UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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
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(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: 06/30/06
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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JUNE 30, 2006
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Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
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Eligible shareholders can
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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 semiannual report
Contents
SHAREHOLDER LETTER ......................................................... 1
SEMIANNUAL REPORT
Economic and Market Overview ............................................... 3
Franklin Templeton Conservative Target Fund ................................ 5
Franklin Templeton Moderate Target Fund .................................... 13
Franklin Templeton Growth Target Fund ...................................... 21
Financial Highlights and Statements of Investments ......................... 29
Financial Statements ....................................................... 47
Notes to Financial Statements .............................................. 52
Shareholder Information .................................................... 62
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Shareholder Letter
Dear Shareholder:
During the six months ended June 30, 2006, the U.S. economy continued to grow.
Moderate core inflation, warmer-than-normal winter temperatures, some improving
economic data, solid business spending and generally positive corporate earnings
reports supported economic progress. On the other hand, high oil prices and
concerns about the U.S. twin (federal and trade) deficits and rising interest
rates had the potential to slow growth. As the period proceeded, uncertainty
about interest rates and inflation began to dampen investor confidence. After
making gains for most of the period under review, U.S. equity markets began to
slide in May. The Standard & Poor's 500 Index (S&P 500) returned +2.71%, the Dow
Jones Industrial Average returned +5.22% and the NASDAQ Composite Index had a
return of -1.08% for the six months under review. 1
In the enclosed semiannual report for Franklin Templeton Fund Allocator Series,
the portfolio manager discusses market conditions, investment management
decisions and Fund performance during the period under review. You will also
find performance data and financial information. Please remember that all
securities markets fluctuate, as do mutual fund share prices.
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 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 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.
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EDELIVERY DETAILS
Log in at franklintempleton.com and click on eDelivery. Shareholders who are
registered at franklintempleton.com can receive these reports via email. Not all
accounts are eligible for eDelivery.
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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Not part of the semiannual report | 1
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
As always, we recommend investors consult their financial advisors and review
their portfolios to design a long-term strategy and portfolio allocation that
meet their individual needs, goals and risk tolerance. We firmly believe that
most people benefit from professional advice, and that advice is never more
valuable than during a volatile market.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Templeton Fund Allocator Series
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30, 2006. 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.
2 | Not part of the semiannual report
Semiannual Report
Economic and Market Overview
During the six months ended June 30, 2006, the global economy advanced at a
healthy pace. U.S. gross domestic product grew an annualized 5.6% in first
quarter 2006 and moderated to an estimated 2.5% annualized rate in the second
quarter. Growth was driven by consumer, business and government spending.
Productivity gains and corporate profits also contributed. U.S. export growth
picked up some momentum, but a wide trade deficit remained. The labor market
firmed as employment generally increased and the unemployment rate remained
relatively low. Although labor costs rose during the reporting period, hiring
increased in many industries and personal income grew.
However, signs of moderation appeared globally in the latter part of the period
primarily due to three factors. Many central banks, including the world's three
largest, continued to tighten monetary policy, thereby reducing the immense
liquidity that helped fuel the current recovery. Oil prices remained elevated
and reached a historical high during the period. Over the past few months, the
sustained high energy prices may also have contributed to a rise in broad
measures of inflation. Lastly, the U.S. housing market showed evidence of
cooling.
The U.S. Federal Reserve Board increased the federal funds target rate in four
quarter-point increments to 5.25%. The European Central Bank raised short-term
rates twice to 2.75%. In March 2006, the Bank of Japan ended its
deflation-fighting policy, which could allow short-term rates to increase from
their effective zero percent rate. Even after these changes, interest rates
remained at levels considered supportive of further economic growth. The
possibility of future rate increases in many countries remained, although many
market observers were divided as to whether an end to the current tightening
cycle might be near.
Robust economic growth sustained strong demand for oil and other commodities,
which kept prices high during most of the reporting period. In particular, many
industrial metals prices continued to rise at double-digit rates. This
contributed to economic growth in countries that are tied to mining and
industrial commodities, such as Australia and Canada and emerging markets in
Asia and Latin America. However, in May an uncertain economic outlook led to a
pull-back in commodity prices, which impacted the share prices of related
stocks.
Notably, availability of cash and historically low interest rates fueled mergers
and acquisitions, as well as leveraged buyouts and other corporate activity,
which
Semiannual Report | 3
intensified during the period. In the first half of 2006, the total value of
global deals announced was $1.83 trillion, an increase of 43% over the
comparable period in 2005. 1 Cross-border mergers and acquisitions were about
40% of total deal volume, and European companies were the most active
worldwide. 1
In this environment, domestic equity markets experienced dramatic swings late in
the period. Overall, the blue chip stocks of the Dow Jones Industrial Average
posted a six-month total return of +5.22%, the broader Standard & Poor's 500
Index (S&P 500) returned +2.71% and the technology-heavy NASDAQ Composite Index
had a -1.08% return. 2 Global equity markets performed better than those in the
U.S. As of June 30, 2006, the six-month total return for the Morgan Stanley
Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index was
+10.50%. 3
1. Source: "Merger Machine Keeps Churning out Deals," THE WALL STREET
JOURNAL, 7/3/06.
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.
3. Source: Standard & Poor's Micropal. 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 FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30,
2006. 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.
4 | Semiannual Report
Franklin Templeton
Conservative Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target
Fund seeks the highest level of long-term total return consistent with a lower
level of risk. 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 Assets as of 6/30/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity .............................................. 28.5%
Primarily Domestic Fixed Income ........................................ 27.2%
Primarily Foreign Equity ............................................... 12.2%
Primarily Foreign Fixed Income ......................................... 12.0%
Short-Term Investments & Other Net Assets .............................. 20.1%
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We are pleased to bring you Franklin Templeton Conservative Target Fund's
semiannual report for the period ended June 30, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A posted a +3.20% cumulative
total return for the six months 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 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
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 34.
Semiannual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund
6/30/06
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% OF TOTAL
NET ASSETS
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Templeton Global Bond Fund 12.0%
- - Advisor Class
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Franklin U.S. Government Securities 10.1%
Fund - Advisor Class
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Franklin Small Cap Growth Fund II 8.9%
- - Advisor Class
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Franklin Strategic Mortgage Portfolio 8.5%
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Franklin Flex Cap Growth Fund 7.6%
- - Advisor Class
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Franklin Total Return Fund 6.8%
- - Advisor Class
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Mutual Shares Fund 6.5%
- - Class Z
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Mutual European Fund 6.1%
- - Class Z
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Templeton Foreign Fund 2.3%
- - Advisor Class
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Franklin Gold and Precious Metals Fund 2.3%
- - Advisor Class
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investments and other net assets. For the reporting period, the hybrid benchmark
returned +2.15%. 2 You can find the Fund's long-term performance data in the
Performance Summary beginning on page 8.
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 70.1% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2006, 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 8.9% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 69.4% of the Fund's total income
2. Sources: Standard & Poor's Micropal; Lehman Brothers. The S&P 500 consists
of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its
market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond 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.
6 | Semiannual Report
weighting, with the balance represented by foreign fixed income. Templeton
Global Bond Fund - Advisor Class was our largest fixed income fund weighting at
12.0% of total net assets.
Our largest primarily domestic growth fund holding, Franklin Small Cap Growth
Fund II - Advisor Class, and our largest primarily domestic value fund holding,
Mutual Shares Fund - Class Z, outperformed the S&P 500 during the six-month
reporting period. Our largest foreign equity fund holding, Mutual European Fund
- - Class Z, underperformed the MSCI EAFE Index. On the fixed income side,
Templeton Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate
Index.
Thank you for your continued participation in Franklin Templeton Conservative
Target Fund. We look forward to serving your future investment needs.
/s/ T. Anthony Coffey
[PHOTO OMITTED]
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Conservative Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2006, 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 INVESTMENT MANAGER 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.
Semiannual Report | 7
Performance Summary as of 6/30/06
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 does 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 6/30/06 12/31/05
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Net Asset Value (NAV) +$0.18 $12.92 $12.74
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1250
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Long-Term Capital Gain $0.0995
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TOTAL $0.2245
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CLASS B (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$0.17 $12.88 $12.71
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.0867
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Long-Term Capital Gain $0.0995
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TOTAL $0.1862
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CLASS C (SYMBOL: FTCCX) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$0.18 $12.78 $12.60
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.0863
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Long-Term Capital Gain $0.0995
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TOTAL $0.1858
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CLASS R (SYMBOL: FTCRX) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$0.19 $12.90 $12.71
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1091
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Long-Term Capital Gain $0.0995
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TOTAL $0.2086
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ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$0.19 $12.91 $12.72
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1385
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Long-Term Capital Gain $0.0995
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TOTAL $0.2380
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8 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
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Cumulative Total Return 2 +3.20% +7.86% +30.33% +85.83%
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Average Annual Total Return 3 -2.75% +1.64% +4.20% +6.08%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 9,725 $10,164 $12,286 $17,514
- ------------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR INCEPTION (12/1/03)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +2.82% +7.10% +16.50%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 -1.18% +3.10% +5.03%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 9,882 $10,310 $11,350
- ------------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +2.92% +7.09% +25.64% +72.67%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +1.92% +6.09% +4.67% +5.92%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,192 $10,609 $12,564 $17,267
- ------------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (1/1/02)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.16% +7.67% +26.66% +30.25%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.16% +7.67% +8.20% +6.06%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,316 $10,767 $12,666 $13,025
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.39% +7.98% +30.47% +86.03%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.39% +7.98% +5.46% +6.76%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,339 $10,798 $13,047 $18,603
- ------------------------------------------------------------------------------------------------------------
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.
Semiannual Report | 9
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.
BONDS ARE AFFECTED BY CHANGES IN INTEREST RATES AND THE CREDITWORTHINESS OF
THEIR ISSUERS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS THE PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST
RATES, THE FUND'S SHARE PRICE MAY DECLINE. HIGHER-YIELDING, LOWER-RATED
CORPORATE BONDS ENTAIL A GREATER DEGREE OF CREDIT RISK COMPARED TO
INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS
CURRENCY AND MARKET VOLATILITY AND POLITICAL AND SOCIAL INSTABILITY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial
sales charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
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.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
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), the aggregate total return of Advisor Class
shares was +4.09%. Aggregate total return represents the change in value
of an investment for the period indicated.
10 | Semiannual Report
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.
Semiannual Report | 11
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 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,032.00 $2.52
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- --------------------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,028.20 $6.29
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26
- --------------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,029.20 $6.24
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
- --------------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,031.60 $3.78
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.08 $3.76
- --------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,033.90 $1.26
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.55 $1.25
- --------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; B: 1.25%; C: 1.24%; R: 0.75%; and
Advisor: 0.25%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
12 | Semiannual Report
Franklin Templeton
Moderate Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund
seeks the highest level of long-term total return consistent with an
intermediate level of risk. 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 6/30/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity ................................................ 38.8%
Primarily Domestic Fixed Income .......................................... 24.2%
Primarily Foreign Equity ................................................. 16.5%
Primarily Foreign Fixed Income ........................................... 10.5%
Short-Term Investments & Other Net Assets ................................ 10.0%
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Moderate Target Fund's Grade
semiannual report for the period ended June 30, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A posted a +3.83% cumulative
total return for the six months 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 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
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 40.
Semiannual Report | 13
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund
6/30/06
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 11.8%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton Global Bond Fund 10.5%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 10.0%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities 8.9%
Fund - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 8.6%
- - Class Z
- --------------------------------------------------------------------------------
Mutual European Fund 8.3%
- - Class Z
- --------------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 7.6%
- --------------------------------------------------------------------------------
Franklin Total Return Fund 6.3%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton Foreign Fund 3.3%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund 2.9%
- - Advisor Class
- --------------------------------------------------------------------------------
net assets. For the reporting period, the hybrid benchmark returned +2.69%. 2
You can find the Fund's long-term performance data in the Performance Summary
beginning on page 16.
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 70.1% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2006, 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 11.8% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 69.7% of the Fund's total income
2. Sources: Standard & Poor's Micropal; Lehman Brothers. The S&P 500 consists
of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its
market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond 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 39%, MSCI EAFE 16%, 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.
14 | Semiannual Report
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, and our largest primarily domestic value fund holding,
Mutual Shares Fund - Class Z, outperformed the S&P 500 during the six-month
reporting period. Our largest foreign equity fund holding, Mutual European Fund
- - Class Z, underperformed the MSCI EAFE Index. On the fixed income side,
Templeton Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate
Index.
Thank you for your continued participation in Franklin Templeton Moderate Target
Fund. We look forward to serving your future investment needs.
/s/ T. Anthony Coffey
[PHOTO OMITTED]
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Moderate Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2006, 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 INVESTMENT MANAGER 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.
Semiannual Report | 15
Performance Summary as of 6/30/06
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 does 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 6/30/06 12/31/05
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.34 $13.48 $13.14
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.0938
- ----------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0667
- ----------------------------------------------------------------------------------------------------------
TOTAL $0.1605
- ----------------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FBMTX) CHANGE 6/30/06 12/31/05
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.34 $13.44 $13.10
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.0427
- ----------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0667
- ----------------------------------------------------------------------------------------------------------
TOTAL $0.1094
- ----------------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FTMTX) CHANGE 6/30/06 12/31/05
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.33 $13.27 $12.94
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.0454
- ----------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0667
- ----------------------------------------------------------------------------------------------------------
TOTAL $0.1121
- ----------------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FTMRX) CHANGE 6/30/06 12/31/05
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.35 $13.46 $13.11
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.0736
- ----------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0667
- ----------------------------------------------------------------------------------------------------------
TOTAL $0.1403
- ----------------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
- ----------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.34 $13.49 $13.15
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ----------------------------------------------------------------------------------------------------------
Dividend Income $0.1106
- ----------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0667
- ----------------------------------------------------------------------------------------------------------
TOTAL $0.1773
- ----------------------------------------------------------------------------------------------------------
16 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.83% +9.86% +32.75% +88.39%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 -2.13% +3.54% +4.58% +6.23%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 9,787 $10,354 $12,510 $17,756
- --------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR INCEPTION (12/1/03)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.45% +8.98% +20.75%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 -0.55% +4.98% +6.54%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 9,945 $10,498 $11,775
- --------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.43% +9.05% +27.93% +74.33%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +2.43% +8.05% +5.05% +6.03%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,243 $10,805 $12,793 $17,433
- --------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (1/1/02)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.76% +9.57% +34.67% +34.96%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.76% +9.57% +10.43% +6.90%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,376 $10,957 $13,467 $13,496
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +4.04% +10.14% +33.10% +88.88%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +4.04% +10.14% +5.88% +6.93%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,404 $11,014 $13,310 $18,888
- --------------------------------------------------------------------------------------------------------
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.
Semiannual Report | 17
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.
BONDS ARE AFFECTED BY CHANGES IN INTEREST RATES AND THE CREDITWORTHINESS OF
THEIR ISSUERS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS THE PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST
RATES, THE FUND'S SHARE PRICE MAY DECLINE. HIGHER-YIELDING, LOWER-RATED
CORPORATE BONDS ENTAIL A GREATER DEGREE OF CREDIT RISK COMPARED TO
INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS
CURRENCY AND MARKET VOLATILITY AND POLITICAL AND SOCIAL INSTABILITY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial
sales charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
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.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
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), the aggregate total return of Advisor Class
shares was +4.74%. Aggregate total return represents the change in value
of an investment for the period indicated.
18 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON MODERATE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the 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.
Semiannual Report | 19
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 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,038.30 $2.53
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- --------------------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,034.50 $6.31
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26
- --------------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,034.30 $6.25
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
- --------------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,037.60 $3.79
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.08 $3.76
- --------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,040.40 $1.26
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.55 $1.25
- --------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; B: 1.25%; C: 1.24%; R: 0.75%; and
Advisor: 0.25%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
20 | Semiannual Report
Franklin Templeton Growth Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Growth Target Fund
seeks the highest level of long-term total return consistent with a higher level
of risk. 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 6/30/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity ............................................... 56.2%
Primarily Foreign Equity ................................................ 24.0%
Primarily Domestic Fixed Income ......................................... 10.5%
Primarily Foreign Fixed Income .......................................... 4.4%
Short-Term Investments & Other Net Assets ............................... 4.9%
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Growth Target Fund's semiannual
report for the period ended June 30, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A posted a +4.88% cumulative total
return for the six months 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 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
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 46.
Semiannual Report | 21
net assets. For the reporting period, the hybrid benchmark returned +4.02%. 2
You can find the Fund's long-term performance data in the Performance Summary
beginning on page 24.
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 70.1% of its total equity weighting, with the balance represented by foreign
equity. The portfolio was diversified across capitalization sizes and investment
styles, and on June 30, 2006, 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 17.2% of the
Fund's total net assets, was our largest equity fund weighting at period-end.
2. Sources: Standard & Poor's Micropal; Lehman Brothers. The S&P 500 consists
of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its
market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond 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.
22 | Semiannual Report
On the fixed income side, domestic exposure was 70.5% of the Fund's total income
weighting, with the balance represented by foreign fixed income. Templeton
Global Bond Fund - Advisor Class was our largest fixed income fund weighting at
4.4% of total net assets.
Our largest primarily domestic growth fund holding, Franklin Small Cap Growth
Fund II - Advisor Class, and our largest primarily domestic value fund holding,
Mutual Shares Fund - Class Z, outperformed the S&P 500 during the six-month
reporting period. Our largest foreign equity fund holding, Mutual European Fund
- - Class Z, underperformed the MSCI EAFE Index. On the fixed income side,
Templeton Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate
Index.
Thank you for your continued participation in Franklin Templeton Growth Target
Fund. We look forward to serving your future investment needs.
/s/ T. Anthony Coffey
[PHOTO OMITTED]
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Growth Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2006, 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 INVESTMENT MANAGER 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.
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund
6/30/06
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 17.2%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 15.0%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 12.9%
- - Class Z
- --------------------------------------------------------------------------------
Mutual European Fund 12.1%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Global Bond Fund 4.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton Foreign Fund 4.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund 4.3%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities 4.1%
Fund - Advisor Class
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund 3.7%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 3.7%
- - Advisor Class
- --------------------------------------------------------------------------------
Semiannual Report | 23
Performance Summary as of 6/30/06
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 does 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 6/30/06 12/31/05
- ---------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.65 $14.75 $14.10
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ---------------------------------------------------------------------------------------------------------
Dividend Income $0.0486
- ---------------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
- ---------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.60 $14.57 $13.97
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ---------------------------------------------------------------------------------------------------------
Dividend Income $0.0315
- ---------------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FTGTX) CHANGE 6/30/06 12/31/05
- ---------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.60 $14.57 $13.97
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ---------------------------------------------------------------------------------------------------------
Dividend Income $0.0316
- ---------------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FGTRX) CHANGE 6/30/06 12/31/05
- ---------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.63 $14.65 $14.02
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ---------------------------------------------------------------------------------------------------------
Dividend Income $0.0429
- ---------------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
- ---------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.66 $14.76 $14.10
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- ---------------------------------------------------------------------------------------------------------
Dividend Income $0.0544
- ---------------------------------------------------------------------------------------------------------
24 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ---------------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ---------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +4.88% +13.50% +32.29% +88.53%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 -1.14% +7.00% +4.51% +6.24%
- ---------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 9,886 $10,700 $12,466 $17,769
- ---------------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR INCEPTION (12/1/03)
- ---------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +4.52% +12.71% +23.43%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +0.52% +8.71% +8.50%
- ---------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,052 $10,871 $12,343
- ---------------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ---------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +4.52% +12.70% +27.41% +75.97%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.52% +11.70% +4.96% +6.13%
- ---------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,352 $11,170 $12,741 $17,597
- ---------------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (1/1/02)
- ---------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +4.80% +13.23% +47.47% +38.85%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +4.80% +13.23% +13.82% +7.58%
- ---------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,480 $11,323 $14,747 $13,885
- ---------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/31/96)
- ---------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +5.07% +13.71% +32.54% +88.88%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.07% +13.71% +5.80% +6.93%
- ---------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,507 $11,371 $13,254 $18,888
- ---------------------------------------------------------------------------------------------------------------
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.
Semiannual Report | 25
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.
BONDS ARE AFFECTED BY CHANGES IN INTEREST RATES AND THE CREDITWORTHINESS OF
THEIR ISSUERS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS THE PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST
RATES, THE FUND'S SHARE PRICE MAY DECLINE. HIGHER-YIELDING, LOWER-RATED
CORPORATE BONDS ENTAIL A GREATER DEGREE OF CREDIT RISK COMPARED TO
INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS
CURRENCY AND MARKET VOLATILITY AND POLITICAL AND SOCIAL INSTABILITY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial
sales charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
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.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
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), the aggregate total return of Advisor Class
shares was +5.64%. Aggregate total return represents the change in value
of an investment for the period indicated.
26 | Semiannual Report
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.
Semiannual Report | 27
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 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,048.80 $2.54
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- --------------------------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,045.20 $6.34
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26
- --------------------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,045.20 $6.34
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26
- --------------------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,048.00 $3.81
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.08 $3.76
- --------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,050.70 $1.27
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.55 $1.25
- --------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; B: 1.25%; C: 1.25%; R: 0.75%; and
Advisor: 0.25%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
28 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS A (UNAUDITED) 2005 2004 h 2004 2003 2002
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23 $ 11.30
-----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ...................... 0.16 0.29 0.12 0.23 0.23 0.31
Net realized and unrealized gains (losses) ..... 0.25 0.29 0.84 0.74 0.69 (0.95)
-----------------------------------------------------------------------------
Total from investment operations ................. 0.41 0.58 0.96 0.97 0.92 (0.64)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (0.13) (0.32) (0.14) (0.22) (0.24) (0.34)
Net realized gains ............................. (0.10) -- -- -- -- (0.09)
-----------------------------------------------------------------------------
Total distributions .............................. (0.23) (0.32) (0.14) (0.22) (0.24) (0.43)
-----------------------------------------------------------------------------
Redemption fees .................................. -- f -- f -- f -- f -- --
-----------------------------------------------------------------------------
Net asset value, end of period ................... $ 12.92 $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23
=============================================================================
Total return d ................................... 3.20% 4.70% 8.30% 8.89% 8.99% (5.74)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $174,880 $162,079 $139,153 $117,013 $64,409 $35,991
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ................................ 0.70% g 0.73% 0.82% g 0.85% 0.91% 0.96%
Expenses net of waiver and payments
by affiliate e ................................ 0.50% g 0.69% 0.82% g 0.85% 0.91% 0.96%
Net investment income c ........................ 2.51% g 2.31% 2.40% g 2.00% 2.21% 2.86%
Portfolio turnover rate .......................... 8.47% 8.16% 2.63% 3.71% 18.03% 5.75%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.79% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
Semiannual Report | See notes to financial statements. | 29
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
----------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2005 2004 h 2004 i
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $12.71 $12.46 $11.63 $11.67
---------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................. 0.11 0.19 0.09 0.07
Net realized and unrealized gains (losses) ............ 0.25 0.29 0.84 0.04
---------------------------------------------------------
Total from investment operations ........................ 0.36 0.48 0.93 0.11
---------------------------------------------------------
Less distributions from:
Net investment income ................................. (0.09) (0.23) (0.10) (0.15)
Net realized gains .................................... (0.10) -- -- --
---------------------------------------------------------
Total distributions ..................................... (0.19) (0.23) (0.10) (0.15)
---------------------------------------------------------
Redemption fees ......................................... -- f -- f -- f -- f
---------------------------------------------------------
Net asset value, end of period .......................... $12.88 $12.71 $12.46 $11.63
=========================================================
Total return d .......................................... 2.82% 3.87% 8.02% 0.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................... $6,659 $6,202 $5,223 $3,567
Ratios to average net assets:
Expenses before waiver and payments by affiliate e .... 1.45% g 1.48% 1.57% g 1.60% g
Expenses net of waiver and payments by affiliate e .... 1.25% g 1.44% 1.57% g 1.60% g
Net investment income c ............................... 1.76% g 1.56% 1.65% g 1.25% g
Portfolio turnover rate ................................. 8.47% 8.16% 2.63% 3.71%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.79% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period December 1, 2003 (effective date) to July 31, 2004.
30 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS C (UNAUDITED) 2005 2004 h 2004 2003 2002
------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14 $ 11.20
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.11 0.19 0.08 0.14 0.15 0.23
Net realized and unrealized gains (losses) ........ 0.26 0.28 0.84 0.73 0.67 (0.94)
--------------------------------------------------------------------------
Total from investment operations ................... 0.37 0.47 0.92 0.87 0.82 (0.71)
--------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.09) (0.23) (0.09) (0.14) (0.16) (0.26)
Net realized gains ................................ (0.10) -- -- -- -- (0.09)
--------------------------------------------------------------------------
Total distributions ................................ (0.19) (0.23) (0.09) (0.14) (0.16) (0.35)
--------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
--------------------------------------------------------------------------
Net asset value, end of period ..................... $ 12.78 $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14
==========================================================================
Total return d ..................................... 2.92% 3.83% 8.03% 8.04% 8.20% (6.48)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $69,293 $63,298 $59,803 $52,881 $32,344 $22,436
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ................................... 1.44% g 1.47% 1.57% g 1.60% 1.66% 1.70%
Expenses net of waiver and payments
by affiliate e ................................... 1.24% g 1.43% 1.57% g 1.60% 1.66% 1.70%
Net investment income c ........................... 1.77% g 1.57% 1.65% g 1.25% 1.46% 2.15%
Portfolio turnover rate ............................ 8.47% 8.16% 2.63% 3.71% 18.03% 5.75%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.79% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
Semiannual Report | See notes to financial statements. | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS R (UNAUDITED) 2005 2004 h 2004 2003 2002 i
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 12.71 $ 12.46 $ 11.63 $10.89 $10.23 $10.89
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ....................... 0.15 0.26 0.11 0.21 0.19 0.12
Net realized and unrealized gains (losses) ...... 0.25 0.28 0.85 0.72 0.69 (0.70)
--------------------------------------------------------------------------
Total from investment operations ................. 0.40 0.54 0.96 0.93 0.88 (0.58)
--------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.11) (0.29) (0.13) (0.19) (0.22) (0.08)
Net realized gains .............................. (0.10) -- -- -- -- --
--------------------------------------------------------------------------
Total distributions .............................. (0.21) (0.29) (0.13) (0.19) (0.22) (0.08)
--------------------------------------------------------------------------
Redemption fees .................................. -- f -- f -- f -- f -- --
--------------------------------------------------------------------------
Net asset value, end of period ................... $ 12.90 $ 12.71 $ 12.46 $11.63 $10.89 $10.23
==========================================================================
Total return d ................................... 3.16% 4.37% 8.27% 8.56% 8.79% (5.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $11,828 $14,112 $12,199 $8,370 $5,718 $ 543
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ................................. 0.95% g 0.98% 1.07% g 1.10% 1.16% 1.21% g
Expenses net of waiver and payments
by affiliate e ................................. 0.75% g 0.94% 1.07% g 1.10% 1.16% 1.21% g
Net investment income c ......................... 2.26% g 2.06% 2.15% g 1.75% 1.96% 1.93% g
Portfolio turnover rate .......................... 8.47% 8.16% 2.63% 3.71% 18.03% 5.75%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.79% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period January 1, 2002 (effective date) to July 31, 2002.
32 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2005 h
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................... $12.72 $12.81
----------------------------
Income from investment operations a:
Net investment income b,c .................................... 0.18 0.07
Net realized and unrealized gains (losses) ................... 0.25 0.02
----------------------------
Total from investment operations .............................. 0.43 0.09
----------------------------
Less distributions from:
Net investment income ........................................ (0.14) (0.18)
Net realized gains ........................................... (0.10) --
----------------------------
Total distributions ........................................... (0.24) (0.18)
----------------------------
Redemption fees ............................................... -- f -- f
----------------------------
Net asset value, end of period ................................ $12.91 $12.72
============================
Total return d ................................................ 3.39% 0.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $1,272 $ 753
Ratios to average net assets:
Expenses before waiver and payments by affiliate e ........... 0.45% g 0.48% g
Expenses net of waiver and payments by affiliate e ........... 0.25% g 0.44% g
Net investment income c ...................................... 2.76% g 2.56% g
Portfolio turnover rate ....................................... 8.47% 8.16%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return is not annualized for periods less than one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.79% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Semiannual Report | See notes to financial statements. | 33
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 79.9%
DOMESTIC EQUITY 28.5%
b Franklin Aggressive Growth Fund, Advisor Class ............................. 265,001 $ 4,621,611
b Franklin Flex Cap Growth Fund, Advisor Class ............................... 491,798 19,976,853
Franklin Natural Resources Fund, Advisor Class ............................. 134,067 4,865,295
Franklin Real Estate Securities Fund, Advisor Class ........................ 203,000 5,338,892
b Franklin Small Cap Growth Fund II, Advisor Class ........................... 1,773,515 23,392,662
Mutual Shares Fund, Class Z ................................................ 685,836 17,084,181
-------------
75,279,494
-------------
DOMESTIC FIXED INCOME 27.2%
Franklin Strategic Income Fund, Advisor Class .............................. 482,661 4,845,914
Franklin Strategic Mortgage Portfolio ...................................... 2,388,507 22,404,198
Franklin Total Return Fund, Advisor Class .................................. 1,843,970 17,849,632
Franklin U.S. Government Securities Fund, Advisor Class .................... 4,230,613 26,695,168
-------------
71,794,912
-------------
FOREIGN EQUITY 12.2%
Franklin Gold and Precious Metals Fund, Advisor Class ...................... 187,668 5,950,943
Mutual European Fund, Class Z .............................................. 707,608 16,161,756
Templeton China World Fund, Advisor Class .................................. 156,163 3,963,404
Templeton Foreign Fund, Advisor Class ...................................... 448,412 6,022,173
-------------
32,098,276
-------------
FOREIGN FIXED INCOME 12.0%
Templeton Global Bond Fund, Advisor Class .................................. 2,975,915 31,693,492
-------------
TOTAL LONG TERM INVESTMENTS (COST $183,794,704) ............................ 210,866,174
-------------
SHORT TERM INVESTMENT (COST $53,148,628) 20.1%
MONEY MARKET FUND 20.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.83% ....... 53,148,628 53,148,628
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $236,943,332) 100.0% ........... 264,014,802
OTHER ASSETS, LESS LIABILITIES 0.0% d ...................................... (82,422)
-------------
NET ASSETS 100.0% .......................................................... $ 263,932,380
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2006.
c The rate shown is the annualized seven-day yield at period end.
d Rounds to less than 0.1% of net assets.
34 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS A (UNAUDITED) 2005 2004 h 2004 2003 2002
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83 $ 11.31
-----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ....................... 0.13 0.25 0.12 0.20 0.19 0.26
Net realized and unrealized gains (losses) ...... 0.37 0.50 1.05 1.00 0.81 (1.31)
-----------------------------------------------------------------------------
Total from investment operations ................. 0.50 0.75 1.17 1.20 1.00 (1.05)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (0.09) (0.30) (0.13) (0.19) (0.19) (0.29)
Net realized gains .............................. (0.07) -- -- -- -- (0.14)
-----------------------------------------------------------------------------
Total distributions .............................. (0.16) (0.30) (0.13) (0.19) (0.19) (0.43)
-----------------------------------------------------------------------------
Redemption fees .................................. -- f -- f -- f -- f -- --
-----------------------------------------------------------------------------
Net asset value, end of period ................... $ 13.48 $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83
=============================================================================
Total return d ................................... 3.83% 5.94% 10.14% 11.18% 10.47% (9.69)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $358,104 $316,754 $281,033 $219,273 $121,617 $85,035
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ................................. 0.71% g 0.74% 0.81% g 0.89% 0.98% 0.96%
Expenses net of waiver and payments
by affiliate e ................................. 0.50% g 0.69% 0.81% g 0.89% 0.98% 0.96%
Net investment income c ......................... 1.88% g 1.93% 2.32% g 1.75% 1.89% 2.46%
Portfolio turnover rate .......................... 7.56% 10.59% 2.78% 4.13% 15.90% 8.88%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.82% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
Semiannual Report | See notes to financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
---------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2005 2004 h 2004 i
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $ 13.10 $ 12.66 $11.62 $11.62
--------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................................ 0.08 0.15 0.09 0.05
Net realized and unrealized gains (losses) ....................... 0.37 0.50 1.03 0.09
--------------------------------------------------------
Total from investment operations .................................. 0.45 0.65 1.12 0.14
--------------------------------------------------------
Less distributions from:
Net investment income ............................................ (0.04) (0.21) (0.08) (0.14)
Net realized gains ............................................... (0.07) -- -- --
--------------------------------------------------------
Total distributions ............................................... (0.11) (0.21) (0.08) (0.14)
--------------------------------------------------------
Redemption fees ................................................... -- f -- f -- f -- f
--------------------------------------------------------
Net asset value, end of period .................................... $ 13.44 $ 13.10 $12.66 $11.62
========================================================
Total return d .................................................... 3.45% 5.18% 9.77% 1.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................. $10,664 $10,170 $8,700 $5,417
Ratios to average net assets:
Expenses before waiver and payments by affiliate e ............... 1.46% g 1.49% 1.56% g 1.64% g
Expenses net of waiver and payments by affiliate e ............... 1.25% g 1.44% 1.56% g 1.64% g
Net investment income c .......................................... 1.13% g 1.18% 1.57% g 1.00% g
Portfolio turnover rate ........................................... 7.56% 10.59% 2.78% 4.13%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.82% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period December 1, 2003 (effective date) to July 31, 2004.
36 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS C (UNAUDITED) 2005 2004 h 2004 2003 2002
------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69 $ 11.16
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................ 0.08 0.15 0.08 0.12 0.11 0.19
Net realized and unrealized gains (losses) ....... 0.36 0.50 1.03 0.98 0.80 (1.31)
---------------------------------------------------------------------------
Total from investment operations .................. 0.44 0.65 1.11 1.10 0.91 (1.12)
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................ (0.04) (0.21) (0.08) (0.11) (0.12) (0.21)
Net realized gains ............................... (0.07) -- -- -- -- (0.14)
---------------------------------------------------------------------------
Total distributions ............................... (0.11) (0.21) (0.08) (0.11) (0.12) (0.35)
---------------------------------------------------------------------------
Redemption fees ................................... -- f -- f -- f -- f -- --
---------------------------------------------------------------------------
Net asset value, end of period .................... $ 13.27 $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69
===========================================================================
Total return d .................................... 3.43% 5.25% 9.75% 10.39% 9.50% (10.31)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $124,554 $112,294 $105,966 $90,988 $56,341 $39,835
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e .................................. 1.45% g 1.48% 1.56% g 1.64% 1.73% 1.71%
Expenses net of waiver and payments
by affiliate e .................................. 1.24% g 1.43% 1.56% g 1.64% 1.73% 1.71%
Net investment income c .......................... 1.14% g 1.19% 1.57% g 1.00% 1.14% 1.77%
Portfolio turnover rate ........................... 7.56% 10.59% 2.78% 4.13% 15.90% 8.88%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.82% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
Semiannual Report | See notes to financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS R (UNAUDITED) 2005 2004 h 2004 2003 2002 i
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82 $10.79
-----------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.11 0.21 0.11 0.18 0.13 0.09
Net realized and unrealized gains (losses) .......... 0.38 0.51 1.04 0.98 0.85 (0.99)
-----------------------------------------------------------------------
Total from investment operations 0.49 0.72 1.15 1.16 0.98 (0.90)
-----------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (0.07) (0.27) (0.11) (0.16) (0.18) (0.07)
Net realized gains .................................. (0.07) -- -- -- -- --
-----------------------------------------------------------------------
Total distributions .................................. (0.14) (0.27) (0.11) (0.16) (0.18) (0.07)
-----------------------------------------------------------------------
Redemption fees ...................................... -- f -- f -- f -- f -- --
-----------------------------------------------------------------------
Net asset value, end of period ....................... $ 13.46 $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82
=======================================================================
Total return d ....................................... 3.76% 5.73% 9.92% 10.95% 10.10% (8.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $27,263 $30,403 $25,162 $17,161 $10,989 $ 94
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ..................................... 0.96% g 0.99% 1.06% g 1.14% 1.23% 1.21% g
Expenses net of waiver and payments
by affiliate e ..................................... 0.75% g 0.94% 1.06% g 1.14% 1.23% 1.21% g
Net investment income c ............................. 1.63% g 1.68% 2.07% g 1.50% 1.64% 1.53% g
Portfolio turnover rate .............................. 7.56% 10.59% 2.78% 4.13% 15.90% 8.88%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.82% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period January 1, 2002 (effective date) to July 31, 2002.
38 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2005 h
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................... $13.15 $13.23
----------------------------
Income from investment operations a:
Net investment income b,c ............................................. 0.14 0.08
Net realized and unrealized gains (losses) ............................ 0.38 0.02
----------------------------
Total from investment operations ....................................... 0.52 0.10
----------------------------
Less distributions from:
Net investment income ................................................. (0.11) (0.18)
Net realized gains .................................................... (0.07) --
----------------------------
Total distributions .................................................... (0.18) (0.18)
----------------------------
Redemption fees ........................................................ -- f -- f
----------------------------
Net asset value, end of period ......................................... $13.49 $13.15
============================
Total return d ......................................................... 4.04% 0.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................................... $5,561 $3,890
Ratios to average net assets:
Expenses before waiver and payments by affiliate e .................... 0.46% g 0.49% g
Expenses net of waiver and payments by affiliate e .................... 0.25% g 0.44% g
Net investment incomec ................................................ 2.13% g 2.18% g
Portfolio turnover rate ................................................ 7.56% 10.59%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return is not annualized for periods less than one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.82% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Semiannual Report | See notes to financial statements. | 39
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 90.0%
DOMESTIC EQUITY 38.8%
b Franklin Aggressive Growth Fund, Advisor Class ....................................... 856,515 $ 14,937,616
b Franklin Flex Cap Growth Fund, Advisor Class ......................................... 1,300,723 52,835,356
Franklin Natural Resources Fund, Advisor Class ....................................... 413,879 15,019,661
Franklin Real Estate Securities Fund, Advisor Class .................................. 536,400 14,107,318
b Franklin Small Cap Growth Fund II, Advisor Class ..................................... 4,702,632 62,027,714
Mutual Shares Fund, Class Z .......................................................... 1,816,868 45,258,191
------------
204,185,856
------------
DOMESTIC FIXED INCOME 24.2%
Franklin Strategic Income Fund, Advisor Class ........................................ 743,524 7,464,981
Franklin Strategic Mortgage Portfolio ................................................ 4,250,157 39,866,468
Franklin Total Return Fund, Advisor Class ............................................ 3,410,841 33,016,942
Franklin U.S. Government Securities Fund, Advisor Class .............................. 7,390,795 46,635,917
------------
126,984,308
------------
FOREIGN EQUITY 16.5%
Franklin Gold and Precious Metals Fund, Advisor Class ................................ 452,711 14,355,460
Mutual European Fund, Class Z ........................................................ 1,909,938 43,622,980
Templeton China World Fund, Advisor Class ............................................ 452,065 11,473,415
Templeton Foreign Fund, Advisor Class ................................................ 1,301,212 17,475,279
------------
86,927,134
------------
FOREIGN FIXED INCOME 10.5%
Templeton Global Bond Fund, Advisor Class ............................................ 5,188,538 55,257,928
------------
TOTAL LONG TERM INVESTMENTS (COST $405,291,177) ...................................... 473,355,226
------------
SHORT TERM INVESTMENT (COST $52,011,180) 9.9%
MONEY MARKET FUND 9.9%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.83% ................. 52,011,180 52,011,180
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $457,302,357) 99.9% ...................... 525,366,406
OTHER ASSETS, LESS LIABILITIES 0.1% .................................................. 780,122
------------
NET ASSETS 100.0% .................................................................... $526,146,528
============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2006.
c The rate shown is the annualized seven-day yield at period end.
40 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS A (UNAUDITED) 2005 2004 h 2004 2003 2002
------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47 $ 11.64
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ...................... 0.06 0.14 0.09 0.11 0.08 0.13
Net realized and unrealized gains (losses) ..... 0.64 0.96 1.33 1.36 1.01 (2.01)
----------------------------------------------------------------------------
Total from investment operations ................ 0.70 1.10 1.42 1.47 1.09 (1.88)
----------------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (0.05) (0.17) (0.08) (0.10) (0.10) (0.13)
Net realized gains ............................. -- -- -- -- -- (0.16)
----------------------------------------------------------------------------
Total distributions ............................. (0.05) (0.17) (0.08) (0.10) (0.10) (0.29)
----------------------------------------------------------------------------
Redemption fees ................................. -- f -- f -- f -- f -- --
----------------------------------------------------------------------------
Net asset value, end of period .................. $ 14.75 $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47
============================================================================
Total return d .................................. 4.88% 8.47% 12.04% 14.04% 11.64% (16.44)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $284,669 $230,686 $202,560 $165,500 $99,432 $69,663
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ................................ 0.74% g 0.79% 0.85% g 0.83% 0.92% 0.93%
Expenses net of waiver and payments
by affiliate e ................................ 0.50% g 0.72% 0.85% g 0.83% 0.92% 0.93%
Net investment income c ........................ 0.76% g 1.07% 1.72% g 0.91% 0.84% 1.20%
Portfolio turnover rate ......................... 8.88% 10.50% 3.98% 3.46% 21.87% 14.24%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.86% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
Semiannual Report | See notes to financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
---------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2005 2004 h 2004 i
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $13.97 $13.09 $11.75 $11.80
-------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ................................. -- f 0.04 0.06 (0.02)
Net realized and unrealized gains (losses) ....................... 0.63 0.96 1.32 0.09
-------------------------------------------------------
Total from investment operations .................................. 0.63 1.00 1.38 0.07
-------------------------------------------------------
Less distributions from net investment income ..................... (0.03) (0.12) (0.04) (0.12)
-------------------------------------------------------
Redemption fees ................................................... -- f -- f -- f -- f
-------------------------------------------------------
Net asset value, end of period .................................... $14.57 $13.97 $13.09 $11.75
=======================================================
Total return d .................................................... 4.52% 7.63% 11.76% 0.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................. $7,655 $6,468 $5,343 $3,178
Ratios to average net assets:
Expenses before waiver and payments by affiliate e ............... 1.49% g 1.54% 1.60% g 1.58% g
Expenses net of waiver and payments by affiliate e ............... 1.25% g 1.47% 1.60% g 1.58% g
Net investment incomec ........................................... 0.01% g 0.32% 0.97% g 0.16% g
Portfolio turnover rate ........................................... 8.88% 10.50% 3.98% 3.46%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.86% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period December 1, 2003 (effective date) to July 31, 2004.
42 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS C (UNAUDITED) 2005 2004 h 2004 2003 2002
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40 $ 11.58
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ -- f 0.04 0.05 0.02 0.01 0.05
Net realized and unrealized gains (losses) ........... 0.63 0.96 1.32 1.35 1.00 (1.99)
------------------------------------------------------------------------
Total from investment operations 0.63 1.00 1.37 1.37 1.01 (1.94)
------------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (0.03) (0.12) -- (0.03) (0.03) (0.08)
Net realized gains ................................... -- -- -- -- -- (0.16)
------------------------------------------------------------------------
Total distributions ................................... (0.03) (0.12) -- (0.03) (0.03) (0.24)
------------------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f -- --
------------------------------------------------------------------------
Net asset value, end of period ........................ $ 14.57 $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40
========================================================================
Total return d ........................................ 4.52% 7.63% 11.69% 13.18% 10.74% (17.00)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $105,002 $88,986 $73,816 $61,179 $40,829 $31,255
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ...................................... 1.49% g 1.54% 1.60% g 1.58% 1.67% 1.68%
Expenses net of waiver and payments
by affiliate e ...................................... 1.25% g 1.47% 1.60% g 1.58% 1.67% 1.68%
Net investment income c .............................. 0.01% g 0.32% 0.97% g 0.16% 0.09% 0.50%
Portfolio turnover rate ............................... 8.88% 10.50% 3.98% 3.46% 21.87% 14.24%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.86% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
Semiannual Report | See notes to financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, YEAR ENDED JULY 31,
CLASS R (UNAUDITED) 2005 2004 h 2004 2003 2002 i
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 14.02 $ 13.11 $ 11.76 $ 10.40 $ 9.46 $ 10.95
-----------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.04 0.11 0.08 0.08 0.05 0.01
Net realized and unrealized gains (losses) ........... 0.63 0.95 1.33 1.36 1.00 (1.50)
-----------------------------------------------------------------------
Total from investment operations ...................... 0.67 1.06 1.41 1.44 1.05 (1.49)
-----------------------------------------------------------------------
Less distributions from net investment income ......... (0.04) (0.15) (0.06) (0.08) (0.11) --
-----------------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f -- --
-----------------------------------------------------------------------
Net asset value, end of period ........................ $ 14.65 $ 14.02 $ 13.11 $ 11.76 $10.40 $ 9.46
=======================================================================
Total return d ........................................ 4.80% 8.10% 12.00% 13.89% 11.11% (13.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $22,111 $19,461 $15,206 $11,714 $5,567 $ 141
Ratios to average net assets:
Expenses before waiver and payments
by affiliate e ...................................... 0.99% g 1.04% 1.10% g 1.08% 1.17% 1.18% g
Expenses net of waiver and payments
by affiliate e ...................................... 0.75% g 0.97% 1.10% g 1.08% 1.17% 1.18% g
Net investment income c .............................. 0.51% g 0.82% 1.47% g 0.66% 0.59% 0.18% g
Portfolio turnover rate ............................... 8.88% 10.50% 3.98% 3.46% 21.87% 14.24%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.86% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period January 1, 2002 (effective date) to July 31, 2002.
44 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
-------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2005 h
-------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................... $14.10 $14.18
----------------------------
Income from investment operations a:
Net investment income b,c .................................... 0.07 0.11
Net realized and unrealized gains (losses) ................... 0.64 (0.03)
----------------------------
Total from investment operations .............................. 0.71 0.08
----------------------------
Less distributions from net investment income ................. (0.05) (0.16)
----------------------------
Redemption fees ............................................... -- f -- f
----------------------------
Net asset value, end of period ................................ $14.76 $14.10
============================
Total return d ................................................ 5.07% 0.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $3,996 $3,320
Ratios to average net assets:
Expenses before waiver and payments by affiliate e ........... 0.49% g 0.54% g
Expenses net of waiver and payments by affiliate e ........... 0.25% g 0.47% g
Net investment incomec ....................................... 1.01% g 1.32% g
Portfolio turnover rate ....................................... 8.88% 10.50%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of the sales and repurchase of the Fund shares in relation to
income earned and/or fluctuating market value of the investments of the
Fund.
b Based on average daily shares outstanding.
c 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.
d Total return is not annualized for periods less than one year.
e Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.86% for the period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Semiannual Report | See notes to financial statements. | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 95.1%
DOMESTIC EQUITY 56.2%
b Franklin Aggressive Growth Fund, Advisor Class ................................ 900,860 $ 15,710,991
b Franklin Flex Cap Growth Fund, Advisor Class .................................. 1,568,320 63,705,148
Franklin Natural Resources Fund, Advisor Class ................................ 434,239 15,758,519
Franklin Real Estate Securities Fund, Advisor Class ........................... 596,398 15,685,273
b Franklin Small Cap Growth Fund II, Advisor Class .............................. 5,507,894 72,649,124
Mutual Shares Fund, Class Z ................................................... 2,192,897 54,625,059
------------
238,134,114
------------
DOMESTIC FIXED INCOME 10.5%
Franklin Strategic Income Fund, Advisor Class ................................. 265,277 2,663,385
Franklin Strategic Mortgage Portfolio ......................................... 1,469,364 13,782,638
Franklin Total Return Fund, Advisor Class ..................................... 1,116,597 10,808,658
Franklin U.S. Government Securities Fund, Advisor Class ....................... 2,739,728 17,287,681
------------
44,542,362
------------
FOREIGN EQUITY 24.0%
Franklin Gold and Precious Metals Fund, Advisor Class ......................... 571,416 18,119,600
Mutual European Fund, Class Z ................................................. 2,248,340 51,352,094
Templeton China World Fund, Advisor Class ..................................... 534,172 13,557,294
Templeton Foreign Fund, Advisor Class ......................................... 1,380,699 18,542,787
------------
101,571,775
------------
FOREIGN FIXED INCOME 4.4%
Templeton Global Bond Fund, Advisor Class ..................................... 1,754,225 18,682,499
------------
TOTAL LONG TERM INVESTMENTS (COST $331,392,186) ............................... 402,930,750
------------
SHORT TERM INVESTMENT (COST $20,118,228) 4.8%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.83% .......... 20,118,228 20,118,228
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $351,510,414) 99.9% ............... 423,048,978
OTHER ASSETS, LESS LIABILITIES 0.1% ........................................... 384,600
------------
NET ASSETS 100.0% ............................................................. $423,433,578
============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2006.
c The rate shown is the annualized seven-day yield at period end.
46 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2006 (unaudited)
-----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ........................................................ $236,943,332 $457,302,357 $351,510,414
===============================================
Value ....................................................... $264,014,802 $525,366,406 $423,048,978
Receivables:
Capital shares sold ......................................... 858,478 1,911,745 1,272,655
-----------------------------------------------
Total assets .......................................... 264,873,280 527,278,151 424,321,633
-----------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ..................................... 631,163 537,532 444,259
Affiliates .................................................. 221,856 433,521 359,386
Unaffiliated transfer agent fees ............................ 57,132 113,533 49,720
Accrued expenses and other liabilities ....................... 30,749 47,037 34,690
-----------------------------------------------
Total liabilities ..................................... 940,900 1,131,623 888,055
-----------------------------------------------
Net assets, at value ................................ $263,932,380 $526,146,528 $423,433,578
===============================================
Net assets consist of:
Paid-in capital .............................................. $233,746,420 $451,338,351 $348,529,148
Undistributed net investment income .......................... 695,609 1,219,118 959,252
Net unrealized appreciation (depreciation) ................... 27,071,470 68,064,049 71,538,564
Accumulated net realized gain (loss) ......................... 2,418,881 5,525,010 2,406,614
-----------------------------------------------
Net assets, at value ................................ $263,932,380 $526,146,528 $423,433,578
===============================================
Semiannual Report | See notes to financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2006 (unaudited)
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------
CLASS A:
Net assets, at value ........................................................ $174,879,930 $358,104,244 $284,669,028
================================================
Shares outstanding .......................................................... 13,530,870 26,558,388 19,297,903
================================================
Net asset value per sharea .................................................. $ 12.92 $ 13.48 $ 14.75
================================================
Maximum offering price per share (net asset value per share / 94.25%) ....... $ 13.71 $ 14.30 $ 15.65
================================================
CLASS B:
Net assets, at value ........................................................ $ 6,658,997 $ 10,664,029 $ 7,655,263
================================================
Shares outstanding .......................................................... 517,066 793,399 525,316
================================================
Net asset value and maximum offering price per share a ...................... $ 12.88 $ 13.44 $ 14.57
================================================
CLASS C:
Net assets, at value ........................................................ $ 69,292,745 $124,554,329 $105,001,985
================================================
Shares outstanding .......................................................... 5,422,635 9,385,654 7,206,879
================================================
Net asset value and maximum offering price per share a ...................... $ 12.78 $ 13.27 $ 14.57
================================================
CLASS R:
Net assets, at value ........................................................ $ 11,828,303 $ 27,262,826 $ 22,110,849
================================================
Shares outstanding .......................................................... 917,084 2,025,880 1,509,443
================================================
Net asset value and maximum offering price per share a ...................... $ 12.90 $ 13.46 $ 14.65
================================================
ADVISOR CLASS:
Net assets, at value ........................................................ $ 1,272,405 $ 5,561,100 $ 3,996,453
================================================
Shares outstanding .......................................................... 98,537 412,356 270,843
================================================
Net asset value and maximum offering price per share ........................ $ 12.91 $ 13.49 $ 14.76
================================================
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
48 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2006 (unaudited)
-----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ........................................ $3,841,860 $ 5,968,602 $ 2,465,150
---------------------------------------------
Expenses:
Asset allocation fees (Note 3a) ................................................. 257,244 565,553 463,629
Distribution fees: (Note 3c)
Class A ........................................................................ 211,400 422,054 325,545
Class B ........................................................................ 31,504 53,338 36,078
Class C ........................................................................ 325,759 595,127 491,320
Class R ........................................................................ 32,247 71,487 53,758
Transfer agent fees (Note 3e) ................................................... 249,623 486,632 406,910
Reports to shareholders ......................................................... 15,777 34,468 29,720
Registration and filing fees .................................................... 43,062 48,190 43,341
Professional fees ............................................................... 8,057 7,361 8,066
Trustees' fees and expenses ..................................................... 415 912 541
Other ........................................................................... 3,484 5,031 4,586
---------------------------------------------
Total expenses ........................................................... 1,178,572 2,290,153 1,863,494
Expenses waived/paid by affiliates (Note 3f) ............................. (258,506) (521,820) (468,220)
---------------------------------------------
Net expenses ........................................................... 920,066 1,768,333 1,395,274
---------------------------------------------
Net investment income ................................................. 2,921,794 4,200,269 1,069,876
---------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ........................................ 2,278,923 4,954,936 5,488,932
Realized gain distributions by Underlying Funds ................................ 350,399 940,081 1,101,941
---------------------------------------------
Net realized gain (loss) from Underlying Funds .................... 2,629,322 5,895,017 6,590,873
---------------------------------------------
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds ............................................................... 2,219,220 7,466,737 8,694,457
Net realized and unrealized gain (loss) .......................................... 4,848,542 13,361,754 15,285,330
---------------------------------------------
Net increase (decrease) in net assets resulting from operations .................. $7,770,336 $17,562,023 $16,355,206
=============================================
Semiannual Report | See notes to financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
--------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED JUNE 30, 2006 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2005 (UNAUDITED) DECEMBER 31, 2005
--------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 2,921,794 $ 4,807,782 $ 4,200,269 $ 7,576,652
Net realized gain (loss) from
Underlying Funds ............................... 2,629,322 3,823,027 5,895,017 8,836,460
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ............................... 2,219,220 1,901,662 7,466,737 9,191,060
-------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .................. 7,770,336 10,532,471 17,562,023 25,604,172
-------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ........................................ (1,638,070) (4,035,513) (2,368,562) (7,181,993)
Class B ........................................ (43,669) (111,536) (33,503) (162,211)
Class C ........................................ (447,641) (1,140,064) (414,096) (1,825,865)
Class R ........................................ (101,272) (331,572) (146,827) (630,744)
Advisor Class .................................. (13,115) (10,329) (41,953) (52,636)
Net realized gains:
Class A ........................................ (1,319,072) -- (1,735,946) --
Class B ........................................ (51,519) -- (52,010) --
Class C ........................................ (523,766) -- (616,008) --
Class R ........................................ (90,433) -- (132,570) --
Advisor Class .................................. (9,537) -- (26,220) --
-------------------------------------------------------------------------
Total distributions to shareholders ............... (4,238,094) (5,629,014) (5,567,695) (9,853,449)
-------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ........................................ 10,464,029 19,673,591 33,413,821 25,091,859
Class B ........................................ 379,666 850,070 227,098 1,129,090
Class C ........................................ 5,143,572 2,290,697 9,454,528 2,608,138
Class R ........................................ (2,547,196) 1,584,439 (4,033,704) 4,134,667
Advisor Class .................................. 514,734 760,697 1,575,878 3,930,604
-------------------------------------------------------------------------
Total capital share transactions .................. 13,954,805 25,159,494 40,637,621 36,894,358
-------------------------------------------------------------------------
Redemption fees ................................... 1,074 2,446 4,613 2,839
-------------------------------------------------------------------------
Net increase (decrease) in
net assets ............................... 17,488,121 30,065,397 52,636,562 52,647,920
Net assets:
Beginning of period ............................... 246,444,259 216,378,862 473,509,966 420,862,046
-------------------------------------------------------------------------
End of period ..................................... $ 263,932,380 $ 246,444,259 $ 526,146,528 $ 473,509,966
=========================================================================
Undistributed net investment income
included in net assets:
End of period .................................... $ 695,609 $ 17,582 $ 1,219,118 $ 23,790
=========================================================================
50 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
------------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
------------------------------------
SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2005
------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................................................. $ 1,069,876 $ 2,783,708
Net realized gain (loss) from Underlying Funds ..................................... 6,590,873 8,045,166
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds ................................................................. 8,694,457 15,755,314
---------------------------------
Net increase (decrease) in net assets resulting from operations .............. 16,355,206 26,584,188
---------------------------------
Distributions to shareholders from:
Net investment income:
Class A .......................................................................... (834,858) (2,957,561)
Class B .......................................................................... (15,275) (54,650)
Class C .......................................................................... (210,583) (744,924)
Class R .......................................................................... (63,191) (213,905)
Advisor Class .................................................................... (13,878) (36,584)
---------------------------------
Total distributions to shareholders ................................................. (1,137,785) (4,007,624)
---------------------------------
Capital share transactions: (Note 2)
Class A .......................................................................... 43,813,184 12,665,336
Class B .......................................................................... 931,268 739,433
Class C .......................................................................... 12,272,065 9,702,929
Class R .......................................................................... 1,765,607 2,953,654
Advisor Class .................................................................... 512,887 3,350,378
---------------------------------
Total capital share transactions .................................................... 59,295,011 29,411,730
---------------------------------
Redemption fees ..................................................................... 642 6,807
---------------------------------
Net increase (decrease) in net assets ........................................ 74,513,074 51,995,101
Net assets:
Beginning of period ................................................................. 348,920,504 296,925,403
---------------------------------
End of period ....................................................................... $ 423,433,578 $ 348,920,504
=================================
Undistributed net investment income included in net assets:
End of period ....................................................................... $ 959,252 $ 1,027,161
=================================
Semiannual Report | See notes to financial statements. | 51
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940 (1940 Act) as an open-end investment company,
consisting of six separate series. All funds included in this report (the Funds)
are nondiversified. The financial statements of the remaining funds in the
series are presented separately. The Funds invest primarily in Franklin
Templeton mutual funds (the Underlying Funds). The Funds offer five classes of
shares: Class A, Class B, Class C, Class R, and 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.
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 intends 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 accounting principles generally accepted in
the United States. 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.
52 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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. Differences in class-level
expenses may result in payment of different per share distributions by 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.
Semiannual Report | 53
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2006, 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:
Six months ended June 30, 2006
Shares sold .................................. 2,978,922 $ 38,988,322 5,988,674 $ 81,606,527
Shares issued in reinvestment
of distributions ............................ 210,735 2,692,753 301,024 3,994,586
Shares redeemed .............................. (2,383,498) (31,217,046) (3,832,352) (52,187,292)
-----------------------------------------------------------------------
Net increase (decrease) ...................... 806,159 $ 10,464,029 2,457,346 $ 33,413,821
=======================================================================
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
=======================================================================
CLASS B SHARES:
Six months ended June 30, 2006
Shares sold .................................. 73,045 $ 954,033 74,142 $ 1,002,862
Shares issued in reinvestment
of distributions ............................ 6,070 77,214 5,896 77,809
Shares redeemed .............................. (50,204) (651,581) (62,889) (853,573)
-----------------------------------------------------------------------
Net increase (decrease) ...................... 28,911 $ 379,666 17,149 $ 227,098
=======================================================================
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
=======================================================================
CLASS C SHARES:
Six months ended June 30, 2006
Shares sold .................................. 838,878 $ 10,830,648 1,462,442 $ 19,597,376
Shares issued in reinvestment
of distributions ............................ 68,192 861,048 72,224 940,935
Shares redeemed .............................. (506,299) (6,548,124) (827,986) (11,083,783)
-----------------------------------------------------------------------
Net increase (decrease) ...................... 400,771 $ 5,143,572 706,680 $ 9,454,528
=======================================================================
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
=======================================================================
54 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
CLASS R SHARES:
Six months ended June 30, 2006
Shares sold ............................................ 205,988 $ 2,697,304 449,727 $ 6,101,458
Shares issued in reinvestment
of distributions ...................................... 14,991 191,212 20,993 277,786
Shares redeemed ........................................ (414,098) (5,435,712) (763,157) (10,412,948)
-------------------------------------------------------------------
Net increase (decrease) ................................ (193,119) $(2,547,196) (292,437) $ (4,033,704)
===================================================================
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
===================================================================
ADVISOR CLASS SHARES:
Six months ended June 30, 2006
Shares sold ............................................ 42,515 $ 555,288 116,324 $ 1,575,085
Shares issued in reinvestment
of distributions ...................................... 1,760 22,467 5,124 68,039
Shares redeemed ........................................ (4,927) (63,021) (5,013) (67,246)
-------------------------------------------------------------------
Net increase (decrease) ................................ 39,348 $ 514,734 116,435 $ 1,575,878
===================================================================
Period ended December 31, 2005 a
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
===================================================================
-------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------------
SHARES AMOUNT
-------------------------------
CLASS A SHARES:
Six months ended June 30, 2006
Shares sold .................................................................................. 4,663,504 $ 69,384,896
Shares issued in reinvestment of distributions ............................................... 55,112 811,273
Shares redeemed .............................................................................. (1,777,724) (26,382,985)
-------------------------------
Net increase (decrease) ...................................................................... 2,940,892 $ 43,813,184
===============================
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
===============================
Semiannual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
---------------------------------
SHARES AMOUNT
---------------------------------
CLASS B SHARES:
Six months ended June 30, 2006
Shares sold ................................................................ 89,401 $ 1,324,575
Shares issued in reinvestment of distributions ............................. 989 14,425
Shares redeemed ............................................................ (28,076) (407,732)
=================================
Net increase (decrease) .................................................... 62,314 $ 931,268
=================================
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
=================================
CLASS C SHARES:
Six months ended June 30, 2006
Shares sold ................................................................ 1,291,541 $ 18,934,044
Shares issued in reinvestment of distributions ............................. 12,950 188,813
Shares redeemed ............................................................ (469,229) (6,850,792)
=================================
Net increase (decrease) .................................................... 835,262 $ 12,272,065
=================================
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
=================================
CLASS R SHARES:
Six months ended June 30, 2006
Shares sold ................................................................ 357,420 $ 5,259,201
Shares issued in reinvestment of distributions ............................. 4,300 62,902
Shares redeemed ............................................................ (240,585) (3,556,496)
=================================
Net increase (decrease) .................................................... 121,135 $ 1,765,607
=================================
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
=================================
ADVISOR CLASS SHARES:
Six months ended June 30, 2006
Shares sold ................................................................ 57,432 $ 842,399
Shares issued in reinvestment of distributions ............................. 940 13,840
Shares redeemed ............................................................ (23,074) (343,352)
=================================
Net increase (decrease) .................................................... 35,298 $ 512,887
=================================
Period ended December 31, 2005 a
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 December 1, 2005 (effective date) to December 31, 2005.
56 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 of 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
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 plan, 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 plan, 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%
Semiannual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------
Net sales charges received a ........................................ $ 66,021 $201,703 $150,114
Contingent deferred sales charges retained .......................... $ 14,247 $ 23,204 $ 11,893
a Net of commissions paid to unaffiliated broker/dealers.
E. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statements 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 ................................................. $129,401 $268,501 $283,573
F. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS
Advisers agreed in advance to voluntarily waive all or a portion of asset
allocation fees and assume payment of other expenses, as noted in the Statements
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. 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
==========
58 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. INCOME TAXES (CONTINUED)
At June 30, 2006, the cost of investments and net unrealized appreciation
(depreciation) 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 ........................................ $237,193,508 $457,722,296 $351,891,779
=============================================
Unrealized appreciation .................................... $ 30,203,452 $ 73,402,238 $ 73,097,028
Unrealized depreciation .................................... (3,382,158) (5,758,128) (1,939,829)
---------------------------------------------
Net unrealized appreciation (depreciation) ................. $ 26,821,294 $ 67,644,110 $ 71,157,199
=============================================
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 period ended June 30, 2006, were as follows:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
Purchases .................................................. $20,874,068 $59,194,976 $77,684,358
Sales ...................................................... $17,632,677 $34,688,389 $33,497,306
Semiannual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 June 30, 2006, the Funds
held the following positions which exceed 5% of the Underlying Funds' shares
outstanding:
- --------------------------------------------------------------------------------
NAME OF ISSUER % OF SHARES HELD
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Franklin Strategic Mortgage Portfolio 7.60%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Strategic Mortgage Portfolio 13.52%
Franklin Aggressive Growth Fund 6.43%
Franklin Total Return Fund 5.14%
Franklin Small Cap Growth Fund II 5.09%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Aggressive Growth Fund 6.76%
Franklin Small Cap Growth Fund II 5.96%
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 separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
The Trust did not participate in the CAGO Settlement.
60 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order and disbursement of the settlement
monies to the designated funds in accordance with the terms and conditions of
the SEC's order and the plan will be completed in August, 2006. The Trust did
not participate in the December 13, 2004 SEC Order.
The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."
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.
8. FASB INTERPRETATION NO. 48
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in tax positions taken or
expected to be taken in a tax return. FIN 48 provides guidance on the
measurement, recognition, classification and disclosure of tax positions, along
with accounting for the related interest and penalties. FIN 48 is effective for
fiscal years beginning after December 15, 2006, and is to be applied to all open
tax years as of the date of effectiveness. We have not yet completed our
evaluation of the impact, if any, of adopting FIN 48 on the Trust's financial
statements.
Semiannual Report | 61
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 28, 2006, the Board of Trustees ("Board"), including
a majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series ("Fund(s)"). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager ("Manager") and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for each Fund prepared by Lipper, Inc. ("Lipper"), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional information
accompanying such report was a memorandum prepared by management describing
enhancements to the services provided to the Funds by the Franklin Templeton
Investments organization, as well as a memorandum relating to economies of
scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
62 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the right to combine holdings in other funds
to obtain a reduced sales charge. Favorable consideration was given to
management's efforts and expenditures in establishing back-up systems and
recovery procedures to function in the event of a natural disaster, it being
noted by the Board that such systems and procedures had functioned smoothly
during the hurricanes and blackout experienced last year in Florida. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of each
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed so as to
be aligned with the interests of Fund shareholders. The Board also took into
account the transfer agent and shareholder services provided Fund shareholders
by an affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties and the firsthand experience of the
individual Trustees who deal with the shareholder services department in their
capacities as shareholders in one or more of the various Franklin Templeton
funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
the investment performance of Class A shares, in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
the one-year period ended December 31, 2005, and for additional periods ended
that date depending on when a particular Fund commenced operations. The
following summarizes the performance results for each of the Funds and the
Board's view of such performance.
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND - The performance universe for this
Fund consisted of the Fund and all retail and institutional income funds as
selected by Lipper. The Lipper report showed that the Fund's income return for
the one-year period was in the middle quintile of its performance universe and
on an annualized basis for each of the previous three- and five-year periods was
in the second-lowest quintile of such universe, while its total return was in
the highest quintile of such universe for the one-year period and the
second-highest quintile for such three- and five-year periods. The Board was
satisfied with such performance.
Semiannual Report | 63
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND - The performance universe of this Fund
consisted of the Fund and all retail and institutional balanced funds as
selected by Lipper. The Lipper report showed the Fund's income return for the
one-year period to be in the highest quintile of this universe and on an
annualized basis for each of the previous three- and five-year periods to be in
the second-highest quintile of such performance universe. The Lipper report
showed the Fund's total return for the one-year period was in the second-highest
quintile of such performance universe and on an annualized basis was in the
highest quintile for the previous three- and five-year periods. The Board was
satisfied with this performance.
FRANKLIN TEMPLETON GROWTH TARGET FUND - The performance universe for this Fund
consisted of the Fund and all retail and institutional global flexible funds as
selected by Lipper. The Lipper report showed the Fund's income return for the
one-year period and on an annualized basis for the previous five- and ten-year
periods was in the second-lowest quintile of this performance universe, while
its total return for the one-year period was in the middle quintile of such
performance universe and on an annualized basis was in the second-highest
quintile for the previous three-year period, and the second-lowest quintile for
the previous five-year period. The Board found the Fund's performance to be
acceptable.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund compared with those of a group of retail front-end
load fund of funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparisons, the Board relied upon a survey showing that
the scope of management services covered under a Fund's investment management
agreement was similar to those provided by fund managers to other mutual fund
groups that would be used as a basis of comparison in the Lipper reports. In
reviewing comparative costs, emphasis was given to each Fund's management fee in
comparison with the effective management fee that would have been charged by
other funds within its Lipper expense group assuming they were the same size as
the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Lipper effective management fee analysis
includes the advisory and administrative fees directly charged to each Fund as
being part of the management fee, with the management fees charged underlying
funds being included within actual total expenses. Effective management fees and
total expenses for comparative consistency are shown by Lipper for fund Class A
shares. The Lipper expense group for Franklin Templeton Conservative Target Fund
consisted of five funds, with the Fund's effective management fee and actual
total expenses being the second-highest in such group, but within seven basis
points of the median for such group. The Board found such expenses acceptable,
noting that, as stated in the Lipper report, its total expense rank was
adversely affected by the fact that expenses of the two smallest funds in the
expense group were subsidized through fee waivers. The Lipper expense group for
Franklin Templeton Moderate Target Fund consisted of six funds, with the Fund's
effective management fee and its actual total expenses being the third-highest
in such group, but within four basis points of the median for such group. As
stated in such Lipper report, the expenses of six of the funds in such
64 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
group were subsidized through fee waivers, and the Board found the Fund's
expenses to be acceptable. The Lipper expense group for Franklin Templeton
Growth Target Fund consisted of five funds, with the Fund's effective management
fee being the second-lowest in such group and its actual total expenses being
the highest in such group. The Board found such expenses acceptable, noting that
the expenses of two of the other funds within such group were subsidized through
fee waivers as set forth in the Lipper report.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. The Board also considered the extent to which the
Manager and its affiliates might derive ancillary benefits from fund operations,
including its interest in a joint venture entity which financed up-front
commissions paid to brokers/dealers who sold fund Class B shares, as well as
potential benefits resulting from allocation of fund brokerage and the use of
"soft" commission dollars to pay for research. Specific attention was given to
the methodology followed in allocating costs to each Fund, it being recognized
that allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that the cost allocation methodology was consistent
with that followed in profitability report presentations for the Funds made in
prior years and that the Funds' independent registered public accounting firm
had been engaged by the Manager to perform certain procedures on a biennial
basis, specified and approved by the Manager and the Funds' Board solely for
their purposes and use in reference to the profitability analysis. Included in
the analysis were the revenue and related costs involved in providing services
to the Fund, as well as each Fund's relative contribution to the profitability
of the Manager's parent. In reviewing and discussing such analysis, management
discussed with the Board its belief that costs incurred in establishing the
infrastructure necessary to the type of mutual fund operations conducted by the
Manager and its affiliates may not be fully reflected in the expenses allocated
to each Fund in determining its profitability, as well as the fact that the
level of profits, to a certain extent, reflected operational cost savings and
efficiencies initiated by management. The Board also took into account
management's expenditures in improving shareholder services provided the Funds,
as well as the need to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC requirements. In addition,
the Board considered a third-party study comparing the profitability of the
Manager's parent on an overall basis as compared to other publicly held managers
broken down to show profitability from management operations exclusive of
distribution expenses, as well as profitability including distribution expenses.
Based upon its consideration of all these factors, the Board determined that the
level of profits realized by the Manager and its affiliates from providing
services to each Fund was not excessive in view of the nature, quality and
extent of services provided.
Semiannual Report | 65
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager's realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. Franklin Templeton Conservative Target Fund,
Franklin Templeton Moderate Target Fund and Franklin Templeton Growth Target
Fund each pay a fee of 0.25% at all asset levels under an investment advisory
and allocation agreement, and the Board intends to monitor future growth of
these Funds to see if a breakpoint reduction at some asset level should be
considered.
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 1-954/527-7678 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.
66 | Semiannual 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 BRIC 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 Balanced Fund
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 Global Real Estate 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
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement 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 6
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. 07/06
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.
Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
|_| WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
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SEMIANNUAL 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 S2006 08/06
[GRAPHIC OMITTED]
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JUNE 30, 2006
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Franklin Templeton
Corefolio Allocation Fund
Franklin Templeton
Founding Funds Allocation Fund
Franklin Templeton
Perspectives Allocation Fund
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SEMIANNUAL 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.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- -------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ........................................................ 1
SEMIANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton Corefolio Allocation Fund .............................. 5
Franklin Templeton Founding Funds Allocation Fund ......................... 13
Franklin Templeton Perspectives Allocation Fund ........................... 20
Financial Highlights and Statements of Investments ........................ 27
Financial Statements ...................................................... 44
Notes to Financial Statements ............................................. 50
Shareholder Information ................................................... 60
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Shareholder Letter
Dear Shareholder:
During the six months ended June 30, 2006, the U.S. economy continued to grow.
Moderate core inflation, warmer-than-normal winter temperatures, some improving
economic data, solid business spending and generally positive corporate earnings
reports supported economic progress. On the other hand, high oil prices and
concerns about the U.S. twin (federal and trade) deficits and rising interest
rates had the potential to slow growth. As the period proceeded, uncertainty
about interest rates and inflation began to dampen investor confidence. After
making gains for most of the period under review, U.S. equity markets began to
slide in May. The Standard & Poor's 500 Index (S&P 500) returned +2.71%, the Dow
Jones Industrial Average returned +5.22% and the NASDAQ Composite Index had a
return of -1.08% for the six months under review. 1
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 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 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.
- --------------------------------------------------------------------------------
EDELIVERY DETAILS
Log in at franklintempleton.com and click on eDelivery. Shareholders who are
registered at franklintempleton.com can receive these reports via email. Not all
accounts are eligible for eDelivery.
- -----------------------------------------------------
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
- -----------------------------------------------------
Not part of the semiannual report | 1
The enclosed semiannual report for Franklin Templeton Fund Allocator Series
includes a discussion of market conditions, investment management decisions and
each Fund's performance during the period under review. You will also find
longer-term performance data and financial information. Please remember that all
securities markets fluctuate, as do mutual fund share prices.
If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
As always, we recommend investors consult their financial advisors and review
their portfolios to design a long-term strategy and portfolio allocation that
meet their individual needs, goals and risk tolerance. We firmly believe that
most people benefit from professional advice, and that advice is never more
valuable than during a volatile market.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Templeton Fund Allocator Series
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30, 2006. 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.
2 | Not part of the semiannual report
Semiannual Report
Economic and Market Overview
During the six months ended June 30, 2006, the global economy advanced at a
healthy pace. U.S. gross domestic product grew an annualized 5.6% in first
quarter 2006 and moderated to an estimated 2.5% annualized rate in the second
quarter. Growth was driven by consumer, business and government spending.
Productivity gains and corporate profits also contributed. U.S. export growth
picked up some momentum, but a wide trade deficit remained. The labor market
firmed as employment generally increased and the unemployment rate remained
relatively low. Although labor costs rose during the reporting period, hiring
increased in many industries and personal income grew.
However, signs of moderation appeared globally in the latter part of the period
primarily due to three factors. Many central banks, including the world's three
largest, continued to tighten monetary policy, thereby reducing the immense
liquidity that helped fuel the current recovery. Oil prices remained elevated
and reached a historical high during the period. Over the past few months, the
sustained high energy prices may also have contributed to a rise in broad
measures of inflation. Lastly, the U.S. housing market showed evidence of
cooling.
The U.S. Federal Reserve Board increased the federal funds target rate in four
quarter-point increments to 5.25%. The European Central Bank raised short-term
rates twice to 2.75%. In March 2006, the Bank of Japan ended its
deflation-fighting policy, which could allow short-term rates to increase from
their effective zero percent rate. Even after these changes, interest rates
remained at levels considered supportive of further economic growth. The
possibility of future rate increases in many countries remained, although many
market observers were divided as to whether an end to the current tightening
cycle might be near.
Robust economic growth sustained strong demand for oil and other commodities,
which kept prices high during most of the reporting period. In particular, many
industrial metals prices continued to rise at double-digit rates. This
contributed to economic growth in countries that are tied to mining and
industrial commodities, such as Australia and Canada and emerging markets in
Asia and Latin America. However, in May an uncertain economic outlook led to a
pullback in commodity prices, which impacted the share prices of related stocks.
Semiannual Report | 3
Notably, availability of cash and historically low interest rates fueled mergers
and acquisitions, as well as leveraged buyouts and other corporate activity,
which intensified during the period. In the first half of 2006, the total value
of global deals announced was $1.83 trillion, an increase of 43% over the
comparable period in 2005. 1 Cross-border mergers and acquisitions were about
40% of total deal volume, and European companies were the most active
worldwide. 1
In this environment, domestic equity markets experienced dramatic swings late in
the period. Overall, the blue chip stocks of the Dow Jones Industrial Average
posted a six-month total return of +5.22%, the broader Standard & Poor's 500
Index (S&P 500) returned +2.71% and the technology-heavy NASDAQ Composite Index
had a -1.08% return. 2 Global equity markets performed better than those in the
U.S. As of June 30, 2006, the six-month total return for the Morgan Stanley
Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index was
+10.50%. 3
1. Source: "Merger Machine Keeps Churning out Deals," THE WALL STREET
JOURNAL, 7/3/06.
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.
3. Source: Standard & Poor's Micropal. 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 FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30,
2006. 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.
4 | Semiannual Report
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.
- --------------------------------------------------------------------------------
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Based on Total Net Assets as of 6/30/06
[THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity ........ 74.9%
Primarily Foreign Equity ......... 25.1%
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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.
- --------------------------------------------------------------------------------
This semiannual report for Franklin Templeton Corefolio Allocation Fund covers
the period ended June 30, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A posted a +3.60%
cumulative total return for the six months under review. The Fund performed
comparably to 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 +3.62%. 1 You can find other performance data in the Performance
Summary beginning on page 8.
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 32.
Semiannual Report | 5
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.
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 six months under review, the Fund's performance benefited most from
Mutual Shares Fund - Class Z. However, Franklin Capital Growth Fund - Advisor
Class and Franklin 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 six months
ended June 30, 2006, the U.S. dollar fell in value relative to most non-U.S.
currencies. As a result, the Fund's performance was positively affected by the
portfolio's underlying funds' investments in securities with non-U.S. currency
exposure. However, one cannot expect the same result in future periods.
6 | Semiannual Report
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 JUNE 30, 2006, 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 INVESTMENT MANAGER 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.
Semiannual Report | 7
Performance Summary as of 6/30/06
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 does 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 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.27 $12.98 $12.71
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0206
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0004
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1695
- --------------------------------------------------------------------------------
TOTAL $0.1905
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FBCOX) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.23 $12.85 $12.62
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0206
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0004
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1695
- --------------------------------------------------------------------------------
TOTAL $0.1905
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTCLX) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.22 $12.83 $12.61
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0206
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0004
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1695
- --------------------------------------------------------------------------------
TOTAL $0.1905
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.26 $12.95 $12.69
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0206
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0004
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1695
- --------------------------------------------------------------------------------
TOTAL $0.1905
- --------------------------------------------------------------------------------
8 | Semiannual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.29 $13.02 $12.73
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0206
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0004
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1695
- --------------------------------------------------------------------------------
TOTAL $0.1905
- --------------------------------------------------------------------------------
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.60% +11.74% +36.87%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 -2.39% +5.31% +9.26%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $9,761 $10,531 $12,901
- --------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.31% +11.02% +34.20%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 -0.69% +7.02% +9.90%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $9,931 $10,702 $13,120
- --------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.23% +10.98% +34.14%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +2.23% +9.98% +10.75%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,223 $10,998 $13,414
- --------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.53% +11.53% +36.22%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +3.53% +11.53% +11.34%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,353 $11,153 $13,622
- --------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.76% +12.03% +37.94%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +3.76% +12.03% +11.83%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,376 $11,203 $13,794
- --------------------------------------------------------------------------------
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.
Semiannual Report | 9
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. 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.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
10 | Semiannual 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.
Semiannual Report | 11
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 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,036.00 $2.52
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,033.10 $5.80
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,032.30 $5.74
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.14 $5.71
- ------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,035.30 $3.28
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,037.60 $0.76
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- ------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; B: 1.15%; C: 1.14%; R: 0.65%; and
Advisor: 0.15%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
12 | Semiannual Report
Franklin Templeton Founding Funds
Allocation Fund
YOUR FUND'S GOALS 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.
- --------------------------------------------------------------------------------
ASSET ALLOCATION
Franklin Templeton Founding Funds
Allocation Fund
Based on Total Net Assets as of 6/30/06
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
Primarily Foreign Equity 33.4%
Domestic Hybrid 33.3%
Primarily Domestic Equity 32.9%
Short-Term Investments & Other Net Assets 0.4%
We are pleased to bring you Franklin Templeton Founding Funds Allocation Fund's
semiannual report for the period ended June 30, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A posted a +5.76%
cumulative total return for the six months 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
+3.91%. 1 You can find other performance data in the Performance Summary
beginning on page 15.
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 38.
Semiannual Report | 13
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 six months under review, the Fund's performance benefited most from
Templeton Growth Fund - Advisor Class. Second in terms of performance was
Franklin Income Fund - Advisor Class and last was Mutual Shares Fund - Class Z.
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 six months
ended June 30, 2006, the U.S. dollar fell in value relative to most non-U.S.
currencies. As a result, the Fund's performance was positively affected by the
portfolio's underlying funds' investments in securities with non-U.S. currency
exposure. However, one cannot expect the same result in future periods.
Thank you for your continued participation in Franklin Templeton Founding Funds
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO 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 JUNE 30, 2006, 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 INVESTMENT MANAGER 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.
14 | Semiannual Report
Performance Summary as of 6/30/06
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 does 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 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.49 $12.99 $12.50
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0113
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2171
- --------------------------------------------------------------------------------
TOTAL $0.2284
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FFABX) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.45 $12.91 $12.46
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0113
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2171
- --------------------------------------------------------------------------------
TOTAL $0.2284
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FFACX) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.44 $12.80 $12.36
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0113
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2171
- --------------------------------------------------------------------------------
TOTAL $0.2284
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FFARX) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.49 $12.99 $12.50
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0113
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2171
- --------------------------------------------------------------------------------
TOTAL $0.2284
- --------------------------------------------------------------------------------
Semiannual Report | 15
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.52 $13.07 $12.55
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0113
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2171
- --------------------------------------------------------------------------------
TOTAL $0.2284
- --------------------------------------------------------------------------------
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +5.76% +10.82% +42.50%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 -0.31% +4.47% +10.80%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $9,969 $10,447 $13,431
- --------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +5.45% +10.17% +40.01%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +1.45% +6.17% +11.57%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,145 $10,617 $13,701
- --------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +5.41% +10.19% +39.91%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +4.41% +9.19% +12.38%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,441 $10,919 $13,991
- --------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +5.76% +10.70% +42.17%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +5.76% +10.70% +13.01%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,576 $11,070 $14,217
- --------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +5.97% +11.29% +44.01%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +5.97% +11.29% +13.52%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,597 $11,129 $14,401
- --------------------------------------------------------------------------------
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.
16 | Semiannual Report
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.
BONDS ARE AFFECTED BY CHANGES IN INTEREST RATES AND THE CREDITWORTHINESS OF
THEIR ISSUERS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS THE PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST
RATES, THE FUND'S SHARE PRICE MAY DECLINE. HIGHER-YIELDING, LOWER-RATED
CORPORATE BONDS ENTAIL A GREATER DEGREE OF CREDIT RISK COMPARED TO
INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS
CURRENCY AND MARKET VOLATILITY AND POLITICAL AND SOCIAL INSTABILITY. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. 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.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
Semiannual Report | 17
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.
18 | Semiannual 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 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,057.60 $2.55
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,054.50 $5.86
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,054.10 $5.91
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.04 $5.81
- ------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,057.60 $3.32
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,059.70 $0.77
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- ------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; B: 1.15%; C: 1.16%; R: 0.65%; and
Advisor: 0.15%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
Semiannual Report | 19
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.
- --------------------------------------------------------------------------------
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 Perspectives Allocation Fund's
semiannual report for the period ended June 30, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A posted a +3.96%
cumulative total return for the six months under review. The Fund performed
comparably to 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 +3.91%. 1 You can find other performance data in
the Performance Summary beginning on page 22.
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.
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 43.
20 | Semiannual 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 six months under review, the Fund's performance benefited from
Templeton Growth Fund - Advisor Class and Mutual Shares Fund - Class Z. However,
Franklin Flex Cap Growth Fund - Advisor Class hindered the Fund's performance
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 six months
ended June 30, 2006, the U.S. dollar fell in value relative to most non-U.S.
currencies. As a result, the Fund's performance was positively affected by the
portfolio's underlying funds' investments in securities with non-U.S. currency
exposure. However, one cannot expect the same result in future periods.
Thank you for your continued participation in Franklin Templeton Perspectives
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO 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 JUNE 30, 2006, 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 INVESTMENT MANAGER 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 Perspectives
Allocation Fund
Based on Total Net Assets as of 6/30/06
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
Primarily Domestic Equity 66.1%
Primarily Foreign Equity 33.3%
Short-Term Investments & Other Net Assets 0.6%
Semiannual Report | 21
Performance Summary as of 6/30/06
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 does 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 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.29 $12.08 $11.79
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1783
- --------------------------------------------------------------------------------
TOTAL $0.1793
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FPCAX) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.25 $11.99 $11.74
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1783
- --------------------------------------------------------------------------------
TOTAL $0.1793
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.28 $12.07 $11.79
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1783
- --------------------------------------------------------------------------------
TOTAL $0.1793
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.31 $12.12 $11.81
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-6/30/06)
- --------------------------------------------------------------------------------
Dividend Income $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1783
- --------------------------------------------------------------------------------
TOTAL $0.1793
- --------------------------------------------------------------------------------
22 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.96% +12.41% +26.71%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 -2.03% +5.93% +9.74%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $9,797 $10,593 $11,942
- --------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.63% +11.71% +25.18%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +2.63% +10.71% +12.48%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,263 $11,071 $12,518
- --------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +3.87% +12.25% +26.39%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +3.87% +12.25% +13.05%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,387 $11,225 $12,639
- --------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +4.12% +12.79% +27.45%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +4.12% +12.79% +13.54%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,412 $11,279 $12,745
- --------------------------------------------------------------------------------
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.
Semiannual Report | 23
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.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
24 | Semiannual 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.
Semiannual Report | 25
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,039.60 $2.53
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,036.30 $5.81
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,038.70 $3.29
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,041.20 $0.76
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- ------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; C: 1.15%; R: 0.65%; and Advisor:
0.15%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
26 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS A (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.71 $ 12.20 $ 11.02 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.01) 0.09 0.09 0.01
Net realized and unrealized gains (losses) ........ 0.47 0.71 1.21 1.07
-----------------------------------------------------------------
Total from investment operations ...................... 0.46 0.80 1.30 1.08
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.02) (0.10) (0.07) --
Tax return of capital ............................. -- -- -- (0.06)
Net realized gains (losses) ....................... (0.17) (0.19) (0.05) --
-----------------------------------------------------------------
Total distributions ................................... (0.19) (0.29) (0.12) (0.06)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.98 $ 12.71 $ 12.20 $ 11.02
=================================================================
Total return d ........................................ 3.60% 6.63% 11.77% 10.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 395,574 $ 353,016 $ 238,564 $ 157,792
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.64% g 0.66% 0.68% g 0.74% g
Expenses net of waiver and payments by affiliate e 0.50% g 0.58% 0.68% g 0.47% g
Net investment income (loss) c .................... (0.14)% g 0.72% 1.86% g 0.14% g
Portfolio turnover rate ............................... 0.73% 2.49% 1.02% 0.62%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Semiannual Report | See notes to financial statements. | 27
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.62 $ 12.12 $ 10.95 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.05) 0.01 0.06 (0.06)
Net realized and unrealized gains (losses) ........ 0.47 0.70 1.20 1.06
-----------------------------------------------------------------
Total from investment operations ...................... 0.42 0.71 1.26 1.00
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.02) (0.02) (0.04) --
Tax return of capital ............................. -- -- -- (0.05)
Net realized gains (losses) ....................... (0.17) (0.19) (0.05) --
-----------------------------------------------------------------
Total distributions ................................... (0.19) (0.21) (0.09) (0.05)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.85 $ 12.62 $ 12.12 $ 10.95
=================================================================
Total return d ........................................ 3.31% 5.89% 11.50% 10.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 71,399 $ 71,496 $ 66,562 $ 44,297
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 1.29% g 1.31% 1.33% g 1.39% g
Expenses net of waiver and payments by affiliate e 1.15% g 1.23% 1.33% g 1.12% g
Net investment income (loss) c .................... (0.79)% g 0.07% 1.21% g (0.51)% g
Portfolio turnover rate ............................... 0.73% 2.49% 1.02% 0.62%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
28 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS C (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.61 $ 12.11 $ 10.94 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.05) 0.01 0.06 0.05
Net realized and unrealized gains (losses) ........ 0.46 0.71 1.20 1.04
-----------------------------------------------------------------
Total from investment operations ...................... 0.41 0.72 1.26 0.99
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.02) (0.03) (0.04) --
Tax return of capital ............................. -- -- -- (0.05)
Net realized gains (losses) ....................... (0.17) (0.19) (0.05) --
-----------------------------------------------------------------
Total distributions ................................... (0.19) (0.22) (0.09) (0.05)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.83 $ 12.61 $ 12.11 $ 10.94
=================================================================
Total return d ........................................ 3.23% 6.02% 11.49% 9.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 147,253 $ 132,459 $ 96,487 $ 73.272
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 1.28% g 1.29% 1.33% g 1.39% g
Expenses net of waiver and payments by affiliate e 1.14% g 1.21% 1.33% g 1.12% g
Net investment income (loss) c .................... (0.78%) g 0.09% 1.21% g (0.51)% g
Portfolio turnover rate ............................... 0.73% 2.49% 1.02% 0.62%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Semiannual Report | See notes to financial statements. | 29
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS R (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.69 $ 12.18 $ 11.00 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.02) 0.05 0.08 (0.02)
Net realized and unrealized gains (losses) ........ 0.47 0.73 1.21 1.08
-----------------------------------------------------------------
Total from investment operations ...................... 0.45 0.78 1.29 1.06
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.02) (0.08) (0.06) --
Tax return of capital ............................. -- -- -- (0.06)
Net realized gains (losses) ....................... (0.17) (0.19) (0.05) --
-----------------------------------------------------------------
Total distributions ................................... (0.19) (0.27) (0.11) (0.06)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.95 $ 12.69 $ 12.18 $ 11.00
=================================================================
Total return d ........................................ 3.53% 6.43% 11.73% 10.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 2,273 $ 2,190 $ 1,944 $ 1,408
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.79% g 0.81% 0.83% g 0.89% g
Expenses net of waiver and payments by affiliate e 0.65% g 0.73% 0.83% g 0.62% g
Net investment income (loss) c .................... (0.29)% g 0.57% 1.71% g (0.01)% g
Portfolio turnover rate ............................... 0.73% 2.49% 1.02% 0.62%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
30 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
ADVISOR CLASS (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.73 $ 12.21 $ 11.02 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.01 0.13 0.11 0.04
Net realized and unrealized gains (losses) ........ 0.47 0.72 1.21 1.05
-----------------------------------------------------------------
Total from investment operations ...................... 0.48 0.85 1.32 1.09
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.02) (0.14) (0.08) --
Tax return of capital ............................. -- -- -- (0.07)
Net realized gains (losses) ....................... (0.17) (0.19) (0.05) --
-----------------------------------------------------------------
Total distributions ................................... (0.19) (0.33) (0.13) (0.07)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 13.02 $ 12.73 $ 12.21 $ 11.02
-----------------------------------------------------------------
Total return d ........................................ 3.76% 6.93% 12.09% 10.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 2,755 $ 2,792 $ 2,097 $ 1,181
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.29% g 0.31% 0.33% g 0.39% g
Expenses net of waiver and payments by affiliate e 0.15% g 0.23% 0.33% g 0.12% g
Net investment income c ........................... 0.21% g 1.07% 2.21% g 0.49% g
Portfolio turnover rate ............................... 0.73% 2.49% 1.02% 0.62%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return is not annualized for periods less than one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Semiannual Report | See notes to financial statements. | 31
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 100.0%
DOMESTIC EQUITY 74.9%
Franklin Capital Growth Fund, Advisor Class .................................. 13,675,555 $ 154,397,013
Franklin Growth Fund, Advisor Class .......................................... 4,079,111 153,374,561
Mutual Shares Fund, Class Z .................................................. 6,267,812 156,131,203
---------------
463,902,777
---------------
FOREIGN EQUITY 25.1%
Templeton Growth Fund Inc., Advisor Class .................................... 6,354,841 155,375,854
---------------
TOTAL LONG TERM INVESTMENTS (COST $548,969,793) .............................. 619,278,631
---------------
SHORT TERM INVESTMENT (COST $94,594) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.83% ......... 94,594 94,594
---------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $549,064,387) 100.0% ............. 619,373,225
OTHER ASSETS, LESS LIABILITIES 0.0% b ........................................ (119,228)
---------------
NET ASSETS 100.0% ............................................................ $ 619,253,997
===============
a See Note 6 regarding investments in Underlying Funds.
b Rounds to less than 0.1% of net assets.
c The rate shown is the annualized seven-day yield at period end.
32 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS A (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.50 $ 12.28 $ 11.21 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.13 0.37 0.22 0.23
Net realized and unrealized gains (losses) ........ 0.59 0.40 1.14 1.07
-----------------------------------------------------------------
Total from investment operations ...................... 0.72 0.77 1.36 1.30
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.01) (0.30) (0.23) (0.09)
Net realized gains (losses) ....................... (0.22) (0.25) (0.06) --
-----------------------------------------------------------------
Total distributions ................................... (0.23) (0.55) (0.29) (0.09)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.99 $ 12.50 $ 12.28 $ 11.21
-----------------------------------------------------------------
Total return d ........................................ 5.76% 6.31% 12.16% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 5,259,905 $ 4,051,695 $ 1,640,876 $ 882,175
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.56% g 0.58% 0.60% g 0.61% g
Expenses net of waiver and payments by affiliate e 0.50% g 0.54% 0.60% g 0.49% g
Net investment income c ........................... 1.99% g 2.98% 4.48% g 2.16% g
Portfolio turnover rate ............................... 0.34% 0.74% 0.37% 0.71%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Semiannual Report | See notes to financial statements. | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.46 $ 12.23 $ 11.16 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.09 0.26 0.19 0.16
Net realized and unrealized gains (losses) ........ 0.59 0.43 1.13 1.08
-----------------------------------------------------------------
Total from investment operations ...................... 0.68 0.69 1.32 1.24
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.01) (0.21) (0.19) (0.08)
Net realized gains (losses) ....................... (0.22) (0.25) (0.06) --
-----------------------------------------------------------------
Total distributions ................................... (0.23) (0.46) (0.25) (0.08)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.91 $ 12.46 $ 12.23 $ 11.16
-----------------------------------------------------------------
Total return d ........................................ 5.45% 5.58% 11.90% 12.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 702,612 $ 688,590 $ 612,553 $ 357,282
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 1.21% g 1.23% 1.25% g 1.26% g
Expenses net of waiver and payments by affiliate e 1.15% g 1.19% 1.25% g 1.14% g
Net investment income c ........................... 1.34% g 2.33% 3.83% g 1.51% g
Portfolio turnover rate ............................... 0.34% 0.74% 0.37% 0.71%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
34 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS C (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.36 $ 12.23 $ 11.16 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.08 0.29 0.19 0.17
Net realized and unrealized gains (losses) ........ 0.59 0.39 1.13 1.07
-----------------------------------------------------------------
Total from investment operations ...................... 0.67 0.68 1.32 1.24
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.01) (0.30) (0.19) (0.08)
Net realized gains (losses) ....................... (0.22) (0.25) (0.06) --
-----------------------------------------------------------------
Total distributions ................................... (0.23) (0.55) (0.25) (0.08)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.80 $ 12.36 $ 12.23 $ 11.16
-----------------------------------------------------------------
Total return d ........................................ 5.41% 5.63% 11.79% 12.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 2,642,257 $ 2,075,041 $ 927,786 $ 535,778
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 1.22% g 1.20% 1.25% g 1.26% g
Expenses net of waiver and payments by affiliate e 1.16% g 1.16% 1.25% g 1.14% g
Net investment income c ........................... 1.33% g 2.36% 3.83% g 1.51% g
Portfolio turnover rate ............................... 0.34% 0.74% 0.37% 0.71%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Semiannual Report | See notes to financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
CLASS R (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.50 $ 12.28 $ 11.22 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.12 0.33 0.22 0.20
Net realized and unrealized gains (losses) ........ 0.60 0.42 1.13 1.11
-----------------------------------------------------------------
Total from investment operations ...................... 0.72 0.75 1.35 1.31
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.01) (0.28) (0.23) (0.09)
Net realized gains (losses) ....................... (0.22) (0.25) (0.06) --
-----------------------------------------------------------------
Total distributions ................................... (0.23) (0.53) (0.29) (0.09)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 12.99 $ 12.50 $ 12.28 $ 11.22
-----------------------------------------------------------------
Total return d ........................................ 5.76% 6.12% 12.02% 13.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 20,810 $ 17,247 $ 12,101 $ 5,225
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.71% g 0.73% 0.75% g 0.76% g
Expenses net of waiver and payments by affiliate e 0.65% g 0.69% 0.75% g 0.64% g
Net investment income c ........................... 1.84% g 2.83% 4.33% g 2.01% g
Portfolio turnover rate ............................... 0.34% 0.74% 0.37% 0.71%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
36 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31, JULY 31,
ADVISOR CLASS (UNAUDITED) 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 12.55 $ 12.32 $ 11.25 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.15 0.39 0.24 0.25
Net realized and unrealized gains (losses) ........ 0.60 0.42 1.14 1.09
-----------------------------------------------------------------
Total from investment operations ...................... 0.75 0.81 1.38 1.34
-----------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.01) (0.33) (0.25) (0.09)
Net realized gains (losses) ....................... (0.22) (0.25) (0.06) --
-----------------------------------------------------------------
Total distributions ................................... (0.23) (0.58) (0.31) (0.09)
-----------------------------------------------------------------
Redemption fees ....................................... -- f -- f -- f -- f
-----------------------------------------------------------------
Net asset value, end of period ........................ $ 13.07 $ 12.55 $ 12.32 $ 11.25
-----------------------------------------------------------------
Total return d ........................................ 5.97% 6.63% 12.32% 13.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 14,905 $ 12,535 $ 7,792 $ 4,991
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.21% g 0.23% 0.25% g 0.26% g
Expenses net of waiver and payments by affiliate e 0.15% g 0.19% 0.25% g 0.14% g
Net investment income c ........................... 2.34% g 3.33% 4.83% g 2.51% g
Portfolio turnover rate ............................... 0.34% 0.74% 0.37% 0.71%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return is not annualized for periods less than one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004. See Note 1.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Semiannual Report | See notes to financial statements. | 37
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.6%
DOMESTIC EQUITY 32.9%
Mutual Shares Fund, Class Z .................................................. 114,075,836 $ 2,841,629,075
---------------
DOMESTIC HYBRID 33.3%
Franklin Income Fund Inc., Advisor Class ..................................... 1,168,204,935 2,873,784,141
---------------
FOREIGN EQUITY 33.4%
Templeton Growth Fund Inc., Advisor Class .................................... 118,150,930 2,888,790,233
---------------
TOTAL LONG TERM INVESTMENTS (COST $8,103,377,222) ............................ 8,604,203,449
---------------
SHORT TERM INVESTMENT (COST $8,091,950) 0.1%
MONEY MARKET FUND 0.1%
b Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.83% ......... 8,091,950 8,091,950
---------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $8,111,469,172) 99.7% ............ 8,612,295,399
OTHER ASSETS, LESS LIABILITIES 0.3% .......................................... 28,194,052
---------------
NET ASSETS 100.0% ............................................................ $ 8,640,489,451
===============
a See Note 6 regarding investments in Underlying Funds.
b The rate shown is the annualized seven-day yield at period end.
38 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31,
CLASS A (UNAUDITED) 2005 2004 h
-------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 11.79 $ 11.19 $ 10.00
-----------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... -- f 0.16 0.17
Net realized and unrealized gains (losses) ........ 0.47 0.73 1.12
-----------------------------------------------
Total from investment operations ...................... 0.47 0.89 1.29
-----------------------------------------------
Less distributions from:
Net investment income ............................. -- f (0.13) (0.07)
Net realized gains (losses) ....................... (0.18) (0.16) (0.03)
-----------------------------------------------
Total distributions ................................... (0.18) (0.29) (0.10)
-----------------------------------------------
Redemption fees ....................................... -- f -- f -- f
-----------------------------------------------
Net asset value, end of period ........................ $ 12.08 $ 11.79 $ 11.19
-----------------------------------------------
Total return d ........................................ 3.96% 7.93% 12.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 150,349 $ 103,348 $ 16,155
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.75% g 0.90% 2.31% g
Expenses net of waiver and payments by affiliate e 0.50% g 0.46% 0.39% g
Net investment income c ........................... 0.03% g 1.41% 3.78% g
Portfolio turnover rate ............................... 0.36% 0.68% 0.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 1, 2004 to December 31, 2004.
Semiannual Report | See notes to financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31,
CLASS C (UNAUDITED) 2005 2004 h
-------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 11.74 $ 11.18 $ 10.00
-----------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.04) 0.09 0.15
Net realized and unrealized gains (losses) ........ 0.47 0.72 1.12
-----------------------------------------------
Total from investment operations ...................... 0.43 0.81 1.27
-----------------------------------------------
Less distributions from:
Net investment income ............................. -- f (0.09) (0.06)
Net realized gains (losses) ....................... (0.18) (0.16) (0.03)
-----------------------------------------------
Total distributions ................................... (0.18) (0.25) (0.09)
-----------------------------------------------
Redemption fees ....................................... -- f -- f -- f
-----------------------------------------------
Net asset value, end of period ........................ $ 11.99 $ 11.74 $ 11.18
-----------------------------------------------
Total return d ........................................ 3.63% 7.22% 12.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 55,636 $ 36,568 $ 4,558
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 1.40% g 1.55% 2.96% g
Expenses net of waiver and payments by affiliate e 1.15% g 1.11% 1.04% g
Net investment income (loss) c .................... (0.62)% g 0.76% 3.13% g
Portfolio turnover rate ............................... 0.36% 0.68% 0.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 2, 2004 (commencement of operations) to December 31,
2004.
40 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31,
CLASS R (UNAUDITED) 2005 2004 h
-------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 11.79 $ 11.18 $ 10.00
-----------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.01) 0.11 0.15
Net realized and unrealized gains (losses) ........ 0.47 0.77 1.13
-----------------------------------------------
Total from investment operations ...................... 0.46 0.88 1.28
-----------------------------------------------
Less distributions from:
Net investment income ............................. -- f (0.11) (0.07)
Net realized gains (losses) ....................... (0.18) (0.16) (0.03)
-----------------------------------------------
Total distributions ................................... (0.18) (0.27) (0.10)
-----------------------------------------------
Redemption fees ....................................... -- f -- f -- f
-----------------------------------------------
Net asset value, end of period ........................ $ 12.07 $ 11.79 $ 11.18
-----------------------------------------------
Total return d ........................................ 3.87% 7.86% 12.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 1,326 $ 1,287 $ 260
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.90% g 1.05% 2.46% g
Expenses net of waiver and payments by affiliate e 0.65% g 0.61% 0.54% g
Net investment income (loss) c .................... (0.12)% g 1.26% 3.63% g
Portfolio turnover rate ............................... 0.36% 0.68% 0.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 2, 2004 (commencement of operations) to December 31,
2004.
Semiannual Report | See notes to financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2005 2004 h
-------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 11.81 $ 11.19 $ 10.00
-----------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.02 0.11 0.14
Net realized and unrealized gains (losses) ........ 0.47 0.82 1.16
-----------------------------------------------
Total from investment operations ...................... 0.49 0.93 1.30
-----------------------------------------------
Less distributions from:
Net investment income ............................. -- f (0.15) (0.08)
Net realized gains (losses) ....................... (0.18) (0.16) (0.03)
-----------------------------------------------
Total distributions ................................... (0.18) (0.31) (0.11)
-----------------------------------------------
Redemption fees ....................................... -- f -- f -- f
-----------------------------------------------
Net asset value, end of period ........................ $ 12.12 $ 11.81 $ 11.19
-----------------------------------------------
Total return d ........................................ 4.12% 8.31% 13.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 1,334 $ 1,104 $ 196
Ratios to average net assets:
Expenses before waiver and payments by affiliate e 0.40% g 0.55% 1.96% g
Expenses net of waiver and payments by affiliate e 0.15% g 0.11% 0.04% g
Net investment income c ........................... 0.38% g 1.76% 4.13% g
Portfolio turnover rate ............................... 0.36% 0.68% 0.51%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market values of the investments of the Fund.
b Based on average daily shares outstanding.
c 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.
d Total return is not annualized for periods less than one year.
e 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 period ended June 30, 2006.
f Amount is less than $0.01 per share.
g Annualized.
h For the period August 2, 2004 (commencement of operations) to December 31,
2004.
42 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.4%
DOMESTIC EQUITY 66.1%
b Franklin Flex Cap Growth Fund, Advisor Class ................................. 1,704,335 $ 69,230,092
Mutual Shares Fund, Class Z .................................................. 2,760,644 68,767,632
-------------
137,997,724
-------------
FOREIGN EQUITY 33.3%
Templeton Growth Fund Inc., Advisor Class .................................... 2,837,832 69,384,997
-------------
TOTAL LONG TERM INVESTMENTS (COST $197,769,664) .............................. 207,382,721
-------------
SHORT TERM INVESTMENT (COST $50,075) 0.0% c
MONEY MARKET FUND 0.0% c
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.83% ......... 50,075 50,075
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $197,819,739) 99.4% .............. 207,432,796
OTHER ASSETS, LESS LIABILITIES 0.6% .......................................... 1,212,512
-------------
NET ASSETS 100.0% ............................................................ $ 208,645,308
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing during the twelve months ended June 30, 2006.
c Rounds to less than 0.1% of net assets.
d The rate shown is the annualized seven-day yield at period end.
Semiannual Report | See notes to financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2006 (unaudited)
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost .............................................................. $ 549,064,387 $ 8,111,469,172 $ 197,819,739
===================================================
Value ............................................................. 619,373,225 8,612,295,399 207,432,796
Receivables:
Investment securities sold ........................................ -- 530,660 --
Capital shares sold ............................................... 1,012,923 47,168,309 1,473,241
Affiliates ........................................................ -- -- 45,903
---------------------------------------------------
Total assets ...................................................... 620,386,148 8,659,994,368 208,951,940
---------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ........................................... 684,609 10,075,181 191,770
Affiliates ........................................................ 406,258 9,402,060 --
Accrued expenses and other liabilities ............................. 41,284 27,676 114,862
---------------------------------------------------
Total liabilities ................................................. 1,132,151 19,504,915 306,632
---------------------------------------------------
Net assets, at value ............................................. $ 619,253,997 $ 8,640,489,451 $ 208,645,308
===================================================
Net assets consist of:
Paid-in capital .................................................... $ 549,557,619 $ 8,055,525,688 $ 198,732,587
Undistributed net investment income (loss) ......................... (1,121,292) 67,318,932 (128,756)
Net unrealized appreciation (depreciation) ......................... 70,308,838 500,826,227 9,613,057
Accumulated net realized gain (loss) ............................... 508,832 16,818,604 428,420
---------------------------------------------------
Net assets, at value ............................................. $ 619,253,997 $ 8,640,489,451 $ 208,645,308
===================================================
44 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2006 (unaudited)
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------
CLASS A:
Net assets, at value ............................................... $ 395,573,891 $ 5,259,905,017 $ 150,349,207
===================================================
Shares outstanding ................................................. 30,470,010 404,787,945 12,441,942
===================================================
Net asset value per share a ........................................ $ 12.98 $ 12.99 $ 12.08
===================================================
Maximum offering price per share
(net asset value per share / 94.25%) .............................. $ 13.77 $ 13.78 $ 12.82
===================================================
CLASS B:
Net assets, at value ............................................... $ 71,399,014 $ 702,612,407
=================================
Shares outstanding ................................................. 5,556,719 54,441,227
=================================
Net asset value and maximum offering price per share a ............. $ 12.85 $ 12.91
=================================
CLASS C:
Net assets, at value ............................................... $ 147,252,543 $ 2,642,257,033 $ 55,635,552
===================================================
Shares outstanding ................................................. 11,476,295 206,348,983 4,641,017
===================================================
Net asset value and maximum offering price per share a ............. $ 12.83 $ 12.80 $ 11.99
===================================================
CLASS R:
Net assets, at value ............................................... $ 2,273,227 $ 20,810,355 $ 1,326,138
===================================================
Shares outstanding ................................................. 175,485 1,602,543 109,860
===================================================
Net asset value and maximum offering price per share a ............. $ 12.95 $ 12.99 $ 12.07
===================================================
ADVISOR CLASS:
Net assets, at value ............................................... $ 2,755,322 $ 14,904,639 $ 1,334,411
===================================================
Shares outstanding ................................................. 211,552 1,140,148 110,096
===================================================
Net asset value and maximum offering price per share a.............. $ 13.02 $ 13.07 $ 12.12
===================================================
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
Semiannual Report | See notes to financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2006 (unaudited)
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ........................... $ 1,052,650 $ 96,838,928 $ 470,408
---------------------------------------------------
Expenses:
Administrative fees (Note 3a) ...................................... 299,311 3,883,162 88,923
Distribution fees (Note 3b)
Class A ........................................................... 664,782 8,184,323 224,388
Class B ........................................................... 360,888 3,505,823 --
Class C ........................................................... 703,505 11,909,801 237,290
Class R ........................................................... 5,647 46,895 3,417
Transfer agent fees (Note 3d) ...................................... 450,281 3,412,231 154,549
Reports to shareholders ............................................ 37,653 242,353 42,913
Registration and filing fees ....................................... 56,443 381,515 54,932
Professional fees .................................................. 8,709 25,206 12,713
Trustees' fees and expenses ........................................ 615 7,096 109
Other .............................................................. 6,904 48,814 2,398
---------------------------------------------------
Total expenses .................................................... 2,594,738 31,647,219 821,632
Expenses waived/paid by affiliates (Note 3e) ...................... (421,075) (2,175,631) (223,152)
---------------------------------------------------
Net expenses ..................................................... 2,173,663 29,471,588 598,480
---------------------------------------------------
Net investment income (loss) .................................... (1,121,013) 67,367,340 (128,072)
---------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ........................... (153,033) (563,904) (12,538)
Realized gain distributions by Underlying Funds ................... 1,043,142 18,766,522 451,962
---------------------------------------------------
Net realized gain (loss) from Underlying Funds .................. 890,109 18,202,618 439,424
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ............................................... 19,505,538 317,097,703 4,979,723
---------------------------------------------------
Net realized and unrealized gain (loss) ............................. 20,395,647 335,300,321 5,419,147
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations ..... $ 19,274,634 $ 402,667,661 $ 5,291,075
===================================================
46 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND
----------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ......................................................... $ (1,121,013) $ 2,315,230
Net realized gain (loss) from Underlying Funds ....................................... 890,109 13,151,666
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ................................................................. 19,505,538 18,583,049
----------------------------------
Net increase (decrease) in net assets resulting from operations .................... 19,274,634 34,049,945
----------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................................. (593,847) (2,706,666)
Class B ............................................................................. (114,901) (95,540)
Class C ............................................................................. (224,417) (304,721)
Class R ............................................................................. (3,566) (13,374)
Advisor Class ....................................................................... (4,290) (29,711)
Net realized gains:
Class A ............................................................................. (4,897,791) (4,722,069)
Class B ............................................................................. (947,657) (1,090,043)
Class C ............................................................................. (1,850,897) (1,827,556)
Class R ............................................................................. (29,409) (35,570)
Advisor Class ....................................................................... (35,384) (38,361)
----------------------------------
Total distributions to shareholders .................................................... (8,702,159) (10,863,611)
----------------------------------
Capital share transactions: (Note 2)
Class A ............................................................................. 35,536,336 99,800,451
Class B ............................................................................. (1,365,917) 2,004,829
Class C ............................................................................. 12,617,399 30,562,322
Class R ............................................................................. 39,273 157,640
Advisor Class ....................................................................... (99,326) 586,231
----------------------------------
Total capital share transactions ...................................................... 46,727,765 133,111,473
----------------------------------
Redemption fees ....................................................................... 1,232 1,413
----------------------------------
Net increase (decrease) in net assets ................................................ 57,301,472 156,299,220
Net assets:
Beginning of period ................................................................... 561,952,525 405,653,305
----------------------------------
End of period ......................................................................... $ 619,253,997 $ 561,952,525
==================================
Undistributed net investment income (loss) included in net assets:
End of period ......................................................................... $ (1,121,292) $ 940,742
==================================
Semiannual Report | See notes to financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
----------------------------------
FRANKLIN TEMPLETON
FOUNDING FUNDS ALLOCATION FUND
----------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006, DECEMBER 31,
(UNAUDITED) 2005
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ 67,367,340 $ 135,297,386
Net realized gain (loss) from Underlying Funds ....................................... 18,202,618 224,073,373
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ................................................................. 317,097,703 (20,377,278)
----------------------------------
Net increase (decrease) in net assets resulting from operations .................... 402,667,661 338,993,481
----------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................................. (4,007,335) (95,113,986)
Class B ............................................................................. (618,738) (11,435,618)
Class C ............................................................................. (2,049,152) (49,892,165)
Class R ............................................................................. (16,028) (376,341)
Advisor Class ....................................................................... (11,676) (324,505)
Net realized gains:
Class A ............................................................................. (76,990,475) (60,077,962)
Class B ............................................................................. (11,887,426) (13,364,975)
Class C ............................................................................. (39,369,112) (31,902,414)
Class R ............................................................................. (307,944) (307,043)
Advisor Class ....................................................................... (224,328) (208,794)
----------------------------------
Total distributions to shareholders ................................................... (135,482,214) (263,003,803)
----------------------------------
Capital share transactions: (Note 2)
Class A ............................................................................. 1,042,613,570 2,363,047,363
Class B ............................................................................. (10,633,243) 63,159,382
Class C ............................................................................. 491,486,365 1,132,276,775
Class R ............................................................................. 2,863,383 4,908,962
Advisor Class ....................................................................... 1,843,344 4,573,450
----------------------------------
Total capital share transactions ...................................................... 1,528,173,419 3,567,965,932
----------------------------------
Redemption fees ...................................................................... 21,883 45,042
----------------------------------
Net increase (decrease) in net assets ................................................ 1,795,380,749 3,644,000,652
Net assets:
Beginning of period ................................................................... 6,845,108,702 3,201,108,050
----------------------------------
End of period ......................................................................... $ 8,640,489,451 $ 6,845,108,702
==================================
Undistributed net investment income included in net assets:
End of period ......................................................................... $ 67,318,932 $ 6,654,521
==================================
48 | See notes to financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
----------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
----------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ (128,072) $ 994,678
Net realized gain (loss) from Underlying Funds ....................................... 439,424 4,184,830
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ................................................................. 4,979,723 3,733,521
----------------------------------
Net increase (decrease) in net assets resulting from operations .................... 5,291,075 8,913,029
----------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................................ (10,189) (1,096,845)
Class C ............................................................................ (3,798) (266,589)
Class R ............................................................................ (113) (11,813)
Advisor Class ...................................................................... (94) (14,047)
Net realized gains:
Class A ............................................................................ (1,816,701) (1,039,446)
Class C ............................................................................ (677,204) (369,003)
Class R ............................................................................ (20,233) (14,705)
Advisor Class ...................................................................... (16,725) (16,038)
----------------------------------
Total distributions to shareholders ................................................... (2,545,057) (2,828,486)
----------------------------------
Capital share transactions: (Note 2)
Class A ............................................................................ 44,860,460 82,792,372
Class C ............................................................................ 18,518,353 30,465,502
Class R ............................................................................ 7,229 964,795
Advisor Class ...................................................................... 204,954 830,434
----------------------------------
Total capital share transactions ...................................................... 63,590,996 115,053,103
----------------------------------
Redemption fees ....................................................................... 516 598
----------------------------------
Net increase (decrease) in net assets ................................................ 66,337,530 121,138,244
Net assets:
Beginning of period ................................................................... 142,307,778 21,169,534
----------------------------------
End of period ......................................................................... $ 208,645,308 $ 142,307,778
----------------------------------
Undistributed net investment income (loss) included in net assets:
End of period ......................................................................... $ (128,756) $ 13,510
==================================
Semiannual Report | See notes to financial statements. | 49
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940 (1940 Act) as an open-end investment company,
consisting of six separate series. All funds included in this report (the Funds)
are non-diversified. The financial statements of the remaining funds in the
series are presented separately. The Funds invest primarily in Franklin
Templeton mutual funds (the Underlying Funds). The 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 shareholder 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, CLASS B, CLASS C, CLASS R & ADVISOR CLASS CLASS A, CLASS C, CLASS R & ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------
Franklin Templeton Corefolio Allocation Fund Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
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 intends 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 accounting principles generally accepted in
the United States. 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.
50 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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.
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. Differences in class-level
expenses may result in payment of different per share distributions by 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.
Semiannual Report | 51
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2006, 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:
Period ended June 30, 2006
Shares sold ....................... 4,663,972 $ 61,053,906 104,263,378 $1,346,607,051
Shares issued in reinvestment of
distributions .................... 398,486 5,240,054 5,912,193 76,445,365
Shares redeemed ................... (2,362,710) (30,757,624) (29,471,698) (380,438,846)
-----------------------------------------------------------------
Net increase (decrease) ........... 2,699,748 $ 35,536,336 80,703,873 $1,042,613,570
=================================================================
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
=================================================================
CLASS B SHARES:
Period ended June 30, 2006
Shares sold ....................... 116,765 $ 1,517,045 1,586,271 $ 20,383,466
Shares issued in reinvestment of
distributions .................... 77,719 1,013,453 910,340 11,716,047
Shares redeemed ................... (301,347) (3,896,415) (3,327,542) (42,732,756)
-----------------------------------------------------------------
Net increase (decrease) ........... (106,863) $ (1,365,917) (830,931) $ (10,633,243)
=================================================================
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
=================================================================
52 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-----------------------------------------------------------------
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
CLASS C SHARES:
Period ended June 30, 2006
Shares sold ....................... 1,675,821 $ 21,699,158 48,804,784 $ 622,624,308
Shares issued in reinvestment of
distributions .................... 147,817 1,924,578 2,841,620 36,287,320
Shares redeemed ................... (855,063) (11,006,337) (13,144,339) (167,425,263)
-----------------------------------------------------------------
Net increase (decrease) ........... 968,575 $ 12,617,399 38,502,065 $ 491,486,365
=================================================================
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 91,966,654 $1,132,276,775
=================================================================
CLASS R SHARES:
Period ended June 30, 2006
Shares sold ....................... 4,244 $ 55,453 267,095 $ 3,430,695
Shares issued in reinvestment of
distributions .................... 2,491 32,710 24,969 322,852
Shares redeemed ................... (3,758) (48,890) (68,903) (890,164)
-----------------------------------------------------------------
Net increase (decrease) ........... 2,977 $ 39,273 223,161 $ 2,863,383
=================================================================
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
=================================================================
ADVISOR CLASS SHARES:
Period ended June 30, 2006
Shares sold ....................... 10,990 $ 144,140 217,530 $ 2,830,940
Shares issued in reinvestment of
distributions .................... 2,879 37,941 17,476 227,045
Shares redeemed ................... (21,617) (281,407) (93,389) (1,214,641)
-----------------------------------------------------------------
Net increase (decrease) ........... (7,748) $ (99,326) 141,617 $ 1,843,344
=================================================================
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
=================================================================
Semiannual Report | 53
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------
PERSPECTIVES
ALLOCATION FUND
------------------------------
SHARES AMOUNT
------------------------------
CLASS A SHARES:
Period ended June 30, 2006
Shares sold ......................................................... 4,151,280 $ 50,587,633
Shares issued in reinvestment of distributions ...................... 142,836 1,752,611
Shares redeemed ..................................................... (614,933) (7,479,784)
------------------------------
Net increase (decrease) ............................................. 3,679,183 $ 44,860,460
==============================
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
==============================
CLASS C SHARES:
Period ended June 30, 2006
Shares sold ......................................................... 1,665,448 $ 20,196,495
Shares issued in reinvestment of distributions ...................... 51,383 626,346
Shares redeemed ..................................................... (190,933) (2,304,488)
------------------------------
Net increase (decrease) ............................................. 1,525,898 $ 18,518,353
==============================
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
==============================
CLASS R SHARES:
Period ended June 30, 2006
Shares sold ......................................................... 10,336 $ 124,531
Shares issued in reinvestment of distributions ...................... 1,659 20,344
Shares redeemed ..................................................... (11,328) (137,646)
------------------------------
Net increase (decrease) ............................................. 667 $ 7,229
==============================
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
==============================
ADVISOR CLASS SHARES:
Period ended June 30, 2006
Shares sold ......................................................... 18,663 $ 229,456
Shares issued in reinvestment of distributions ...................... 1,333 16,390
Shares redeemed ..................................................... (3,373) (40,892)
------------------------------
Net increase (decrease) ............................................. 16,623 $ 204,954
==============================
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
==============================
54 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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
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 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 Fund's 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 period:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
Net sales charge received a ................. $348,263 $7,307,749 $281,012
Contingent deferred sales charges retained .. $ 75,298 $1,128,868 $ 4,054
a Net of commissions paid to unaffiliated broker/dealers.
Semiannual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statements 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 ......................... $362,663 $2,439,726 $138,278
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 Statements of Operations. Effective August 1, 2005 FT
Services agreed in advance to voluntarily waive a portion of 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
Statements 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
At June 30, 2006, the cost of investments and net unrealized appreciation
(depreciation) 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 ......................... $549,599,949 $8,113,448,631 $197,986,522
============================================================
Unrealized appreciation ..................... $ 69,773,276 $ 498,846,768 $ 9,446,274
Unrealized depreciation ..................... -- -- --
------------------------------------------------------------
Net unrealized appreciation (depreciation) .. $ 69,773,276 $ 498,846,768 $ 9,446,274
============================================================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments 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.
56 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended June 30, 2006, were as follows:
----------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
----------------------------------------------------------
Purchases ................................... $43,297,321 $1,497,887,199 $62,632,921
Sales ....................................... $ 4,390,891 $ 26,246,736 $ 642,100
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 June 30, 2006, 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 ........................ 10.30%
Franklin Growth Fund ................................ 6.51%
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund .................................. 15.96%
Templeton Growth Fund Inc. .......................... 9.60%
Franklin Income Inc. ................................ 6.74%
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.
Semiannual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
The Trust did not participate in the CAGO Settlement.
On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order and disbursement of the settlement
monies to the designated funds in accordance with the terms and conditions of
the SEC's order and the plan will be completed in August, 2006. The Trust did
not participate in the December 13, 2004 SEC Order.
The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."
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.
58 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
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.
8. FASB INTERPRETATION N0. 48
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an Interpretation of FASB Statement No. 109"
("FIN 48"), which clarifies the accounting for uncertainty in tax positions
taken or expected to be taken in a tax return. FIN 48 provides guidance on the
measurement, recognition, classification and disclosure of tax positions, along
with accounting for the related interest and penalties. FIN 48 is effective for
fiscal years beginning after December 15, 2006, and is to be applied to all open
tax years as of the date of effectiveness. We have not yet completed our
evaluation of the impact, if any, of adopting FIN 48 on the Trust's financial
statements.
Semiannual Report | 59
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 28, 2006, the Board of Trustees ("Board"), including
a majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series ("Fund(s)"). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager ("Manager") and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for each Fund prepared by Lipper, Inc. ("Lipper"), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional information
accompanying such report was a memorandum prepared by management describing
enhancements to the services provided to the Funds by the Franklin Templeton
Investments organization, as well as a memorandum relating to economies of
scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board,
60 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
and the accuracy of net asset value calculations. The Board also noted the
extent of benefits provided Fund shareholders from being part of the Franklin
Templeton family of funds, including the right to exchange investments between
the same class of funds without a sales charge, the ability to reinvest Fund
dividends into other funds and the right to combine holdings in other funds to
obtain a reduced sales charge. Favorable consideration was given to management's
efforts and expenditures in establishing back-up systems and recovery procedures
to function in the event of a natural disaster, it being noted by the Board that
such systems and procedures had functioned smoothly during the hurricanes and
blackout experienced last year in Florida. Among other factors taken into
account by the Board were the Manager's best execution trading policies,
including a favorable report by an independent portfolio trading analytical
firm. Consideration was also given to the experience of each Fund's portfolio
management team, the number of accounts managed and general method of
compensation. In this latter respect, the Board noted that a primary factor in
management's determination of a portfolio manager's bonus compensation was the
relative investment performance of the funds he or she managed so as to be
aligned with the interests of Fund shareholders. The Board also took into
account the transfer agent and shareholder services provided Fund shareholders
by an affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties and the firsthand experience of the
individual Trustees who deal with the shareholder services department in their
capacities as shareholders in one or more of the various Franklin Templeton
funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
the investment performance of Class A shares, in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
the one-year period ended December 31, 2005, and for additional periods ended
that date depending on when a particular Fund commenced operations. The
following summarizes the performance results for each of the Funds and the
Board's view of such performance.
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND - The performance universe for this
Fund consisted of the Fund and all retail and institutional multi-cap core funds
as selected by Lipper. The Fund had been in operation for two full years at the
date of the Lipper report, which showed its income return in each year to be in
the second-highest quintile of such universe and its total return in each year
to be in the middle quintile of such universe. The Board was satisfied with such
performance.
Semiannual Report | 61
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional multi-cap core
funds as selected by Lipper. This Fund had been in operation for two full years
at the date of the Lipper report, which showed its income return in each year to
be in the highest quintile of such universe and its total return to be in the
middle and second-highest quintiles of such performance universe for the one-
and two-year periods, respectively. The Board was satisfied with such
performance.
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional funds as
selected by Lipper. The Fund had been in operation for one full year at the date
of the Lipper report, which showed its income and total return to both be in the
second-highest quintile of such universe for such period. The Board was
satisfied with such performance.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund compared with those of a group of retail front-end
load fund of funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparisons, the Board relied upon a survey showing that
the scope of management services covered under a Fund's investment management
agreement was similar to those provided by fund managers to other mutual fund
groups that would be used as a basis of comparison in the Lipper reports. In
reviewing comparative costs, emphasis was given to each Fund's management fee in
comparison with the effective management fee that would have been charged by
other funds within its Lipper expense group assuming they were the same size as
the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Board noted that for Franklin Templeton
Corefolio Allocation Fund, Franklin Templeton Founding Funds Allocation Fund and
Franklin Templeton Perspectives Allocation Fund there is no investment
management agreement or investment advisory fee, but only an administration
agreement with FT Services, LLC. The Lipper effective management fee analysis
includes the advisory and administrative fees directly charged to each Fund as
being part of the management fee, with the management fees charged underlying
funds being included within actual total expenses. Effective management fees and
total expenses for comparative consistency are shown by Lipper for fund Class A
shares. The Lipper expense group for Franklin Templeton Corefolio Allocation
Fund consisted of seven funds, with the Fund's effective management fee being
the lowest in such group and its actual total expenses being the third-highest
of such group. The Board found such expenses acceptable noting, as stated in the
Lipper report, that expenses of four of the funds in the group were subsidized
through fee waivers. The Lipper expense group for Franklin Templeton Founding
Funds Allocation Fund consisted of six funds, with the Fund's effective
management fee being the lowest in the group and actual total expenses being the
third-highest of such group. The Board found such expenses to be acceptable. The
Lipper expense group for Franklin Templeton Perspectives Allocation Fund
consisted of 12 funds, with the Fund's effective management fee being the
third-lowest and its total expenses being the fifth-highest of such group. The
Board found such expenses to be satisfactory, noting that the Fund had benefited
from a partial waiver or reimbursement of expenses.
62 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. The Board also considered the extent to which the
Manager and its affiliates might derive ancillary benefits from fund operations,
including its interest in a joint venture entity which financed up-front
commissions paid to brokers/dealers who sold fund Class B shares, as well as
potential benefits resulting from allocation of fund brokerage and the use of
"soft" commission dollars to pay for research. Specific attention was given to
the methodology followed in allocating costs to each Fund, it being recognized
that allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that the cost allocation methodology was consistent
with that followed in profitability report presentations for the Funds made in
prior years and that the Funds' independent registered public accounting firm
had been engaged by the Manager to perform certain procedures on a biennial
basis, specified and approved by the Manager and the Funds' Board solely for
their purposes and use in reference to the profitability analysis. Included in
the analysis were the revenue and related costs involved in providing services
to the Fund, as well as each Fund's relative contribution to the profitability
of the Manager's parent. In reviewing and discussing such analysis, management
discussed with the Board its belief that costs incurred in establishing the
infrastructure necessary to the type of mutual fund operations conducted by the
Manager and its affiliates may not be fully reflected in the expenses allocated
to each Fund in determining its profitability, as well as the fact that the
level of profits, to a certain extent, reflected operational cost savings and
efficiencies initiated by management. The Board also took into account
management's expenditures in improving shareholder services provided the Funds,
as well as the need to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC requirements. In addition,
the Board considered a third-party study comparing the profitability of the
Manager's parent on an overall basis as compared to other publicly held managers
broken down to show profitability from management operations exclusive of
distribution expenses, as well as profitability including distribution expenses.
Based upon its consideration of all these factors, the Board determined that the
level of profits realized by the Manager and its affiliates from providing
services to each Fund was not excessive in view of the nature, quality and
extent of services provided.
Semiannual Report | 63
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Trustees also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Trustees noted that based
upon the Fund profitability analysis, it appears that as some funds get larger,
at some point economies of scale do result in the Manager's realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. Franklin Templeton Corefolio Allocation Fund,
Franklin Templeton Founding Funds Allocation Fund and Franklin Templeton
Perspectives Allocation Fund each have entered into an administrative agreement
providing for a fee of 0.1% at all asset levels. The Board also intends to
monitor future growth of these Funds to see if a breakpoint reduction at some
asset level should be considered.
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 1-954/527-7678 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.
64 | Semiannual 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 BRIC 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 Balanced Fund
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 Global Real Estate 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
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement 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 6
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.
07/06 Not part of the semiannual 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.
SEMIANNUAL 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 S2006 08/06
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. N/A
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 August 28, 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 August 28, 2006
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date August 28, 2006