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
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(7)
Colorado
Connecticut
Florida(7)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(6)
Michigan(6)
Minnesota(6)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
(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) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(6) Portfolio of insured municipal securities.
(7) 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).
(8) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/05 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMNETS 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.
FAS2 A2005 02/06
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 12(a)(1), 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 in
2004. Information is included for fiscal year ending July 31, 2004, fiscal
period ending December 31, 2004 (August 1, 2004 - December 31, 2004), and fiscal
year ending December 31, 2005.
(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 $75,785 for the fiscal year ended December 31, 2005, $70,251 for the fiscal
period ended December 31, 2004, and $98,298 for the fiscal year ended July 31,
2004.
(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, 2005, $0 for the fiscal period
ended December 31, 2004, and $48,579 for the fiscal year ended July 31, 2004.
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.
The aggregate 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 were $19,591 for the fiscal year ended
December 31, 2005, $0 for the fiscal period ended December 31, 2004, and $0 for
the fiscal year ended July 31, 2004. The services for which these fees were paid
included tax compliance and advice.
(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,
2005, $0 for the fiscal period ended December 31, 2004, and $660 for the fiscal
year ended July 31, 2004. 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 $4,500 for the fiscal year ended December
31 ,2005, $0 for the fiscal period ended December 31, 2004, $159,340 for the
fiscal year ended July 31, 2004. 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 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 $24,091 for the fiscal year ended December 31, 2005, $0 for the
fiscal year ended December 31, 2004, and $208,579 for the fiscal year ended July
31, 2004.
(h) The registrant's audit committee of the board of trustees has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. 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 11. 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 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) 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) 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
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date February 21, 2006
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
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date February 21, 2006
By /S/ GALEN G. VETTER
Galen G. Vetter
Chief Financial Officer
Date February 21, 2006