UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07851
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FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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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: 12/31/06
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ITEM 1. REPORTS TO STOCKHOLDERS.
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DECEMBER 31, 2006
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Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups
operates autonomously, relying on its own
research and staying true to the unique
investment disciplines that underlie its
success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and
value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series
is dedicated to a unique style of value
investing, searching aggressively for
opportunity among what it believes are
undervalued stocks, as well as arbitrage
situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work
independently and adhere to different
investment approaches, Franklin, Templeton and
Mutual Series funds typically have distinct
portfolios. That's why our funds can be used to
build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as
well as the reliable, accurate and personal
service that has helped us become one of the
most trusted names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Annual Report
Economic and Market Overview
During the 12 months ended December 31, 2006, the U.S. economy advanced at a
moderate but slowing pace. Although first quarter 2006 gross domestic product
(GDP) grew an annualized 5.6%, fourth quarter GDP growth was an estimated
annualized 3.5%. The housing market weakened during the year, while corporate
profits and consumer and government spending generally remained robust. Exports
picked up some momentum, but the trade deficit stayed in record territory. Labor
costs rose and hiring generally increased as the unemployment rate fell from
4.9% to 4.5%. 1
Although energy and other commodity prices fell in the second half of the year,
they remained historically high and were a primary economic concern for much of
the period. Oil prices reached a record high of $77 per barrel in July before
declining to $61 at year-end. Oil price volatility appeared to raise the anxiety
level among consumers and businesses alike. Consumers curbed spending on large
purchases, such as homes and cars. Home prices fell in many parts of the
country, mortgage rates crept up, and borrowing against home equity flattened.
Overall, the core Consumer Price Index (CPI) rose 2.6% for the 12 months ended
December 31, 2006, which was higher than the 2.2% 10-year average. 2
The Federal Reserve Board (Fed) raised the federal funds target rate
incrementally from 4.25% at the beginning of the year to 5.25% on June 30. Since
June, however, the Fed left the rate unchanged, citing a slowing economy,
widespread cooling in the housing market and the lagging effect of prior
tightening. The Fed stated that even with lower oil prices toward period-end,
inflation risks remained.
Outside the U.S., the economy continued to grow. The economic drivers remained
consistent over the past four years: strong corporate and consumer demand,
reasonably low inflation, a tight or improving labor market, and a relatively
moderate interest rate environment, despite recent interest rate hikes by many
of the world's central banks. However, the global economy also faced headwinds
from elevated energy prices, higher global interest rates and a weaker U.S.
housing market. These factors dampened investor confidence mid-year, when many
equity markets declined before rebounding later in the year.
1. Source: Bureau of Labor Statistics.
2. Source: Bureau of Labor Statistics. Core CPI excludes food and energy
costs.
Annual Report | 3
Despite such challenges, global economic activity was healthy. Strong global
liquidity -- whether petrodollars, corporate cash, private equity, household
savings or central banks' reserves -- continued to search for a home. Record
global merger and acquisition activity in 2006 also reflected the abundance of
cash in the capital markets. Bond yield spreads over U.S. Treasuries narrowed,
and global equity and commodity markets rose in the latter part of the year.
U.S. equity markets performed well for the year in this environment. The blue
chip stocks of the Dow Jones Industrial Average posted a 12-month total return
of +19.05%, and the broader Standard & Poor's 500 Index (S&P 500) returned
+15.78%, while the technology-heavy NASDAQ Composite Index had a total return of
+11.27%. 3 Non-U.S. equity markets ended 2006 on a stronger note, and all major
non-U.S. regions delivered double-digit total returns for the year. Stock market
indexes in the U.S. and most European countries reached six-year highs in the
fourth quarter, and many emerging market indexes in Asia, Europe and Latin
America neared or reached all-time highs. Fixed income markets, on the other
hand, were somewhat constrained by higher interest rates, threats of climbing
inflation and the robust equity markets.
3. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. The S&P 500 consists of 500
stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its
market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The NASDAQ Composite Index measures all 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.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Annual Report
Franklin Templeton Conservative Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target
Fund seeks the highest level of long-term total return consistent with a lower
level of risk. 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 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ................................................. 28.6%
Domestic Fixed Income ........................................... 26.8%
Foreign Equity .................................................. 12.7%
Foreign Fixed Income ............................................ 12.6%
Short-Term Investments & Other Net Assets ....................... 19.3%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
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This annual report for Franklin Templeton Conservative Target Fund covers the
fiscal year ended December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A posted a +9.92% cumulative
total return for the 12 months under review. The Fund underperformed its hybrid
benchmark, which comprised a weighted combination of the Standard & Poor's 500
Index (S&P 500) and the Morgan Stanley Capital International (MSCI) Europe,
Australasia, Far East (EAFE) Index for equities, the Lehman Brothers (LB) U.S.
Aggregate Index for fixed income, and the
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 SOI. THE SOI BEGINS ON PAGE 40.
Annual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund
12/31/06
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% OF TOTAL
NET ASSETS
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Templeton Global Bond Fund 12.6%
- - Advisor Class
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Franklin U.S. Government Securities 10.5%
Fund - Advisor Class
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Franklin Total Return Fund 8.8%
- - Advisor Class
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Franklin Small Cap Growth Fund II 8.4%
- - Advisor Class
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Franklin Flex Cap Growth Fund 7.7%
- - Advisor Class
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Franklin Strategic Mortgage Portfolio 7.5%
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Mutual Shares Fund 6.5%
- - Class Z
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Mutual European Fund 6.4%
- - Class Z
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Templeton Foreign Fund 2.3%
- - Advisor Class
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Franklin Gold and Precious Metals Fund 2.2%
- - Advisor Class
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P&R 90 Day U.S. T-Bill Index for short-term investments and other net assets.
For the reporting period, the hybrid benchmark returned +10.15%. 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 is intended to increase
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 funds, 40% fixed income funds, and
20% short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Conservative Target Fund's domestic equity
exposure was 69.2% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 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 8.4%
2. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry
group representation. Each stock's weight in the index is proportionate to
its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond markets, with index components for government and
corporate securities, mortgage pass-through securities and asset-backed
securities. All issues included must have at least one year to final
maturity and must be rated investment grade (Baa3 or better) by Moody's
Investors Service. They must also be dollar denominated and
nonconvertible. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
monthly by market capitalization. The P&R 90 Day U.S. T-Bill Index 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 value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The benchmark
index's weightings are as follows: S&P 500 28%, MSCI EAFE 12%, LB U.S.
Aggregate 40% and P&R 90 Day U.S. T-Bill 20%. The indexes are unmanaged
and include reinvested distributions. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
6 | Annual Report
of the Fund's total net assets, was our largest equity fund weighting at
period-end. On the fixed income side, domestic exposure was 68.1% 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 12.6% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, underperformed the S&P 500 during the 12-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
outperformed the S&P 500. Our largest foreign equity fund holding, Mutual
European Fund - Class Z, outperformed the MSCI EAFE Index. On the fixed income
side, Templeton Global Bond Fund - Advisor Class 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.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Conservative Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 7
Performance Summary as of 12/31/06
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FTCIX) CHANGE 12/31/06 12/31/05
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Net Asset Value (NAV) +$0.59 $13.33 $12.74
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DISTRIBUTIONS (1/1/06-12/31/06)
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Dividend Income $0.4215
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Short-Term Capital Gain $0.0108
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Long-Term Capital Gain $0.2287
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TOTAL $0.6610
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CLASS B (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
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Net Asset Value (NAV) +$0.58 $13.29 $12.71
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DISTRIBUTIONS (1/1/06-12/31/06)
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Dividend Income $0.3235
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Short-Term Capital Gain $0.0108
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Long-Term Capital Gain $0.2287
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TOTAL $0.5630
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CLASS C (SYMBOL: FTCCX) CHANGE 12/31/06 12/31/05
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Net Asset Value (NAV) +$0.58 $13.18 $12.60
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DISTRIBUTIONS (1/1/06-12/31/06)
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Dividend Income $0.3270
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Short-Term Capital Gain $0.0108
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Long-Term Capital Gain $0.2287
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TOTAL $0.5665
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CLASS R (SYMBOL: FTCRX) CHANGE 12/31/06 12/31/05
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Net Asset Value (NAV) +$0.59 $13.30 $12.71
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DISTRIBUTIONS (1/1/06-12/31/06)
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Dividend Income $0.3869
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Short-Term Capital Gain $0.0108
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Long-Term Capital Gain $0.2287
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TOTAL $0.6264
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8 | Annual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
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ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
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Net Asset Value (NAV) +$0.59 $13.31 $12.72
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DISTRIBUTIONS (1/1/06-12/31/06)
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Dividend Income $0.4540
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Short-Term Capital Gain $0.0108
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Long-Term Capital Gain $0.2287
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TOTAL $0.6935
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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 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +9.92% +40.31% +97.92%
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Average Annual Total Return 3 +3.57% +5.75% +6.43%
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Value of $10,000 Investment 4 $10,357 $13,228 $18,654
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CLASS B 1-YEAR 3-YEAR INCEPTION (12/1/03)
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Cumulative Total Return 2 +9.05% +21.48% +23.55%
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Average Annual Total Return 3 +5.05% +5.82% +6.25%
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Value of $10,000 Investment 4 $10,505 $11,848 $12,055
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CLASS C 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +9.16% +35.05% +83.12%
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Average Annual Total Return 3 +8.16% +6.19% +6.24%
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Value of $10,000 Investment 4 $10,816 $13,505 $18,312
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CLASS R 1-YEAR 3-YEAR INCEPTION (1/1/02)
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Cumulative Total Return 2 +9.73% +23.39% +38.55%
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Average Annual Total Return 3 +9.73% +7.26% +6.75%
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Value of $10,000 Investment 4 $10,973 $12,339 $13,855
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ADVISOR CLASS 5 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +10.28% +40.66% +98.43%
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Average Annual Total Return 3 +10.28% +7.06% +7.09%
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Value of $10,000 Investment 4 $11,028 $14,066 $19,843
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
CLASS A 12/31/06
- -------------------------------------
1-Year +3.57%
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5-Year +5.75%
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10-Year +6.43%
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CLASS A (1/1/97-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Conservative MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ----------------------------------------------------------------------------------------------------------------------------
1/1/1997 $ 9,425 $10,000 $10,000 $10,000 $10,000
1/31/1997 $ 9,576 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $ 9,585 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $ 9,474 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $ 9,502 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $ 9,814 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,028 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,293 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,189 $12,290 $10,476 $10,497 $10,351
9/30/1997 $10,570 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,351 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,408 $13,110 $10,115 $10,856 $10,484
12/31/1997 $10,513 $13,335 $10,206 $10,965 $10,530
1/31/1998 $10,503 $13,482 $10,675 $11,106 $10,582
2/28/1998 $10,797 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,036 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,095 $15,347 $11,810 $11,194 $10,725
5/31/1998 $10,987 $15,083 $11,756 $11,300 $10,771
6/30/1998 $10,988 $15,695 $11,847 $11,396 $10,815
7/31/1998 $10,850 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,219 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,397 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,526 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,715 $16,212 $11,812 $11,882 $11,048
12/31/1998 $10,826 $17,146 $12,281 $11,918 $11,094
1/31/1999 $10,898 $17,862 $12,247 $12,003 $11,137
2/28/1999 $10,754 $17,307 $11,958 $11,794 $11,172
3/31/1999 $10,916 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,185 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,092 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,273 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,200 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,211 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,196 $18,066 $13,356 $11,834 $11,488
10/31/1999 $11,501 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,123 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,021 $20,753 $15,633 $11,820 $11,632
1/31/2000 $12,881 $19,711 $14,643 $11,781 $11,677
2/29/2000 $13,950 $19,338 $15,040 $11,924 $11,730
3/31/2000 $13,756 $21,228 $15,626 $12,081 $11,789
4/30/2000 $13,245 $20,590 $14,806 $12,046 $11,849
5/31/2000 $12,962 $20,169 $14,448 $12,041 $11,913
6/30/2000 $13,335 $20,666 $15,016 $12,291 $11,964
7/31/2000 $13,302 $20,343 $14,389 $12,403 $12,019
8/31/2000 $13,818 $21,606 $14,517 $12,583 $12,082
9/30/2000 $13,675 $20,466 $13,813 $12,662 $12,148
10/31/2000 $13,487 $20,379 $13,490 $12,746 $12,209
11/30/2000 $12,999 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,418 $18,865 $13,451 $13,194 $12,347
1/31/2001 $13,781 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,348 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,004 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,416 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,498 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,439 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,380 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,214 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,493 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $12,839 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,150 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,295 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,283 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,271 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,544 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,581 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,532 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,141 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,611 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $12,698 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $12,306 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $12,541 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $12,876 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $12,792 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $12,742 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $12,704 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $12,687 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $13,152 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $13,654 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $13,732 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $13,745 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,047 $15,016 $10,304 $15,949 $13,227
9/30/2003 $14,142 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,484 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,712 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,011 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,126 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,266 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,288 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,904 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,993 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,172 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,967 $16,668 $12,624 $16,611 $13,338
8/31/2004 $15,082 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,329 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,548 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,948 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,209 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,001 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,248 $18,406 $15,381 $17,142 $13,461
3/31/2005 $16,028 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,859 $17,738 $14,665 $17,284 $13,521
5/31/2005 $16,093 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,238 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,486 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,552 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,674 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,424 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,766 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,971 $19,384 $17,120 $17,552 $13,809
1/31/2006 $17,491 $19,897 $18,172 $17,553 $13,848
2/28/2006 $17,491 $19,951 $18,135 $17,611 $13,892
3/31/2006 $17,676 $20,199 $18,742 $17,438 $13,946
4/30/2006 $17,863 $20,470 $19,651 $17,407 $13,996
5/31/2006 $17,502 $19,882 $18,911 $17,388 $14,051
6/30/2006 $17,514 $19,908 $18,918 $17,425 $14,104
7/31/2006 $17,514 $20,031 $19,108 $17,661 $14,162
8/31/2006 $17,758 $20,507 $19,638 $17,931 $14,224
9/30/2006 $17,826 $21,035 $19,672 $18,089 $14,287
10/31/2006 $18,208 $21,720 $20,439 $18,208 $14,342
11/30/2006 $18,577 $22,133 $21,056 $18,419 $14,403
12/31/2006 $18,654 $22,443 $21,718 $18,313 $14,465
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------
CLASS B 12/31/06
- --------------------------------------------
1-Year +5.05%
- --------------------------------------------
3-Year +5.82%
- --------------------------------------------
Since Inception (12/1/03) +6.25%
- --------------------------------------------
CLASS B (12/1/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Conservative MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ---------------------------------------------------------------------------------------------------------------------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,239 $10,717 $10,935 $10,183 $10,016
2/29/2004 $10,326 $10,866 $11,189 $10,293 $10,023
3/31/2004 $10,337 $10,702 $11,257 $10,370 $10,031
4/30/2004 $10,068 $10,534 $11,012 $10,101 $10,038
5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,237 $10,886 $11,306 $10,117 $10,050
7/31/2004 $10,098 $10,526 $10,941 $10,217 $10,059
8/31/2004 $10,168 $10,568 $10,991 $10,412 $10,069
9/30/2004 $10,329 $10,683 $11,280 $10,440 $10,080
10/31/2004 $10,468 $10,846 $11,666 $10,528 $10,092
11/30/2004 $10,738 $11,285 $12,466 $10,444 $10,102
12/31/2004 $10,908 $11,668 $13,013 $10,540 $10,122
1/31/2005 $10,751 $11,384 $12,775 $10,606 $10,136
2/28/2005 $10,917 $11,624 $13,330 $10,544 $10,151
3/31/2005 $10,757 $11,418 $13,001 $10,489 $10,175
4/30/2005 $10,643 $11,201 $12,710 $10,631 $10,196
5/31/2005 $10,792 $11,558 $12,729 $10,746 $10,220
6/30/2005 $10,878 $11,574 $12,903 $10,805 $10,243
7/31/2005 $11,045 $12,004 $13,299 $10,707 $10,265
8/31/2005 $11,080 $11,895 $13,639 $10,844 $10,293
9/30/2005 $11,150 $11,991 $14,250 $10,732 $10,323
10/31/2005 $10,982 $11,791 $13,834 $10,647 $10,347
11/30/2005 $11,194 $12,237 $14,177 $10,694 $10,381
12/31/2005 $11,330 $12,241 $14,837 $10,796 $10,414
1/31/2006 $11,669 $12,565 $15,749 $10,797 $10,443
2/28/2006 $11,669 $12,599 $15,717 $10,833 $10,477
3/31/2006 $11,779 $12,756 $16,243 $10,726 $10,518
4/30/2006 $11,886 $12,927 $17,030 $10,707 $10,555
5/31/2006 $11,645 $12,555 $16,389 $10,695 $10,597
6/30/2006 $11,650 $12,572 $16,395 $10,718 $10,637
7/31/2006 $11,632 $12,650 $16,560 $10,863 $10,680
8/31/2006 $11,795 $12,950 $17,019 $11,029 $10,727
9/30/2006 $11,835 $13,284 $17,049 $11,126 $10,774
10/31/2006 $12,071 $13,716 $17,714 $11,200 $10,816
11/30/2006 $12,316 $13,977 $18,248 $11,330 $10,862
12/31/2006 $12,055 $14,173 $18,822 $11,264 $10,909
10 | Annual Report
Performance Summary (CONTINUED)
CLASS C (1/1/97-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Conservative MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ----------------------------------------------------------------------------------------------------------------------
1/1/1997 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,160 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,150 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $ 9,998 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $10,028 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,359 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,577 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,848 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,717 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,111 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,879 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,940 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,042 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,021 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,321 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,570 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,621 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,507 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,499 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,343 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,678 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,857 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,983 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,171 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,283 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,348 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,196 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,363 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,623 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,525 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,701 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,625 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,625 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,608 $18,066 $13,356 $11,834 $11,488
10/31/1999 $11,916 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,542 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,472 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,314 $19,711 $14,643 $11,781 $11,677
2/29/2000 $14,417 $19,338 $15,040 $11,924 $11,730
3/31/2000 $14,201 $21,228 $15,626 $12,081 $11,789
4/30/2000 $13,669 $20,590 $14,806 $12,046 $11,849
5/31/2000 $13,375 $20,169 $14,448 $12,041 $11,913
6/30/2000 $13,738 $20,666 $15,016 $12,291 $11,964
7/31/2000 $13,704 $20,343 $14,389 $12,403 $12,019
8/31/2000 $14,216 $21,606 $14,517 $12,583 $12,082
9/30/2000 $14,066 $20,466 $13,813 $12,662 $12,148
10/31/2000 $13,871 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,353 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,777 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,140 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,692 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,330 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,743 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,816 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,743 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,682 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,499 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,755 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $13,100 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,408 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,560 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,522 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,497 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,775 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,800 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,737 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,338 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,795 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $12,884 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $12,475 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $12,703 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $13,032 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $12,943 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $12,879 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $12,841 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $12,815 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $13,263 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $13,775 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $13,845 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $13,845 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,140 $15,016 $10,304 $15,949 $13,227
9/30/2003 $14,226 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,560 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,778 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,073 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,177 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,306 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,324 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,922 $16,682 $12,706 $16,421 $13,311
5/31/2004 $15,013 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,165 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,957 $16,668 $12,624 $16,611 $13,338
8/31/2004 $15,061 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,309 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,517 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,907 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,158 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,923 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,171 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,943 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,773 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,983 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,124 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,360 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,413 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,519 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,269 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,585 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,776 $19,384 $17,120 $17,552 $13,809
1/31/2006 $17,296 $19,897 $18,172 $17,553 $13,848
2/28/2006 $17,282 $19,951 $18,135 $17,611 $13,892
3/31/2006 $17,461 $20,199 $18,742 $17,438 $13,946
4/30/2006 $17,621 $20,470 $19,651 $17,407 $13,996
5/31/2006 $17,247 $19,882 $18,911 $17,388 $14,051
6/30/2006 $17,267 $19,908 $18,918 $17,425 $14,104
7/31/2006 $17,240 $20,031 $19,108 $17,661 $14,162
8/31/2006 $17,470 $20,507 $19,638 $17,931 $14,224
9/30/2006 $17,532 $21,035 $19,672 $18,089 $14,287
10/31/2006 $17,899 $21,720 $20,439 $18,208 $14,342
11/30/2006 $18,252 $22,133 $21,056 $18,419 $14,403
12/31/2006 $18,312 $22,443 $21,718 $18,313 $14,465
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------
CLASS C 12/31/06
- ------------------------------------------------
1-Year +8.16%
- ------------------------------------------------
5-Year +6.19%
- ------------------------------------------------
10-Year +6.24%
- ------------------------------------------------
CLASS R (1/1/02-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Conservative MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ---------------------------------------------------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,982 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,972 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,178 $10,028 $10,057 $10,009 $10,042
4/30/2002 $10,196 $ 9,420 $10,130 $10,203 $10,057
5/31/2002 $10,159 $ 9,351 $10,267 $10,290 $10,073
6/30/2002 $ 9,869 $ 8,685 $ 9,862 $10,379 $10,088
7/31/2002 $ 9,461 $ 8,008 $ 8,889 $10,504 $10,102
8/31/2002 $ 9,526 $ 8,061 $ 8,871 $10,682 $10,117
9/30/2002 $ 9,232 $ 7,185 $ 7,921 $10,855 $10,133
10/31/2002 $ 9,409 $ 7,817 $ 8,347 $10,805 $10,149
11/30/2002 $ 9,650 $ 8,277 $ 8,727 $10,802 $10,165
12/31/2002 $ 9,591 $ 7,791 $ 8,434 $11,025 $10,175
1/31/2003 $ 9,554 $ 7,587 $ 8,083 $11,035 $10,186
2/28/2003 $ 9,516 $ 7,473 $ 7,898 $11,188 $10,195
3/31/2003 $ 9,510 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 9,850 $ 8,167 $ 8,517 $11,271 $10,217
5/31/2003 $10,228 $ 8,596 $ 9,041 $11,481 $10,227
6/30/2003 $10,284 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $10,293 $ 8,860 $ 9,491 $11,073 $10,247
8/31/2003 $10,511 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $10,584 $ 8,937 $10,023 $11,442 $10,263
10/31/2003 $10,831 $ 9,442 $10,648 $11,335 $10,272
11/30/2003 $11,002 $ 9,525 $10,887 $11,362 $10,280
12/31/2003 $11,228 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,314 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,410 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,431 $10,194 $12,255 $11,783 $10,312
4/30/2004 $11,134 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,210 $10,171 $12,040 $11,431 $10,326
6/30/2004 $11,328 $10,369 $12,308 $11,495 $10,331
7/31/2004 $11,174 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,260 $10,066 $11,966 $11,831 $10,351
9/30/2004 $11,449 $10,175 $12,280 $11,863 $10,363
10/31/2004 $11,604 $10,331 $12,700 $11,962 $10,375
11/30/2004 $11,902 $10,749 $13,571 $11,867 $10,385
12/31/2004 $12,098 $11,114 $14,167 $11,976 $10,405
1/31/2005 $11,932 $10,843 $13,908 $12,051 $10,420
2/28/2005 $12,117 $11,071 $14,512 $11,980 $10,436
3/31/2005 $11,948 $10,876 $14,153 $11,919 $10,460
4/30/2005 $11,821 $10,669 $13,837 $12,080 $10,482
5/31/2005 $11,996 $11,009 $13,858 $12,211 $10,506
6/30/2005 $12,097 $11,024 $14,047 $12,277 $10,530
7/31/2005 $12,283 $11,434 $14,479 $12,165 $10,553
8/31/2005 $12,332 $11,330 $14,849 $12,321 $10,582
9/30/2005 $12,415 $11,422 $15,513 $12,194 $10,612
10/31/2005 $12,228 $11,231 $15,061 $12,098 $10,636
11/30/2005 $12,474 $11,655 $15,433 $12,151 $10,672
12/31/2005 $12,627 $11,660 $16,153 $12,267 $10,705
1/31/2006 $13,013 $11,968 $17,145 $12,268 $10,736
2/28/2006 $13,013 $12,001 $17,110 $12,308 $10,770
3/31/2006 $13,155 $12,150 $17,683 $12,188 $10,812
4/30/2006 $13,284 $12,313 $18,540 $12,165 $10,851
5/31/2006 $13,005 $11,959 $17,843 $12,152 $10,893
6/30/2006 $13,025 $11,975 $17,849 $12,178 $10,934
7/31/2006 $13,015 $12,049 $18,028 $12,343 $10,979
8/31/2006 $13,197 $12,335 $18,528 $12,532 $11,028
9/30/2006 $13,239 $12,653 $18,561 $12,642 $11,076
10/31/2006 $13,524 $13,065 $19,284 $12,726 $11,119
11/30/2006 $13,798 $13,313 $19,866 $12,873 $11,166
12/31/2006 $13,855 $13,500 $20,491 $12,798 $11,215
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------
CLASS R 12/31/06
- ---------------------------------------------
1-Year +9.73%
- ---------------------------------------------
3-Year +7.26%
- ---------------------------------------------
Since Inception (1/1/02) +6.75%
- ---------------------------------------------
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------
ADVISOR CLASS 5 12/31/06
- --------------------------------------------
1-Year +10.28%
- --------------------------------------------
5-Year +7.06%
- --------------------------------------------
10-Year +7.09%
- --------------------------------------------
ADVISOR CLASS (1/1/97-12/31/06) 5
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Conservative MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- -----------------------------------------------------------------------------------------------------------------
1/1/1997 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,160 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,170 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $10,051 $10,269 $ 9,850 $9,944 $10,126
4/30/1997 $10,082 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,413 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,639 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,921 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,810 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,215 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,982 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,043 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,155 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,144 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,456 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,709 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,771 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,657 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,659 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,512 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,842 $13,286 $10,490 $11,606 $10,914
9/30/1998 $11,031 $14,137 $10,171 $11,878 $10,970
10/31/1998 $11,168 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,369 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,486 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,563 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,410 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,582 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,868 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,769 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,961 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,884 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,895 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,879 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,203 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,862 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,815 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,666 $19,711 $14,643 $11,781 $11,677
2/29/2000 $14,801 $19,338 $15,040 $11,924 $11,730
3/31/2000 $14,595 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,053 $20,590 $14,806 $12,046 $11,849
5/31/2000 $13,753 $20,169 $14,448 $12,041 $11,913
6/30/2000 $14,149 $20,666 $15,016 $12,291 $11,964
7/31/2000 $14,114 $20,343 $14,389 $12,403 $12,019
8/31/2000 $14,661 $21,606 $14,517 $12,583 $12,082
9/30/2000 $14,509 $20,466 $13,813 $12,662 $12,148
10/31/2000 $14,309 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,792 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,237 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,622 $19,534 $13,445 $13,410 $12,428
2/28/2001 $14,162 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,798 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,234 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,322 $18,042 $12,000 $13,620 $12,641
6/30/2001 $14,259 $17,603 $11,514 $13,671 $12,678
7/31/2001 $14,196 $17,429 $11,305 $13,977 $12,720
8/31/2001 $14,020 $16,339 $11,021 $14,137 $12,762
9/30/2001 $13,255 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $13,622 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,952 $16,481 $10,536 $14,400 $12,878
12/31/2001 $14,106 $16,625 $10,599 $14,308 $12,899
1/31/2002 $14,093 $16,383 $10,037 $14,424 $12,917
2/28/2002 $14,080 $16,067 $10,107 $14,564 $12,934
3/31/2002 $14,370 $16,671 $10,659 $14,322 $12,953
4/30/2002 $14,409 $15,661 $10,736 $14,599 $12,973
5/31/2002 $14,357 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,942 $14,439 $10,453 $14,851 $13,012
7/31/2002 $13,381 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $13,472 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $13,056 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $13,306 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $13,661 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $13,572 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $13,519 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $13,479 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $13,461 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $13,954 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $14,487 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $14,570 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $14,583 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,904 $15,016 $10,304 $15,949 $13,227
9/30/2003 $15,005 $14,857 $10,623 $16,372 $13,239
10/31/2003 $15,367 $15,697 $11,286 $16,219 $13,249
11/30/2003 $15,609 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,927 $16,665 $12,441 $16,423 $13,270
1/31/2004 $16,049 $16,971 $12,617 $16,555 $13,281
2/29/2004 $16,198 $17,207 $12,911 $16,734 $13,290
3/31/2004 $16,220 $16,947 $12,989 $16,860 $13,301
4/30/2004 $15,813 $16,682 $12,706 $16,421 $13,311
5/31/2004 $15,908 $16,910 $12,761 $16,355 $13,320
6/30/2004 $16,098 $17,239 $13,046 $16,448 $13,326
7/31/2004 $15,880 $16,668 $12,624 $16,611 $13,338
8/31/2004 $16,002 $16,735 $12,683 $16,928 $13,352
9/30/2004 $16,264 $16,916 $13,016 $16,974 $13,367
10/31/2004 $16,497 $17,175 $13,461 $17,116 $13,382
11/30/2004 $16,921 $17,870 $14,384 $16,979 $13,395
12/31/2004 $17,198 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,978 $18,027 $14,741 $17,243 $13,440
2/28/2005 $17,239 $18,406 $15,381 $17,142 $13,461
3/31/2005 $17,006 $18,081 $15,001 $17,053 $13,492
4/30/2005 $16,826 $17,738 $14,665 $17,284 $13,521
5/31/2005 $17,075 $18,302 $14,688 $17,471 $13,552
6/30/2005 $17,228 $18,328 $14,888 $17,567 $13,582
7/31/2005 $17,492 $19,009 $15,346 $17,407 $13,612
8/31/2005 $17,562 $18,836 $15,738 $17,630 $13,649
9/30/2005 $17,691 $18,988 $16,442 $17,448 $13,688
10/31/2005 $17,426 $18,672 $15,963 $17,310 $13,720
11/30/2005 $17,788 $19,377 $16,358 $17,387 $13,765
12/31/2005 $17,993 $19,384 $17,120 $17,552 $13,809
1/31/2006 $18,559 $19,897 $18,172 $17,553 $13,848
2/28/2006 $18,559 $19,951 $18,135 $17,611 $13,892
3/31/2006 $18,763 $20,199 $18,742 $17,438 $13,946
4/30/2006 $18,962 $20,470 $19,651 $17,407 $13,996
5/31/2006 $18,578 $19,882 $18,911 $17,388 $14,051
6/30/2006 $18,603 $19,908 $18,918 $17,425 $14,104
7/31/2006 $18,603 $20,031 $19,108 $17,661 $14,162
8/31/2006 $18,862 $20,507 $19,638 $17,931 $14,224
9/30/2006 $18,946 $21,035 $19,672 $18,089 $14,287
10/31/2006 $19,352 $21,720 $20,439 $18,208 $14,342
11/30/2006 $19,744 $22,133 $21,056 $18,419 $14,403
12/31/2006 $19,843 $22,443 $21,718 $18,313 $14,465
ENDNOTES
THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND BECAUSE IT INVESTS IN A LIMITED
NUMBER OF MUTUAL FUNDS. BECAUSE THE FUND INVESTS IN VARIOUS UNDERLYING FUNDS,
WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS,
THE FUND MAY BE SUBJECT TO THESE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE
FUND'S PROSPECTUS.
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 return would have been lower. The manager and administrator
may end this arrangement at any time upon notice to the Fund's board.
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.
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 cumulative and average annual total returns
of Advisor Class shares were +11.03% and +10.15%.
6. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 6 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate
Index and the P&R 90 Day U.S. T-Bill Index.
12 | Annual 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 provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- -------------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,065.10 $2.65
- -------------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.63 $2.60
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,060.50 $6.49
- -------------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36
- -------------------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,060.50 $6.54
- -------------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.41
- -------------------------------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,063.70 $3.95
- -------------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.37 $3.87
- -------------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,066.60 $1.35
- -------------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.89 $1.33
- -------------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.51%; B: 1.25%; C: 1.26%; R: 0.76%; and
Advisor: 0.26%), multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
14 | Annual Report
Franklin Templeton Moderate Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund
seeks the highest level of long-term total return consistent with a moderate
level of risk. 1
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton Moderate Target Fund
Based on Total Net Assets as of 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ......................... 38.8%
Domestic Fixed Income ................... 23.4%
Foreign Equity .......................... 17.2%
Foreign Fixed Income .................... 11.1%
Short-Term Investments & Other Net Assets 9.5%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Moderate Target Fund covers the fiscal
year ended December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A posted a cumulative total
return of +11.57% for the 12 months under review. The Fund underperformed its
hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
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 U.S. T-Bill Index
for short-term investments and other net assets. For the reporting
1. The risk/reward potential is based on the Fund's goal and level of risk.
It is not indicative of the Fund's actual or implied performance or
portfolio composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI. THE SOI BEGINS ON PAGE 46.
Annual Report | 15
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund
12/31/06
- ------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- ------------------------------------------------------------------------------
Templeton Global Bond Fund 11.1%
- - Advisor Class
- -----------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 11.1%
- - Advisor Class
- -----------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 10.5%
- - Advisor Class
- -----------------------------------------------------------------------------
Franklin U.S. Government Securities 9.3%
Fund - Advisor Class
- -----------------------------------------------------------------------------
Mutual European Fund 8.7%
- - Class Z
- -----------------------------------------------------------------------------
Mutual Shares Fund 8.7%
- - Class Z
- -----------------------------------------------------------------------------
Franklin Total Return Fund 7.4%
- - Advisor Class
- -----------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 6.7%
- -----------------------------------------------------------------------------
Templeton Foreign Fund 3.4%
- - Advisor Class
- -----------------------------------------------------------------------------
Franklin Aggressive Growth Fund 3.1%
- - Advisor Class
- -----------------------------------------------------------------------------
period, the hybrid benchmark returned +12.25%.2 You can find the Fund's
long-term performance data in the Performance Summary beginning on page 18.
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 is intended to increase
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 funds, 35% fixed income funds, and
10% short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Moderate Target Fund's domestic equity
exposure was 69.3% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 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 11.1% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 67.8% of the Fund's total
2. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry
group representation. Each stock's weight in the index is proportionate to
its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond markets, with index components for government and
corporate securities, mortgage pass-through securities and asset-backed
securities. All issues included must have at least one year to final
maturity and must be rated investment grade (Baa3 or better) by Moody's
Investors Service. They must also be dollar denominated and
nonconvertible. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
monthly by market capitalization. The P&R 90 Day U.S. T-Bill Index 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 value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The benchmark
index's weightings are as follows: S&P 500 39%, MSCI EAFE 16%, LB U.S.
Aggregate 35% and P&R 90 Day U.S. 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.
16 | Annual Report
income weighting, with the balance represented by foreign fixed income.
Templeton Global Bond Fund - Advisor Class was our largest fixed income fund
weighting at 11.1% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, underperformed the S&P 500 during the 12-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
outperformed the S&P 500. Our largest foreign equity fund holding, Mutual
European Fund - Class Z, outperformed the MSCI EAFE Index. On the fixed income
side, Templeton Global Bond Fund - Advisor Class 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.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Moderate Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 17
Performance Summary as of 12/31/06
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FMTIX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.89 $14.03 $13.14
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.3803
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0030
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2277
- --------------------------------------------------------------------------------
TOTAL $0.6110
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FBMTX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.89 $13.99 $13.10
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.2693
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0030
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2277
- --------------------------------------------------------------------------------
TOTAL $0.5000
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTMTX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.87 $13.81 $12.94
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.2730
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0030
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2277
- --------------------------------------------------------------------------------
TOTAL $0.5037
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FTMRX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.89 $14.00 $13.11
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.3407
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0030
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2277
- --------------------------------------------------------------------------------
TOTAL $0.5714
- --------------------------------------------------------------------------------
18 | Annual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.88 $14.03 $13.15
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.4170
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0030
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2277
- --------------------------------------------------------------------------------
TOTAL $0.6477
- --------------------------------------------------------------------------------
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 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.57% +46.66% +102.43%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.16% +6.68% +6.67%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,516 $13,820 $19,079
- ------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (12/1/03)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.70% +26.82% +29.22%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +6.70% +7.38% +7.85%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,670 $12,382 $12,622
- ------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.72% +41.34% +86.61%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +9.72% +7.17% +6.44%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,972 $14,134 $18,661
- ------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (1/1/02)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.27% +28.59% +44.73%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +11.27% +8.74% +7.68%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,127 $12,859 $14,473
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.87% +47.14% +103.09%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +11.87% +8.03% +7.34%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,187 $14,714 $20,309
- ------------------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 19
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
CLASS A 12/31/06
- -------------------------------------------
1-Year +5.16%
- -------------------------------------------
5-Year +6.68%
- -------------------------------------------
10-Year +6.67%
- -------------------------------------------
CLASS A (1/1/97-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Moderate MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------------------------
1/1/1997 $ 9,425 $10,000 $10,000 $10,000 $10,000
1/31/1997 $ 9,670 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $ 9,670 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $ 9,589 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $ 9,674 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,061 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,286 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,655 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,494 $12,290 $10,476 $10,497 $10,351
9/30/1997 $10,966 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,632 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,660 $13,110 $10,115 $10,856 $10,484
12/31/1997 $10,771 $13,335 $10,206 $10,965 $10,530
1/31/1998 $10,720 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,119 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,451 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,513 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,318 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,318 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,051 $15,529 $11,970 $11,420 $10,862
8/31/1998 $ 9,943 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,164 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,381 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,619 $16,212 $11,812 $11,882 $11,048
12/31/1998 $10,788 $17,146 $12,281 $11,918 $11,094
1/31/1999 $10,884 $17,862 $12,247 $12,003 $11,137
2/28/1999 $10,670 $17,307 $11,958 $11,794 $11,172
3/31/1999 $10,909 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,241 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,134 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,351 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,243 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,265 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,244 $18,066 $13,356 $11,834 $11,488
10/31/1999 $11,667 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,481 $19,600 $14,343 $11,877 $11,579
12/31/1999 $13,727 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,561 $19,711 $14,643 $11,781 $11,677
2/29/2000 $15,067 $19,338 $15,040 $11,924 $11,730
3/31/2000 $14,767 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,055 $20,590 $14,806 $12,046 $11,849
5/31/2000 $13,665 $20,169 $14,448 $12,041 $11,913
6/30/2000 $14,514 $20,666 $15,016 $12,291 $11,964
7/31/2000 $14,369 $20,343 $14,389 $12,403 $12,019
8/31/2000 $15,163 $21,606 $14,517 $12,583 $12,082
9/30/2000 $14,828 $20,466 $13,813 $12,662 $12,148
10/31/2000 $14,286 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,124 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,577 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,063 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,311 $17,754 $12,438 $13,527 $12,478
3/31/2001 $12,795 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,434 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,504 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,375 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,212 $17,429 $11,305 $13,977 $12,720
8/31/2001 $12,908 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,956 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $12,380 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,803 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,009 $16,625 $10,599 $14,308 $12,899
1/31/2002 $12,961 $16,383 $10,037 $14,424 $12,917
2/28/2002 $12,876 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,260 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,224 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,139 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,649 $14,439 $10,453 $14,851 $13,012
7/31/2002 $11,932 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $12,017 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $11,453 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $11,795 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $12,210 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $12,030 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $11,943 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $11,869 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $11,831 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $12,387 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $12,993 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $13,095 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $13,181 $14,730 $10,059 $15,844 $13,217
8/31/2003 $13,578 $15,016 $10,304 $15,949 $13,227
9/30/2003 $13,621 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,093 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,379 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,722 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,860 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,023 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,059 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,595 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,745 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,958 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,656 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,769 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,088 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,328 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,821 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,142 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,849 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,180 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,911 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,656 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,962 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,163 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,521 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,585 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,752 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,431 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,867 $19,377 $16,358 $17,387 $13,765
12/31/2005 $17,101 $19,384 $17,120 $17,552 $13,809
1/31/2006 $17,765 $19,897 $18,172 $17,553 $13,848
2/28/2006 $17,752 $19,951 $18,135 $17,611 $13,892
3/31/2006 $18,024 $20,199 $18,742 $17,438 $13,946
4/30/2006 $18,220 $20,470 $19,651 $17,407 $13,996
5/31/2006 $17,724 $19,882 $18,911 $17,388 $14,051
6/30/2006 $17,756 $19,908 $18,918 $17,425 $14,104
7/31/2006 $17,690 $20,031 $19,108 $17,661 $14,162
8/31/2006 $17,980 $20,507 $19,638 $17,931 $14,224
9/30/2006 $18,049 $21,035 $19,672 $18,089 $14,287
10/31/2006 $18,513 $21,720 $20,439 $18,208 $14,342
11/30/2006 $18,976 $22,133 $21,056 $18,419 $14,403
12/31/2006 $19,079 $22,443 $21,718 $18,313 $14,465
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------
CLASS B 12/31/06
- -------------------------------------------
1-Year +6.70%
- -------------------------------------------
3-Year +7.38%
- -------------------------------------------
Since Inception (12/1/03) +7.85%
- -------------------------------------------
CLASS B (12/1/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Moderate MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------------------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,189 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,284 $10,717 $10,935 $10,183 $10,016
2/29/2004 $10,389 $10,866 $11,189 $10,293 $10,023
3/31/2004 $10,410 $10,702 $11,257 $10,370 $10,031
4/30/2004 $10,088 $10,534 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,327 $10,886 $11,306 $10,117 $10,050
7/31/2004 $10,110 $10,526 $10,941 $10,217 $10,059
8/31/2004 $10,188 $10,568 $10,991 $10,412 $10,069
9/30/2004 $10,393 $10,683 $11,280 $10,440 $10,080
10/31/2004 $10,550 $10,846 $11,666 $10,528 $10,092
11/30/2004 $10,890 $11,285 $12,466 $10,444 $10,102
12/31/2004 $11,098 $11,668 $13,013 $10,540 $10,122
1/31/2005 $10,896 $11,384 $12,775 $10,606 $10,136
2/28/2005 $11,115 $11,624 $13,330 $10,544 $10,151
3/31/2005 $10,917 $11,418 $13,001 $10,489 $10,175
4/30/2005 $10,742 $11,201 $12,710 $10,631 $10,196
5/31/2005 $10,944 $11,558 $12,729 $10,746 $10,220
6/30/2005 $11,079 $11,574 $12,903 $10,805 $10,243
7/31/2005 $11,317 $12,004 $13,299 $10,707 $10,265
8/31/2005 $11,352 $11,895 $13,639 $10,844 $10,293
9/30/2005 $11,454 $11,991 $14,250 $10,732 $10,323
10/31/2005 $11,225 $11,791 $13,834 $10,647 $10,347
11/30/2005 $11,516 $12,237 $14,177 $10,694 $10,381
12/31/2005 $11,672 $12,241 $14,837 $10,796 $10,414
1/31/2006 $12,118 $12,565 $15,749 $10,797 $10,443
2/28/2006 $12,100 $12,599 $15,717 $10,833 $10,477
3/31/2006 $12,274 $12,756 $16,243 $10,726 $10,518
4/30/2006 $12,408 $12,927 $17,030 $10,707 $10,555
5/31/2006 $12,060 $12,555 $16,389 $10,695 $10,597
6/30/2006 $12,075 $12,572 $16,395 $10,718 $10,637
7/31/2006 $12,021 $12,650 $16,560 $10,863 $10,680
8/31/2006 $12,209 $12,950 $17,019 $11,029 $10,727
9/30/2006 $12,252 $13,284 $17,049 $11,126 $10,774
10/31/2006 $12,559 $13,716 $17,714 $11,200 $10,816
11/30/2006 $12,856 $13,977 $18,248 $11,330 $10,862
12/31/2006 $12,622 $14,173 $18,822 $11,264 $10,909
20 | Annual Report
Performance Summary (CONTINUED)
CLASS C (1/1/97-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Moderate MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- --------------------------------------------------------------------------------------------------------------
1/1/1997 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,260 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,250 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $10,101 $10,269 $ 9,850 $9,944 $10,126
4/30/1997 $10,181 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,581 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,814 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,184 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,014 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,492 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,139 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,169 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,289 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,213 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,634 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,969 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,012 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,818 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,799 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,518 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,350 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,580 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,797 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,025 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,202 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,292 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,067 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,303 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,640 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,517 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,733 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,620 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,631 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,609 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,040 $19,209 $13,859 $11,878 $11,533
11/30/1999 $12,867 $19,600 $14,343 $11,877 $11,579
12/31/1999 $14,148 $20,753 $15,633 $11,820 $11,632
1/31/2000 $13,963 $19,711 $14,643 $11,781 $11,677
2/29/2000 $15,499 $19,338 $15,040 $11,924 $11,730
3/31/2000 $15,192 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,451 $20,590 $14,806 $12,046 $11,849
5/31/2000 $14,033 $20,169 $14,448 $12,041 $11,913
6/30/2000 $14,913 $20,666 $15,016 $12,291 $11,964
7/31/2000 $14,738 $20,343 $14,389 $12,403 $12,019
8/31/2000 $15,553 $21,606 $14,517 $12,583 $12,082
9/30/2000 $15,199 $20,466 $13,813 $12,662 $12,148
10/31/2000 $14,626 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,431 $18,773 $12,987 $12,954 $12,276
12/31/2000 $13,889 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,380 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,601 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,064 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,713 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,773 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,627 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,458 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,145 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,162 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $12,586 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,999 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,203 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,140 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,054 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,446 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,396 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,297 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,793 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,071 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $12,133 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $11,569 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $11,894 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $12,319 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $12,120 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $12,019 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $11,943 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $11,900 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $12,442 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $13,047 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $13,142 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $13,217 $14,730 $10,059 $15,844 $13,217
8/31/2003 $13,608 $15,016 $10,304 $15,949 $13,227
9/30/2003 $13,654 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,109 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,387 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,728 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,855 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,007 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,026 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,568 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,695 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,909 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,591 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,693 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,001 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,230 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,715 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,014 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,719 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,039 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,762 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,505 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,801 $18,302 $14,688 $17,471 $13,552
6/30/2005 $15,986 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,333 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,385 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,534 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,199 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,624 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,854 $19,384 $17,120 $17,552 $13,809
1/31/2006 $17,493 $19,897 $18,172 $17,553 $13,848
2/28/2006 $17,467 $19,951 $18,135 $17,611 $13,892
3/31/2006 $17,722 $20,199 $18,742 $17,438 $13,946
4/30/2006 $17,917 $20,470 $19,651 $17,407 $13,996
5/31/2006 $17,409 $19,882 $18,911 $17,388 $14,051
6/30/2006 $17,433 $19,908 $18,918 $17,425 $14,104
7/31/2006 $17,354 $20,031 $19,108 $17,661 $14,162
8/31/2006 $17,630 $20,507 $19,638 $17,931 $14,224
9/30/2006 $17,680 $21,035 $19,672 $18,089 $14,287
10/31/2006 $18,129 $21,720 $20,439 $18,208 $14,342
11/30/2006 $18,564 $22,133 $21,056 $18,419 $14,403
12/31/2006 $18,661 $22,443 $21,718 $18,313 $14,465
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS C 12/31/06
- ----------------------------------------------
1-Year +9.72%
- ----------------------------------------------
5-Year +7.17%
- ----------------------------------------------
10-Year +6.44%
- ----------------------------------------------
CLASS R (1/1/02-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Moderate MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,954 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,889 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,182 $10,028 $10,057 $10,009 $10,042
4/30/2002 $10,154 $ 9,420 $10,130 $10,203 $10,057
5/31/2002 $10,089 $ 9,351 $10,267 $10,290 $10,073
6/30/2002 $ 9,703 $ 8,685 $ 9,862 $10,379 $10,088
7/31/2002 $ 9,162 $ 8,008 $ 8,889 $10,504 $10,102
8/31/2002 $ 9,218 $ 8,061 $ 8,871 $10,682 $10,117
9/30/2002 $ 8,787 $ 7,185 $ 7,921 $10,855 $10,133
10/31/2002 $ 9,040 $ 7,817 $ 8,347 $10,805 $10,149
11/30/2002 $ 9,360 $ 8,277 $ 8,727 $10,802 $10,165
12/31/2002 $ 9,212 $ 7,791 $ 8,434 $11,025 $10,175
1/31/2003 $ 9,146 $ 7,587 $ 8,083 $11,035 $10,186
2/28/2003 $ 9,089 $ 7,473 $ 7,898 $11,188 $10,195
3/31/2003 $ 9,066 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 9,483 $ 8,167 $ 8,517 $11,271 $10,217
5/31/2003 $ 9,948 $ 8,596 $ 9,041 $11,481 $10,227
6/30/2003 $10,021 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $10,088 $ 8,860 $ 9,491 $11,073 $10,247
8/31/2003 $10,383 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $10,420 $ 8,937 $10,023 $11,442 $10,263
10/31/2003 $10,772 $ 9,442 $10,648 $11,335 $10,272
11/30/2003 $10,991 $ 9,525 $10,887 $11,362 $10,280
12/31/2003 $11,256 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,361 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,477 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,500 $10,194 $12,255 $11,783 $10,312
4/30/2004 $11,153 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,259 $10,171 $12,040 $11,431 $10,326
6/30/2004 $11,424 $10,369 $12,308 $11,495 $10,331
7/31/2004 $11,193 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,270 $10,066 $11,966 $11,831 $10,351
9/30/2004 $11,507 $10,175 $12,280 $11,863 $10,363
10/31/2004 $11,690 $10,331 $12,700 $11,962 $10,375
11/30/2004 $12,067 $10,749 $13,571 $11,867 $10,385
12/31/2004 $12,303 $11,114 $14,167 $11,976 $10,405
1/31/2005 $12,079 $10,843 $13,908 $12,051 $10,420
2/28/2005 $12,332 $11,071 $14,512 $11,980 $10,436
3/31/2005 $12,122 $10,876 $14,153 $11,919 $10,460
4/30/2005 $11,927 $10,669 $13,837 $12,080 $10,482
5/31/2005 $12,161 $11,009 $13,858 $12,211 $10,506
6/30/2005 $12,317 $11,024 $14,047 $12,277 $10,530
7/31/2005 $12,581 $11,434 $14,479 $12,165 $10,553
8/31/2005 $12,630 $11,330 $14,849 $12,321 $10,582
9/30/2005 $12,748 $11,422 $15,513 $12,194 $10,612
10/31/2005 $12,504 $11,231 $15,061 $12,098 $10,636
11/30/2005 $12,836 $11,655 $15,433 $12,151 $10,672
12/31/2005 $13,007 $11,660 $16,153 $12,267 $10,705
1/31/2006 $13,513 $11,968 $17,145 $12,268 $10,736
2/28/2006 $13,503 $12,001 $17,110 $12,308 $10,770
3/31/2006 $13,700 $12,150 $17,683 $12,188 $10,812
4/30/2006 $13,849 $12,313 $18,540 $12,165 $10,851
5/31/2006 $13,472 $11,959 $17,843 $12,152 $10,893
6/30/2006 $13,496 $11,975 $17,849 $12,178 $10,934
7/31/2006 $13,436 $12,049 $18,028 $12,343 $10,979
8/31/2006 $13,657 $12,335 $18,528 $12,532 $11,028
9/30/2006 $13,702 $12,653 $18,561 $12,642 $11,076
10/31/2006 $14,053 $13,065 $19,284 $12,726 $11,119
11/30/2006 $14,396 $13,313 $19,866 $12,873 $11,166
12/31/2006 $14,473 $13,500 $20,491 $12,798 $11,215
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS R 12/31/06
- ----------------------------------------------
1-Year +11.27%
- ----------------------------------------------
3-Year +8.74%
- ----------------------------------------------
Since Inception (1/1/02) +7.68%
- ----------------------------------------------
Annual Report | 21
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
ADVISOR CLASS 5 12/31/06
- ----------------------------------------------
1-Year +11.87%
- ----------------------------------------------
5-Year +8.03%
- ----------------------------------------------
10-Year +7.34%
- ----------------------------------------------
ADVISOR CLASS (1/1/97-12/31/06) 5
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Moderate MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------------------------
1/1/1997 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,260 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,260 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $10,174 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $10,264 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,675 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,914 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,305 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,134 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,634 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,280 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,311 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,428 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,374 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,797 $14,454 $11,362 $11,098 $10,623
3/31/1998 $12,150 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,215 $15,347 $11,810 $11,194 $10,725
5/31/1998 $12,009 $15,083 $11,756 $11,300 $10,771
6/30/1998 $12,008 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,725 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,549 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,784 $14,137 $10,171 $11,878 $10,970
10/31/1998 $11,014 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,266 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,446 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,548 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,321 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,574 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,927 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,813 $18,256 $12,303 $11,792 $11,305
6/30/1999 $12,044 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,929 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,952 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,930 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,379 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,243 $19,600 $14,343 $11,877 $11,579
12/31/1999 $14,564 $20,753 $15,633 $11,820 $11,632
1/31/2000 $14,388 $19,711 $14,643 $11,781 $11,677
2/29/2000 $15,987 $19,338 $15,040 $11,924 $11,730
3/31/2000 $15,668 $21,228 $15,626 $12,081 $11,789
4/30/2000 $14,912 $20,590 $14,806 $12,046 $11,849
5/31/2000 $14,499 $20,169 $14,448 $12,041 $11,913
6/30/2000 $15,399 $20,666 $15,016 $12,291 $11,964
7/31/2000 $15,245 $20,343 $14,389 $12,403 $12,019
8/31/2000 $16,088 $21,606 $14,517 $12,583 $12,082
9/30/2000 $15,733 $20,466 $13,813 $12,662 $12,148
10/31/2000 $15,158 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,925 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,405 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,921 $19,534 $13,445 $13,410 $12,428
2/28/2001 $14,123 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,576 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,254 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,328 $18,042 $12,000 $13,620 $12,641
6/30/2001 $14,191 $17,603 $11,514 $13,671 $12,678
7/31/2001 $14,018 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,695 $16,339 $11,021 $14,137 $12,762
9/30/2001 $12,685 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $13,135 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,584 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,802 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,751 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,661 $16,067 $10,107 $14,564 $12,934
3/31/2002 $14,069 $16,671 $10,659 $14,322 $12,953
4/30/2002 $14,031 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,941 $15,546 $10,882 $14,723 $12,993
6/30/2002 $13,420 $14,439 $10,453 $14,851 $13,012
7/31/2002 $12,659 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $12,750 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $12,151 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $12,514 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $12,954 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $12,763 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $12,672 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $12,593 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $12,553 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $13,143 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $13,786 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $13,894 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $13,986 $14,730 $10,059 $15,844 $13,217
8/31/2003 $14,406 $15,016 $10,304 $15,949 $13,227
9/30/2003 $14,452 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,953 $15,697 $11,286 $16,219 $13,249
11/30/2003 $15,256 $15,835 $11,539 $16,258 $13,260
12/31/2003 $15,620 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,767 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,940 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,978 $16,947 $12,989 $16,860 $13,301
4/30/2004 $15,485 $16,682 $12,706 $16,421 $13,311
5/31/2004 $15,645 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,870 $17,239 $13,046 $16,448 $13,326
7/31/2004 $15,550 $16,668 $12,624 $16,611 $13,338
8/31/2004 $15,670 $16,735 $12,683 $16,928 $13,352
9/30/2004 $16,008 $16,916 $13,016 $16,974 $13,367
10/31/2004 $16,263 $17,175 $13,461 $17,116 $13,382
11/30/2004 $16,786 $17,870 $14,384 $16,979 $13,395
12/31/2004 $17,126 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,816 $18,027 $14,741 $17,243 $13,440
2/28/2005 $17,167 $18,406 $15,381 $17,142 $13,461
3/31/2005 $16,882 $18,081 $15,001 $17,053 $13,492
4/30/2005 $16,611 $17,738 $14,665 $17,284 $13,521
5/31/2005 $16,936 $18,302 $14,688 $17,471 $13,552
6/30/2005 $17,149 $18,328 $14,888 $17,567 $13,582
7/31/2005 $17,529 $19,009 $15,346 $17,407 $13,612
8/31/2005 $17,597 $18,836 $15,738 $17,630 $13,649
9/30/2005 $17,774 $18,988 $16,442 $17,448 $13,688
10/31/2005 $17,433 $18,672 $15,963 $17,310 $13,720
11/30/2005 $17,896 $19,377 $16,358 $17,387 $13,765
12/31/2005 $18,155 $19,384 $17,120 $17,552 $13,809
1/31/2006 $18,873 $19,897 $18,172 $17,553 $13,848
2/28/2006 $18,860 $19,951 $18,135 $17,611 $13,892
3/31/2006 $19,147 $20,199 $18,742 $17,438 $13,946
4/30/2006 $19,369 $20,470 $19,651 $17,407 $13,996
5/31/2006 $18,842 $19,882 $18,911 $17,388 $14,051
6/30/2006 $18,888 $19,908 $18,918 $17,425 $14,104
7/31/2006 $18,818 $20,031 $19,108 $17,661 $14,162
8/31/2006 $19,126 $20,507 $19,638 $17,931 $14,224
9/30/2006 $19,197 $21,035 $19,672 $18,089 $14,287
10/31/2006 $19,704 $21,720 $20,439 $18,208 $14,342
11/30/2006 $20,197 $22,133 $21,056 $18,419 $14,403
12/31/2006 $20,309 $22,443 $21,718 $18,313 $14,465
ENDNOTES
THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND BECAUSE IT INVESTS IN A LIMITED
NUMBER OF MUTUAL FUNDS. BECAUSE THE FUND INVESTS IN VARIOUS UNDERLYING FUNDS,
WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS,
THE FUND MAY BE SUBJECT TO THESE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE
FUND'S PROSPECTUS.
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 return would have been lower. The manager and administrator
may end this arrangement at any time upon notice to the Fund's board.
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.
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 cumulative and average annual total returns
of Advisor Class shares were +12.63% and +11.61%.
6. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 16 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate
Index and the P&R 90 Day U.S. T-Bill Index.
22 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON MODERATE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 23
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,074.50 $2.61
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- ---------------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,070.20 $6.52
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36
- ---------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,070.40 $6.52
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36
- ---------------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,072.40 $3.92
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.82
- ---------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,075.30 $1.31
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.95 $1.28
- ---------------------------------------------------------------------------------------------------------------
* 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 184/365 to reflect the one-half year period.
24 | Annual Report
Franklin Templeton Growth Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Growth Target Fund
seeks the highest level of long-term total return consistent with a higher level
of risk. 1
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton Growth Target Fund
Based on Total Net Assets as of 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ......................... 55.0%
Foreign Equity .......................... 25.0%
Domestic Fixed Income ................... 10.1%
Foreign Fixed Income .................... 4.6%
Short-Term Investments & Other Net Assets 5.3%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Growth Target Fund covers the
fiscal year ended December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A posted a +13.90% cumulative
total return for the 12 months under review. The Fund underperformed its hybrid
benchmark, which comprised a weighted combination of the Standard & Poor's 500
Index (S&P 500) and the Morgan Stanley Capital International (MSCI) 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 U.S. T-Bill Index for
short-term investments and other net assets. For the reporting
1. The risk/reward potential is based on the Fund's goal and level of risk.
It is not indicative of the Fund's actual or implied performance or
portfolio composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI. THE SOI BEGINS ON PAGE 52.
Annual Report | 25
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund
12/31/06
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 15.8%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 14.9%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 12.7%
- - Class Z
- --------------------------------------------------------------------------------
Mutual European Fund 12.4%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Foreign Fund 4.9%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton Global Bond Fund 4.6%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 4.3%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund 4.1%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities 4.0%
Fund - Advisor Class
- --------------------------------------------------------------------------------
Franklin Real Estate Securities Fund 3.9%
- - Advisor Class
- --------------------------------------------------------------------------------
period, the hybrid benchmark returned +16.02%. 2 You can find the Fund's
long-term performance data in the Performance Summary beginning on page 28.
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 is intended to increase
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 funds, 15% fixed income funds, 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 68.7% of its total equity weighting, with the balance represented by foreign
equity. The portfolio was diversified across capitalization sizes and investment
styles, and on December 31, 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 15.8% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 68.5% of the Fund's total
2. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry
group representation. Each stock's weight in the index is proportionate to
its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond markets, with index components for government and
corporate securities, mortgage pass-through securities and asset-backed
securities. All issues included must have at least one year to final
maturity and must be rated investment grade (Baa3 or better) by Moody's
Investors Service. They must also be dollar denominated and
nonconvertible. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The index is rebalanced
monthly by market capitalization. The P&R 90 Day U.S. T-Bill Index 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 value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The benchmark
index's weightings are as follows: S&P 500 56%, MSCI EAFE 24%, LB U.S.
Aggregate 15% and P&R 90 Day U.S. 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.
26 | Annual Report
income weighting, with the balance represented by foreign fixed income.
Templeton Global Bond Fund - Advisor Class was our largest fixed income fund
weighting at 4.6% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, underperformed the S&P 500 during the 12-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
outperformed the S&P 500. Our largest foreign equity fund holding, Mutual
European Fund - Class Z, outperformed the MSCI EAFE Index. Among other holdings,
Franklin Flex Cap Growth Fund - Advisor Class under-performed the S&P 500, and
Templeton Foreign Fund - Advisor Class lagged 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.
[PHOTO] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Growth Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 27
Performance Summary as of 12/31/06
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FGTIX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.53 $15.63 $14.10
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.3185
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1152
- --------------------------------------------------------------------------------
TOTAL $0.4337
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.48 $15.45 $13.97
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.2357
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1152
- --------------------------------------------------------------------------------
TOTAL $0.3509
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTGTX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.47 $15.44 $13.97
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.2385
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1152
- --------------------------------------------------------------------------------
TOTAL $0.3537
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FGTRX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.50 $15.52 $14.02
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.2919
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1152
- --------------------------------------------------------------------------------
TOTAL $0.4071
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.54 $15.64 $14.10
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.3460
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1152
- --------------------------------------------------------------------------------
TOTAL $0.4612
- --------------------------------------------------------------------------------
28 | Annual 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 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +13.90% +52.68% +104.74%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +7.36% +7.54% +6.79%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,736 $14,386 $19,297
- --------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (12/1/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +13.06% +34.40% +36.76%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +9.06% +9.53% +9.90%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,906 $13,140 $13,376
- --------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +13.08% +47.07% +90.38%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +12.08% +8.02% +6.65%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,208 $14,707 $19,038
- --------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (1/1/02)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +13.65% +36.43% +50.57%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +13.65% +10.91% +8.54%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,365 $13,643 $15,057
- --------------------------------------------------------------------------------
ADVISOR CLASS 5 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +14.26% +53.17% +105.40%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +14.26% +8.90% +7.46%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,426 $15,317 $20,540
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 29
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------
CLASS A 12/31/06
- ---------------------------------------------
1-Year +7.36%
- ---------------------------------------------
5-Year +7.54%
- ---------------------------------------------
10-Year +6.79%
- ---------------------------------------------
CLASS A (1/1/97-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- --------------------------------------------------------------------------------------------------------------
1/1/1997 $ 9,425 $10,000 $10,000 $10,000 $10,000
1/31/1997 $ 9,774 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $ 9,708 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $ 9,510 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $ 9,585 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,047 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,311 $12,060 $11,136 $10,309 $10,261
7/31/1997 $10,679 $13,019 $11,319 $10,587 $10,305
8/31/1997 $10,490 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,037 $12,963 $11,065 $10,652 $10,399
10/31/1997 $10,564 $12,531 $10,217 $10,806 $10,438
11/30/1997 $10,573 $13,110 $10,115 $10,856 $10,484
12/31/1997 $10,655 $13,335 $10,206 $10,965 $10,530
1/31/1998 $10,616 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,107 $14,454 $11,362 $11,098 $10,623
3/31/1998 $11,490 $15,194 $11,715 $11,136 $10,675
4/30/1998 $11,559 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,294 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,264 $15,695 $11,847 $11,396 $10,815
7/31/1998 $10,960 $15,529 $11,970 $11,420 $10,862
8/31/1998 $ 9,614 $13,286 $10,490 $11,606 $10,914
9/30/1998 $ 9,848 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,134 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,420 $16,212 $11,812 $11,882 $11,048
12/31/1998 $10,643 $17,146 $12,281 $11,918 $11,094
1/31/1999 $10,809 $17,862 $12,247 $12,003 $11,137
2/28/1999 $10,581 $17,307 $11,958 $11,794 $11,172
3/31/1999 $10,892 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,326 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,192 $18,256 $12,303 $11,792 $11,305
6/30/1999 $11,523 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,388 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,450 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,444 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,049 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,133 $19,600 $14,343 $11,877 $11,579
12/31/1999 $15,025 $20,753 $15,633 $11,820 $11,632
1/31/2000 $14,776 $19,711 $14,643 $11,781 $11,677
2/29/2000 $17,097 $19,338 $15,040 $11,924 $11,730
3/31/2000 $16,606 $21,228 $15,626 $12,081 $11,789
4/30/2000 $15,488 $20,590 $14,806 $12,046 $11,849
5/31/2000 $14,869 $20,169 $14,448 $12,041 $11,913
6/30/2000 $16,093 $20,666 $15,016 $12,291 $11,964
7/31/2000 $15,778 $20,343 $14,389 $12,403 $12,019
8/31/2000 $17,018 $21,606 $14,517 $12,583 $12,082
9/30/2000 $16,472 $20,466 $13,813 $12,662 $12,148
10/31/2000 $15,607 $20,379 $13,490 $12,746 $12,209
11/30/2000 $13,725 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,254 $18,865 $13,451 $13,194 $12,347
1/31/2001 $14,905 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,558 $17,754 $12,438 $13,527 $12,478
3/31/2001 $12,750 $16,630 $11,614 $13,595 $12,540
4/30/2001 $13,637 $17,922 $12,429 $13,538 $12,592
5/31/2001 $13,681 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,432 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,105 $17,429 $11,305 $13,977 $12,720
8/31/2001 $12,576 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,214 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $11,756 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,343 $16,481 $10,536 $14,400 $12,878
12/31/2001 $12,639 $16,625 $10,599 $14,308 $12,899
1/31/2002 $12,523 $16,383 $10,037 $14,424 $12,917
2/28/2002 $12,350 $16,067 $10,107 $14,564 $12,934
3/31/2002 $12,928 $16,671 $10,659 $14,322 $12,953
4/30/2002 $12,743 $15,661 $10,736 $14,599 $12,973
5/31/2002 $12,604 $15,546 $10,882 $14,723 $12,993
6/30/2002 $11,933 $14,439 $10,453 $14,851 $13,012
7/31/2002 $10,951 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $10,985 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $10,199 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $10,627 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $11,147 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $10,787 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $10,635 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $10,495 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $10,460 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $11,126 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $11,839 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $11,968 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $12,225 $14,730 $10,059 $15,844 $13,217
8/31/2003 $12,727 $15,016 $10,304 $15,949 $13,227
9/30/2003 $12,657 $14,857 $10,623 $16,372 $13,239
10/31/2003 $13,323 $15,697 $11,286 $16,219 $13,249
11/30/2003 $13,686 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,036 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,212 $16,971 $12,617 $16,555 $13,281
2/29/2004 $14,389 $17,207 $12,911 $16,734 $13,290
3/31/2004 $14,413 $16,947 $12,989 $16,860 $13,301
4/30/2004 $13,906 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,095 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,389 $17,239 $13,046 $16,448 $13,326
7/31/2004 $13,941 $16,668 $12,624 $16,611 $13,338
8/31/2004 $13,988 $16,735 $12,683 $16,928 $13,352
9/30/2004 $14,366 $16,916 $13,016 $16,974 $13,367
10/31/2004 $14,625 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,249 $17,870 $14,384 $16,979 $13,395
12/31/2004 $15,619 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,228 $18,027 $14,741 $17,243 $13,440
2/28/2005 $15,667 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,335 $18,081 $15,001 $17,053 $13,492
4/30/2005 $14,967 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,383 $18,302 $14,688 $17,471 $13,552
6/30/2005 $15,656 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,167 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,202 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,496 $18,988 $16,442 $17,448 $13,688
10/31/2005 $16,068 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,662 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,942 $19,384 $17,120 $17,552 $13,809
1/31/2006 $17,806 $19,897 $18,172 $17,553 $13,848
2/28/2006 $17,770 $19,951 $18,135 $17,611 $13,892
3/31/2006 $18,203 $20,199 $18,742 $17,438 $13,946
4/30/2006 $18,419 $20,470 $19,651 $17,407 $13,996
5/31/2006 $17,697 $19,882 $18,911 $17,388 $14,051
6/30/2006 $17,769 $19,908 $18,918 $17,425 $14,104
7/31/2006 $17,576 $20,031 $19,108 $17,661 $14,162
8/31/2006 $17,926 $20,507 $19,638 $17,931 $14,224
9/30/2006 $17,984 $21,035 $19,672 $18,089 $14,287
10/31/2006 $18,588 $21,720 $20,439 $18,208 $14,342
11/30/2006 $19,144 $22,133 $21,056 $18,419 $14,403
12/31/2006 $19,297 $22,443 $21,718 $18,313 $14,465
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------
CLASS B 12/31/06
- ---------------------------------------------
1-Year +9.06%
- ---------------------------------------------
3-Year +9.53%
- ---------------------------------------------
Since Inception (12/1/03) +9.90%
- ---------------------------------------------
CLASS B (12/1/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ---------------------------------------------------------------------------------------------------------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,175 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,295 $10,717 $10,935 $10,183 $10,016
2/29/2004 $10,415 $10,866 $11,189 $10,293 $10,023
3/31/2004 $10,424 $10,702 $11,257 $10,370 $10,031
4/30/2004 $10,047 $10,534 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,389 $10,886 $11,306 $10,117 $10,050
7/31/2004 $10,056 $10,526 $10,941 $10,217 $10,059
8/31/2004 $10,090 $10,568 $10,991 $10,412 $10,069
9/30/2004 $10,355 $10,683 $11,280 $10,440 $10,080
10/31/2004 $10,535 $10,846 $11,666 $10,528 $10,092
11/30/2004 $10,971 $11,285 $12,466 $10,444 $10,102
12/31/2004 $11,238 $11,668 $13,013 $10,540 $10,122
1/31/2005 $10,946 $11,384 $12,775 $10,606 $10,136
2/28/2005 $11,255 $11,624 $13,330 $10,544 $10,151
3/31/2005 $11,012 $11,418 $13,001 $10,489 $10,175
4/30/2005 $10,737 $11,201 $12,710 $10,631 $10,196
5/31/2005 $11,029 $11,558 $12,729 $10,746 $10,220
6/30/2005 $11,218 $11,574 $12,903 $10,805 $10,243
7/31/2005 $11,578 $12,004 $13,299 $10,707 $10,265
8/31/2005 $11,596 $11,895 $13,639 $10,844 $10,293
9/30/2005 $11,793 $11,991 $14,250 $10,732 $10,323
10/31/2005 $11,484 $11,791 $13,834 $10,647 $10,347
11/30/2005 $11,913 $12,237 $14,177 $10,694 $10,381
12/31/2005 $12,096 $12,241 $14,837 $10,796 $10,414
1/31/2006 $12,711 $12,565 $15,749 $10,797 $10,443
2/28/2006 $12,676 $12,599 $15,717 $10,833 $10,477
3/31/2006 $12,973 $12,756 $16,243 $10,726 $10,518
4/30/2006 $13,129 $12,927 $17,030 $10,707 $10,555
5/31/2006 $12,608 $12,555 $16,389 $10,695 $10,597
6/30/2006 $12,643 $12,572 $16,395 $10,718 $10,637
7/31/2006 $12,495 $12,650 $16,560 $10,863 $10,680
8/31/2006 $12,738 $12,950 $17,019 $11,029 $10,727
9/30/2006 $12,765 $13,284 $17,049 $11,126 $10,774
10/31/2006 $13,191 $13,716 $17,714 $11,200 $10,816
11/30/2006 $13,574 $13,977 $18,248 $11,330 $10,862
12/31/2006 $13,376 $14,173 $18,822 $11,264 $10,909
30 | Annual Report
Performance Summary (CONTINUED)
CLASS C (1/1/97-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- -----------------------------------------------------------------------------------------------------------------
1/1/1997 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,360 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,290 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $10,090 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $10,170 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,650 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,910 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,300 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,090 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,664 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,163 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,173 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,237 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,196 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,705 $14,454 $11,362 $11,098 $10,623
3/31/1998 $12,099 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,162 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,871 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,840 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,507 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,085 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,338 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,629 $15,286 $11,234 $11,815 $11,013
11/30/1998 $10,920 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,149 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,312 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,073 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,378 $18,000 $12,460 $11,859 $11,220
4/30/1999 $11,834 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,682 $18,256 $12,303 $11,792 $11,305
6/30/1999 $12,019 $19,268 $12,786 $11,755 $11,347
7/31/1999 $11,867 $18,667 $13,169 $11,705 $11,394
8/31/1999 $11,932 $18,575 $13,220 $11,699 $11,438
9/30/1999 $11,917 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,538 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,660 $19,600 $14,343 $11,877 $11,579
12/31/1999 $15,616 $20,753 $15,633 $11,820 $11,632
1/31/2000 $15,356 $19,711 $14,643 $11,781 $11,677
2/29/2000 $17,755 $19,338 $15,040 $11,924 $11,730
3/31/2000 $17,225 $21,228 $15,626 $12,081 $11,789
4/30/2000 $16,060 $20,590 $14,806 $12,046 $11,849
5/31/2000 $15,403 $20,169 $14,448 $12,041 $11,913
6/30/2000 $16,672 $20,666 $15,016 $12,291 $11,964
7/31/2000 $16,333 $20,343 $14,389 $12,403 $12,019
8/31/2000 $17,612 $21,606 $14,517 $12,583 $12,082
9/30/2000 $17,037 $20,466 $13,813 $12,662 $12,148
10/31/2000 $16,128 $20,379 $13,490 $12,746 $12,209
11/30/2000 $14,173 $18,773 $12,987 $12,954 $12,276
12/31/2000 $14,706 $18,865 $13,451 $13,194 $12,347
1/31/2001 $15,380 $19,534 $13,445 $13,410 $12,428
2/28/2001 $13,974 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,125 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,044 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,078 $18,042 $12,000 $13,620 $12,641
6/30/2001 $13,812 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,463 $17,429 $11,305 $13,977 $12,720
8/31/2001 $12,917 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,519 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $12,055 $15,307 $10,161 $14,601 $12,851
11/30/2001 $12,648 $16,481 $10,536 $14,400 $12,878
12/31/2001 $12,945 $16,625 $10,599 $14,308 $12,899
1/31/2002 $12,815 $16,383 $10,037 $14,424 $12,917
2/28/2002 $12,636 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,219 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,029 $15,661 $10,736 $14,599 $12,973
5/31/2002 $12,874 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,185 $14,439 $10,453 $14,851 $13,012
7/31/2002 $11,174 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $11,198 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $10,390 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $10,817 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $11,341 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $10,980 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $10,813 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $10,670 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $10,610 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $11,278 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $11,993 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $12,124 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $12,375 $14,730 $10,059 $15,844 $13,217
8/31/2003 $12,875 $15,016 $10,304 $15,949 $13,227
9/30/2003 $12,804 $14,857 $10,623 $16,372 $13,239
10/31/2003 $13,459 $15,697 $11,286 $16,219 $13,249
11/30/2003 $13,817 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,161 $16,665 $12,441 $16,423 $13,270
1/31/2004 $14,329 $16,971 $12,617 $16,555 $13,281
2/29/2004 $14,508 $17,207 $12,911 $16,734 $13,290
3/31/2004 $14,508 $16,947 $12,989 $16,860 $13,301
4/30/2004 $13,994 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,185 $16,910 $12,761 $16,355 $13,320
6/30/2004 $14,460 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,006 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,054 $16,735 $12,683 $16,928 $13,352
9/30/2004 $14,412 $16,916 $13,016 $16,974 $13,367
10/31/2004 $14,663 $17,175 $13,461 $17,116 $13,382
11/30/2004 $15,273 $17,870 $14,384 $16,979 $13,395
12/31/2004 $15,643 $18,477 $15,016 $17,136 $13,421
1/31/2005 $15,237 $18,027 $14,741 $17,243 $13,440
2/28/2005 $15,667 $18,406 $15,381 $17,142 $13,461
3/31/2005 $15,327 $18,081 $15,001 $17,053 $13,492
4/30/2005 $14,945 $17,738 $14,665 $17,284 $13,521
5/31/2005 $15,351 $18,302 $14,688 $17,471 $13,552
6/30/2005 $15,614 $18,328 $14,888 $17,567 $13,582
7/31/2005 $16,116 $19,009 $15,346 $17,407 $13,612
8/31/2005 $16,152 $18,836 $15,738 $17,630 $13,649
9/30/2005 $16,415 $18,988 $16,442 $17,448 $13,688
10/31/2005 $15,985 $18,672 $15,963 $17,310 $13,720
11/30/2005 $16,571 $19,377 $16,358 $17,387 $13,765
12/31/2005 $16,836 $19,384 $17,120 $17,552 $13,809
1/31/2006 $17,680 $19,897 $18,172 $17,553 $13,848
2/28/2006 $17,644 $19,951 $18,135 $17,611 $13,892
3/31/2006 $18,056 $20,199 $18,742 $17,438 $13,946
4/30/2006 $18,262 $20,470 $19,651 $17,407 $13,996
5/31/2006 $17,537 $19,882 $18,911 $17,388 $14,051
6/30/2006 $17,597 $19,908 $18,918 $17,425 $14,104
7/31/2006 $17,392 $20,031 $19,108 $17,661 $14,162
8/31/2006 $17,730 $20,507 $19,638 $17,931 $14,224
9/30/2006 $17,768 $21,035 $19,672 $18,089 $14,287
10/31/2006 $18,361 $21,720 $20,439 $18,208 $14,342
11/30/2006 $18,893 $22,133 $21,056 $18,419 $14,403
12/31/2006 $19,038 $22,443 $21,718 $18,313 $14,465
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------------
CLASS C 12/31/06
- -----------------------------------------------
1-Year +12.08%
- -----------------------------------------------
5-Year +8.02%
- -----------------------------------------------
10-Year +6.65%
- -----------------------------------------------
CLASS R (1/1/02-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- ----------------------------------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,890 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,753 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,200 $10,028 $10,057 $10,009 $10,042
4/30/2002 $10,064 $ 9,420 $10,130 $10,203 $10,057
5/31/2002 $ 9,945 $ 9,351 $10,267 $10,290 $10,073
6/30/2002 $ 9,425 $ 8,685 $ 9,862 $10,379 $10,088
7/31/2002 $ 8,648 $ 8,008 $ 8,889 $10,504 $10,102
8/31/2002 $ 8,666 $ 8,061 $ 8,871 $10,682 $10,117
9/30/2002 $ 8,036 $ 7,185 $ 7,921 $10,855 $10,133
10/31/2002 $ 8,375 $ 7,817 $ 8,347 $10,805 $10,149
11/30/2002 $ 8,776 $ 8,277 $ 8,727 $10,802 $10,165
12/31/2002 $ 8,501 $ 7,791 $ 8,434 $11,025 $10,175
1/31/2003 $ 8,380 $ 7,587 $ 8,083 $11,035 $10,186
2/28/2003 $ 8,269 $ 7,473 $ 7,898 $11,188 $10,195
3/31/2003 $ 8,232 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 8,759 $ 8,167 $ 8,517 $11,271 $10,217
5/31/2003 $ 9,313 $ 8,596 $ 9,041 $11,481 $10,227
6/30/2003 $ 9,415 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $ 9,609 $ 8,860 $ 9,491 $11,073 $10,247
8/31/2003 $10,016 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $ 9,951 $ 8,937 $10,023 $11,442 $10,263
10/31/2003 $10,468 $ 9,442 $10,648 $11,335 $10,272
11/30/2003 $10,754 $ 9,525 $10,887 $11,362 $10,280
12/31/2003 $11,037 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,167 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,306 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,315 $10,194 $12,255 $11,783 $10,312
4/30/2004 $10,915 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,074 $10,171 $12,040 $11,431 $10,326
6/30/2004 $11,297 $10,369 $12,308 $11,495 $10,331
7/31/2004 $10,943 $10,026 $11,911 $11,609 $10,341
8/31/2004 $10,981 $10,066 $11,966 $11,831 $10,351
9/30/2004 $11,278 $10,175 $12,280 $11,863 $10,363
10/31/2004 $11,474 $10,331 $12,700 $11,962 $10,375
11/30/2004 $11,957 $10,749 $13,571 $11,867 $10,385
12/31/2004 $12,256 $11,114 $14,167 $11,976 $10,405
1/31/2005 $11,938 $10,843 $13,908 $12,051 $10,420
2/28/2005 $12,275 $11,071 $14,512 $11,980 $10,436
3/31/2005 $12,018 $10,876 $14,153 $11,919 $10,460
4/30/2005 $11,719 $10,669 $13,837 $12,080 $10,482
5/31/2005 $12,046 $11,009 $13,858 $12,211 $10,506
6/30/2005 $12,262 $11,024 $14,047 $12,277 $10,530
7/31/2005 $12,655 $11,434 $14,479 $12,165 $10,553
8/31/2005 $12,683 $11,330 $14,849 $12,321 $10,582
9/30/2005 $12,908 $11,422 $15,513 $12,194 $10,612
10/31/2005 $12,571 $11,231 $15,061 $12,098 $10,636
11/30/2005 $13,038 $11,655 $15,433 $12,151 $10,672
12/31/2005 $13,249 $11,660 $16,153 $12,267 $10,705
1/31/2006 $13,920 $11,968 $17,145 $12,268 $10,736
2/28/2006 $13,891 $12,001 $17,110 $12,308 $10,770
3/31/2006 $14,226 $12,150 $17,683 $12,188 $10,812
4/30/2006 $14,396 $12,313 $18,540 $12,165 $10,851
5/31/2006 $13,837 $11,959 $17,843 $12,152 $10,893
6/30/2006 $13,885 $11,975 $17,849 $12,178 $10,934
7/31/2006 $13,723 $12,049 $18,028 $12,343 $10,979
8/31/2006 $13,999 $12,335 $18,528 $12,532 $11,028
9/30/2006 $14,035 $12,653 $18,561 $12,642 $11,076
10/31/2006 $14,511 $13,065 $19,284 $12,726 $11,119
11/30/2006 $14,939 $13,313 $19,866 $12,873 $11,166
12/31/2006 $15,057 $13,500 $20,491 $12,798 $11,215
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------------
CLASS R 12/31/06
- -----------------------------------------------
1-Year +13.65%
- -----------------------------------------------
3-Year +10.91%
- -----------------------------------------------
Since Inception (1/1/02) +8.54%
- -----------------------------------------------
Annual Report | 31
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------
ADVISOR CLASS 5 12/31/06
- ------------------------------------------------
1-Year +14.26%
- ------------------------------------------------
5-Year +8.90%
- ------------------------------------------------
10-Year +7.46%
- ------------------------------------------------
ADVISOR CLASS (1/1/97-12/31/06) 5
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
Date Target Fund S&P 500 6 Index 6 Aggregate Index 6 T-Bill Index 6
- --------------------------------------------------------------------------------------------------------
1/1/1997 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,370 $10,624 $ 9,652 $10,031 $10,045
2/28/1997 $10,300 $10,708 $ 9,813 $10,056 $10,083
3/31/1997 $10,090 $10,269 $ 9,850 $ 9,944 $10,126
4/30/1997 $10,170 $10,881 $ 9,905 $10,093 $10,172
5/31/1997 $10,660 $11,543 $10,552 $10,188 $10,223
6/30/1997 $10,940 $12,060 $11,136 $10,309 $10,261
7/31/1997 $11,330 $13,019 $11,319 $10,587 $10,305
8/31/1997 $11,130 $12,290 $10,476 $10,497 $10,351
9/30/1997 $11,710 $12,963 $11,065 $10,652 $10,399
10/31/1997 $11,208 $12,531 $10,217 $10,806 $10,438
11/30/1997 $11,218 $13,110 $10,115 $10,856 $10,484
12/31/1997 $11,305 $13,335 $10,206 $10,965 $10,530
1/31/1998 $11,264 $13,482 $10,675 $11,106 $10,582
2/28/1998 $11,785 $14,454 $11,362 $11,098 $10,623
3/31/1998 $12,191 $15,194 $11,715 $11,136 $10,675
4/30/1998 $12,264 $15,347 $11,810 $11,194 $10,725
5/31/1998 $11,983 $15,083 $11,756 $11,300 $10,771
6/30/1998 $11,951 $15,695 $11,847 $11,396 $10,815
7/31/1998 $11,628 $15,529 $11,970 $11,420 $10,862
8/31/1998 $10,201 $13,286 $10,490 $11,606 $10,914
9/30/1998 $10,449 $14,137 $10,171 $11,878 $10,970
10/31/1998 $10,752 $15,286 $11,234 $11,815 $11,013
11/30/1998 $11,056 $16,212 $11,812 $11,882 $11,048
12/31/1998 $11,293 $17,146 $12,281 $11,918 $11,094
1/31/1999 $11,468 $17,862 $12,247 $12,003 $11,137
2/28/1999 $11,227 $17,307 $11,958 $11,794 $11,172
3/31/1999 $11,556 $18,000 $12,460 $11,859 $11,220
4/30/1999 $12,017 $18,697 $12,968 $11,896 $11,262
5/31/1999 $11,874 $18,256 $12,303 $11,792 $11,305
6/30/1999 $12,226 $19,268 $12,786 $11,755 $11,347
7/31/1999 $12,083 $18,667 $13,169 $11,705 $11,394
8/31/1999 $12,149 $18,575 $13,220 $11,699 $11,438
9/30/1999 $12,142 $18,066 $13,356 $11,834 $11,488
10/31/1999 $12,784 $19,209 $13,859 $11,878 $11,533
11/30/1999 $13,934 $19,600 $14,343 $11,877 $11,579
12/31/1999 $15,942 $20,753 $15,633 $11,820 $11,632
1/31/2000 $15,677 $19,711 $14,643 $11,781 $11,677
2/29/2000 $18,140 $19,338 $15,040 $11,924 $11,730
3/31/2000 $17,619 $21,228 $15,626 $12,081 $11,789
4/30/2000 $16,432 $20,590 $14,806 $12,046 $11,849
5/31/2000 $15,776 $20,169 $14,448 $12,041 $11,913
6/30/2000 $17,075 $20,666 $15,016 $12,291 $11,964
7/31/2000 $16,740 $20,343 $14,389 $12,403 $12,019
8/31/2000 $18,056 $21,606 $14,517 $12,583 $12,082
9/30/2000 $17,477 $20,466 $13,813 $12,662 $12,148
10/31/2000 $16,559 $20,379 $13,490 $12,746 $12,209
11/30/2000 $14,562 $18,773 $12,987 $12,954 $12,276
12/31/2000 $15,123 $18,865 $13,451 $13,194 $12,347
1/31/2001 $15,814 $19,534 $13,445 $13,410 $12,428
2/28/2001 $14,385 $17,754 $12,438 $13,527 $12,478
3/31/2001 $13,528 $16,630 $11,614 $13,595 $12,540
4/30/2001 $14,468 $17,922 $12,429 $13,538 $12,592
5/31/2001 $14,516 $18,042 $12,000 $13,620 $12,641
6/30/2001 $14,251 $17,603 $11,514 $13,671 $12,678
7/31/2001 $13,905 $17,429 $11,305 $13,977 $12,720
8/31/2001 $13,343 $16,339 $11,021 $14,137 $12,762
9/30/2001 $11,898 $15,020 $ 9,908 $14,302 $12,818
10/31/2001 $12,473 $15,307 $10,161 $14,601 $12,851
11/30/2001 $13,096 $16,481 $10,536 $14,400 $12,878
12/31/2001 $13,410 $16,625 $10,599 $14,308 $12,899
1/31/2002 $13,287 $16,383 $10,037 $14,424 $12,917
2/28/2002 $13,103 $16,067 $10,107 $14,564 $12,934
3/31/2002 $13,716 $16,671 $10,659 $14,322 $12,953
4/30/2002 $13,520 $15,661 $10,736 $14,599 $12,973
5/31/2002 $13,373 $15,546 $10,882 $14,723 $12,993
6/30/2002 $12,661 $14,439 $10,453 $14,851 $13,012
7/31/2002 $11,619 $13,313 $ 9,422 $15,030 $13,031
8/31/2002 $11,655 $13,401 $ 9,403 $15,284 $13,050
9/30/2002 $10,821 $11,946 $ 8,395 $15,531 $13,071
10/31/2002 $11,275 $12,996 $ 8,847 $15,461 $13,091
11/30/2002 $11,827 $13,760 $ 9,250 $15,456 $13,111
12/31/2002 $11,445 $12,952 $ 8,939 $15,776 $13,125
1/31/2003 $11,284 $12,613 $ 8,567 $15,789 $13,139
2/28/2003 $11,135 $12,424 $ 8,371 $16,008 $13,151
3/31/2003 $11,098 $12,543 $ 8,213 $15,995 $13,165
4/30/2003 $11,805 $13,577 $ 9,027 $16,127 $13,178
5/31/2003 $12,561 $14,292 $ 9,583 $16,428 $13,192
6/30/2003 $12,698 $14,474 $ 9,820 $16,395 $13,208
7/31/2003 $12,970 $14,730 $10,059 $15,844 $13,217
8/31/2003 $13,504 $15,016 $10,304 $15,949 $13,227
9/30/2003 $13,429 $14,857 $10,623 $16,372 $13,239
10/31/2003 $14,136 $15,697 $11,286 $16,219 $13,249
11/30/2003 $14,520 $15,835 $11,539 $16,258 $13,260
12/31/2003 $14,892 $16,665 $12,441 $16,423 $13,270
1/31/2004 $15,079 $16,971 $12,617 $16,555 $13,281
2/29/2004 $15,267 $17,207 $12,911 $16,734 $13,290
3/31/2004 $15,292 $16,947 $12,989 $16,860 $13,301
4/30/2004 $14,754 $16,682 $12,706 $16,421 $13,311
5/31/2004 $14,954 $16,910 $12,761 $16,355 $13,320
6/30/2004 $15,267 $17,239 $13,046 $16,448 $13,326
7/31/2004 $14,792 $16,668 $12,624 $16,611 $13,338
8/31/2004 $14,842 $16,735 $12,683 $16,928 $13,352
9/30/2004 $15,242 $16,916 $13,016 $16,974 $13,367
10/31/2004 $15,517 $17,175 $13,461 $17,116 $13,382
11/30/2004 $16,180 $17,870 $14,384 $16,979 $13,395
12/31/2004 $16,572 $18,477 $15,016 $17,136 $13,421
1/31/2005 $16,157 $18,027 $14,741 $17,243 $13,440
2/28/2005 $16,623 $18,406 $15,381 $17,142 $13,461
3/31/2005 $16,271 $18,081 $15,001 $17,053 $13,492
4/30/2005 $15,880 $17,738 $14,665 $17,284 $13,521
5/31/2005 $16,321 $18,302 $14,688 $17,471 $13,552
6/30/2005 $16,611 $18,328 $14,888 $17,567 $13,582
7/31/2005 $17,153 $19,009 $15,346 $17,407 $13,612
8/31/2005 $17,191 $18,836 $15,738 $17,630 $13,649
9/30/2005 $17,502 $18,988 $16,442 $17,448 $13,688
10/31/2005 $17,048 $18,672 $15,963 $17,310 $13,720
11/30/2005 $17,678 $19,377 $16,358 $17,387 $13,765
12/31/2005 $17,977 $19,384 $17,120 $17,552 $13,809
1/31/2006 $18,895 $19,897 $18,172 $17,553 $13,848
2/28/2006 $18,870 $19,951 $18,135 $17,611 $13,892
3/31/2006 $19,323 $20,199 $18,742 $17,438 $13,946
4/30/2006 $19,566 $20,470 $19,651 $17,407 $13,996
5/31/2006 $18,811 $19,882 $18,911 $17,388 $14,051
6/30/2006 $18,888 $19,908 $18,918 $17,425 $14,104
7/31/2006 $18,671 $20,031 $19,108 $17,661 $14,162
8/31/2006 $19,055 $20,507 $19,638 $17,931 $14,224
9/30/2006 $19,115 $21,035 $19,672 $18,089 $14,287
10/31/2006 $19,770 $21,720 $20,439 $18,208 $14,342
11/30/2006 $20,361 $22,133 $21,056 $18,419 $14,403
12/31/2006 $20,540 $22,443 $21,718 $18,313 $14,465
ENDNOTES
THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND BECAUSE IT INVESTS IN A LIMITED
NUMBER OF MUTUAL FUNDS. BECAUSE THE FUND INVESTS IN VARIOUS UNDERLYING FUNDS,
WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS,
THE FUND MAY BE SUBJECT TO THESE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE
FUND'S PROSPECTUS.
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 return would have been lower. The manager and administrator
may end this arrangement at any time upon notice to the Fund's board.
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.
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 cumulative and average annual total returns
of Advisor Class shares were +14.88% and +13.67%.
6. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 26 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate
Index and the P&R 90 Day U.S. T-Bill Index.
32 | Annual 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 provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 33
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,086.00 $2.63
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,081.70 $6.56
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,081.90 $6.56
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36
- ------------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,084.40 $3.94
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.82
- ------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,087.50 $1.32
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.95 $1.28
- ------------------------------------------------------------------------------------------------------------------
* 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 184/365 to reflect the one-half year period.
34 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2006 2005 2004 g 2004 2003 2002
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23 $ 11.30
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.41 0.29 0.12 0.23 0.23 0.31
Net realized and unrealized gains (losses) ........ 0.84 0.29 0.84 0.74 0.69 (0.95)
--------------------------------------------------------------------------
Total from investment operations ................... 1.25 0.58 0.96 0.97 0.92 (0.64)
--------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.42) (0.32) (0.14) (0.22) (0.24) (0.34)
Net realized gains ................................ (0.24) -- -- -- -- (0.09)
--------------------------------------------------------------------------
Total distributions ................................ (0.66) (0.32) (0.14) (0.22) (0.24) (0.43)
--------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
--------------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23
==========================================================================
Total return d ..................................... 9.92% 4.70% 8.30% 8.89% 8.99% (5.74)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $194,477 $162,079 $139,153 $117,013 $ 64,409 $ 35,991
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.69% 0.73% 0.82% h 0.85% 0.91% 0.96%
Expenses net of waiver and payments by affiliates e 0.50% 0.69% 0.82% h 0.85% 0.91% 0.96%
Net investment income c ........................... 3.09% 2.31% 2.40% h 2.00% 2.21% 2.86%
Portfolio turnover rate ............................ 11.08% 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 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 0.68% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
----------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2006 2005 2004 g 2004 i
----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $12.71 $12.46 $11.63 $11.67
----------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.30 0.19 0.09 0.07
Net realized and unrealized gains (losses) ........ 0.84 0.29 0.84 0.04
----------------------------------------------
Total from investment operations ................... 1.14 0.48 0.93 0.11
----------------------------------------------
Less distributions from:
Net investment income ............................. (0.32) (0.23) (0.10) (0.15)
Net realized gains ................................ (0.24) -- -- --
----------------------------------------------
Total distributions ................................ (0.56) (0.23) (0.10) (0.15)
----------------------------------------------
Redemption fees .................................... -- f -- f -- f --f
----------------------------------------------
Net asset value, end of year ....................... $13.29 $12.71 $12.46 $11.63
==============================================
Total return d ..................................... 9.05% 3.87% 8.02% 0.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $6,422 $6,202 $5,223 $3,567
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.44% 1.48% 1.57% h 1.60% h
Expenses net of waiver and payments by affiliates e 1.25% 1.44% 1.57% h 1.60% h
Net investment income c ........................... 2.34% 1.56% 1.65% h 1.25% h
Portfolio turnover rate ............................ 11.08% 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 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 0.68% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period December 1, 2003 (effective date) to July 31, 2004.
36 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2006 2005 2004 g 2004 2003 2002
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14 $ 11.20
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c .......................... 0.30 0.19 0.08 0.14 0.15 0.23
Net realized and unrealized gains (losses) ......... 0.85 0.28 0.84 0.73 0.67 (0.94)
---------------------------------------------------------------------------
Total from investment operations .................... 1.15 0.47 0.92 0.87 0.82 (0.71)
---------------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (0.33) (0.23) (0.09) (0.14) (0.16) (0.26)
Net realized gains ................................. (0.24) -- -- -- -- (0.09)
---------------------------------------------------------------------------
Total distributions ................................. (0.57) (0.23) (0.09) (0.14) (0.16) (0.35)
---------------------------------------------------------------------------
Redemption fees ..................................... -- f -- f -- f -- f -- --
---------------------------------------------------------------------------
Net asset value, end of year ........................ $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14
===========================================================================
Total return d ...................................... 9.16% 3.83% 8.03% 8.04% 8.20% (6.48)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 76,018 $ 63,298 $ 59,803 $ 52,881 $ 32,344 $ 22,436
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.43% 1.47% 1.57% h 1.60% 1.66% 1.70%
Expenses net of waiver and payments by affiliates e 1.24% 1.43% 1.57% h 1.60% 1.66% 1.70%
Net investment income c ............................ 2.35% 1.57% 1.65% h 1.25% 1.46% 2.15%
Portfolio turnover rate ............................. 11.08% 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 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 0.68% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2006 2005 2004 g 2004 2003 2002 i
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.71 $ 12.46 $ 11.63 $ 10.89 $ 10.23 $ 10.89
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.37 0.26 0.11 0.21 0.19 0.12
Net realized and unrealized gains (losses) ........ 0.85 0.28 0.85 0.72 0.69 (0.70)
----------------------------------------------------------------------------
Total from investment operations ................... 1.22 0.54 0.96 0.93 0.88 (0.58)
----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.39) (0.29) (0.13) (0.19) (0.22) (0.08)
Net realized gains ................................ (0.24) -- -- -- -- --
----------------------------------------------------------------------------
Total distributions ................................ (0.63) (0.29) (0.13) (0.19) (0.22) (0.08)
----------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.30 $ 12.71 $ 12.46 $ 11.63 $ 10.89 $ 10.23
============================================================================
Total return d ..................................... 9.73% 4.37% 8.27% 8.56% 8.79% (5.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 14,490 $ 14,112 $ 12,199 $ 8,370 $ 5,718 $ 543
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.94% 0.98% 1.07% h 1.10% 1.16% 1.21% h
Expenses net of waiver and payments by affiliates e 0.75% 0.94% 1.07% h 1.10% 1.16% 1.21% h
Net investment income c ........................... 2.84% 2.06% 2.15% h 1.75% 1.96% 1.93% h
Portfolio turnover rate ............................ 11.08% 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 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 0.68% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period January 1, 2002 (effective date) to July 31, 2002.
38 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
ADVISOR CLASS 2006 2005 g
------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.72 $ 12.81
------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.45 0.07
Net realized and unrealized gains (losses) ........ 0.83 0.02
------------------------------
Total from investment operations ................... 1.28 0.09
------------------------------
Less distributions from:
Net investment income ............................. (0.45) (0.18)
Net realized gains ................................ (0.24) --
------------------------------
Total distributions ................................ (0.69) (0.18)
------------------------------
Redemption fees .................................... -- f -- f
------------------------------
Net asset value, end of year ....................... $ 13.31 $ 12.72
==============================
Total return d ..................................... 10.28% 0.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 1,726 $ 753
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.44% 0.48% h
Expenses net of waiver and payments by affiliates e 0.25% 0.44% h
Net investment income c ........................... 3.34% 2.56% h
Portfolio turnover rate ............................ 11.08% 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 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 0.68% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period December 1, 2005 (effective date) to December 31, 2005.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- ---------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDSa
LONG TERM INVESTMENTS 80.7%
DOMESTIC EQUITY 28.6%
b Franklin Aggressive Growth Fund, Advisor Class ...................... 347,061 $ 6,278,342
Franklin Flex Cap Growth Fund, Advisor Class ........................ 527,558 22,500,368
Franklin Natural Resources Fund, Advisor Class ...................... 143,550 5,009,909
Franklin Real Estate Securities Fund, Advisor Class ................. 238,559 6,333,752
b Franklin Small Cap Growth Fund II, Advisor Class .................... 1,960,965 24,492,448
Mutual Shares Fund, Class Z ......................................... 735,022 19,176,730
-------------
83,791,549
-------------
DOMESTIC FIXED INCOME 26.8%
Franklin Strategic Mortgage Portfolio ............................... 2,304,237 22,120,671
Franklin Total Return Fund, Advisor Class ........................... 2,602,641 25,870,248
Franklin U.S. Government Securities Fund, Advisor Class ............. 4,773,130 30,786,688
-------------
78,777,607
-------------
FOREIGN EQUITY 12.7%
Franklin Gold and Precious Metals Fund, Advisor Class ............... 198,161 6,515,530
Mutual European Fund, Class Z ....................................... 766,534 18,849,071
Templeton China World Fund, Advisor Class ........................... 158,249 5,076,630
Templeton Foreign Fund, Advisor Class ............................... 501,454 6,814,760
-------------
37,255,991
-------------
FOREIGN FIXED INCOME 12.6%
Templeton Global Bond Fund, Advisor Class ........................... 3,348,418 36,899,562
-------------
TOTAL LONG TERM INVESTMENTS (COST $203,358,170) ..................... 236,724,709
-------------
SHORT TERM INVESTMENT (COST $57,083,974) 19.5%
MONEY MARKET FUND 19.5%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 57,083,974 57,083,974
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $260,442,144) 100.2% .... 293,808,683
OTHER ASSETS, LESS LIABILITIES (0.2)% ............................... (675,352)
-------------
NET ASSETS 100.0% ................................................... $293,133,331
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2006.
c The rate shown is the annualized seven-day yield at period end.
40 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2006 2005 2004 g 2004 2003 2002
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83 $ 11.31
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.35 0.25 0.12 0.20 0.19 0.26
---------------------------------------------------------------------------
Net realized and unrealized gains (losses) ........ 1.15 0.50 1.05 1.00 0.81 (1.31)
---------------------------------------------------------------------------
Total from investment operations ................... 1.50 0.75 1.17 1.20 1.00 (1.05)
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.38) (0.30) (0.13) (0.19) (0.19) (0.29)
Net realized gains ................................ (0.23) -- -- -- -- (0.14)
---------------------------------------------------------------------------
Total distributions ................................ (0.61) (0.30) (0.13) (0.19) (0.19) (0.43)
---------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
---------------------------------------------------------------------------
Net asset value, end of year ....................... $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83
===========================================================================
Total return d ..................................... 11.57% 5.94% 10.14% 11.18% 10.47% (9.69)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $401,392 $316,754 $281,033 $219,273 $121,617 $ 85,035
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.70% 0.74% 0.81% h 0.89% 0.98% 0.96%
Expenses net of waiver and payments by affiliates e 0.50% 0.69% 0.81% h 0.89% 0.98% 0.96%
Net investment income c ........................... 2.56% 1.93% 2.32% h 1.75% 1.89% 2.46%
Portfolio turnover rate ............................ 9.40% 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 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
-----------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2006 2005 2004 g 2004 i
-----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $13.10 $12.66 $11.62 $11.62
-----------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.24 0.15 0.09 0.05
Net realized and unrealized gains (losses) ........ 1.15 0.50 1.03 0.09
-----------------------------------------------
Total from investment operations ................... 1.39 0.65 1.12 0.14
-----------------------------------------------
Less distributions from:
Net investment income ............................. (0.27) (0.21) (0.08) (0.14)
Net realized gains ................................ (0.23) -- -- --
-----------------------------------------------
Total distributions ................................ (0.50) (0.21) (0.08) (0.14)
-----------------------------------------------
Redemption fees .................................... -- f -- f -- f --f
-----------------------------------------------
Net asset value, end of year ....................... $13.99 $13.10 $12.66 $11.62
===============================================
Total return d ..................................... 10.70% 5.18% 9.77% 1.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $11,533 $10,170 $8,700 $5,417
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.45% 1.49% 1.56% h 1.64% h
Expenses net of waiver and payments by affiliates e 1.25% 1.44% 1.56% h 1.64% h
Net investment income c ........................... 1.81% 1.18% 1.57% h 1.00% h
Portfolio turnover rate ............................ 9.40% 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 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period December 1, 2003 (effective date) to July 31, 2004.
42 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2006 2005 2004 g 2004 2003 2002
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69 $ 11.16
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.24 0.15 0.08 0.12 0.11 0.19
Net realized and unrealized gains (losses) ........ 1.13 0.50 1.03 0.98 0.80 (1.31)
----------------------------------------------------------------------------
Total from investment operations ................... 1.37 0.65 1.11 1.10 0.91 (1.12)
----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.27) (0.21) (0.08) (0.11) (0.12) (0.21)
Net realized gains ................................ (0.23) -- -- -- -- (0.14)
----------------------------------------------------------------------------
Total distributions ................................ (0.50) (0.21) (0.08) (0.11) (0.12) (0.35)
----------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69
============================================================================
Total return d ..................................... 10.72% 5.25% 9.75% 10.39% 9.50% (10.31)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $134,465 $112,294 $105,966 $ 90,988 $ 56,341 $ 39,835
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.45% 1.48% 1.56% h 1.64% 1.73% 1.71%
Expenses net of waiver and payments by affiliates e 1.25% 1.43% 1.56% h 1.64% 1.73% 1.71%
Net investment income c ........................... 1.81% 1.19% 1.57% h 1.00% 1.14% 1.77%
Portfolio turnover rate ............................ 9.40% 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 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2006 2005 2004 g 2004 2003 2002 i
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82 $ 10.79
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.31 0.21 0.11 0.18 0.13 0.09
Net realized and unrealized gains (losses) ........ 1.15 0.51 1.04 0.98 0.85 (0.99)
----------------------------------------------------------------------------
Total from investment operations ................... 1.46 0.72 1.15 1.16 0.98 (0.90)
----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.34) (0.27) (0.11) (0.16) (0.18) (0.07)
Net realized gains ................................ (0.23) -- -- -- -- --
----------------------------------------------------------------------------
Total distributions ................................ (0.57) (0.27) (0.11) (0.16) (0.18) (0.07)
----------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82
============================================================================
Total return d ..................................... 11.27% 5.73% 9.92% 10.95% 10.10% (8.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 31,719 $ 30,403 $ 25,162 $ 17,161 $ 10,989 $ 94
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.95% 0.99% 1.06% h 1.14% 1.23% 1.21% h
Expenses net of waiver and payments byaffiliates e 0.75% 0.94% 1.06% h 1.14% 1.23% 1.21% h
Net investment income c ........................... 2.31% 1.68% 2.07% h 1.50% 1.64% 1.53% h
Portfolio turnover rate ............................ 9.40% 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 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period January 1, 2002 (effective date) to July 31, 2002.
44 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
-------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
ADVISOR CLASS 2006 2005 g
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.15 $ 13.23
-------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.40 0.08
Net realized and unrealized gains (losses) ........ 1.13 0.02
-------------------------------
Total from investment operations ................... 1.53 0.10
-------------------------------
Less distributions from:
Net investment income ............................. (0.42) (0.18)
Net realized gains ................................ (0.23) --
-------------------------------
Total distributions ................................ (0.65) (0.18)
-------------------------------
Redemption fees .................................... -- f --f
-------------------------------
Net asset value, end of year ....................... $ 14.03 $ 13.15
===============================
Total return d ..................................... 11.87% 0.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 7,071 $ 3,890
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.45% 0.49% h
Expenses net of waiver and payments by affiliates e 0.25% 0.44% h
Net investment income c ........................... 2.81% 2.18% h
Portfolio turnover rate ............................ 9.40% 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 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period December 1, 2005 (effective date) to December 31, 2005.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 90.5%
DOMESTIC EQUITY 38.8%
b Franklin Aggressive Growth Fund, Advisor Class ...................... 1,017,222 $ 18,401,552
Franklin Flex Cap Growth Fund, Advisor Class ........................ 1,438,997 61,373,222
Franklin Natural Resources Fund, Advisor Class ...................... 443,155 15,466,098
Franklin Real Estate Securities Fund, Advisor Class ................. 630,362 16,736,105
b Franklin Small Cap Growth Fund II, Advisor Class .................... 5,199,671 64,943,894
Mutual Shares Fund, Class Z ......................................... 1,947,168 50,801,624
-------------
227,722,495
-------------
DOMESTIC FIXED INCOME 23.4%
Franklin Strategic Mortgage Portfolio ............................... 4,071,631 39,087,653
Franklin Total Return Fund, Advisor Class ........................... 4,354,819 43,286,896
Franklin U.S. Government Securities Fund, Advisor Class ............. 8,442,357 54,453,201
-------------
136,827,750
-------------
FOREIGN EQUITY 17.2%
Franklin Gold and Precious Metals Fund, Advisor Class ............... 478,023 15,717,415
Mutual European Fund, Class Z ....................................... 2,068,989 50,876,442
Templeton China World Fund, Advisor Class ........................... 458,105 14,696,023
Templeton Foreign Fund, Advisor Class ............................... 1,455,131 19,775,228
-------------
101,065,108
-------------
FOREIGN FIXED INCOME 11.1%
Templeton Global Bond Fund, Advisor Class ........................... 5,905,099 65,074,189
-------------
TOTAL LONG TERM INVESTMENTS (COST $448,116,616) ..................... 530,689,542
-------------
SHORT TERM INVESTMENT (COST $56,635,105) 9.7%
MONEY MARKET FUND 9.7%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 56,635,105 56,635,105
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $504,751,721) 100.2% .... 587,324,647
OTHER ASSETS, LESS LIABILITIES (0.2)% ............................... (1,144,798)
-------------
NET ASSETS 100.0% ................................................... $ 586,179,849
=============
46 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS A 2006 2005 2004 g 2004 2003 2002
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47 $ 11.64
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.24 0.14 0.09 0.11 0.08 0.13
Net realized and unrealized gains (losses) ........ 1.73 0.96 1.33 1.36 1.01 (2.01)
---------------------------------------------------------------------------
Total from investment operations ................... 1.97 1.10 1.42 1.47 1.09 (1.88)
---------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.32) (0.17) (0.08) (0.10) (0.10) (0.13)
Net realized gains ................................ (0.12) -- -- -- -- (0.16)
---------------------------------------------------------------------------
Total distributions ................................ (0.44) (0.17) (0.08) (0.10) (0.10) (0.29)
---------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
---------------------------------------------------------------------------
Net asset value, end of year ....................... $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47
===========================================================================
Total return d ..................................... 13.90% 8.47% 12.04% 14.04% 11.64% (16.44)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $319,521 $230,686 $202,560 $165,500 $ 99,432 $ 69,663
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.75% 0.79% 0.85% h 0.83% 0.92% 0.93%
Expenses net of waiver and payments by affiliates e 0.50% 0.72% 0.85% h 0.83% 0.92% 0.93%
Net investment income c ........................... 1.59% 1.07% 1.72% h 0.91% 0.84% 1.20%
Portfolio turnover rate ............................ 9.31% 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 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 year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
---------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2006 2005 2004 g 2004 i
---------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $13.97 $13.09 $11.75 $11.80
---------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ....................... 0.12 0.04 0.06 (0.02)
Net realized and unrealized gains (losses) ............. 1.72 0.96 1.32 0.09
---------------------------------------------
Total from investment operations ........................ 1.84 1.00 1.38 0.07
---------------------------------------------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ...................................... (0.24) (0.12) (0.04) (0.12)
Net realized gains ..................................... (0.12) -- -- --
---------------------------------------------
Total distributions ..................................... (0.36) (0.12) (0.04) (0.12)
---------------------------------------------
Redemption fees ......................................... -- f -- f -- f -- f
---------------------------------------------
Net asset value, end of year ............................ $15.45 $13.97 $13.09 $11.75
=============================================
Total return d .......................................... 13.06% 7.63% 11.76% 0.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $8,195 $6,468 $5,343 $3,178
Ratios to average net assets:
Expenses before waiver and payments by affiliates e .... 1.50% 1.54% 1.60% h 1.58% h
Expenses net of waiver and payments by affiliates e .... 1.25% 1.47% 1.60% h 1.58% h
Net investment income c ................................ 0.84% 0.32% 0.97% h 0.16% h
Portfolio turnover rate ................................. 9.31% 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 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. cRecognition 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 year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period December 1, 2003 (effective date) to July 31, 2004.
48 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS C 2006 2005 2004G 2004 2003 2002
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40 $ 11.58
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.13 0.04 0.05 0.02 0.01 0.05
Net realized and unrealized gains (losses) ........ 1.70 0.96 1.32 1.35 1.00 (1.99)
----------------------------------------------------------------------------
Total from investment operations ................... 1.83 1.00 1.37 1.37 1.01 (1.94)
----------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.24) (0.12) -- (0.03) (0.03) (0.08)
Net realized gains ................................ (0.12) -- -- -- -- (0.16)
----------------------------------------------------------------------------
Total distributions ................................ (0.36) (0.12) -- (0.03) (0.03) (0.24)
----------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40
============================================================================
Total return d ..................................... 13.08% 7.63% 11.69% 13.18% 10.74% (17.00)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $122,156 $ 88,986 $ 73,816 $ 61,179 $ 40,829 $ 31,255
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.50% 1.54% 1.60% h 1.58% 1.67% 1.68%
Expenses net of waiver and payments by affiliates e 1.25% 1.47% 1.60% h 1.58% 1.67% 1.68%
Net investment income c ........................... 0.84% 0.32% 0.97% h 0.16% 0.09% 0.50%
Portfolio turnover rate ............................ 9.31% 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 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 year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
CLASS R 2006 2005 2004 g 2004 2003 2002 i
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 14.02 $ 13.11 $ 11.76 $ 10.40 $ 9.46 $ 10.95
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.20 0.11 0.08 0.08 0.05 0.01
Net realized and unrealized gains (losses) ........ 1.71 0.95 1.33 1.36 1.00 (1.50)
----------------------------------------------------------------------------
Total from investment operations ................... 1.91 1.06 1.41 1.44 1.05 (1.49)
----------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.29) (0.15) (0.06) (0.08) (0.11) --
Net realized gains ................................ (0.12) -- -- -- -- --
----------------------------------------------------------------------------
Total distributions ................................ (0.41) (0.15) (0.06) (0.08) (0.11) --
----------------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f -- --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40 $ 9.46
============================================================================
Total return d ..................................... 13.65% 8.10% 12.00% 13.89% 11.11% (13.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 26,215 $ 19,461 $ 15,206 $ 11,714 $ 5,567 $ 141
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.00% 1.04% 1.10% h 1.08% 1.17% 1.18% h
Expenses net of waiver and payments by affiliates e 0.75% 0.97% 1.10% h 1.08% 1.17% 1.18% h
Net investment income c ........................... 1.34% 0.82% 1.47% h 0.66% 0.59% 0.18% h
Portfolio turnover rate ............................ 9.31% 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 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 year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period January 1, 2002 (effective date) to July 31, 2002.
50 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
ADVISOR CLASS 2006 2005 g
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................................... $ 14.10 $ 14.18
------------------------------------
Income from investment operations a:
Net investment income b,c ............................................... 0.29 0.11
Net realized and unrealized gains (losses) .............................. 1.72 (0.03)
------------------------------------
Total from investment operations ......................................... 2.01 0.08
------------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.35) (0.16)
Net realized gains ...................................................... (0.12) --
------------------------------------
Total distributions ...................................................... (0.47) (0.16)
------------------------------------
Redemption fees .......................................................... -- f -- f
------------------------------------
Net asset value, end of year ............................................. $ 15.64 $ 14.10
====================================
Total return d ........................................................... 14.26% 0.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................................... $ 5,593 $ 3,320
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 0.50% 0.54% h
Expenses net of waiver and payments by affiliates e ..................... 0.25% 0.47% h
Net investment income c ................................................. 1.84% 1.32% h
Portfolio turnover rate .................................................. 9.31% 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 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 year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period December 1, 2005 (effective date) to December 31, 2005.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 94.7%
DOMESTIC EQUITY 55.0%
b Franklin Aggressive Growth Fund, Advisor Class ...................... 1,156,971 $ 20,929,599
Franklin Flex Cap Growth Fund, Advisor Class ........................ 1,679,236 71,619,395
Franklin Natural Resources Fund, Advisor Class ...................... 464,955 16,226,917
Franklin Real Estate Securities Fund, Advisor Class ................. 700,870 18,608,100
b Franklin Small Cap Growth Fund II, Advisor Class .................... 6,090,045 76,064,662
Mutual Shares Fund, Class Z ......................................... 2,350,164 61,315,789
--------------
264,764,462
--------------
DOMESTIC FIXED INCOME 10.1%
Franklin Strategic Mortgage Portfolio ............................... 1,392,107 13,364,227
Franklin Total Return Fund, Advisor Class ........................... 1,600,208 15,906,069
Franklin U.S. Government Securities Fund, Advisor Class ............. 2,983,571 19,244,036
--------------
48,514,332
--------------
FOREIGN EQUITY 25.0%
Franklin Gold and Precious Metals Fund, Advisor Class ............... 603,366 19,838,673
Mutual European Fund, Class Z ....................................... 2,435,572 59,890,725
Templeton China World Fund, Advisor Class ........................... 541,310 17,365,213
Templeton Foreign Fund, Advisor Class ............................... 1,723,886 23,427,615
--------------
120,522,226
--------------
FOREIGN FIXED INCOME 4.6%
Templeton Global Bond Fund, Advisor Class ........................... 2,028,361 22,352,536
--------------
TOTAL LONG TERM INVESTMENTS (COST $371,894,910) ..................... 456,153,556
--------------
SHORT TERM INVESTMENT (COST $26,679,076) 5.5%
MONEY MARKET FUND 5.5%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 26,679,076 26,679,076
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $398,573,986) 100.2% .... 482,832,632
OTHER ASSETS, LESS LIABILITIES (0.2)% ............................... (1,152,350)
--------------
NET ASSETS 100.0% ................................................... $ 481,680,282
==============
52 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2006
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost .................................... $ 260,442,144 $ 504,751,721 $ 398,573,986
=============================================
Value ................................... $ 293,808,683 $ 587,324,647 $ 482,832,632
Receivables on capital shares sold ....... 740,409 1,394,556 1,097,515
---------------------------------------------
Total assets ...................... 294,549,092 588,719,203 483,930,147
---------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ................. 1,088,080 1,930,574 1,785,649
Affiliates .............................. 252,466 476,947 407,849
Accrued expenses and other liabilities ... 75,215 131,833 56,367
---------------------------------------------
Total liabilities ................. 1,415,761 2,539,354 2,249,865
---------------------------------------------
Net assets, at value ............ $ 293,133,331 $ 586,179,849 $ 481,680,282
=============================================
Net assets consist of:
Paid-in capital .......................... $ 254,415,375 $ 489,134,464 $ 380,640,787
Undistributed net investment income ...... 116,913 247,487 124,616
Net unrealized appreciation (depreciation) 33,366,539 82,572,926 84,258,646
Accumulated net realized gain (loss) ..... 5,234,504 14,224,972 16,656,233
---------------------------------------------
Net assets, at value ............ $ 293,133,331 $ 586,179,849 $ 481,680,282
=============================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2006
----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------
CLASS A:
Net assets, at value ................................................ $ 194,477,036 $ 401,391,577 $ 319,520,574
==============================================
Shares outstanding .................................................. 14,594,645 28,605,523 20,436,276
==============================================
Net asset value per share a ......................................... $ 13.33 $ 14.03 $ 15.63
==============================================
Maximum offering price per share (net asset value per share / 94.25%) $ 14.14 $ 14.89 $ 16.58
CLASS B:
Net assets, at value ................................................ $ 6,421,942 $ 11,533,255 $ 8,195,098
==============================================
Shares outstanding .................................................. 483,355 824,266 530,539
==============================================
Net asset value and maximum offering price per share a .............. $ 13.29 $ 13.99 $ 15.45
CLASS C:
Net assets, at value ................................................ $ 76,018,339 $ 134,465,223 $ 122,156,148
==============================================
Shares outstanding .................................................. 5,769,688 9,737,375 7,910,013
==============================================
Net asset value and maximum offering price per share a .............. $ 13.18 $ 13.81 $ 15.44
CLASS R:
Net assets, at value ................................................ $ 14,489,694 $ 31,719,156 $ 26,215,162
==============================================
Shares outstanding .................................................. 1,089,512 2,264,928 1,688,613
==============================================
Net asset value and maximum offering price per share a .............. $ 13.30 $ 14.00 $ 15.52
ADVISOR CLASS:
Net assets, at value ................................................ $ 1,726,320 $ 7,070,638 $ 5,593,300
==============================================
Shares outstanding .................................................. 129,696 503,906 357,672
==============================================
Net asset value and maximum offering price per share ................ $ 13.31 $ 14.03 $ 15.64
==============================================
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
54 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2006
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ............................. $ 9,633,559 $ 16,185,991 $ 8,771,785
------------------------------------------------
Expenses:
Asset allocation fees (Note 3a) ...................................... 539,702 1,193,554 995,273
Distribution fees: (Note 3c)
Class A ............................................................. 444,639 898,556 701,824
Class B ............................................................. 64,085 108,699 75,651
Class C ............................................................. 689,374 1,246,414 1,046,997
Class R ............................................................. 66,723 145,474 114,099
Transfer agent fees (Note 3e) ........................................ 497,137 965,162 920,735
Custodian fees ....................................................... 20 37 24
Reports to shareholders .............................................. 21,518 55,404 48,255
Registration and filing fees ......................................... 92,625 131,877 101,223
Professional fees .................................................... 22,456 23,443 24,019
Trustees' fees and expenses .......................................... 627 1,192 918
Other ................................................................ 7,758 15,072 11,383
------------------------------------------------
Total expenses ................................................ 2,446,664 4,784,884 4,040,401
Expenses waived/paid by affiliates (Note 3f) .................. (500,099) (1,062,112) (1,052,826)
------------------------------------------------
Net expenses ................................................ 1,946,565 3,722,772 2,987,575
------------------------------------------------
Net investment income ...................................... 7,686,994 12,463,219 5,784,210
------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ............................. 2,432,230 5,108,731 5,596,925
Realized gain distributions by Underlying Funds ..................... 6,690,420 17,983,663 20,804,259
------------------------------------------------
Net realized gain (loss) from Underlying Funds ............ 9,122,650 23,092,394 26,401,184
------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds .................................................... 8,514,289 21,975,614 21,414,539
------------------------------------------------
Net realized and unrealized gain (loss) ............................... 17,636,939 45,068,008 47,815,723
------------------------------------------------
Net increase (decrease) in net assets resulting from operations ....... $ 25,323,933 $ 57,531,227 $ 53,599,933
================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 55
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2006 2005 2006 2005
------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 7,686,994 $ 4,807,782 $ 12,463,219 $ 7,576,652
Net realized gain (loss) from Underlying Funds ..... 9,122,650 3,823,027 23,092,394 8,836,460
Net change in unrealized appreciation (depreciation)
on investments in Underlying Funds ............... 8,514,289 1,901,662 21,975,614 9,191,060
------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .............................. 25,323,933 10,532,471 57,531,227 25,604,172
------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................ (5,841,842) (4,035,513) (10,307,386) (7,181,993)
Class B ............................................ (157,308) (111,536) (214,821) (162,211)
Class C ............................................ (1,799,408) (1,140,064) (2,582,448) (1,825,865)
Class R ............................................ (392,941) (331,572) (728,940) (630,744)
Advisor Class ...................................... (50,554) (10,329) (186,986) (52,636)
Net realized gains:
Class A ............................................ (3,318,674) -- (6,318,031) --
Class B ............................................ (117,917) -- (183,094) --
Class C ............................................ (1,314,610) -- (2,177,152) --
Class R ............................................ (239,128) -- (494,272) --
Advisor Class ...................................... (27,311) -- (106,561) --
------------------------------------------------------------------
Total distributions to shareholders .................... (13,259,693) (5,629,014) (23,299,691) (9,853,449)
------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ............................................ 24,368,768 19,673,591 61,461,304 25,091,859
Class B ............................................ (57,283) 850,070 655,366 1,129,090
Class C ............................................ 9,679,370 2,290,697 14,184,310 2,608,138
Class R ............................................ (299,909) 1,584,439 (742,059) 4,134,667
Advisor Class ...................................... 932,606 760,697 2,870,008 3,930,604
------------------------------------------------------------------
Total capital share transactions ....................... 34,623,552 25,159,494 78,428,929 36,894,358
------------------------------------------------------------------
Redemption fees ........................................ 1,280 2,446 9,418 2,839
------------------------------------------------------------------
Net increase (decrease) in net assets .......... 46,689,072 30,065,397 112,669,883 52,647,920
Net assets:
Beginning of year .................................... 246,444,259 216,378,862 473,509,966 420,862,046
------------------------------------------------------------------
End of year .......................................... $ 293,133,331 $ 246,444,259 $ 586,179,849 $ 473,509,966
==================================================================
Undistributed net investment income included in
net assets:
End of year ........................................ $ 116,913 $ 17,582 $ 247,487 $ 23,790
==================================================================
56 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
-------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................. $ 5,784,210 $ 2,783,708
Net realized gain (loss) from Underlying Funds ........................................ 26,401,184 8,045,166
Net change in unrealized appreciation (depreciation) on investments in Underlying Funds 21,414,539 15,755,314
-------------------------------
Net increase (decrease) in net assets resulting from operations ................... 53,599,933 26,584,188
-------------------------------
Distributions to shareholders from:
Net investment income and short term gains received from Underlying Funds:
Class A ............................................................................... (6,239,874) (2,957,561)
Class B ............................................................................... (121,718) (54,650)
Class C ............................................................................... (1,804,826) (744,924)
Class R ............................................................................... (471,530) (213,905)
Advisor Class ......................................................................... (111,697) (36,584)
Net realized gains:
Class A ............................................................................... (2,313,310) --
Class B ............................................................................... (59,985) --
Class C ............................................................................... (893,913) --
Class R ............................................................................... (190,290) --
Advisor Class ......................................................................... (40,304) --
-------------------------------
Total distributions to shareholders ....................................................... (12,247,447) (4,007,624)
-------------------------------
Capital share transactions: (Note 2)
Class A ............................................................................... 61,095,501 12,665,336
Class B ............................................................................... 1,006,265 739,433
Class C ............................................................................... 22,990,099 9,702,929
Class R ............................................................................... 4,438,592 2,953,654
Advisor Class ......................................................................... 1,874,057 3,350,378
-------------------------------
Total capital share transactions .......................................................... 91,404,514 29,411,730
-------------------------------
Redemption fees ........................................................................... 2,778 6,807
-------------------------------
Net increase (decrease) in net assets ............................................. 132,759,778 51,995,101
Net assets:
Beginning of year ....................................................................... 348,920,504 296,925,403
-------------------------------
End of year ............................................................................. $ 481,680,282 $ 348,920,504
===============================
Undistributed net investment income included in net assets:
End of year ............................................................................. $ 124,616 $ 1,027,161
===============================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940, as amended (the 1940 Act) as an open-end
investment company, consisting of ten separate funds. All funds included in this
report (the Funds) are non-diversified. The financial statements of the
remaining funds in the Trust 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.
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.
Estimated expenses are accrued daily. Dividend income and realized gain
distributions by Underlying Funds are 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.
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. 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. Currently, the Trust expects the
risk of loss to be remote.
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 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:
Year ended December 31, 2006
Shares sold ................. 5,267,663 $ 69,031,910 10,849,703 $ 148,283,203
Shares issued in reinvestment
of distributions ........... 640,735 8,396,683 1,172,063 16,165,554
Shares redeemed ............. (4,038,464) (53,059,825) (7,517,285) (102,987,453)
------------------------------------------------------------
Net increase (decrease) ..... 1,869,934 $ 24,368,768 4,504,481 $ 61,461,304
============================================================
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:
Year ended December 31, 2006
Shares sold ................. 110,692 $ 1,452,387 142,818 $ 1,944,744
Shares issued in reinvestment
of distributions ........... 16,886 220,406 26,264 361,939
Shares redeemed ............. (132,378) (1,730,076) (121,066) (1,651,317)
------------------------------------------------------------
Net increase (decrease) ..... (4,800) $ (57,283) 48,016 $ 655,366
============================================================
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:
Year ended December 31, 2006
Shares sold ................. 1,635,650 $ 21,224,273 2,668,477 $ 35,908,726
Shares issued in reinvestment
of distributions ........... 211,590 2,743,017 316,236 4,298,696
Shares redeemed ............. (1,099,416) (14,287,920) (1,926,312) (26,023,112)
------------------------------------------------------------
Net increase (decrease) ..... 747,824 $ 9,679,370 1,058,401 $ 14,184,310
============================================================
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
============================================================
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
CLASS R SHARES:
Year ended December 31, 2006
Shares sold .................................. 498,965 $ 6,521,243 822,740 $ 11,190,373
Shares issued in reinvestment
of distributions ............................ 45,028 589,121 88,241 1,215,875
Shares redeemed .............................. (564,684) (7,410,273) (964,370) (13,148,307)
----------------------------------------------------------
Net increase (decrease) ...................... (20,691) $ (299,909) (53,389) $ (742,059)
==========================================================
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:
Year ended December 31, 2006
Shares sold .................................. 78,009 $ 1,031,418 223,105 $ 3,073,509
Shares issued in reinvestment
of distributions ............................ 5,913 77,539 21,252 293,287
Shares redeemed .............................. (13,415) (176,351) (36,372) (496,788)
----------------------------------------------------------
Net increase (decrease) ...................... 70,507 $ 932,606 207,985 $ 2,870,008
==========================================================
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:
Year ended December 31, 2006
Shares sold ............................................................... 7,423,548 $ 111,016,449
Shares issued in reinvestment of distributions ............................ 531,377 8,217,362
Shares redeemed ........................................................... (3,875,660) (58,138,310)
-----------------------------
Net increase (decrease) ................................................... 4,079,265 $ 61,095,501
=============================
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
=============================
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
---------------------------
SHARES AMOUNT
---------------------------
CLASS B SHARES:
Year ended December 31, 2006
Shares sold .................................. 128,664 $ 1,912,637
Shares issued in reinvestment of distributions 11,481 176,117
Shares redeemed .............................. (72,608) (1,082,489)
---------------------------
Net increase (decrease) ...................... 67,537 $ 1,006,265
===========================
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:
Year ended December 31, 2006
Shares sold .................................. 2,499,951 $ 37,039,870
Shares issued in reinvestment of distributions 159,704 2,451,217
Shares redeemed .............................. (1,121,259) (16,500,988)
---------------------------
Net increase (decrease) ...................... 1,538,396 $ 22,990,099
===========================
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:
Year ended December 31, 2006
Shares sold .................................. 688,762 $ 10,208,521
Shares issued in reinvestment of distributions 42,611 655,061
Shares redeemed .............................. (431,068) (6,424,990)
---------------------------
Net increase (decrease) ...................... 300,305 $ 4,438,592
===========================
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:
Year ended December 31, 2006
Shares sold .................................. 142,844 $ 2,178,781
Shares issued in reinvestment of distributions 9,811 151,859
Shares redeemed .............................. (30,528) (456,583)
---------------------------
Net increase (decrease) ...................... 122,127 $ 1,874,057
===========================
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.
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of some of the
Underlying Funds and 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 plans, the
Funds reimburse Distributors for costs incurred in connection with the
servicing, sale and distribution of each fund's shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
In addition, under the Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ........................... 0.25%
Class B ........................... 1.00%
Class C ........................... 1.00%
Class R ........................... 0.50%
Annual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (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 year:
----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers .............................................. $ 136,928 $ 361,618 $ 253,683
Contingent deferred sales charges retained ................... $ 34,535 $ 47,257 $ 25,386
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 ......................... $ 227,042 $ 542,155 $ 565,267
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. Total expenses waived/paid
by Advisers are not subject to reimbursement by the Funds subsequent to the
Funds' fiscal year end. Advisers may discontinue this waiver at any time.
4. INCOME TAXES
During the year ended December 31, 2006, the Franklin Templeton Growth Target
Fund utilized $2,591,751 of capital loss carryforwards.
The tax character of distributions paid during the years ended December 31, 2006
and 2005, was as follows:
-------------------------
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
-------------------------
2006 2005
-------------------------
Distributions paid from:
Ordinary income ................ $ 8,475,271 $ 5,629,014
Long-term capital gain ......... 4,784,422 --
-------------------------
$13,259,693 $ 5,629,014
=========================
64 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
-------------------------
FRANKLIN TEMPLETON
MODERATE TARGET FUND
-------------------------
2006 2005
-------------------------
Distributions paid from:
Ordinary income ................ $14,143,400 $9,853,449
Long-term capital gain ......... 9,156,291 --
-------------------------
$23,299,691 $9,853,449
=========================
-------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------
2006 2005
-------------------------
Distributions paid from:
Ordinary income ................ $ 8,749,645 $4,007,624
Long-term capital gain ......... 3,497,802 --
-------------------------
$12,247,447 $4,007,624
=========================
At December 31, 2006, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------
Cost of investments ...................... $ 260,652,931 $ 505,076,773 $ 398,838,308
================================================
Unrealized appreciation .................. $ 34,788,304 $ 84,954,549 $ 84,851,317
Unrealized depreciation .................. (1,632,552) (2,706,675) (856,993)
------------------------------------------------
Net unrealized appreciation (depreciation) $ 33,155,752 $ 82,247,874 $ 83,994,324
================================================
Undistributed ordinary income ............ $ 116,913 $ 247,487 $ 124,617
Undistributed long term capital gains .... 5,445,291 14,550,022 16,920,555
------------------------------------------------
Distributable earnings ................... $ 5,562,204 $ 14,797,509 $ 17,045,172
================================================
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.
Annual Report | 65
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2006, were as follows:
-----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------------
Purchases ................... $ 46,649,320 $ 112,274,173 $ 121,904,779
Sales ....................... $ 23,997,768 $ 45,095,941 $ 37,322,994
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At December 31, 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 ..................... 7.78%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Strategic Mortgage Portfolio ..................... 13.75%
Franklin Aggressive Growth Fund ........................... 7.56%
Franklin Small Cap Growth Fund II ......................... 5.82%
Franklin Total Return Fund ................................ 5.74%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Aggressive Growth Fund ........................... 8.60%
Franklin Small Cap Growth Fund II ......................... 6.82%
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, including the Securities and Exchange
Commission ("SEC"), 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 ("marketing support"), 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 SEC, among others, concerning market
timing and marketing support.
66 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006. The Trust did not participate in that
Settlement.
The plan of distribution for the market timing settlement is currently under
review by the SEC staff. After publication of notice of the plan and a 30-day
comment period, the proposed plan of distribution will be submitted to the SEC
for approval. Following the SEC's approval of the plan of distribution, with
modifications as appropriate, distribution of the settlement monies will begin
in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and 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.). The lawsuits relate to the industry
practices referenced above, as well as to allegedly excessive commissions and
advisory and distribution fees.
The Company and fund management 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. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (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. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period in 2007. The Fund is
currently evaluating the impact, if any, of applying the various provisions of
FIN 48.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Trust believes the adoption of SFAS 157
will have no material impact on its financial statements.
Annual Report | 67
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton Conservative
Target Fund, Franklin Templeton Moderate Target Fund and Franklin Templeton
Growth Target Fund (separate portfolios of Franklin Templeton Fund Allocator
Series, hereafter referred to as the "Funds") at December 31, 2006, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments in the Underlying Funds at
December 31, 2006 by correspondence with the transfer agent of the Underlying
Funds, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 22, 2007
68 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2006:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
$ 8,235,913 $ 21,143,640 $ 20,418,357
Under Section 871(k)(2)(C) of the Code, the funds designate the maximum amount
allowable but no less than the following amounts as a short term capital gain
dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended December 31, 2006:
-----------------------------
FRANKLIN FRANKLIN
TEMPLETON TEMPLETON
CONSERVATIVE MODERATE
TARGET FUND TARGET FUND
-----------------------------
$ 231,553 $ 122,317
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2006:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
3.82% 6.02% 11.61%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2006:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
$ 1,190,614 $ 3,238,046 $ 3,768,598
In January 2007, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2006.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Annual Report | 69
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED) (CONTINUED)
Under Section 871(k)(1)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as interest related dividends
for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2006:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
$ 1,660,198 $ 2,112,532 $ 180,251
70 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
will serve until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- --------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 142 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- --------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2005 57 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems
(CALPERS); and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
- --------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 143 Director, Hess Corporation (formerly
One Franklin Parkway Amerada Hess Corporation)
San Mateo, CA 94403-1906 (exploration and refining of oil and
gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National Railway
(railroad) and White Mountains Insurance
Group, Ltd. (holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary
of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary
and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- --------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 116 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).
- --------------------------------------------------------------------------------------------------------------------------------
Annual Report | 71
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Trustee Since February 46 None
One Franklin Parkway 2006
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial
Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Executive Vice
President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company
(1986-1990).
- ----------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 142 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 41 of the investment companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 126 None
One Franklin Parkway President and 1995 and
San Mateo, CA 94403-1906 Chief President and
Executive Chief Executive
Officer - Officer -
Investment Investment
Management Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources,
Inc. (1994-2001).
- ----------------------------------------------------------------------------------------------------------------------------------
72 | Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 30 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most
of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ----------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC, Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; Vice President, Templeton Global Advisors Limited; and officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director,
Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- ----------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Vice President Not Applicable Not Applicable
One Franklin Parkway and Secretary since February
San Mateo, CA 94403-1906 2006 and
Secretary since
April 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President and Secretary, Templeton Funds Annuity Company;
and officer of 30 of the investment companies in Franklin Templeton Investments.
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Report | 73
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ----------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987
and 1991-2004).
- ----------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust and under the federal securities laws due
to their positions as officers and directors and major shareholders of
Franklin Resources, Inc., which is the parent company of the Fund's
manager and distributor.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
Note 2: Prior to December 31, 2006, S. Joseph Fortunato and Gordon S. Macklin
ceased to be a trustee of the Trust.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
74 | Annual Report
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The 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.
Annual Report | 75
This page intentionally left blank.
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund 1
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 1
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 Floating Rate Daily Access Fund
Franklin High Income Fund 5
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 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
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 Michigan 7
Arizona Minnesota 7
California 8 Missouri
Colorado New Jersey
Connecticut New York 8
Florida 8 North Carolina
Georgia Ohio 7
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 7 Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust 9
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. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy
remained the same.
6. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
7. Portfolio of insured municipal securities.
8. 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).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS A2006 02/07
[GRAPHIC OMITTED]
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DECEMBER 31, 2006
- --------------------------------------------------------------------------------
Franklin Templeton
Corefolio Allocation Fund
Franklin Templeton
Founding Funds Allocation Fund
Franklin Templeton
Perspectives Allocation Fund
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Annual Report
Economic and Market Overview
During the 12 months ended December 31, 2006, the U.S. economy advanced at a
moderate but slowing pace. Although first quarter 2006 gross domestic product
(GDP) grew an annualized 5.6%, fourth quarter GDP growth was an estimated
annualized 3.5%. The housing market weakened during the year, while corporate
profits and consumer and government spending generally remained robust. Exports
picked up some momentum, but the trade deficit stayed in record territory. Labor
costs rose and hiring generally increased as the unemployment rate fell from
4.9% to 4.5%. 1
Although energy and other commodity prices fell in the second half of the year,
they remained historically high and were a primary economic concern for much of
the period. Oil prices reached a record high of $77 per barrel in July before
declining to $61 at year-end. Oil price volatility appeared to raise the anxiety
level among consumers and businesses alike. Consumers curbed spending on large
purchases, such as homes and cars. Home prices fell in many parts of the
country, mortgage rates crept up, and borrowing against home equity flattened.
Overall, the core Consumer Price Index (CPI) rose 2.6% for the 12 months ended
December 31, 2006, which was higher than the 2.2% 10-year average. 2
The Federal Reserve Board (Fed) raised the federal funds target rate
incrementally from 4.25% at the beginning of the year to 5.25% on June 30. Since
June, however, the Fed left the rate unchanged, citing a slowing economy,
widespread cooling in the housing market and the lagging effect of prior
tightening. The Fed stated that even with lower oil prices toward period-end,
inflation risks remained.
Outside the U.S., the economy continued to grow. The economic drivers remained
consistent over the past four years: strong corporate and consumer demand,
reasonably low inflation, a tight or improving labor market, and a relatively
moderate interest rate environment, despite recent interest rate hikes by many
of the world's central banks. However, the global economy also faced headwinds
from elevated energy prices, higher global interest rates and a weaker U.S.
housing market. These factors dampened investor confidence mid-year, when many
equity markets declined before rebounding later in the year.
1. Source: Bureau of Labor Statistics.
2. Source: Bureau of Labor Statistics. Core CPI excludes food and energy
costs.
Annual Report | 3
Despite such challenges, global economic activity was healthy. Strong global
liquidity -- whether petrodollars, corporate cash, private equity, household
savings or central banks' reserves -- continued to search for a home. Record
global merger and acquisition activity in 2006 also reflected the abundance of
cash in the capital markets. Bond yield spreads over U.S. Treasuries narrowed,
and global equity and commodity markets rose in the latter part of the year.
U.S. equity markets performed well for the year in this environment. The blue
chip stocks of the Dow Jones Industrial Average posted a 12-month total return
of +19.05%, and the broader Standard & Poor's 500 Index (S&P 500) returned
+15.78%, while the technology-heavy NASDAQ Composite Index had a total return of
+11.27%. 3 Non-U.S. equity markets ended 2006 on a stronger note, and all major
non-U.S. regions delivered double-digit total returns for the year. Stock market
indexes in the U.S. and most European countries reached six-year highs in the
fourth quarter, and many emerging market indexes in Asia, Europe and Latin
America neared or reached all-time highs. Fixed income markets, on the other
hand, were somewhat constrained by higher interest rates and robust equity
markets.
3. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. The S&P 500 consists of 500
stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its
market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The NASDAQ Composite Index measures all 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.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Annual 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.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Corefolio Allocation Fund covers the
fiscal year ended December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A posted a +15.25%
cumulative total return for the year under review. The Fund underperformed its
hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark returned +16.99%. 1
You can find other performance data in the Performance Summary beginning on
page 7.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin
Capital Growth Fund, Franklin Growth Fund, Mutual Shares Fund and Templeton
Growth Fund. These underlying funds, in turn, invest primarily in U.S. and
foreign equity securities and, to a lesser extent, fixed income and money market
securities. As market conditions affect the underlying funds, we rebalance the
Fund's allocations to maintain the predetermined equal weightings of
approximately 25% of total net assets in each underlying fund whenever the
actual allocations exceed plus or minus 3% of the fixed allocation percentages.
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks
chosen for market size, liquidity and industry group representation. Each
stock's weight in the index is proportionate to its market value. The S&P
500 is one of the most widely used benchmarks of U.S. equity performance.
The MSCI World Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed markets. The benchmark index's weightings
are as follows: S&P 500 75% and MSCI World Index 25%. The indexes are
unmanaged and include reinvested distributions. One cannot invest directly
in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 37.
Annual Report | 5
ASSET ALLOCATION*
Franklin Templeton Corefolio Allocation Fund Based on Total Net Assets as of
12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
Domestic Equity 74.7%
Foreign Equity 25.2%
Short-Term Investments & Other Net Assets 0.1%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the year under review, the Fund's performance benefited most from Mutual
Shares Fund - Class Z. However, Franklin Capital Growth Fund - Advisor Class and
Franklin Growth Fund - Advisor Class hindered the Fund's overall return relative
to its hybrid benchmark.
Thank you for your continued participation in Franklin Templeton Corefolio
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Corefolio Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
6 | Annual Report
Performance Summary as of 12/31/06
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FTCOX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.38 $ 14.09 $ 12.71
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1642
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0011
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.3750
- --------------------------------------------------------------------------------
TOTAL $ 0.5403
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FBCOX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.37 $ 13.99 $ 12.62
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.0728
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0011
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.3750
- --------------------------------------------------------------------------------
TOTAL $ 0.4489
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTCLX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.35 $ 13.96 $ 12.61
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.0826
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0011
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.3750
- --------------------------------------------------------------------------------
TOTAL $ 0.4587
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.38 $ 14.07 $ 12.69
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1429
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0011
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.3750
- --------------------------------------------------------------------------------
TOTAL $ 0.5190
- --------------------------------------------------------------------------------
Annual Report | 7
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.39 $ 14.12 $ 12.73
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.2086
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0011
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.3750
- --------------------------------------------------------------------------------
TOTAL $ 0.5847
- --------------------------------------------------------------------------------
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 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +15.25% +37.23% +52.26%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +8.58% +8.96% +11.28%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 10,858 $ 12,937 $ 14,350
- --------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +14.55% +34.50% +48.79%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +10.55% +9.56% +11.81%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,055 $ 13,150 $ 14,579
- --------------------------------------------------------------------------------
CLASS C 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +14.48% +34.57% +48.75%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +13.48% +10.40% +12.47%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,348 $ 13,457 $ 14,875
- --------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +15.10% +36.49% +51.45%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +15.10% +10.93% +13.07%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,510 $ 13,649 $ 15,145
- --------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +15.65% +38.49% +53.76%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +15.65% +11.47% +13.58%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,565 $ 13,849 $ 15,376
- --------------------------------------------------------------------------------
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.
8 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT COREFOLIO
ALLOCATION FUND
DATE CLASS A S&P 500 5 MSCI WORLD INDEX 5
- ---------- --------------- --------- ------------------
8/15/2003 $9,425 $10,000 $10,000
8/31/2003 $9,491 $10,100 $10,113
9/30/2003 $9,369 $9,994 $10,177
10/31/2003 $9,783 $10,559 $10,783
11/30/2003 $9,962 $10,651 $10,950
12/31/2003 $10,457 $11,210 $11,639
1/31/2004 $10,600 $11,415 $11,829
2/29/2004 $10,770 $11,574 $12,031
3/31/2004 $10,637 $11,399 $11,956
4/30/2004 $10,533 $11,221 $11,718
5/31/2004 $10,618 $11,374 $11,832
6/30/2004 $10,884 $11,595 $12,080
7/31/2004 $10,448 $11,212 $11,689
8/31/2004 $10,429 $11,257 $11,745
9/30/2004 $10,600 $11,379 $11,971
10/31/2004 $10,770 $11,552 $12,267
11/30/2004 $11,292 $12,020 $12,917
12/31/2004 $11,677 $12,428 $13,414
1/31/2005 $11,333 $12,126 $13,114
2/28/2005 $11,591 $12,381 $13,536
3/31/2005 $11,439 $12,162 $13,280
4/30/2005 $11,237 $11,931 $12,999
5/31/2005 $11,526 $12,310 $13,239
6/30/2005 $11,546 $12,328 $13,360
7/31/2005 $11,951 $12,786 $13,830
8/31/2005 $11,951 $12,670 $13,940
9/30/2005 $12,067 $12,772 $14,306
10/31/2005 $11,845 $12,559 $13,962
11/30/2005 $12,260 $13,034 $14,435
12/31/2005 $12,452 $13,038 $14,758
1/31/2006 $12,756 $13,384 $15,420
2/28/2006 $12,824 $13,420 $15,404
3/31/2006 $13,089 $13,587 $15,749
4/30/2006 $13,268 $13,769 $16,236
5/31/2006 $12,920 $13,373 $15,696
6/30/2006 $12,901 $13,391 $15,698
7/31/2006 $12,851 $13,474 $15,799
8/31/2006 $13,169 $13,794 $16,217
9/30/2006 $13,427 $14,149 $16,415
10/31/2006 $13,875 $14,610 $17,021
11/30/2006 $14,183 $14,887 $17,447
12/31/2006 $14,350 $15,096 $17,806
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS A 12/31/06
- ------------------------------------------
1-Year +8.58%
- ------------------------------------------
3-Year +8.96%
- ------------------------------------------
Since Inception (8/15/03) +11.28%
- ------------------------------------------
CLASS B (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT COREFOLIO
ALLOCATION FUND -
DATE CLASS B S&P 500 5 MSCI WORLD INDEX 5
- ---------- ----------------- --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $9,930 $9,994 $10,177
10/31/2003 $10,360 $10,559 $10,783
11/30/2003 $10,550 $10,651 $10,950
12/31/2003 $11,062 $11,210 $11,639
1/31/2004 $11,203 $11,415 $11,829
2/29/2004 $11,374 $11,574 $12,031
3/31/2004 $11,223 $11,399 $11,956
4/30/2004 $11,113 $11,221 $11,718
5/31/2004 $11,193 $11,374 $11,832
6/30/2004 $11,474 $11,595 $12,080
7/31/2004 $11,002 $11,212 $11,689
8/31/2004 $10,982 $11,257 $11,745
9/30/2004 $11,143 $11,379 $11,971
10/31/2004 $11,324 $11,552 $12,267
11/30/2004 $11,866 $12,020 $12,917
12/31/2004 $12,268 $12,428 $13,414
1/31/2005 $11,893 $12,126 $13,114
2/28/2005 $12,156 $12,381 $13,536
3/31/2005 $11,996 $12,162 $13,280
4/30/2005 $11,781 $11,931 $12,999
5/31/2005 $12,077 $12,310 $13,239
6/30/2005 $12,087 $12,328 $13,360
7/31/2005 $12,506 $12,786 $13,830
8/31/2005 $12,496 $12,670 $13,940
9/30/2005 $12,608 $12,772 $14,306
10/31/2005 $12,373 $12,559 $13,962
11/30/2005 $12,802 $13,034 $14,435
12/31/2005 $12,990 $13,038 $14,758
1/31/2006 $13,309 $13,384 $15,420
2/28/2006 $13,360 $13,420 $15,404
3/31/2006 $13,639 $13,587 $15,749
4/30/2006 $13,817 $13,769 $16,236
5/31/2006 $13,441 $13,373 $15,696
6/30/2006 $13,420 $13,391 $15,698
7/31/2006 $13,357 $13,474 $15,799
8/31/2006 $13,681 $13,794 $16,217
9/30/2006 $13,942 $14,149 $16,415
10/31/2006 $14,401 $14,610 $17,021
11/30/2006 $14,715 $14,887 $17,447
12/31/2006 $14,579 $15,096 $17,806
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS B 12/31/06
- ------------------------------------------
1-Year +10.55%
- ------------------------------------------
3-Year +9.56%
- ------------------------------------------
Since Inception (8/15/03) +11.81%
- ------------------------------------------
Annual Report | 9
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS C 12/31/06
- ------------------------------------------
1-Year +13.48%
- ------------------------------------------
3-Year +10.40%
- ------------------------------------------
Since Inception (8/15/03) +12.47%
- ------------------------------------------
CLASS C (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT COREFOLIO
ALLOCATION FUND -
DATE CLASS C S&P 500 5 MSCI WORLD INDEX 5
- ---------- ----------------- --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $ 9,930 $ 9,994 $10,177
10/31/2003 $10,360 $10,559 $10,783
11/30/2003 $10,540 $10,651 $10,950
12/31/2003 $11,054 $11,210 $11,639
1/31/2004 $11,194 $11,415 $11,829
2/29/2004 $11,365 $11,574 $12,031
3/31/2004 $11,215 $11,399 $11,956
4/30/2004 $11,104 $11,221 $11,718
5/31/2004 $11,194 $11,374 $11,832
6/30/2004 $11,466 $11,595 $12,080
7/31/2004 $10,993 $11,212 $11,689
8/31/2004 $10,973 $11,257 $11,745
9/30/2004 $11,144 $11,379 $11,971
10/31/2004 $11,315 $11,552 $12,267
11/30/2004 $11,858 $12,020 $12,917
12/31/2004 $12,256 $12,428 $13,414
1/31/2005 $11,892 $12,126 $13,114
2/28/2005 $12,155 $12,381 $13,536
3/31/2005 $11,995 $12,162 $13,280
4/30/2005 $11,770 $11,931 $12,999
5/31/2005 $12,066 $12,310 $13,239
6/30/2005 $12,087 $12,328 $13,360
7/31/2005 $12,495 $12,786 $13,830
8/31/2005 $12,495 $12,670 $13,940
9/30/2005 $12,597 $12,772 $14,306
10/31/2005 $12,362 $12,559 $13,962
11/30/2005 $12,801 $13,034 $14,435
12/31/2005 $12,994 $13,038 $14,758
1/31/2006 $13,303 $13,384 $15,420
2/28/2006 $13,365 $13,420 $15,404
3/31/2006 $13,634 $13,587 $15,749
4/30/2006 $13,811 $13,769 $16,236
5/31/2006 $13,435 $13,373 $15,696
6/30/2006 $13,414 $13,391 $15,698
7/31/2006 $13,351 $13,474 $15,799
8/31/2006 $13,675 $13,794 $16,217
9/30/2006 $13,937 $14,149 $16,415
10/31/2006 $14,397 $14,610 $17,021
11/30/2006 $14,710 $14,887 $17,447
12/31/2006 $14,875 $15,096 $17,806
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS R 12/31/06
- ------------------------------------------
1-Year +15.10%
- ------------------------------------------
3-Year +10.93%
- ------------------------------------------
Since Inception (8/15/03) +13.07%
- ------------------------------------------
CLASS R (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT COREFOLIO
ALLOCATION FUND -
DATE CLASS R S&P 500 5 MSCI WORLD INDEX 5
- --------- ----------------- --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $ 9,940 $ 9,994 $10,177
10/31/2003 $10,380 $10,559 $10,783
11/30/2003 $10,570 $10,651 $10,950
12/31/2003 $11,096 $11,210 $11,639
1/31/2004 $11,236 $11,415 $11,829
2/29/2004 $11,417 $11,574 $12,031
3/31/2004 $11,267 $11,399 $11,956
4/30/2004 $11,156 $11,221 $11,718
5/31/2004 $11,246 $11,374 $11,832
6/30/2004 $11,528 $11,595 $12,080
7/31/2004 $11,065 $11,212 $11,689
8/31/2004 $11,045 $11,257 $11,745
9/30/2004 $11,216 $11,379 $11,971
10/31/2004 $11,397 $11,552 $12,267
11/30/2004 $11,951 $12,020 $12,917
12/31/2004 $12,363 $12,428 $13,414
1/31/2005 $11,998 $12,126 $13,114
2/28/2005 $12,262 $12,381 $13,536
3/31/2005 $12,111 $12,162 $13,280
4/30/2005 $11,886 $11,931 $12,999
5/31/2005 $12,193 $12,310 $13,239
6/30/2005 $12,213 $12,328 $13,360
7/31/2005 $12,633 $12,786 $13,830
8/31/2005 $12,633 $12,670 $13,940
9/30/2005 $12,756 $12,772 $14,306
10/31/2005 $12,520 $12,559 $13,962
11/30/2005 $12,971 $13,034 $14,435
12/31/2005 $13,158 $13,038 $14,758
1/31/2006 $13,479 $13,384 $15,420
2/28/2006 $13,552 $13,420 $15,404
3/31/2006 $13,832 $13,587 $15,749
4/30/2006 $14,022 $13,769 $16,236
5/31/2006 $13,643 $13,373 $15,696
6/30/2006 $13,622 $13,391 $15,698
7/31/2006 $13,569 $13,474 $15,799
8/31/2006 $13,906 $13,794 $16,217
9/30/2006 $14,169 $14,149 $16,415
10/31/2006 $14,642 $14,610 $17,021
11/30/2006 $14,969 $14,887 $17,447
12/31/2006 $15,145 $15,096 $17,806
10 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT COREFOLIO
ALLOCATION FUND -
DATE ADVISOR CLASS S&P 500 5 MSCI WORLD INDEX 5
- --------- ----------------- --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,100 $10,113
9/30/2003 $ 9,940 $ 9,994 $10,177
10/31/2003 $10,380 $10,559 $10,783
11/30/2003 $10,580 $10,651 $10,950
12/31/2003 $11,102 $11,210 $11,639
1/31/2004 $11,253 $11,415 $11,829
2/29/2004 $11,434 $11,574 $12,031
3/31/2004 $11,293 $11,399 $11,956
4/30/2004 $11,193 $11,221 $11,718
5/31/2004 $11,273 $11,374 $11,832
6/30/2004 $11,565 $11,595 $12,080
7/31/2004 $11,092 $11,212 $11,689
8/31/2004 $11,082 $11,257 $11,745
9/30/2004 $11,263 $11,379 $11,971
10/31/2004 $11,444 $11,552 $12,267
11/30/2004 $12,008 $12,020 $12,917
12/31/2004 $12,432 $12,428 $13,414
1/31/2005 $12,066 $12,126 $13,114
2/28/2005 $12,341 $12,381 $13,536
3/31/2005 $12,190 $12,162 $13,280
4/30/2005 $11,974 $11,931 $12,999
5/31/2005 $12,282 $12,310 $13,239
6/30/2005 $12,313 $12,328 $13,360
7/31/2005 $12,734 $12,786 $13,830
8/31/2005 $12,744 $12,670 $13,940
9/30/2005 $12,867 $12,772 $14,306
10/31/2005 $12,631 $12,559 $13,962
11/30/2005 $13,083 $13,034 $14,435
12/31/2005 $13,294 $13,038 $14,758
1/31/2006 $13,618 $13,384 $15,420
2/28/2006 $13,691 $13,420 $15,404
3/31/2006 $13,995 $13,587 $15,749
4/30/2006 $14,186 $13,769 $16,236
5/31/2006 $13,804 $13,373 $15,696
6/30/2006 $13,794 $13,391 $15,698
7/31/2006 $13,741 $13,474 $15,799
8/31/2006 $14,090 $13,794 $16,217
9/30/2006 $14,366 $14,149 $16,415
10/31/2006 $14,853 $14,610 $17,021
11/30/2006 $15,192 $14,887 $17,447
12/31/2006 $15,376 $15,096 $17,806
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
ADVISOR CLASS 12/31/06
- ------------------------------------------
1-Year +15.65%
- ------------------------------------------
3-Year +11.47%
- ------------------------------------------
Since Inception (8/15/03) +13.58%
- ------------------------------------------
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 returns would have been lower. The manager and administrator
may end this arrangement at any time upon notice to the Fund's board.
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.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks
chosen for market size, liquidity and industry group representation. Each
stock's weight in the index is proportionate to its market value. The S&P
500 is one of the most widely used benchmarks of U.S. equity performance.
The MSCI World Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed markets.
Annual Report | 11
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 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.
12 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,112.40 $2.66
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- -------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,108.80 $6.11
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85
- -------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,108.90 $6.11
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85
- -------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,111.80 $3.46
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,114.70 $0.80
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77
- -------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; B: 1.15%; C: 1.15%; R: 0.65%; and
Advisor: 0.15%) multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
Annual Report | 13
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.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Founding Funds Allocation Fund's
annual report for the fiscal year ended December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A posted a +19.34%
cumulative total return for the year under review. The Fund outperformed its
hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark's total return was
+17.38%. 1 You can find other performance data in the Performance Summary
beginning on page 16.
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
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.
14 | Annual Report
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 domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the year under review, the Fund's performance benefited most from
Templeton Growth Fund - Advisor Class. Second in terms of performance was
Franklin Income Fund - Advisor Class and last was Mutual Shares Fund - Class Z.
Thank you for your continued participation in Franklin Templeton Founding Funds
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Founding Funds Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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 Founding Funds Allocation Fund Based on Total Net Assets as
of 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
Domestic Equity 33.2%
Domestic Hybrid 33.1%
Foreign Equity 33.1%
Short-Term Investments & Other Net Assets 0.6%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
Annual Report | 15
Performance Summary as of 12/31/06
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FFALX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.48 $ 13.98 $ 12.50
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.4379
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0002
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4697
- --------------------------------------------------------------------------------
TOTAL $ 0.9078
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FFABX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.47 $ 13.93 $ 12.46
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.3407
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0002
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4697
- --------------------------------------------------------------------------------
TOTAL $ 0.8106
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FFACX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.42 $ 13.78 $ 12.36
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.3687
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0002
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4697
- --------------------------------------------------------------------------------
TOTAL $ 0.8386
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FFARX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.48 $ 13.98 $ 12.50
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.4142
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0002
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4697
- --------------------------------------------------------------------------------
TOTAL $ 0.8841
- --------------------------------------------------------------------------------
16 | Annual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.50 $ 14.05 $ 12.55
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.4762
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0002
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4697
- --------------------------------------------------------------------------------
TOTAL $ 0.9461
- --------------------------------------------------------------------------------
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 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +19.34% +44.10% +60.80%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +12.50% +10.73% +13.10%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,250 $ 13,576 $ 15,156
- --------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +18.53% +41.42% +57.37%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +14.53% +11.45% +13.72%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,453 $ 13,842 $ 15,437
- --------------------------------------------------------------------------------
CLASS C 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +18.50% +41.32% +57.28%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +17.50% +12.22% +14.35%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,750 $ 14,132 $ 15,728
- --------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +19.15% +43.42% +60.18%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +19.15% +12.77% +14.97%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,915 $ 14,342 $ 16,018
- --------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +19.73% +45.60% +62.70%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +19.73% +13.34% +15.50%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,973 $ 14,560 $ 16,270
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 17
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS A 12/31/06
- ------------------------------------------
1-Year +12.50%
- ------------------------------------------
3-Year +10.73%
- ------------------------------------------
Since Inception (8/15/03) +13.10%
- ------------------------------------------
CLASS A (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT FOUNDING FUNDS
ALLOCATION FUND -
DATE CLASS A S&P 500 5 MSCI WORLD INDEX 5
---------- ----------------- --------- ------------------
8/15/2003 $ 9,425 $10,000 $10,000
8/31/2003 $ 9,463 $10,100 $10,113
9/30/2003 $ 9,519 $ 9,994 $10,177
10/31/2003 $ 9,811 $10,559 $10,783
11/30/2003 $10,019 $10,651 $10,950
12/31/2003 $10,517 $11,210 $11,639
1/31/2004 $10,650 $11,415 $11,829
2/29/2004 $10,850 $11,574 $12,031
3/31/2004 $10,774 $11,399 $11,956
4/30/2004 $10,631 $11,221 $11,718
5/31/2004 $10,641 $11,374 $11,832
6/30/2004 $10,802 $11,595 $12,080
7/31/2004 $10,650 $11,212 $11,689
8/31/2004 $10,783 $11,257 $11,745
9/30/2004 $10,954 $11,379 $11,971
10/31/2004 $11,135 $11,552 $12,267
11/30/2004 $11,610 $12,020 $12,917
12/31/2004 $11,945 $12,428 $13,414
1/31/2005 $11,693 $12,126 $13,114
2/28/2005 $12,082 $12,381 $13,536
3/31/2005 $11,903 $12,162 $13,280
4/30/2005 $11,727 $11,931 $12,999
5/31/2005 $11,903 $12,310 $13,239
6/30/2005 $12,119 $12,328 $13,360
7/31/2005 $12,404 $12,786 $13,830
8/31/2005 $12,473 $12,670 $13,940
9/30/2005 $12,601 $12,772 $14,306
10/31/2005 $12,237 $12,559 $13,962
11/30/2005 $12,404 $13,034 $14,435
12/31/2005 $12,700 $13,038 $14,758
1/31/2006 $13,086 $13,384 $15,420
2/28/2006 $13,157 $13,420 $15,404
3/31/2006 $13,379 $13,587 $15,749
4/30/2006 $13,627 $13,769 $16,236
5/31/2006 $13,400 $13,373 $15,696
6/30/2006 $13,431 $13,391 $15,698
7/31/2006 $13,627 $13,474 $15,799
8/31/2006 $13,937 $13,794 $16,217
9/30/2006 $14,103 $14,149 $16,415
10/31/2006 $14,526 $14,610 $17,021
11/30/2006 $14,857 $14,887 $17,447
12/31/2006 $15,156 $15,096 $17,806
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS B 12/31/06
- ------------------------------------------
1-Year +14.53%
- ------------------------------------------
3-Year +11.45%
- ------------------------------------------
Since Inception (8/15/03) +13.72%
- ------------------------------------------
CLASS B (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT FOUNDING FUNDS
ALLOCATION FUND -
DATE CLASS B S&P 500 5 MSCI WORLD INDEX 5
---------- ------------------ --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,090 $ 9,994 $10,177
10/31/2003 $10,400 $10,559 $10,783
11/30/2003 $10,610 $10,651 $10,950
12/31/2003 $11,128 $11,210 $11,639
1/31/2004 $11,279 $11,415 $11,829
2/29/2004 $11,470 $11,574 $12,031
3/31/2004 $11,390 $11,399 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,374 $11,832
6/30/2004 $11,400 $11,595 $12,080
7/31/2004 $11,239 $11,212 $11,689
8/31/2004 $11,360 $11,257 $11,745
9/30/2004 $11,541 $11,379 $11,971
10/31/2004 $11,722 $11,552 $12,267
11/30/2004 $12,216 $12,020 $12,917
12/31/2004 $12,576 $12,428 $13,414
1/31/2005 $12,298 $12,126 $13,114
2/28/2005 $12,689 $12,381 $13,536
3/31/2005 $12,501 $12,162 $13,280
4/30/2005 $12,303 $11,931 $12,999
5/31/2005 $12,490 $12,310 $13,239
6/30/2005 $12,708 $12,328 $13,360
7/31/2005 $12,998 $12,786 $13,830
8/31/2005 $13,061 $12,670 $13,940
9/30/2005 $13,185 $12,772 $14,306
10/31/2005 $12,801 $12,559 $13,962
11/30/2005 $12,967 $13,034 $14,435
12/31/2005 $13,277 $13,038 $14,758
1/31/2006 $13,671 $13,384 $15,420
2/28/2006 $13,735 $13,420 $15,404
3/31/2006 $13,968 $13,587 $15,749
4/30/2006 $14,207 $13,769 $16,236
5/31/2006 $13,968 $13,373 $15,696
6/30/2006 $14,001 $13,391 $15,698
7/31/2006 $14,196 $13,474 $15,799
8/31/2006 $14,500 $13,794 $16,217
9/30/2006 $14,662 $14,149 $16,415
10/31/2006 $15,096 $14,610 $17,021
11/30/2006 $15,443 $14,887 $17,447
12/31/2006 $15,437 $15,096 $17,806
18 | Annual Report
Performance Summary (CONTINUED)
CLASS C (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT FOUNDING FUNDS
ALLOCATION FUND -
DATE CLASS C S&P 500 5 MSCI WORLD INDEX 5
- ---------- ------------------ --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,090 $ 9,994 $10,177
10/31/2003 $10,390 $10,559 $10,783
11/30/2003 $10,610 $10,651 $10,950
12/31/2003 $11,129 $11,210 $11,639
1/31/2004 $11,270 $11,415 $11,829
2/29/2004 $11,471 $11,574 $12,031
3/31/2004 $11,391 $11,399 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,374 $11,832
6/30/2004 $11,401 $11,595 $12,080
7/31/2004 $11,240 $11,212 $11,689
8/31/2004 $11,360 $11,257 $11,745
9/30/2004 $11,542 $11,379 $11,971
10/31/2004 $11,723 $11,552 $12,267
11/30/2004 $12,216 $12,020 $12,917
12/31/2004 $12,565 $12,428 $13,414
1/31/2005 $12,298 $12,126 $13,114
2/28/2005 $12,688 $12,381 $13,536
3/31/2005 $12,500 $12,162 $13,280
4/30/2005 $12,303 $11,931 $12,999
5/31/2005 $12,490 $12,310 $13,239
6/30/2005 $12,697 $12,328 $13,360
7/31/2005 $12,998 $12,786 $13,830
8/31/2005 $13,060 $12,670 $13,940
9/30/2005 $13,185 $12,772 $14,306
10/31/2005 $12,801 $12,559 $13,962
11/30/2005 $12,967 $13,034 $14,435
12/31/2005 $13,272 $13,038 $14,758
1/31/2006 $13,670 $13,384 $15,420
2/28/2006 $13,734 $13,420 $15,404
3/31/2006 $13,969 $13,587 $15,749
4/30/2006 $14,209 $13,769 $16,236
5/31/2006 $13,969 $13,373 $15,696
6/30/2006 $13,991 $13,391 $15,698
7/31/2006 $14,198 $13,474 $15,799
8/31/2006 $14,504 $13,794 $16,217
9/30/2006 $14,668 $14,149 $16,415
10/31/2006 $15,094 $14,610 $17,021
11/30/2006 $15,444 $14,887 $17,447
12/31/2006 $15,728 $15,096 $17,806
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS C 12/31/06
- ------------------------------------------
1-Year +17.50%
- ------------------------------------------
3-Year +12.22%
- ------------------------------------------
Since Inception (8/15/03) +14.35%
- ------------------------------------------
CLASS R (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT FOUNDING FUNDS
ALLOCATION FUND -
DATE CLASS R S&P 500 5 MSCI WORLD INDEX 5
- ---------- ----------------- --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,100 $ 9,994 $10,177
10/31/2003 $10,410 $10,559 $10,783
11/30/2003 $10,630 $10,651 $10,950
12/31/2003 $11,168 $11,210 $11,639
1/31/2004 $11,319 $11,415 $11,829
2/29/2004 $11,521 $11,574 $12,031
3/31/2004 $11,440 $11,399 $11,956
4/30/2004 $11,279 $11,221 $11,718
5/31/2004 $11,289 $11,374 $11,832
6/30/2004 $11,471 $11,595 $12,080
7/31/2004 $11,309 $11,212 $11,689
8/31/2004 $11,440 $11,257 $11,745
9/30/2004 $11,622 $11,379 $11,971
10/31/2004 $11,803 $11,552 $12,267
11/30/2004 $12,307 $12,020 $12,917
12/31/2004 $12,668 $12,428 $13,414
1/31/2005 $12,400 $12,126 $13,114
2/28/2005 $12,803 $12,381 $13,536
3/31/2005 $12,624 $12,162 $13,280
4/30/2005 $12,426 $11,931 $12,999
5/31/2005 $12,614 $12,310 $13,239
6/30/2005 $12,843 $12,328 $13,360
7/31/2005 $13,145 $12,786 $13,830
8/31/2005 $13,207 $12,670 $13,940
9/30/2005 $13,343 $12,772 $14,306
10/31/2005 $12,957 $12,559 $13,962
11/30/2005 $13,134 $13,034 $14,435
12/31/2005 $13,444 $13,038 $14,758
1/31/2006 $13,852 $13,384 $15,420
2/28/2006 $13,928 $13,420 $15,404
3/31/2006 $14,163 $13,587 $15,749
4/30/2006 $14,414 $13,769 $16,236
5/31/2006 $14,174 $13,373 $15,696
6/30/2006 $14,217 $13,391 $15,698
7/31/2006 $14,414 $13,474 $15,799
8/31/2006 $14,743 $13,794 $16,217
9/30/2006 $14,907 $14,149 $16,415
10/31/2006 $15,356 $14,610 $17,021
11/30/2006 $15,717 $14,887 $17,447
12/31/2006 $16,018 $15,096 $17,806
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS R 12/31/06
- ------------------------------------------
1-Year +19.15%
- ------------------------------------------
3-Year +12.77%
- ------------------------------------------
Since Inception (8/15/03) +14.97%
- ------------------------------------------
Annual Report | 19
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
ADVISOR CLASS 12/31/06
- ------------------------------------------
1-Year +19.73%
- ------------------------------------------
3-Year +13.34%
- ------------------------------------------
Since Inception (8/15/03) +15.50%
- ------------------------------------------
ADVISOR CLASS (8/15/03-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT FOUNDING FUNDS
ALLOCATION FUND -
DATE ADVISOR CLASS S&P 500 5 MSCI WORLD INDEX 5
- ---------- ----------------- --------- ------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,100 $10,113
9/30/2003 $10,100 $ 9,994 $10,177
10/31/2003 $10,420 $10,559 $10,783
11/30/2003 $10,640 $10,651 $10,950
12/31/2003 $11,175 $11,210 $11,639
1/31/2004 $11,326 $11,415 $11,829
2/29/2004 $11,538 $11,574 $12,031
3/31/2004 $11,457 $11,399 $11,956
4/30/2004 $11,306 $11,221 $11,718
5/31/2004 $11,326 $11,374 $11,832
6/30/2004 $11,508 $11,595 $12,080
7/31/2004 $11,346 $11,212 $11,689
8/31/2004 $11,477 $11,257 $11,745
9/30/2004 $11,669 $11,379 $11,971
10/31/2004 $11,861 $11,552 $12,267
11/30/2004 $12,375 $12,020 $12,917
12/31/2004 $12,744 $12,428 $13,414
1/31/2005 $12,475 $12,126 $13,114
2/28/2005 $12,889 $12,381 $13,536
3/31/2005 $12,710 $12,162 $13,280
4/30/2005 $12,511 $11,931 $12,999
5/31/2005 $12,710 $12,310 $13,239
6/30/2005 $12,940 $12,328 $13,360
7/31/2005 $13,253 $12,786 $13,830
8/31/2005 $13,326 $12,670 $13,940
9/30/2005 $13,472 $12,772 $14,306
10/31/2005 $13,086 $12,559 $13,962
11/30/2005 $13,263 $13,034 $14,435
12/31/2005 $13,589 $13,038 $14,758
1/31/2006 $14,011 $13,384 $15,420
2/28/2006 $14,087 $13,420 $15,404
3/31/2006 $14,335 $13,587 $15,749
4/30/2006 $14,599 $13,769 $16,236
5/31/2006 $14,357 $13,373 $15,696
6/30/2006 $14,401 $13,391 $15,698
7/31/2006 $14,621 $13,474 $15,799
8/31/2006 $14,952 $13,794 $16,217
9/30/2006 $15,128 $14,149 $16,415
10/31/2006 $15,591 $14,610 $17,021
11/30/2006 $15,955 $14,887 $17,447
12/31/2006 $16,270 $15,096 $17,806
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 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 returns would have been lower. The manager and administrator
may end this arrangement at any time upon notice to the Fund's board.
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.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks
chosen for market size, liquidity and industry group representation. Each
stock's weight in the index is proportionate to its market value. The S&P
500 is one of the most widely used benchmarks of U.S. equity performance.
The MSCI World Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed markets.
20 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 21
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,128.40 $2.68
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- -------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,124.00 $6.16
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85
- -------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,124.20 $6.16
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85
- -------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,126.60 $3.48
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,129.80 $0.81
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77
- -------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; B: 1.15%; C: 1.15%; R: 0.65%; and
Advisor: 0.15%) multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
22 | Annual Report
Franklin Templeton Perspectives Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Perspectives
Allocation Fund seeks capital appreciation through investments in an equally
weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and
Templeton Growth Fund.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Perspectives Allocation Fund covers
the fiscal year ended December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A posted a +14.69%
cumulative total return for the year under review. The Fund underperformed its
hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark's total return was
+17.38%. 1 You can find other performance data in the Performance Summary
beginning on page 25.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin Flex
Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities and, to a
lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets
in each underlying fund whenever the actual allocations exceed plus or minus 3%
of the fixed allocation percentages.
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 48.
Annual Report | 23
ASSET ALLOCATION*
Franklin Templeton Perspectives Allocation Fund Based on Total Net Assets as of
12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
Domestic Equity 66.4%
Foreign Equity 33.4%
Short-Term Investments & Other Net Assets 0.2%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the year under review, the Fund's performance benefited from Templeton
Growth Fund - Advisor Class and Mutual Shares Fund - Class Z. Franklin Flex Cap
Growth Fund - Advisor Class performance hindered the Fund's overall return
relative to its hybrid benchmark.
Thank you for your continued participation in Franklin Templeton Perspectives
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Perspectives Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
24 | Annual Report
Performance Summary as of 12/31/06
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FPAAX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.11 $ 12.90 $ 11.79
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1850
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4228
- --------------------------------------------------------------------------------
TOTAL $ 0.6079
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FPCAX) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.08 $ 12.82 $ 11.74
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1174
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4228
- --------------------------------------------------------------------------------
TOTAL $ 0.5403
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.11 $ 12.90 $ 11.79
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1613
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4228
- --------------------------------------------------------------------------------
TOTAL $ 0.5842
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 12/31/05
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 1.12 $ 12.93 $ 11.81
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $ 0.2217
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0001
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4228
- --------------------------------------------------------------------------------
TOTAL $ 0.6446
- --------------------------------------------------------------------------------
Annual Report | 25
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 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +14.69% +39.79%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +8.09% +12.10%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 10,809 $ 13,175
- --------------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +13.92% +37.61%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +12.92% +14.14%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,292 $ 13,761
- --------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +14.49% +39.31%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +14.49% +14.72%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,449 $ 13,931
- --------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/2/04)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +15.07% +40.85%
- --------------------------------------------------------------------------------
Average Annual Total Return 3 +15.07% +15.25%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 11,507 $ 14,085
- --------------------------------------------------------------------------------
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.
26 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
CLASS A (8/2/04-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT PERSPECTIVES
ALLOCATION FUND -
DATE CLASS A S&P 500 5 MSCI WORLD INDEX 5
- ---------- ----------------- --------- ------------------
8/2/2004 $ 9,425 $10,000 $10,000
8/31/2004 $ 9,510 $10,040 $10,048
9/30/2004 $ 9,670 $10,149 $10,241
10/31/2004 $ 9,840 $10,304 $10,494
11/30/2004 $10,311 $10,721 $11,050
12/31/2004 $10,643 $11,085 $11,475
1/31/2005 $10,367 $10,815 $11,219
2/28/2005 $10,681 $11,043 $11,580
3/31/2005 $10,519 $10,847 $11,361
4/30/2005 $10,328 $10,642 $11,120
5/31/2005 $10,566 $10,980 $11,326
6/30/2005 $10,624 $10,996 $11,429
7/31/2005 $10,958 $11,404 $11,831
8/31/2005 $11,006 $11,300 $11,926
9/30/2005 $11,168 $11,392 $12,239
10/31/2005 $10,910 $11,202 $11,944
11/30/2005 $11,273 $11,625 $12,349
12/31/2005 $11,488 $11,629 $12,626
1/31/2006 $11,916 $11,937 $13,192
2/28/2006 $11,945 $11,970 $13,178
3/31/2006 $12,169 $12,118 $13,473
4/30/2006 $12,318 $12,281 $13,890
5/31/2006 $11,903 $11,928 $13,428
6/30/2006 $11,942 $11,944 $13,429
7/31/2006 $11,922 $12,017 $13,516
8/31/2006 $12,189 $12,303 $13,874
9/30/2006 $12,377 $12,620 $14,043
10/31/2006 $12,753 $13,031 $14,562
11/30/2006 $13,030 $13,278 $14,926
12/31/2006 $13,175 $13,465 $15,233
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS A 12/31/06
- ------------------------------------------
1-Year +8.09%
- ------------------------------------------
Since Inception (8/2/04) +12.10%
- ------------------------------------------
CLASS C (8/2/04-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT PERSPECTIVES
ALLOCATION FUND -
DATE CLASS C S&P 500 5 MSCI WORLD INDEX 5
---------- ----------------- --------- ------------------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,430 $10,304 $10,494
11/30/2004 $10,910 $10,721 $11,050
12/31/2004 $11,266 $11,085 $11,475
1/31/2005 $10,964 $10,815 $11,219
2/28/2005 $11,286 $11,043 $11,580
3/31/2005 $11,115 $10,847 $11,361
4/30/2005 $10,902 $10,642 $11,120
5/31/2005 $11,155 $10,980 $11,326
6/30/2005 $11,206 $10,996 $11,429
7/31/2005 $11,550 $11,404 $11,831
8/31/2005 $11,591 $11,300 $11,926
9/30/2005 $11,763 $11,392 $12,239
10/31/2005 $11,479 $11,202 $11,944
11/30/2005 $11,854 $11,625 $12,349
12/31/2005 $12,080 $11,629 $12,626
1/31/2006 $12,512 $11,937 $13,192
2/28/2006 $12,543 $11,970 $13,178
3/31/2006 $12,769 $12,118 $13,473
4/30/2006 $12,915 $12,281 $13,890
5/31/2006 $12,476 $11,928 $13,428
6/30/2006 $12,518 $11,944 $13,429
7/31/2006 $12,487 $12,017 $13,516
8/31/2006 $12,758 $12,303 $13,874
9/30/2006 $12,946 $12,620 $14,043
10/31/2006 $13,333 $13,031 $14,562
11/30/2006 $13,615 $13,278 $14,926
12/31/2006 $13,761 $13,465 $15,233
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS C 12/31/06
- ------------------------------------------
1-Year +12.92%
- ------------------------------------------
Since Inception (8/2/04) +14.14%
- ------------------------------------------
Annual Report | 27
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
CLASS R 12/31/06
- ------------------------------------------
1-Year +14.49%
- ------------------------------------------
Since Inception (8/2/04) +14.72%
- ------------------------------------------
CLASS R (8/2/04-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT PERSPECTIVES
ALLOCATION FUND -
DATE CLASS R S&P 500 5 MSCI WORLD INDEX 5
---------- ----------------- --------- ------------------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,080 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,440 $10,304 $10,494
11/30/2004 $10,930 $10,721 $11,050
12/31/2004 $11,281 $11,085 $11,475
1/31/2005 $10,989 $10,815 $11,219
2/28/2005 $11,322 $11,043 $11,580
3/31/2005 $11,159 $10,847 $11,361
4/30/2005 $10,946 $10,642 $11,120
5/31/2005 $11,199 $10,980 $11,326
6/30/2005 $11,260 $10,996 $11,429
7/31/2005 $11,605 $11,404 $11,831
8/31/2005 $11,655 $11,300 $11,926
9/30/2005 $11,828 $11,392 $12,239
10/31/2005 $11,554 $11,202 $11,944
11/30/2005 $11,939 $11,625 $12,349
12/31/2005 $12,168 $11,629 $12,626
1/31/2006 $12,612 $11,937 $13,192
2/28/2006 $12,643 $11,970 $13,178
3/31/2006 $12,880 $12,118 $13,473
4/30/2006 $13,037 $12,281 $13,890
5/31/2006 $12,587 $11,928 $13,428
6/30/2006 $12,639 $11,944 $13,429
7/31/2006 $12,608 $12,017 $13,516
8/31/2006 $12,890 $12,303 $13,874
9/30/2006 $13,089 $12,620 $14,043
10/31/2006 $13,487 $13,031 $14,562
11/30/2006 $13,781 $13,278 $14,926
12/31/2006 $13,931 $13,465 $15,233
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------
ADVISOR CLASS 12/31/06
- ------------------------------------------
1-Year +15.07%
- ------------------------------------------
Since Inception (8/2/04) +15.25%
- ------------------------------------------
ADVISOR CLASS (8/2/04-12/31/06)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT PERSPECTIVES
ALLOCATION FUND -
DATE ADVISOR CLASS S&P 500 5 MSCI WORLD INDEX 5
---------- ----------------- --------- ------------------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,260 $10,149 $10,241
10/31/2004 $10,450 $10,304 $10,494
11/30/2004 $10,950 $10,721 $11,050
12/31/2004 $11,301 $11,085 $11,475
1/31/2005 $11,008 $10,815 $11,219
2/28/2005 $11,341 $11,043 $11,580
3/31/2005 $11,178 $10,847 $11,361
4/30/2005 $10,975 $10,642 $11,120
5/31/2005 $11,239 $10,980 $11,326
6/30/2005 $11,300 $10,996 $11,429
7/31/2005 $11,655 $11,404 $11,831
8/31/2005 $11,705 $11,300 $11,926
9/30/2005 $11,888 $11,392 $12,239
10/31/2005 $11,614 $11,202 $11,944
11/30/2005 $12,010 $11,625 $12,349
12/31/2005 $12,241 $11,629 $12,626
1/31/2006 $12,697 $11,937 $13,192
2/28/2006 $12,728 $11,970 $13,178
3/31/2006 $12,977 $12,118 $13,473
4/30/2006 $13,134 $12,281 $13,890
5/31/2006 $12,693 $11,928 $13,428
6/30/2006 $12,745 $11,944 $13,429
7/31/2006 $12,724 $12,017 $13,516
8/31/2006 $13,019 $12,303 $13,874
9/30/2006 $13,218 $12,620 $14,043
10/31/2006 $13,618 $13,031 $14,562
11/30/2006 $13,923 $13,278 $14,926
12/31/2006 $14,085 $13,465 $15,233
28 | Annual 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.
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 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 returns would have been lower. The manager and administrator
may end this arrangement at any time upon notice to the Fund's board.
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.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks
chosen for market size, liquidity and industry group representation. Each
stock's weight in the index is proportionate to its market value. The S&P
500 is one of the most widely used benchmarks of U.S. equity performance.
The MSCI World Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market
performance in global developed markets.
Annual Report | 29
Your Fund's Expenses
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
30 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/06 VALUE 12/31/06 PERIOD* 7/1/06-12/31/06
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,103.30 $2.65
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- -------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,099.20 $5.98
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.51 $5.75
- -------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,102.20 $3.44
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
Actual $1,000 $1,105.10 $0.80
- -------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77
- -------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A:0.50%; C:1.13%; R:0.65%; and Advisor: 0.15%),
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
Annual Report | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS A 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.71 $ 12.20 $ 11.02 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.11 0.09 0.09 0.01
Net realized and unrealized gains (losses) ........ 1.81 0.71 1.21 1.07
-------------------------------------------------------------------
Total from investment operations ................... 1.92 0.80 1.30 1.08
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.16) (0.10) (0.07) --
Tax return of capital ............................. -- -- -- (0.06)
Net realized gains (losses) ....................... (0.38) (0.19) (0.05) --
-------------------------------------------------------------------
Total distributions ................................ (0.54) (0.29) (0.12) (0.06)
-------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 14.09 $ 12.71 $ 12.20 $ 11.02
===================================================================
Total return d ..................................... 15.25% 6.63% 11.77% 10.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 458,460 $ 353,016 $ 238,564 $ 157,792
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.65% 0.66% 0.68% h 0.74% h
Expenses net of waiver and payments by affiliates e 0.50% 0.58% 0.68% h 0.47% h
Net investment income c ........................... 0.82% 0.72% 1.86% h 0.14% h
Portfolio turnover rate ............................ 1.66% 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
32 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.62 $ 12.12 $ 10.95 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. 0.01 0.01 0.06 (0.06)
Net realized and unrealized gains (losses) ........ 1.81 0.70 1.20 1.06
-------------------------------------------------------------------
Total from investment operations ................... 1.82 0.71 1.26 1.00
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.07) (0.02) (0.04) --
Tax return of capital ............................. -- -- -- (0.05)
Net realized gains (losses) ....................... (0.38) (0.19) (0.05) --
-------------------------------------------------------------------
Total distributions ................................ (0.45) (0.21) (0.09) (0.05)
-------------------------------------------------------------------
Redemption fees..................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.99 $ 12.62 $ 12.12 $ 10.95
===================================================================
Total return d ..................................... 14.55% 5.89% 11.50% 10.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 76,408 $ 71,496 $ 66,562 $ 44,297
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.30% 1.31% 1.33% h 1.39% h
Expenses net of waiver and payments by affiliates e 1.15% 1.23% 1.33% h 1.12% h
Net investment income (loss) c .................... 0.17% 0.07% 1.21% h (0.51)% h
Portfolio turnover rate ............................ 1.66% 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS C 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.61 $ 12.11 $ 10.94 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.02 0.01 0.06 0.05
Net realized and unrealized gains (losses) ........ 1.79 0.71 1.20 1.04
-------------------------------------------------------------------
Total from investment operations ................... 1.81 0.72 1.26 0.99
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.08) (0.03) (0.04) --
Tax return of capital ............................. -- -- -- (0.05)
Net realized gains (losses) ....................... (0.38) (0.19) (0.05) --
-------------------------------------------------------------------
Total distributions ................................ (0.46) (0.22) (0.09) (0.05)
-------------------------------------------------------------------
Redemption fees..................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.96 $ 12.61 $ 12.11 $ 10.94
===================================================================
Total return d ..................................... 14.48% 6.02% 11.49% 9.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 166,688 $ 132,459 $ 96,487 $ 73,272
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.29% 1.29% 1.33% h 1.39% h
Expenses net of waiver and payments by affiliates e 1.14% 1.21% 1.33% h 1.12% h
Net investment income (loss) c .................... 0.18% 0.09% 1.21% h (0.51)% h
Portfolio turnover rate ............................ 1.66% 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
34 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS R 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.69 $ 12.18 $ 11.00 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. 0.09 0.05 0.08 (0.02)
Net realized and unrealized gains (losses) ........ 1.81 0.73 1.21 1.08
-------------------------------------------------------------------
Total from investment operations ................... 1.90 0.78 1.29 1.06
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.14) (0.08) (0.06) --
Tax return of capital ............................. -- -- -- (0.06)
Net realized gains (losses) ....................... (0.38) (0.19) (0.05) --
-------------------------------------------------------------------
Total distributions ................................ (0.52) (0.27) (0.11) (0.06)
-------------------------------------------------------------------
Redemption fees..................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 14.07 $ 12.69 $ 12.18 $ 11.00
===================================================================
Total return d ..................................... 15.10% 6.43% 11.73% 10.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 2,534 $ 2,190 $ 1,944 $ 1,408
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.80% 0.81% 0.83% h 0.89% h
Expenses net of waiver and payments by affiliates e 0.65% 0.73% 0.83% h 0.62% h
Net investment income (loss) c .................... 0.67% 0.57% 1.71% h (0.01)% h
Portfolio turnover rate ............................ 1.66% 2.49% 1.02% 0.62% g
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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
ADVISOR CLASS 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.73 $ 12.21 $ 11.02 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.15 0.13 0.11 0.04
Net realized and unrealized gains (losses) ........ 1.83 0.72 1.21 1.05
-------------------------------------------------------------------
Total from investment operations ................... 1.98 0.85 1.32 1.09
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.21) (0.14) (0.08) --
Tax return of capital ............................. -- -- -- (0.07)
Net realized gains (losses) ....................... (0.38) (0.19) (0.05) --
-------------------------------------------------------------------
Total distributions ................................ (0.59) (0.33) (0.13) (0.07)
-------------------------------------------------------------------
Redemption fees..................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 14.12 $ 12.73 $ 12.21 $ 11.02
===================================================================
Total return d ..................................... 15.65% 6.93% 12.09% 10.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 3,073 $ 2,792 $ 2,097 $ 1,181
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.30% 0.31% 0.33% h 0.39% h
Expenses net of waiver and payments by affiliates e 0.15% 0.23% 0.33% h 0.12% h
Net investment income c ........................... 1.17% 1.07% 2.21% h 0.49% h
Portfolio turnover rate ............................ 1.66% 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 0.75% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
36 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.9%
DOMESTIC EQUITY 74.7%
Franklin Capital Growth Fund, Advisor Class ......................... 14,686,437 $ 175,356,056
Franklin Growth Fund, Advisor Class ................................. 4,203,753 175,002,227
Mutual Shares Fund, Class Z ......................................... 6,833,613 178,288,955
-----------------
528,647,238
-----------------
FOREIGN EQUITY 25.2%
Templeton Growth Fund Inc., Advisor Class ........................... 6,936,340 178,125,222
-----------------
TOTAL LONG TERM INVESTMENTS (COST $594,675,074) ..................... 706,772,460
-----------------
SHORT TERM INVESTMENT (COST $1,530) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 1,530 1,530
-----------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $594,676,604) 99.9% ..... 706,773,990
OTHER ASSETS, LESS LIABILITIES 0.1% ................................. 389,136
-----------------
NET ASSETS 100.0% ................................................... $ 707,163,126
=================
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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS A 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.50 $ 12.28 $ 11.21 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.40 0.37 0.22 0.23
Net realized and unrealized gains (losses) ........ 1.99 0.40 1.14 1.07
-------------------------------------------------------------------
Total from investment operations ................... 2.39 0.77 1.36 1.30
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.44) (0.30) (0.23) (0.09)
Net realized gains (losses) ....................... (0.47) (0.25) (0.06) --
-------------------------------------------------------------------
Total distributions ................................ (0.91) (0.55) (0.29) (0.09)
-------------------------------------------------------------------
Redemption fees..................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.98 $ 12.50 $ 12.28 $ 11.21
===================================================================
Total return d ..................................... 19.34% 6.31% 12.16% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 7,288,143 $ 4,051,695 $ 1,640,876 $ 882,175
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.57% 0.58% 0.60% h 0.61% h
Expenses net of waiver and payments by affiliates e 0.50% 0.54% 0.60% h 0.49% h
Net investment income c ........................... 3.00% 2.98% 4.48% h 2.16% h
Portfolio turnover rate ............................ 0.96% 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 0.70% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
38 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.46 $ 12.23 $ 11.16 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.28 0.26 0.19 0.16
Net realized and unrealized gains (losses) ........ 2.00 0.43 1.13 1.08
-------------------------------------------------------------------
Total from investment operations ................... 2.28 0.69 1.32 1.24
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.34) (0.21) (0.19) (0.08)
Net realized gains (losses) ....................... (0.47) (0.25) (0.06) --
-------------------------------------------------------------------
Total distributions ................................ (0.81) (0.46) (0.25) (0.08)
-------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.93 $ 12.46 $ 12.23 $ 11.16
===================================================================
Total return d ..................................... 18.53% 5.58% 11.90% 12.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 766,452 $ 688,590 $ 612,553 $ 357,282
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.22% 1.23% 1.25% h 1.26% h
Expenses net of waiver and payments by affiliates e 1.15% 1.19% 1.25% h 1.14% h
Net investment income c ........................... 2.35% 2.33% 3.83% h 1.51% h
Portfolio turnover rate ............................ 0.96% 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 0.70% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS C 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.36 $ 12.23 $ 11.16 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.31 0.29 0.19 0.17
Net realized and unrealized gains (losses) ........ 1.95 0.39 1.13 1.07
-------------------------------------------------------------------
Total from investment operations ................... 2.26 0.68 1.32 1.24
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.37) (0.30) (0.19) (0.08)
Net realized gains (losses) ....................... (0.47) (0.25) (0.06) --
-------------------------------------------------------------------
Total distributions ................................ (0.84) (0.55) (0.25) (0.08)
-------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.78 $ 12.36 $ 12.23 $ 11.16
===================================================================
Total return d ..................................... 18.50% 5.63% 11.79% 12.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 3,692,307 $ 2,075,041 $ 927,786 $ 535,778
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.22% 1.20% 1.25% h 1.26% h
Expenses net of waiver and payments by affiliates e 1.15% 1.16% 1.25% h 1.14% h
Net investment income c ........................... 2.35% 2.36% 3.83% h 1.51% h
Portfolio turnover rate ............................ 0.96% 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 0.70% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
40 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS R 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.50 $ 12.28 $ 11.22 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.37 0.33 0.22 0.20
Net realized and unrealized gains (losses) ........ 1.99 0.42 1.13 1.11
-------------------------------------------------------------------
Total from investment operations ................... 2.36 0.75 1.35 1.31
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.41) (0.28) (0.23) (0.09)
Net realized gains (losses) ....................... (0.47) (0.25) (0.06) --
-------------------------------------------------------------------
Total distributions ................................ (0.88) (0.53) (0.29) (0.09)
-------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 13.98 $ 12.50 $ 12.28 $ 11.22
===================================================================
Total return d ..................................... 19.15% 6.12% 12.02% 13.09%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 24,435 $ 17,247 $ 12,101 $ 5,225
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.72% 0.73% 0.75% h 0.76% h
Expenses net of waiver and payments by affiliates e 0.65% 0.69% 0.75% h 0.64% h
Net investment income c ........................... 2.85% 2.83% 4.33% h 2.01% h
Portfolio turnover rate ............................ 0.96% 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 0.70% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
ADVISOR CLASS 2006 2005 2004 g 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.55 $ 12.32 $ 11.25 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.47 0.39 0.24 0.25
Net realized and unrealized gains (losses) ........ 1.98 0.42 1.14 1.09
-------------------------------------------------------------------
Total from investment operations ................... 2.45 0.81 1.38 1.34
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.48) (0.33) (0.25) (0.09)
Net realized gains (losses) ....................... (0.47) (0.25) (0.06) --
-------------------------------------------------------------------
Total distributions ................................ (0.95) (0.58) (0.31) (0.09)
-------------------------------------------------------------------
Redemption fees .................................... -- f -- f -- f -- f
-------------------------------------------------------------------
Net asset value, end of year ....................... $ 14.05 $ 12.55 $ 12.32 $ 11.25
===================================================================
Total return d ..................................... 19.73% 6.63% 12.32% 13.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 25,124 $ 12,535 $ 7,792 $ 4,991
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.22% 0.23% 0.25% h 0.26% h
Expenses net of waiver and payments by affiliates e 0.15% 0.19% 0.25% h 0.14% h
Net investment income c ........................... 3.35% 3.33% 4.83% h 2.51% h
Portfolio turnover rate ............................ 0.96% 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 0.70% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 1, 2004 to December 31, 2004.
h Annualized.
i For the period August 15, 2003 (commencement of operations) to July 31,
2004.
42 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.4%
DOMESTIC EQUITY 33.2%
Mutual Shares Fund, Class Z ......................................... 149,818,988 $ 3,908,777,402
-----------------
DOMESTIC HYBRID 33.1%
Franklin Income Fund Inc., Advisor Class ............................ 1,474,279,687 3,906,841,171
-----------------
FOREIGN EQUITY 33.1%
Templeton Growth Fund Inc., Advisor Class ........................... 152,052,220 3,904,700,999
-----------------
TOTAL LONG TERM INVESTMENTS (COST $10,669,862,499) .................. 11,720,319,572
-----------------
SHORT TERM INVESTMENT (COST $137,267) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 137,267 137,267
-----------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $10,669,999,766) 99.4% .. 11,720,456,839
OTHER ASSETS, LESS LIABILITIES 0.6% ................................. 76,004,393
-----------------
NET ASSETS 100.0% ................................................... $ 11,796,461,232
=================
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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------------------------
YEAR ENDED DECEMBER 31,
CLASS A 2006 2005 2004 g
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.79 $ 11.19 $ 10.00
--------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.17 0.16 0.17
Net realized and unrealized gains (losses) ........ 1.55 0.73 1.12
--------------------------------------------------
Total from investment operations ................... 1.72 0.89 1.29
--------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.19) (0.13) (0.07)
Net realized gains (losses) ....................... (0.42) (0.16) (0.03)
--------------------------------------------------
Total distributions ................................ (0.61) (0.29) (0.10)
--------------------------------------------------
Redemption fees .................................... -- f -- f -- f
--------------------------------------------------
Net asset value, end of year ....................... $ 12.90 $ 11.79 $ 11.19
==================================================
Total return d ..................................... 14.69% 7.93% 12.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 190,189 $ 103,348 $ 16,155
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.72% 0.90% 2.31% h
Expenses net of waiver and payments by affiliates e 0.50% 0.46% 0.39% h
Net investment income c ........................... 1.18% 1.41% 3.78% h
Portfolio turnover rate ............................ 0.98% 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 0.77% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 2, 2004 to December 31, 2004.
h Annualized.
44 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------------------------
YEAR ENDED DECEMBER 31,
CLASS C 2006 2005 2004 g
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.74 $ 11.18 $ 10.00
--------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.08 0.09 0.15
Net realized and unrealized gains (losses) ........ 1.54 0.72 1.12
--------------------------------------------------
Total from investment operations ................... 1.62 0.81 1.27
--------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.12) (0.09) (0.06)
Net realized gains (losses) ....................... (0.42) (0.16) (0.03)
--------------------------------------------------
Total distributions ................................ (0.54) (0.25) (0.09)
--------------------------------------------------
Redemption fees .................................... -- f -- f -- f
--------------------------------------------------
Net asset value, end of year ....................... $ 12.82 $ 11.74 $ 11.18
==================================================
Total return d ..................................... 13.92% 7.22% 12.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 68,482 $ 36,568 $ 4,558
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 1.36% 1.55% 2.96% h
Expenses net of waiver and payments by affiliates e 1.14% 1.11% 1.04% h
Net investment income c ........................... 0.54% 0.76% 3.13% h
Portfolio turnover rate ............................ 0.98% 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 0.77% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 2, 2004 (commencement of operations) to December 31,
2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------------------------
YEAR ENDED DECEMBER 31,
CLASS R 2006 2005 2004 g
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.79 $ 11.18 $ 10.00
--------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.14 0.11 0.15
Net realized and unrealized gains (losses) ........ 1.55 0.77 1.13
--------------------------------------------------
Total from investment operations ................... 1.69 0.88 1.28
--------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.16) (0.11) (0.07)
Net realized gains (losses) ....................... (0.42) (0.16) (0.03)
--------------------------------------------------
Total distributions ................................ (0.58) (0.27) (0.10)
--------------------------------------------------
Redemption fees .................................... -- f -- f -- f
--------------------------------------------------
Net asset value, end of year ....................... $ 12.90 $ 11.79 $ 11.18
==================================================
Total return d ..................................... 14.49% 7.86% 12.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 1,539 $ 1,287 $ 260
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.87% 1.05% 2.46% h
Expenses net of waiver and payments by affiliates e 0.65% 0.61% 0.54% h
Net investment income c ........................... 1.03% 1.26% 3.63% h
Portfolio turnover rate ............................ 0.98% 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 0.77% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 2, 2004 (commencement of operations) to December 31,
2004.
h Annualized.
46 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
--------------------------------------------------
YEAR ENDED DECEMBER 31,
2006 2005 2004 g
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.81 $ 11.19 $ 10.00
--------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.22 0.11 0.14
Net realized and unrealized gains (losses) ........ 1.54 0.82 1.16
--------------------------------------------------
Total from investment operations ................... 1.76 0.93 1.30
--------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.22) (0.15) (0.08)
Net realized gains (losses) ....................... (0.42) (0.16) (0.03)
--------------------------------------------------
Total distributions ................................ (0.64) (0.31) (0.11)
--------------------------------------------------
Redemption fees .................................... -- f -- f -- f
--------------------------------------------------
Net asset value, end of year ....................... $ 12.93 $ 11.81 $ 11.19
==================================================
Total return d ..................................... 15.07% 8.31% 13.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 1,931 $ 1,104 $ 196
Ratios to average net assets:
Expenses before waiver and payments by affiliates e 0.37% 0.55% 1.96% h
Expenses net of waiver and payments by affiliates e 0.15% 0.11% 0.04% h
Net investment income c ........................... 1.53% 1.76% 4.13% h
Portfolio turnover rate ............................ 0.98% 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 0.77% for the year ended December 31, 2006.
f Amount rounds to less than $0.01 per share.
g For the period August 2, 2004 (commencement of operations) to December 31,
2004.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.8%
DOMESTIC EQUITY 66.4%
Franklin Flex Cap Growth Fund, Advisor Class ........................ 2,019,049 $ 86,112,432
Mutual Shares Fund, Class Z ......................................... 3,372,668 87,992,907
-----------------
174,105,339
-----------------
FOREIGN EQUITY 33.4%
Templeton Growth Fund Inc., Advisor Class ........................... 3,409,918 87,566,686
-----------------
TOTAL LONG TERM INVESTMENTS (COST $240,709,696) ..................... 261,672,025
-----------------
SHORT TERM INVESTMENT (COST $1,954) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 1,954 1,954
-----------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $240,711,650) 99.8% ..... 261,673,979
OTHER ASSETS, LESS LIABILITIES 0.2% ................................. 467,129
-----------------
NET ASSETS 100.0% ................................................... $ 262,141,108
=================
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.
48 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2006
------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ........................................................... $ 594,676,604 $ 10,669,999,766 $ 240,711,650
======================================================
Value .......................................................... 706,773,990 11,720,456,839 261,673,979
Receivables:
Investment securities sold ..................................... 812,000 22,458,000 322,000
Capital shares sold ............................................ 1,643,996 100,437,912 868,177
------------------------------------------------------
Total assets ................................................... 709,229,986 11,843,352,751 262,864,156
------------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ........................................ 708,985 12,562,318 320,459
Affiliates ..................................................... 493,910 11,605,941 45,118
Funds advanced by custodian .................................... 811,503 22,457,264 321,138
Accrued expenses and other liabilities .......................... 52,462 265,996 36,333
------------------------------------------------------
Total liabilities .............................................. 2,066,860 46,891,519 723,048
------------------------------------------------------
Net assets, at value .......................................... $ 707,163,126 $ 11,796,461,232 $ 262,141,108
======================================================
Net assets consist of:
Paid-in capital ................................................. $ 583,466,097 $ 10,530,433,736 $ 236,954,882
Undistributed net investment income ............................. 746,559 6,495,779 105,807
Net unrealized appreciation (depreciation) ...................... 112,097,386 1,050,457,073 20,962,329
Accumulated net realized gain (loss) ............................ 10,853,084 209,074,644 4,118,090
------------------------------------------------------
Net assets, at value .......................................... $ 707,163,126 $ 11,796,461,232 $ 262,141,108
======================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2006
------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------
CLASS A:
Net assets, at value ............................................ $ 458,459,950 $ 7,288,143,185 $ 190,189,388
======================================================
Shares outstanding .............................................. 32,534,123 521,488,419 14,738,800
======================================================
Net asset value per share a ..................................... $ 14.09 $ 13.98 $ 12.90
======================================================
Maximum offering price per share
(net asset value per share / 94.25%) ........................... $ 14.95 $ 14.83 $ 13.69
======================================================
CLASS B:
Net assets, at value ............................................ $ 76,408,092 $ 766,451,554
====================================
Shares outstanding .............................................. 5,462,327 55,038,857
====================================
Net asset value and maximum offering price per share a .......... $ 13.99 $ 13.93
====================================
CLASS C:
Net assets, at value ............................................ $ 166,687,877 $ 3,692,307,354 $ 68,481,519
======================================================
Shares outstanding .............................................. 11,941,411 267,882,647 5,340,433
======================================================
Net asset value and maximum offering price per share a .......... $ 13.96 $ 13.78 $ 12.82
======================================================
CLASS R:
Net assets, at value ............................................ $ 2,534,524 $ 24,435,410 $ 1,538,932
======================================================
Shares outstanding .............................................. 180,129 1,748,024 119,273
======================================================
Net asset value and maximum offering price per share a .......... $ 14.07 $ 13.98 $ 12.90
======================================================
ADVISOR CLASS:
Net assets, at value ............................................ $ 3,072,683 $ 25,123,729 $ 1,931,269
======================================================
Shares outstanding .............................................. 217,617 1,787,873 149,348
======================================================
Net asset value and maximum offering price per share a .......... $ 14.12 $ 14.05 $ 12.93
======================================================
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
50 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2006
------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ........................ $ 8,308,459 $ 313,066,089 $ 3,485,443
------------------------------------------------------
Expenses:
Administrative fees (Note 3a) ................................... 629,576 8,919,710 206,903
Distribution fees (Note 3b)
Class A ........................................................ 1,410,720 19,036,332 524,258
Class B ........................................................ 729,062 7,177,849 --
Class C ........................................................ 1,476,767 27,550,385 541,930
Class R ........................................................ 11,542 102,831 6,933
Transfer agent fees (Note 3d) ................................... 1,019,219 8,609,733 418,147
Reports to shareholders ......................................... 76,392 840,531 --
Registration and filing fees .................................... 128,235 1,311,796 109,517
Professional fees ............................................... 27,200 71,595 20,580
Trustees' fees and expenses ..................................... 1,599 16,128 480
Excise tax (Note 3e) ............................................ 7,923 50,318 --
Other ........................................................... 19,209 218,018 5,189
------------------------------------------------------
Total expenses ................................................. 5,537,444 73,905,226 1,833,937
Expenses waived/paid by affiliates (Note 3e) ................... (964,999) (6,658,046) (450,456)
------------------------------------------------------
Net expenses .................................................. 4,572,445 67,247,180 1,383,481
------------------------------------------------------
Net investment income ........................................ 3,736,014 245,818,909 2,101,962
------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ........................ (206,396) (3,041,778) (73,648)
Realized gain distributions by Underlying Funds ................ 24,235,506 500,788,915 10,315,569
------------------------------------------------------
Net realized gain (loss) from Underlying Funds ............... 24,029,110 497,747,137 10,241,921
Net change in unrealized appreciation (depreciation) on
investments in Underlying Funds ................................ 61,294,086 866,728,549 16,328,995
------------------------------------------------------
Net realized and unrealized gain (loss) .......................... 85,323,196 1,364,475,686 26,570,916
------------------------------------------------------
Net increase (decrease) in net assets resulting from operations .. $ 89,059,210 $ 1,610,294,595 $ 28,672,878
======================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND
-----------------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ................................................. $ 3,736,014 $ 2,315,230
Net realized gain (loss) from Underlying Funds ............................... 24,029,110 13,151,666
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ......................................................... 61,294,086 18,583,049
-----------------------------------
Net increase (decrease) in net assets resulting from operations ............ 89,059,210 34,049,945
-----------------------------------
Distributions to shareholders from:
Net investment income and short term gains received
from Underlying Funds:
Class A ..................................................................... (5,156,182) (2,706,666)
Class B ..................................................................... (395,188) (95,540)
Class C ..................................................................... (951,148) (304,721)
Class R ..................................................................... (25,068) (13,374)
Advisor Class ............................................................... (44,139) (29,711)
Net realized gains:
Class A ..................................................................... (11,448,102) (4,722,069)
Class B ..................................................................... (2,054,806) (1,090,043)
Class C ..................................................................... (4,266,699) (1,827,556)
Class R ..................................................................... (65,663) (35,570)
Advisor Class ............................................................... (79,089) (38,361)
-----------------------------------
Total distributions to shareholders ............................................ (24,486,084) (10,863,611)
-----------------------------------
Capital share transactions: (Note 2)
Class A ..................................................................... 63,989,093 99,800,451
Class B ..................................................................... (2,554,475) 2,004,829
Class C ..................................................................... 19,093,712 30,562,322
Class R ..................................................................... 112,639 157,640
Advisor Class ............................................................... (5,903) 586,231
-----------------------------------
Total capital share transactions .............................................. 80,635,066 133,111,473
-----------------------------------
Redemption fees ............................................................... 2,409 1,413
-----------------------------------
Net increase (decrease) in net assets ........................................ 145,210,601 156,299,220
Net assets:
Beginning of year ............................................................. 561,952,525 405,653,305
-----------------------------------
End of year ................................................................... $ 707,163,126 $ 561,952,525
===================================
Undistributed net investment income included in net assets:
End of year ................................................................... $ 746,559 $ 940,742
===================================
52 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
-----------------------------------
FRANKLIN TEMPLETON
FOUNDING FUNDS ALLOCATION FUND
-----------------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................ $ 245,818,909 $ 135,297,386
Net realized gain (loss) from Underlying Funds ............................... 497,747,137 224,073,373
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ......................................................... 866,728,549 (20,377,278)
-----------------------------------
Net increase (decrease) in net assets resulting from operations ............ 1,610,294,595 338,993,481
-----------------------------------
Distributions to shareholders from:
Net investment income and short term gains received
from Underlying Funds:
Class A ..................................................................... (215,722,803) (95,113,986)
Class B ..................................................................... (18,066,213) (11,435,618)
Class C ..................................................................... (93,577,572) (49,892,165)
Class R ..................................................................... (683,952) (376,341)
Advisor Class ............................................................... (799,059) (324,505)
Net realized gains:
Class A ..................................................................... (202,445,425) (60,077,962)
Class B ..................................................................... (25,277,173) (13,364,975)
Class C ..................................................................... (104,093,208) (31,902,414)
Class R ..................................................................... (727,036) (307,043)
Advisor Class ............................................................... (652,974) (208,794)
-----------------------------------
Total distributions to shareholders ........................................... (662,045,415) (263,003,803)
-----------------------------------
Capital share transactions: (Note 2)
Class A ..................................................................... 2,657,895,916 2,363,047,363
Class B ..................................................................... (1,624,509) 63,159,382
Class C ..................................................................... 1,330,975,579 1,132,276,775
Class R ..................................................................... 4,909,568 4,908,962
Advisor Class ............................................................... 10,900,983 4,573,450
-----------------------------------
Total capital share transactions .............................................. 4,003,057,537 3,567,965,932
-----------------------------------
Redemption fees ............................................................... 45,813 45,042
-----------------------------------
Net increase (decrease) in net assets ........................................ 4,951,352,530 3,644,000,652
Net assets:
Beginning of year ............................................................. 6,845,108,702 3,201,108,050
-----------------------------------
End of year ................................................................... $11,796,461,232 $ 6,845,108,702
===================================
Undistributed net investment income included in net assets:
End of year ................................................................... $ 6,495,779 $ 6,654,521
===================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
-----------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
-----------------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................ $ 2,101,962 $ 994,678
Net realized gain (loss) from Underlying Funds ............................... 10,241,921 4,184,830
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ......................................................... 16,328,995 3,733,521
-----------------------------------
Net increase (decrease) in net assets resulting from operations ............ 28,672,878 8,913,029
-----------------------------------
Distributions to shareholders from:
Net investment income and short term gains received
from Underlying Funds:
Class A .................................................................... (2,636,779) (1,096,845)
Class C .................................................................... (608,817) (266,589)
Class R .................................................................... (18,516) (11,813)
Advisor Class .............................................................. (31,836) (14,047)
Net realized gains:
Class A .................................................................... (5,309,666) (1,039,446)
Class C .................................................................... (1,947,481) (369,003)
Class R .................................................................... (48,316) (14,705)
Advisor Class .............................................................. (51,944) (16,038)
-----------------------------------
Total distributions to shareholders ........................................... (10,653,355) (2,828,486)
-----------------------------------
Capital share transactions: (Note 2)
Class A .................................................................... 73,695,077 82,792,372
Class C .................................................................... 27,278,019 30,465,502
Class R .................................................................... 129,556 964,795
Advisor Class .............................................................. 709,790 830,434
-----------------------------------
Total capital share transactions .............................................. 101,812,442 115,053,103
-----------------------------------
Redemption fees ............................................................... 1,365 598
-----------------------------------
Net increase (decrease) in net assets ........................................ 119,833,330 121,138,244
Net assets:
Beginning of year ............................................................. 142,307,778 21,169,534
-----------------------------------
End of year ................................................................... $ 262,141,108 $ 142,307,778
===================================
Undistributed net investment income included in net assets:
End of year ................................................................... $ 105,807 $ 13,510
===================================
54 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940, as amended, (the 1940 Act) as an open-end
investment company, consisting of ten separate funds. All funds included in this
report (the Funds) are non-diversified. The financial statements of the
remaining funds in the Trust 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. 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
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.
Estimated expenses are accrued daily. Dividend income and realized gain
distributions by Underlying Funds are 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.
Annual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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. Currently, the Trust expects the
risk of loss to be remote.
56 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 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
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
CLASS A SHARES
Year ended December 31, 2006
Shares sold ............................... 8,161,304 $ 108,477,197 226,522,568 $ 3,030,923,306
Shares issued in reinvestment of
distributions ............................ 1,144,598 15,782,576 28,515,695 392,894,378
Shares redeemed ........................... (4,542,041) (60,270,680) (57,633,916) (765,921,768)
-----------------------------------------------------------------------
Net increase (decrease) ................... 4,763,861 $ 63,989,093 197,404,347 $ 2,657,895,916
=======================================================================
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
Year ended December 31, 2006
Shares sold ............................... 192,527 $ 2,536,173 2,512,203 $ 32,986,440
Shares issued in reinvestment of
distributions ............................ 171,568 2,330,160 2,959,112 40,296,439
Shares redeemed ........................... (565,350) (7,420,808) (5,704,616) (74,907,388)
-----------------------------------------------------------------------
Net increase (decrease) ................... (201,255) $ (2,554,475) (233,301) $ (1,624,509)
=======================================================================
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
=======================================================================
CLASS C SHARES
Year ended December 30, 2006
Shares sold ............................... 2,801,164 $ 36,821,258 112,866,790 $ 1,492,839,628
Shares issued in reinvestment of
distributions ............................ 355,817 4,836,589 12,624,288 171,288,034
Shares redeemed ........................... (1,723,290) (22,564,135) (25,455,349) (333,152,083)
-----------------------------------------------------------------------
Net increase (decrease) ................... 1,433,691 $ 19,093,712 100,035,729 $ 1,330,975,579
=======================================================================
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
=======================================================================
Annual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-----------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
CLASS R SHARES
Year ended December 31, 2006
Shares sold ............................... 14,097 $ 190,555 435,024 $ 5,763,678
Shares issued in reinvestment of
distributions ............................ 6,585 90,465 102,353 1,406,218
Shares redeemed ........................... (13,061) (168,381) (168,735) (2,260,328)
-----------------------------------------------------------------------
Net increase (decrease) ................... 7,621 $ 112,639 368,642 $ 4,909,568
=======================================================================
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
Year ended December 31, 2006
Shares sold ............................... 19,054 $ 257,559 930,526 $ 12,764,223
Shares issued in reinvestment of
distributions ............................ 8,496 117,490 99,300 1,378,303
Shares redeemed ........................... (29,233) (380,952) (240,484) (3,241,543)
-----------------------------------------------------------------------
Net increase (decrease) ................... (1,683) $ (5,903) 789,342 $ 10,900,983
=======================================================================
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
=======================================================================
------------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
------------------------------------
SHARES AMOUNT
------------------------------------
CLASS A SHARES
Year ended December 31, 2006
Shares sold ................................................................. 6,964,227 $ 85,684,048
Shares issued in reinvestment of distributions .............................. 597,951 7,641,648
Shares redeemed ............................................................. (1,586,137) (19,630,619)
------------------------------------
Net increase (decrease) ..................................................... 5,976,041 $ 73,695,077
====================================
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
====================================
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
------------------------------------
SHARES AMOUNT
------------------------------------
CLASS C SHARES
Year ended December 31, 2006
Shares sold ................................................................. 2,515,614 $ 30,767,210
Shares issued in reinvestment of distributions .............................. 185,518 2,351,317
Shares redeemed ............................................................. (475,818) (5,840,508)
------------------------------------
Net increase (decrease) ..................................................... 2,225,314 $ 27,278,019
====================================
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
Year ended December 31, 2006
Shares sold ................................................................. 26,399 $ 325,236
Shares issued in reinvestment of distributions .............................. 5,252 66,832
Shares redeemed ............................................................. (21,571) (262,512)
------------------------------------
Net increase(decrease) ...................................................... 10,080 $ 129,556
====================================
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:
Year ended December 31, 2006
Shares sold ................................................................. 77,632 $ 985,355
Shares issued in reinvestment of distributions .............................. 6,364 81,641
Shares redeemed ............................................................. (28,121) (357,206)
------------------------------------
Net increase(decrease) ...................................................... 55,875 $ 709,790
====================================
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
====================================
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of some of the
Underlying Funds and of 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 Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class. The maximum annual plan rates, based on the average daily net assets, for
each class, are as follows:
--------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------------
Class A .......................................... 0.35% 0.35% 0.35%
Class B .......................................... 1.00% 1.00% --
Class C .......................................... 1.00% 1.00% 1.00%
Class R .......................................... 0.50% 0.50% 0.50%
C. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
--------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ............. $606,605 $16,307,166 $467,084
Contingent deferred sales charges retained ....... $138,604 $ 1,929,342 $ 13,176
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the 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 .............................. $745,404 $5,302,359 $222,726
E. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS
FT Services agreed in advance to voluntarily waive all or a portion of
administrative fees and assume payment of other expenses. Total expenses
waived/paid by FT Services are not subject to reimbursement by the Funds
subsequent to the Funds' fiscal year end. FT Services may discontinue this
waiver at any time.
The Franklin Templeton Corefolio Allocation Fund and Franklin Templeton Founding
Funds Allocation Fund incurred excise taxes which FT Services voluntarily agreed
to reimburse as noted in the Statements of Operations.
4. INCOME TAXES
The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005, was as follows:
-----------------------------
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND
-----------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-----------------------------
Distributions paid from:
Ordinary Income ................................................................. $ 6,624,465 $ 3,161,106
Long term capital gain .......................................................... 17,861,619 7,702,505
-----------------------------
$ 24,486,084 $ 10,863,611
=============================
-----------------------------
FRANKLIN TEMPLETON
FOUNDING FUNDS
ALLOCATION FUND
-----------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-----------------------------
Distributions paid from:
Ordinary Income ................................................................. $ 329,011,319 $ 157,142,615
Long term capital gain .......................................................... 333,034,096 105,861,188
-----------------------------
$ 662,045,415 $ 263,003,803
=============================
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
-----------------------------
FRANKLIN TEMPLETON
PERSPECTIVES
ALLOCATION FUND
-----------------------------
YEAR ENDED DECEMBER 31,
2006 2005
-----------------------------
Distributions paid from:
Ordinary Income ................................................................. $ 3,297,921 $ 1,389,294
Long term capital gain .......................................................... 7,355,434 1,439,192
-----------------------------
$ 10,653,355 $ 2,828,486
=============================
At December 31, 2006, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
-------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------
Cost of investments ..................... $ 595,328,863 $ 10,674,489,147 $ 240,796,076
=============================================================
Unrealized appreciation ................. $ 111,445,127 $ 1,045,967,692 $ 20,877,903
Unrealized depreciation ................. -- -- --
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 111,445,127 $ 1,045,967,692 $ 20,877,903
=============================================================
Undistributed ordinary income ........... $ 778,996 $ 6,495,781 $ 105,807
Undistributed long term capital gains ... 11,472,906 213,564,025 4,202,516
-------------------------------------------------------------
Distributable earnings .................. $ 12,251,902 $ 220,059,806 $ 4,308,323
=============================================================
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.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2006, were as follows:
--------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------------------------------------------------------
Purchases ............................... $77,711,891 $4,099,418,012 $107,015,903
Sales ................................... $10,498,157 $ 86,037,397 $ 2,023,940
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Franklin
Advisers, Inc., (Advisers), an affiliate of FT Services, or by an affiliate of
Advisers. The Funds do not invest in the Underlying Funds for the purpose of
exercising management or control. At December 31, 2006, the Funds' held the
following positions which exceed 5% of the Underlying Funds' shares outstanding:
- --------------------------------------------------------------------------------
NAME OF ISSUER % OF SHARES HELD
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
Franklin Capital Growth Fund ........................ 11.47%
Franklin Growth Fund ................................ 6.77%
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund .................................. 18.01%
Templeton Growth Fund Inc. .......................... 10.88%
Franklin Income Fund Inc. ........................... 7.51%
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.
7. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), 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 ("marketing support"), 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 SEC, among others, concerning market
timing and marketing support.
On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006. The Trust did not participate in that
Settlement.
The plan of distribution for the market timing settlement is currently under
review by the SEC staff. After publication of notice of the plan and a 30-day
comment period, the proposed plan of distribution will be submitted to the SEC
for approval. Following the SEC's approval of the plan of distribution, with
modifications as appropriate, distribution of the settlement monies will begin
in accordance with the terms and conditions of the settlement and plan.
Annual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and 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.). The lawsuits relate to the industry
practices referenced above, as well as to allegedly excessive commissions and
advisory and distribution fees.
The Company and fund management 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. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (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. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period in 2007. The Fund is
currently evaluating the impact, if any, of applying the various provisions of
FIN 48.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Trust believes the adoption of SFAS 157
will have no material impact on its financial statements.
64 | Annual Report
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton Corefolio
Allocation Fund, Franklin Templeton Founding Funds Allocation Fund, and Franklin
Templeton Perspectives Allocation Fund (separate portfolios of Franklin
Templeton Fund Allocator Series, hereafter referred to as the "Funds") at
December 31, 2006, the results of each of their operations for the year then
ended and the changes in each of their net assets and the financial highlights
for each of the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments in the Underlying Funds at December 31, 2006 by
correspondence with the transfer agent of the Underlying Funds, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 22, 2007
Annual Report | 65
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2006:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$21,593,978 $417,852,495 $9,028,339
Under Section 871(k)(2)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as a short term capital gain
dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended December 31, 2006:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$69,258 $97,247 $1,673
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2006.
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
66.35% 35.83% 42.97%
In January 2007, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2006.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2006.
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$7,364,842 $189,010,158 $3,046,462
Under Section 871(k)(1)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as interest related dividends
for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended December 31, 2006.
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
$1,102,386 $135,746,611 $546,684
66 | Annual Report
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
will serve until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 142 Director, Bar-S Foods
One Franklin Parkway (meat packing company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2005 57 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS);
and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and
Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 143 Director, Hess
One Franklin Parkway Corporation (formerly
San Mateo, CA 94403-1906 Amerada Hess
Corporation)
(exploration and
refining of oil and
gas), H.J. Heinz Company
(processed foods and
allied products), RTI
International Metals,
Inc. (manufacture and
distribution of
titanium), Canadian
National Railway
(railroad) and White
Mountains Insurance
Group, Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 116 Director, Center for
One Franklin Parkway Creative Land Recycling
San Mateo, CA 94403-1906 (redevelopment).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 67
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Trustee Since February 46 None
One Franklin Parkway 2006
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private
and non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail)
(1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office
supplies) (1992-1996); Executive Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines)
(1990-1992); and Vice President and Partner, Bain & Company (1986-1990).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Chairman of Since 1995 142 None
One Franklin Parkway the Board
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 41 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, President and Trustee since 1995 126 None
One Franklin Parkway Chief Executive Officer and President and
San Mateo, CA 94403-1906 - Investment Management Chief Executive
Officer -
Investment
Management since
2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; and
Templeton Worldwide, Inc. Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Compliance Officer Chief Compliance Not Applicable Not Applicable
One Franklin Parkway and Vice President - AML Officer since 2004
San Mateo, CA 94403-1906 Compliance and Vice President
- AML Compliance
since February
2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin
Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
68 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 30 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice President Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. and Chief Executive
Suite 2100 Officer - Finance and
Fort Lauderdale, FL 33394-3091 Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC, Franklin Templeton Investor Services, LLC, Franklin Templeton
Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment Services,
Inc.; Vice President, Templeton Global Advisors Limited; and officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow,
U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court
(District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President and Vice President Not Applicable Not Applicable
One Franklin Parkway Secretary since February
San Mateo, CA 94403-1906 2006 and Secretary
since April 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President and Secretary, Templeton Funds Annuity Company; and
officer of 30 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 69
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Officer Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. and Chief Accounting
Suite 2100 Fort Lauderdale, FL Officer
33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust and under the federal securities laws due
to their positions as officers and directors and major shareholders of
Franklin Resources, Inc., which is the parent company of the Fund's
investment manager and distributor.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
Note 2: Prior to December 31, 2006, S. Joseph Fortunato and Gordon S. Macklin
ceased to be a trustee of the Trust.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
70 | Annual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 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.
Annual Report | 71
This page intentionally left blank.
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund 1
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 1
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 Floating Rate Daily Access Fund
Franklin High Income Fund 5
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 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
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 8
Colorado
Connecticut
Florida 8
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
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. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy
remained the same.
6. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
7. Portfolio of insured municipal securities.
8. 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).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS2 A2006 02/07
[GRAPHIC OMITTED]
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DECEMBER 31, 2006
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Franklin Templeton
2015 Retirement Target Fund
Franklin Templeton
2025 Retirement Target Fund
Franklin Templeton
2035 Retirement Target Fund
Franklin Templeton
2045 Retirement Target Fund
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FRANKLIN TEMPLETON FASTER VIA EMAIL?
FUND ALLOCATOR SERIES
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](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]
Annual Report
Economic and Market Overview
During the five months ended December 31, 2006, the U.S. economy advanced at a
moderate pace. Gross domestic product grew an annualized 2.0% in the third
quarter and an estimated annualized 3.5% in the fourth quarter. The housing
market weakened, while corporate profits and consumer and government spending
generally remained robust. Exports picked up some momentum, but the country's
trade deficit, while improving, was still historically high. Labor costs rose
and hiring generally increased as the unemployment rate fell from 4.8% to
4.5%. 1
Although energy and other commodity prices fell during the period, they remained
historically high and were a primary economic concern for much of the period.
Oil prices declined from a record high $77 per barrel in July to $61 at
period-end. Consumers curbed spending on large purchases, such as homes and
cars. Home prices fell in many parts of the country as mortgage rates crept
higher, and borrowing against home equity flattened. Retail prices for many
goods fell in late 2006 as energy prices slid. However, after two months of
large declines, wholesale prices surged in November, reflecting higher energy
and other prices. Overall, the core Consumer Price Index (CPI) rose 2.6% for the
12 months ended December 31, 2006, which was higher than the 2.2% 10-year
average. 2
Following 17 consecutive increases beginning in 2004, the Federal Reserve Board
(Fed) left the federal funds target rate at 5.25% during the period, citing a
slowing economy, widespread cooling in the housing market and the lagging effect
of prior tightening. The Fed stated that even with lower oil prices toward
period-end, inflation risks remained. The Fed's decision to leave rates steady
through period-end helped restore investor confidence.
Outside the U.S., the economy continued to grow. The economic drivers remained
consistent over the past four years: strong corporate and consumer demand,
reasonably low inflation, a tight or improving labor market, and a relatively
moderate interest rate environment, despite recent interest rate hikes by many
of the world's central banks. However, the global economy also faced headwinds
from elevated energy prices, higher global interest rates and a weaker U.S.
housing market. These factors dampened investor confidence mid-year, when many
equity markets declined, before rebounding through year-end 2006.
1. Source: Bureau of Labor Statistics.
2. Source: Bureau of Labor Statistics. Core CPI excludes food and energy
costs.
Annual Report | 3
Despite such challenges, global economic activity was healthy. Strong global
liquidity -- whether petrodollars, corporate cash, private equity, household
savings or central banks' reserves -- continued to search for a home. Record
global merger and acquisition activity in 2006 also reflected the abundance of
cash in the capital markets. Bond yield spreads over U.S. Treasuries narrowed,
and global equity and commodity markets rose in the latter part of the year.
U.S equity markets performed well for the five-month period in this environment.
The blue chip stocks of the Dow Jones Industrial Average posted a five-month
total return of +12.01%, and the broader Standard & Poor's 500 Index (S&P 500)
returned +12.04%, while the technology-heavy NASDAQ Composite Index rose
+16.79%. 3 Telecommunications, utilities and consumer discretionary stocks
performed particularly well. All major non-U.S. regions also had strong returns
for the period. Stock market indexes in the U.S. and most European countries
reached six-year highs in the fourth quarter, and many emerging market indexes
in Asia, Europe and Latin America neared or reached all-time highs. Fixed income
markets, on the other hand, were somewhat constrained by higher interest rates,
threats of climbing inflation and the robust equity markets.
3. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. The S&P 500 consists of 500
stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its
market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The NASDAQ Composite Index measures all 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.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Annual Report
Franklin Templeton
2015 Retirement Target Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton 2015 Retirement
Target Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund invests among the broad asset classes of equity, fixed-income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), within an
increasing emphasis on income as the target date, indicated in the Fund's name,
approaches.
- --------------------------------------------------------------------------------
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 2015 Retirement Target Fund
Based on Total Net Assets as of 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ......................... 48.3%
Foreign Equity .......................... 21.9%
Domestic Fixed Income ................... 16.0%
Foreign Fixed Income .................... 7.1%
Short-Term Investments & Other Net Assets 6.7%
* The asset allocation is based on the Statement of Investments, which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This inaugural annual report for Franklin Templeton 2015 Retirement Target Fund
covers the period since inception on August 1, 2006, through December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton 2015 Retirement Target Fund - Class A posted a cumulative
total return of +8.59% for the period since inception on August 1, 2006, through
December 31, 2006. By comparison the Fund's benchmarks, the S&P 500 and Morgan
Stanley Capital International (MSCI) Europe, Australasia,
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 37.
Annual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton
2015 Retirement Target Fund
12/31/06
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
Franklin Small Cap Growth Fund II 14.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 12.6%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 11.4%
- - Class Z
- --------------------------------------------------------------------------------
Mutual European Fund 11.2%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Global Bond Fund 7.1%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities 6.9%
Fund - Advisor Class
- --------------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 4.6%
- --------------------------------------------------------------------------------
Franklin Total Return Fund 4.5%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton Foreign Fund 4.0%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Real Estate Securities Fund 3.5%
- - Advisor Class
- --------------------------------------------------------------------------------
Far East (EAFE) Index for equities, the Lehman Brothers (LB) U.S. Aggregate
Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index
for short-term investments and other net assets, posted total returns of
+12.04%, +13.66%, +3.69% and +2.14%, respectively, during the same time. 1 You
can find other performance data in the Performance Summary beginning on page 8.
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, fixed income securities, and short-term investments and other net
assets, and by the actual performance of the selected underlying funds. This
allocation shifts every year, in accordance with the retirement date associated
with the portfolio.
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry
group representation. Each stock's weight in the index is proportionate to
its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond market, with index components for government and corporate
securities, mortgage pass-through securities and asset-backed securities.
All issues included must have at least one year to final maturity and must
be rated investment grade (Baa3 or better) by Moody's Investors Service.
They must 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 U.S. T-Bill Index 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 value of Treasuries, if held to maturity, is fixed;
principal is guaranteed and interest is fixed. The indexes are unmanaged
and include reinvested dividends. One cannot invest directly in an index,
nor is an index representative of the Fund's portfolio.
6 | Annual Report
At period-end, Franklin Templeton 2015 Retirement Target Fund's domestic equity
exposure was 68.7% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 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 14.4% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 69.2% of the Fund's total fixed
income weighting, with the balance represented by foreign fixed income.
Templeton Global Bond Fund - Advisor Class was our largest fixed income fund
weighting at 7.1% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, slightly underperformed the S&P 500, as did our largest domestic
value fund holding, Mutual Shares Fund - Class Z. However, our largest foreign
equity holding, Mutual European Fund - Class Z, outperformed the MSCI EAFE
Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
outperformed the LB U.S. Aggregate Index.
Thank you for your participation in Franklin Templeton 2015 Retirement Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2015 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 7
Performance Summary as of 12/31/06
FRANKLIN TEMPLETON 2015 RETIREMENT 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: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.69 $10.69 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1499
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0178
- ------------------------------------------------------------------------------
TOTAL $0.1691
- ------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.67 $10.67 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1413
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0178
- ------------------------------------------------------------------------------
TOTAL $0.1605
- ------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.68 $10.68 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1493
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0178
- ------------------------------------------------------------------------------
TOTAL $0.1685
- ------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.70 $10.70 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1563
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0178
- ------------------------------------------------------------------------------
TOTAL $0.1755
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8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AGGREGATE 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 INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +8.59%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +2.35%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,235
- --------------------------------------------------------------------------------
CLASS C INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +8.30%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +7.30%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,730
- --------------------------------------------------------------------------------
CLASS R INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +8.48%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +8.48%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,848
- --------------------------------------------------------------------------------
ADVISOR CLASS INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +8.75%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +8.75%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,875
- --------------------------------------------------------------------------------
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.
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BECAUSE THESE FUNDS INVEST
IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES
INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. 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 returns would have been lower. After 12/31/07, the manager
and administrator may end this arrangement at any time upon notice to the
Fund's board.
2. Cumulative total return represents the change in value of an investment
over the period indicated.
3. Aggregate total return represents the change in value of an investment
over the period indicated. Since the Fund has existed for less than one
year, average annual total returns are not available.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the period indicated.
Annual Report | 9
Your Fund's Expenses
FRANKLIN TEMPLETON 2015 RETIREMENT 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 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.
10 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ACCOUNT DURING PERIOD*
VALUE ACTUAL 8/1/06-12/31/06
ACTUAL 8/1/06 ENDING ACCOUNT HYPOTHETICAL
CLASS A HYPOTHETICAL 7/1/06 VALUE 12/31/06 7/1/06-12/31/06
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,085.90 $2.19
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.00 $5.02
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85
- ------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,084.80 $2.88
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.88 $3.36
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,087.50 $0.66
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77
- ------------------------------------------------------------------------------------------------------------
* 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 184/365 (Hypothetical) to reflect the one-half year period.
For actual expenses, the multiplier is 153/365 to reflect the number of
days since commencement of operations.
Annual Report | 11
Franklin Templeton
2025 Retirement Target Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton 2025 Retirement
Target Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund invests among the broad asset classes of equity, fixed-income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), within an
increasing emphasis on income as the target date, indicated in the Fund's name,
approaches.
- --------------------------------------------------------------------------------
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 2025 Retirement Target Fund
Based on Total Net Assets as of 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ......................... 57.2%
Foreign Equity .......................... 26.0%
Domestic Fixed Income ................... 7.9%
Foreign Fixed Income .................... 3.5%
Short-Term Investments & Other Net Assets 5.4%
* The asset allocation is based on the Statement of Investments, which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This inaugural annual report for Franklin Templeton 2025 Retirement Target Fund
covers the period since inception on August 1, 2006, through December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton 2025 Retirement Target Fund - Class A posted a +9.41%
cumulative total return for the period since inception on August 1, 2006,
through December 31, 2006. By comparison the Fund's benchmarks, the S&P 500 and
Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 42.
12 | Annual Report
(EAFE) Index for equities, the Lehman Brothers (LB) U.S. Aggregate Index for
fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for
short-term investments and other net assets, posted total returns of +12.04%,
+13.66%, +3.69% and +2.14%, respectively, during the same time. 1 You can find
other performance data in the Performance Summary beginning on page 15.
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, fixed income securities, and short-term investments and other net
assets, and by the actual performance of the selected underlying funds. This
allocation shifts every year, in accordance with the retirement date associated
with the portfolio.
TOP 10 FUND HOLDINGS
Franklin Templeton
2025 Retirement Target Fund 12/31/06
- -------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- -------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 16.9%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 14.9%
- - Advisor Class
- -------------------------------------------------------------------------------
Mutual Shares Fund 13.7%
- - Class Z
- -------------------------------------------------------------------------------
Mutual European Fund 13.3%
- - Class Z
- -------------------------------------------------------------------------------
Templeton Foreign Fund 4.6%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund 4.2%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 4.1%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Real Estate Securities Fund 4.1%
- - Advisor Class
- -------------------------------------------------------------------------------
Templeton China World Fund 3.9%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Natural Resources Fund 3.6%
- - Advisor Class
- -------------------------------------------------------------------------------
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry
group representation. Each stock's weight in the index is proportionate to
its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond market, with index components for government and corporate
securities, mortgage pass-through securities and asset-backed securities.
All issues included must have at least one year to final maturity and must
be rated investment grade (Baa3 or better) by Moody's Investors Service.
They must 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 U.S. T-Bill Index 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 value of Treasuries, if held to maturity, is fixed;
principal is guaranteed and interest is fixed. The indexes are unmanaged
and include reinvested dividends. One cannot invest directly in an index,
nor is an index representative of the Fund's portfolio.
Annual Report | 13
At period-end, Franklin Templeton 2025 Retirement Target Fund's domestic equity
exposure was 68.8% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 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 16.9% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 69.1% of the Fund's total fixed
income weighting, with the balance represented by foreign fixed income.
Templeton Global Bond Fund - Advisor Class was our largest fixed income fund
weighting at 3.5% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, slightly underperformed the S&P 500, as did our largest domestic
value fund holding, Mutual Shares Fund - Class Z. However, our largest foreign
equity holding, Mutual European Fund - Class Z, outperformed the MSCI EAFE
Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
outperformed the LB U.S. Aggregate Index.
Thank you for your participation in Franklin Templeton 2025 Retirement Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2025 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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 | Annual Report
Performance Summary as of 12/31/06
FRANKLIN TEMPLETON 2025 RETIREMENT 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: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.78 $10.78 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1416
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0191
- --------------------------------------------------------------------------------
TOTAL $0.1614
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.77 $10.77 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1299
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0191
- --------------------------------------------------------------------------------
TOTAL $0.1497
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.77 $10.77 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1412
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0191
- --------------------------------------------------------------------------------
TOTAL $0.1610
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.79 $10.79 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1479
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0191
- --------------------------------------------------------------------------------
TOTAL $0.1677
- --------------------------------------------------------------------------------
Annual Report | 15
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AGGREGATE 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 INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +9.41%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +3.12%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,312
- -------------------------------------------------------------------------------
CLASS C INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +9.20%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +8.20%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,820
- -------------------------------------------------------------------------------
CLASS R INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +9.31%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +9.31%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,931
- -------------------------------------------------------------------------------
ADVISOR CLASS INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +9.57%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +9.57%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,957
- -------------------------------------------------------------------------------
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.
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BECAUSE THESE FUNDS INVEST
IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES
INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. 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 returns would have been lower. After 12/31/07, the manager
and administrator may end this arrangement at any time upon notice to the
Fund's board.
2. Cumulative total return represents the change in value of an investment
over the period indicated.
3. Aggregate total return represents the change in value of an investment
over the period indicated. Since the Fund has existed for less than one
year, average annual total returns are not available.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the period indicated.
16 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2025 RETIREMENT 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 provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 17
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.
- ---------------------------------------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ACCOUNT DURING PERIOD*
VALUE ACTUAL 8/1/06-12/31/06
ACTUAL 8/1/06 ENDING ACCOUNT HYPOTHETICAL
CLASS A HYPOTHETICAL 7/1/06 VALUE 12/31/06 7/1/06-12/31/06
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,094.10 $2.19
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- ---------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,092.00 $5.04
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85
- ---------------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,093.10 $2.90
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.88 $3.36
- ---------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,095.70 $0.66
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77
- ---------------------------------------------------------------------------------------------------------------
* 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 184/365 (Hypothetical) to reflect the one-half year period.
For actual expenses, the multiplier is 153/365 to reflect the number of
days since commencement of operations.
18 | Annual Report
Franklin Templeton
2035 Retirement Target Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton 2035 Retirement
Target Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund invests among the broad asset classes of equity, fixed-income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), within an
increasing emphasis on income as the target date, indicated in the Fund's name,
approaches.
- --------------------------------------------------------------------------------
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
2035 Retirement Target Fund
Based on Total Net Assets as of 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
Domestic Equity 63.2%
Foreign Equity 28.5%
Domestic Fixed Income 0.5%
Foreign Fixed Income 0.3%
Short-Term Investments & Other Net Assets 7.5%
* The asset allocation is based on the Statement of Investments, which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This inaugural annual report for Franklin Templeton 2035 Retirement Target Fund
covers the period since inception on August 1, 2006, through December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton 2035 Retirement Target Fund - Class A posted a +10.44%
cumulative total return for the period since inception on August 1, 2006,
through December 31, 2006. By comparison the Fund's benchmarks, the S&P 500 and
Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE)
Index for equities, the Lehman Brothers (LB) U.S. Aggregate Index for fixed
income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term
investments and other net assets, posted total returns of +12.04%, +13.66%,
+3.69% and +2.14%, respectively, during the same time. 1 You can find other
performance data in the Performance Summary beginning on page 22.
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry
group representation. Each stock's weight in the index is proportionate to
its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond market, with index components for government and corporate
securities, mortgage pass-through securities and asset-backed securities.
All issues included must have at least one year to final maturity and must
be rated investment grade (Baa3 or better) by Moody's Investors Service.
They must 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 U.S. T-Bill Index 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 value of Treasuries, if held to maturity, is fixed;
principal is guaranteed and interest is fixed. The indexes are unmanaged
and include reinvested dividends. 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 47.
Annual Report | 19
TOP 10 FUND HOLDINGS
Franklin Templeton
2035 Retirement Target Fund 12/31/06
- -------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- -------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 18.8%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 16.6%
- - Advisor Class
- -------------------------------------------------------------------------------
Mutual Shares Fund 15.1%
- - Class Z
- -------------------------------------------------------------------------------
Mutual European Fund 14.6%
- - Class Z
- -------------------------------------------------------------------------------
Templeton Foreign Fund 5.1%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund 4.6%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Real Estate Securities Fund 4.5%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 4.4%
- - Advisor Class
- -------------------------------------------------------------------------------
Templeton China World Fund 4.2%
- - Advisor Class
- -------------------------------------------------------------------------------
Franklin Natural Resources Fund 3.8%
- - Advisor Class
- -------------------------------------------------------------------------------
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, fixed income securities, and short-term investments and other net
assets, and by the actual performance of the selected underlying funds. This
allocation shifts every year, in accordance with the retirement date associated
with the portfolio.
At period-end, Franklin Templeton 2035 Retirement Target Fund's domestic equity
exposure was 68.9% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 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 18.8% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 68.0% of the Fund's total fixed
income weighting, with the balance represented by foreign fixed income.
Templeton Global Bond Fund - Advisor Class was our largest fixed income fund
weighting at 0.02% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, slightly underperformed the S&P 500, as did our largest domestic
value fund holding, Mutual Shares Fund - Class Z. However, our largest foreign
equity holding, Mutual European Fund - Class Z, outperformed the MSCI EAFE
Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
outperformed the LB U.S. Aggregate Index.
20 | Annual Report
Thank you for your participation in Franklin Templeton 2035 Retirement Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2035 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 21
Performance Summary as of 12/31/06
FRANKLIN TEMPLETON 2035 RETIREMENT 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: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.88 $10.88 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1317
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0068
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0254
- --------------------------------------------------------------------------------
TOTAL $0.1639
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.86 $10.86 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1218
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0068
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0254
- --------------------------------------------------------------------------------
TOTAL $0.1540
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.88 $10.88 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1278
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0068
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0254
- --------------------------------------------------------------------------------
TOTAL $0.1600
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.89 $10.89 $10.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- --------------------------------------------------------------------------------
Dividend Income $0.1385
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0068
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.0254
- --------------------------------------------------------------------------------
TOTAL $0.1707
- --------------------------------------------------------------------------------
22 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AGGREGATE 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 INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +10.44%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +4.09%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,409
- --------------------------------------------------------------------------------
CLASS C INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +10.14%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +9.14%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,914
- --------------------------------------------------------------------------------
CLASS R INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +10.40%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +10.40%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,040
- --------------------------------------------------------------------------------
ADVISOR CLASS INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +10.60%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +10.60%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,060
- --------------------------------------------------------------------------------
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.
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BECAUSE THESE FUNDS INVEST
IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES
INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. 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 returns would have been lower. After 12/31/07, the manager
and administrator may end this arrangement at any time upon notice to the
Fund's board.
2. Cumulative total return represents the change in value of an investment
over the period indicated.
3. Aggregate total return represents the change in value of an investment
over the period indicated. Since the Fund has existed for less than one
year, average annual total returns are not available.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the period indicated.
Annual Report | 23
Your Fund's Expenses
FRANKLIN TEMPLETON 2035 RETIREMENT 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 provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 /$1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
24 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ACCOUNT DURING PERIOD*
VALUE ACTUAL 8/1/06-12/31/06
ACTUAL 8/1/06 ENDING ACCOUNT HYPOTHETICAL
CLASS A HYPOTHETICAL 7/1/06 VALUE 12/31/06 7/1/06-12/31/06
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,104.40 $2.21
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.74 $2.55
- --------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,101.40 $5.06
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.03 $5.85
- --------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,104.00 $2.87
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.12 $3.31
- --------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,106.00 $0.66
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.20 $0.77
- --------------------------------------------------------------------------------------------------------------
* 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 184/365 (Hypothetical) to reflect the one-half year period.
For actual expenses, the multiplier is 153/365 to reflect the number of
days since commencement of operations.
Annual Report | 25
Franklin Templeton
2045 Retirement Target Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton 2045 Retirement
Target Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund invests among the broad asset classes of equity, fixed-income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), within an
increasing emphasis on income as the target date, indicated in the Fund's name,
approaches.
- --------------------------------------------------------------------------------
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 2045 Retirement Target Fund
Based on Total Net Assets as of 12/31/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ......................... 63.6%
Foreign Equity .......................... 28.7%
Short-Term Investments & Other Net Assets 7.7%
* The asset allocation is based on the Statement of Investments, which
classifies each underlying fund into a broad asset class.
This inaugural annual report for Franklin Templeton 2045 Retirement Target Fund
covers the period since inception on August 1, 2006, through December 31, 2006.
PERFORMANCE OVERVIEW
Franklin Templeton 2045 Retirement Target Fund - Class A posted a +10.55%
cumulative total return for the period since inception on August 1, 2006,
through December 31, 2006. By comparison the Fund's benchmarks, the S&P 500 and
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 52.
26 | Annual Report
Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE)
Index for equities, the Lehman Brothers (LB) U.S. Aggregate Index for fixed
income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term
investments and other net assets, posted total returns of +12.04%, +13.66%,
+3.69% and +2.14%, respectively, during the same time. 1 You can find other
performance data in the Performance Summary beginning on page 29.
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, and short-term investments and other net assets, and by the actual
performance of the selected underlying funds. This allocation shifts every year,
in accordance with the retirement date associated with the portfolio.
TOP 10 FUND HOLDINGS
Franklin Templeton
2045 Retirement Target Fund 12/31/06
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 18.9%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 16.6%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 15.1%
- - Class Z
- --------------------------------------------------------------------------------
Mutual European Fund 14.7%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Foreign Fund 5.1%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 4.6%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund 4.6%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Real Estate Securities Fund 4.5%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton China World Fund 4.3%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund 3.9%
- - Advisor Class
- --------------------------------------------------------------------------------
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry
group representation. Each stock's weight in the index is proportionate to
its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. The MSCI EAFE Index is a free float-adjusted,
market capitalization-weighted index designed to measure equity market
performance in global developed markets excluding the U.S. and Canada. The
LB U.S. Aggregate Index represents securities that are SEC-registered,
taxable and dollar denominated. The index covers the U.S. investment grade
fixed-rate bond market, with index components for government and corporate
securities, mortgage pass-through securities and asset-backed securities.
All issues included must have at least one year to final maturity and must
be rated investment grade (Baa3 or better) by Moody's Investors Service.
They must 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 U.S. T-Bill Index 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 value of Treasuries, if held to maturity, is fixed;
principal is guaranteed and interest is fixed. The indexes are unmanaged
and include reinvested dividends. One cannot invest directly in an index,
nor is an index representative of the Fund's portfolio.
Annual Report | 27
At period-end, Franklin Templeton 2045 Retirement Target Fund's domestic equity
exposure was 68.9% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 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 18.9% of the
Fund's total net assets, was our largest equity fund weighting at period-end.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, slightly underperformed the S&P 500, as did our largest domestic
value fund holding, Mutual Shares Fund - Class Z. However, our largest foreign
equity holding, Mutual European Fund - Class Z, outperformed the MSCI EAFE
Index.
Thank you for your participation in Franklin Templeton 2045 Retirement Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2045 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
28 | Annual Report
Performance Summary as of 12/31/06
FRANKLIN TEMPLETON 2045 RETIREMENT 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: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.89 $10.89 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1338
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0056
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0264
- ------------------------------------------------------------------------------
TOTAL $0.1658
- ------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.87 $10.87 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1278
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0056
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0264
- ------------------------------------------------------------------------------
TOTAL $0.1598
- ------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.88 $10.88 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1326
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0056
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0264
- ------------------------------------------------------------------------------
TOTAL $0.1646
- ------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/06 8/1/06
- ------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.90 $10.90 $10.00
- ------------------------------------------------------------------------------
DISTRIBUTIONS (8/1/06-12/31/06)
- ------------------------------------------------------------------------------
Dividend Income $0.1403
- ------------------------------------------------------------------------------
Short-Term Capital Gain $0.0056
- ------------------------------------------------------------------------------
Long-Term Capital Gain $0.0264
- ------------------------------------------------------------------------------
TOTAL $0.1723
- ------------------------------------------------------------------------------
Annual Report | 29
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AGGREGATE 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 INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +10.55%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +4.20%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,420
- -------------------------------------------------------------------------------
CLASS C INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +10.30%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +9.30%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,930
- -------------------------------------------------------------------------------
CLASS R INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +10.44%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +10.44%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,044
- -------------------------------------------------------------------------------
ADVISOR CLASS INCEPTION (8/1/06)
- -------------------------------------------------------------------------------
Cumulative Total Return 2 +10.72%
- -------------------------------------------------------------------------------
Aggregate Total Return 3 +10.72%
- -------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,072
- -------------------------------------------------------------------------------
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.
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BECAUSE THESE FUNDS INVEST
IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES
INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. 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 returns would have been lower. After 12/31/07, the manager
and administrator may end this arrangement at any time upon notice to the
Fund's board.
2. Cumulative total return represents the change in value of an investment
over the period indicated.
3. Aggregate total return represents the change in value of an investment
over the period indicated. Since the Fund has existed for less than one
year, average annual total returns are not available.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the period indicated.
30 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2045 RETIREMENT 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 provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 31
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.
- -------------------------------------------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ACCOUNT DURING PERIOD*
VALUE ACTUAL 8/1/06-12/31/06
ACTUAL 8/1/06 ENDING ACCOUNT HYPOTHETICAL
CLASS A HYPOTHETICAL 7/1/06 VALUE 12/31/06 7/1/06-12/31/06
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,105.50 $2.21
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- -------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,103.00 $4.80
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.71 $5.55
- -------------------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,104.40 $2.87
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31
- -------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,107.20 $0.66
- -------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77
- -------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense
waivers, for each class (A: 0.50%; C: 1.09%; R: 0.65%; and Advisor:
0.15%), multiplied by the average account value over the period,
multiplied by 184/365 (Hypothetical) to reflect the one-half year period.
For actual expenses, the multiplier is 153/365 to reflect the number of
days since commencement of operations.
32 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS A 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.13
Net realized and unrealized gains (losses) .............................. 0.73
-----------
Total from investment operations ......................................... 0.86
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.15)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.17)
-----------
Net asset value, end of period ........................................... $ 10.69
===========
Total return d ........................................................... 8.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 1,364
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 12.13% g
Expenses net of waiver and payments by affiliates e ..................... 0.50% g
Net investment income c ................................................. 2.92% g
Portfolio turnover rate .................................................. 2.42%
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 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 the contingent deferred
sales charge, 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 December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS C 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.14
Net realized and unrealized gains (losses) .............................. 0.69
-----------
Total from investment operations ......................................... 0.83
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.14)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.16)
-----------
Net asset value, end of period ........................................... $ 10.67
===========
Total return d ........................................................... 8.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 63
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 12.78% g
Expenses net of waiver and payments by affiliates e ..................... 1.15% g
Net investment income c ................................................. 2.27% g
Portfolio turnover rate .................................................. 2.42%
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 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 the contingent deferred
sales charge, 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 December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
34 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
-------------
PERIOD ENDED
DECEMBER 31,
CLASS R 2006 f
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.11
Net realized and unrealized gains (losses) .............................. 0.74
-----------
Total from investment operations ......................................... 0.85
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.15)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.17)
-----------
Net asset value, end of period ........................................... $ 10.68
===========
Total return d ........................................................... 8.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 11
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 12.28% g
Expenses net of waiver and payments by affiliates e ..................... 0.65% g
Net investment income c ................................................. 2.77% g
Portfolio turnover rate .................................................. 2.42%
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 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 the contingent deferred
sales charge, 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 December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
-------------
PERIOD ENDED
DECEMBER 31,
ADVISOR CLASS 2006 f
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.17
Net realized and unrealized gains (losses) .............................. 0.71
-----------
Total from investment operations ......................................... 0.88
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.16)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.18)
-----------
Net asset value, end of period ........................................... $ 10.70
===========
Total return d ........................................................... 8.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 20
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 11.78% g
Expenses net of waiver and payments by affiliates e ..................... 0.15% g
Net investment income c ................................................. 3.27% g
Portfolio turnover rate .................................................. 2.42%
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 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 December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
36 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 93.3%
DOMESTIC EQUITY 48.3%
b Franklin Aggressive Growth Fund, Advisor Class ...................... 2,662 $ 48,164
Franklin Flex Cap Growth Fund, Advisor Class ........................ 4,324 184,417
Franklin Natural Resources Fund, Advisor Class ...................... 1,251 43,660
Franklin Real Estate Securities Fund, Advisor Class ................. 1,939 51,471
b Franklin Small Cap Growth Fund II, Advisor Class .................... 16,806 209,905
Mutual Shares Fund, Class Z ......................................... 6,389 166,695
----------
704,312
----------
DOMESTIC FIXED INCOME 16.0%
Franklin Strategic Mortgage Portfolio ............................... 7,024 67,433
Franklin Total Return Fund, Advisor Class ........................... 6,544 65,051
Franklin U.S. Government Securities Fund, Advisor Class ............. 15,559 100,356
----------
232,840
----------
FOREIGN EQUITY 21.9%
Franklin Gold and Precious Metals Fund, Advisor Class ............... 1,558 51,236
Mutual European Fund, Class Z ....................................... 6,637 163,198
Templeton China World Fund, Advisor Class ........................... 1,489 47,751
Templeton Foreign Fund, Advisor Class ............................... 4,240 57,617
----------
319,802
----------
FOREIGN FIXED INCOME 7.1%
Templeton Global Bond Fund, Advisor Class ........................... 9,395 103,534
----------
TOTAL LONG TERM INVESTMENTS (COST $1,327,211) ....................... 1,360,488
----------
SHORT TERM INVESTMENT (COST $66) 0.0%c
MONEY MARKET FUND 0.0%c
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 66 66
----------
TOTAL INVESTMENTS (COST $1,327,277) 93.3% ........................... 1,360,554
OTHER ASSETS, LESS LIABILITIES 6.7% ................................. 97,577
----------
NET ASSETS 100.0% ................................................... $1,458,131
==========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2006.
c Rounds to less than 0.1% of net assets.
d The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS A 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.12
Net realized and unrealized gains (losses) .............................. 0.82
-----------
Total from investment operations ......................................... 0.94
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.14)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.16)
-----------
Redemption fees .......................................................... -- g
-----------
Net asset value, end of period ........................................... $ 10.78
===========
Total return d ........................................................... 9.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 1,699
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 10.76% h
Expenses net of waiver and payments by affiliates e ..................... 0.50% h
Net investment income c ................................................. 2.78% h
Portfolio turnover rate .................................................. 5.36%
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 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 the contingent deferred
sales charge, 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 0.85% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Amount rounds to less than $0.01 per share.
h Annualized.
38 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
-------------
PERIOD ENDED
DECEMBER 31,
CLASS C 2006 f
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.10
Net realized and unrealized gains (losses) .............................. 0.82
-----------
Total from investment operations ......................................... 0.92
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.13)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.15)
-----------
Redemption fees .......................................................... -- g
-----------
Net asset value, end of period ........................................... $ 10.77
===========
Total return d ........................................................... 9.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 54
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 11.41% h
Expenses net of waiver and payments by affiliates e ..................... 1.15% h
Net investment income c ................................................. 2.13% h
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 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 the contingent deferred
sales charge, 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 0.85% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Amount rounds to less than $0.01 per share.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS R 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.11
Net realized and unrealized gains (losses) .............................. 0.82
-----------
Total from investment operations ......................................... 0.93
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.14)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.16)
-----------
Redemption fees .......................................................... -- g
-----------
Net asset value, end of period ........................................... $ 10.77
===========
Total return d ........................................................... 9.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 19
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 10.91% h
Expenses net of waiver and payments by affiliates e ..................... 0.65% h
Net investment income c ................................................. 2.63% h
Portfolio turnover rate .................................................. 5.36%
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 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 the contingent deferred
sales charge, 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 0.85% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Amount rounds to less than $0.01 per share.
h Annualized.
40 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
-------------
PERIOD ENDED
DECEMBER 31,
ADVISOR CLASS 2006 f
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.20
Net realized and unrealized gains (losses) .............................. 0.76
-----------
Total from investment operations ......................................... 0.96
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.15)
Net realized gains ...................................................... (0.02)
-----------
Total distributions ...................................................... (0.17)
-----------
Redemption fees .......................................................... -- g
-----------
Net asset value, end of period ........................................... $ 10.79
===========
Total return d ........................................................... 9.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 51
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 10.41% h
Expenses net of waiver and payments by affiliates e ..................... 0.15% h
Net investment income c ................................................. 3.13% h
Portfolio turnover rate .................................................. 5.36%
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 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 0.85% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Amount rounds to less than $0.01 per share.
h Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 94.6%
DOMESTIC EQUITY 57.2%
b Franklin Aggressive Growth Fund, Advisor Class ...................... 4,145 $ 74,989
Franklin Flex Cap Growth Fund, Advisor Class ........................ 6,377 271,959
Franklin Natural Resources Fund, Advisor Class ...................... 1,861 64,961
Franklin Real Estate Securities Fund, Advisor Class ................. 2,815 74,748
b Franklin Small Cap Growth Fund II, Advisor Class .................... 24,633 307,662
Mutual Shares Fund, Class Z ......................................... 9,535 248,778
----------
1,043,097
----------
DOMESTIC FIXED INCOME 7.9%
Franklin Strategic Mortgage Portfolio ............................... 4,400 42,239
Franklin Total Return Fund, Advisor Class ........................... 3,885 38,617
Franklin U.S. Government Securities Fund, Advisor Class ............. 9,596 61,894
----------
142,750
----------
FOREIGN EQUITY 26.0%
Franklin Gold and Precious Metals Fund, Advisor Class ............... 2,325 76,457
Mutual European Fund, Class Z ....................................... 9,845 242,079
Templeton China World Fund, Advisor Class ........................... 2,197 70,486
Templeton Foreign Fund, Advisor Class ............................... 6,226 84,611
----------
473,633
----------
FOREIGN FIXED INCOME 3.5%
Templeton Global Bond Fund, Advisor Class ........................... 5,790 63,809
----------
TOTAL LONG TERM INVESTMENTS (COST $1,689,753) ....................... 1,723,289
----------
SHORT TERM INVESTMENT (COST $42) 0.0% c
MONEY MARKET FUND 0.0% c
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 42 42
----------
TOTAL INVESTMENTS (COST $1,689,795) 94.6% ........................... 1,723,331
OTHER ASSETS, LESS LIABILITIES 5.4% ................................. 99,119
----------
NET ASSETS 100.0% ................................................... $1,822,450
==========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2006.
c Rounds to less than 0.1% of net assets.
d The rate shown is the annualized seven-day yield at period end.
42 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS A 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.09
Net realized and unrealized gains (losses) .............................. 0.95
-----------
Total from investment operations ......................................... 1.04
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.13)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.16)
-----------
Net asset value, end of period ........................................... $ 10.88
===========
Total return d ........................................................... 10.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 1,171
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 13.47% g
Expenses net of waiver and payments by affiliates e ..................... 0.50% g
Net investment income c ................................................. 2.04% g
Portfolio turnover rate .................................................. 8.29%
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 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS C 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.12
Net realized and unrealized gains (losses) .............................. 0.89
-----------
Total from investment operations ......................................... 1.01
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.12)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.15)
-----------
Net asset value, end of period ........................................... $ 10.86
===========
Total return d ........................................................... 10.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 57
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 14.12% g
Expenses net of waiver and payments by affiliates e ..................... 1.15% g
Net investment income c ................................................. 1.39% g
Portfolio turnover rate .................................................. 8.29%
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 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
44 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS R 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.11
Net realized and unrealized gains (losses) .............................. 0.93
-----------
Total from investment operations ......................................... 1.04
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.13)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.16)
-----------
Net asset value, end of period ........................................... $ 10.88
===========
Total return d ........................................................... 10.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 23
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 13.62% g
Expenses net of waiver and payments by affiliates e ..................... 0.65% g
Net investment income c ................................................. 1.89% g
Portfolio turnover rate .................................................. 8.29%
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 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
-------------
PERIOD ENDED
DECEMBER 31,
ADVISOR CLASS 2006 f
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.18
Net realized and unrealized gains (losses) .............................. 0.88
-----------
Total from investment operations ......................................... 1.06
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.14)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.17)
-----------
Net asset value, end of period ........................................... $ 10.89
===========
Total return d ........................................................... 10.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 59
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 13.12% g
Expenses net of waiver and payments by affiliates e ..................... 0.15% g
Net investment income c ................................................. 2.39% g
Portfolio turnover rate .................................................. 8.29%
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 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
46 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- -----------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 92.5%
DOMESTIC EQUITY 63.2%
b Franklin Aggressive Growth Fund, Advisor Class ...................... 3,155 $ 57,079
Franklin Flex Cap Growth Fund, Advisor Class ........................ 5,089 217,053
Franklin Natural Resources Fund, Advisor Class ...................... 1,437 50,154
Franklin Real Estate Securities Fund, Advisor Class ................. 2,235 59,329
b Franklin Small Cap Growth Fund II, Advisor Class .................... 19,758 246,774
Mutual Shares Fund, Class Z ......................................... 7,581 197,792
----------
828,181
----------
DOMESTIC FIXED INCOME 0.5%
Franklin Strategic Mortgage Portfolio ............................... 206 1,979
Franklin Total Return Fund, Advisor Class ........................... 200 1,987
Franklin U.S. Government Securities Fund, Advisor Class ............. 460 2,969
----------
6,935
----------
FOREIGN EQUITY 28.5%
Franklin Gold and Precious Metals Fund, Advisor Class ............... 1,840 60,508
Mutual European Fund, Class Z ....................................... 7,790 191,567
Templeton China World Fund, Advisor Class ........................... 1,710 54,861
Templeton Foreign Fund, Advisor Class ............................... 4,928 66,976
----------
373,912
----------
FOREIGN FIXED INCOME 0.3%
Templeton Global Bond Fund, Advisor Class ........................... 297 3,270
----------
TOTAL LONG TERM INVESTMENTS (COST $1,171,007) ....................... 1,212,298
----------
SHORT TERM INVESTMENT (COST $32) 0.0% c
MONEY MARKET FUND 0.0% c
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 32 32
----------
TOTAL INVESTMENTS (COST $1,171,039) 92.5% ........................... 1,212,330
OTHER ASSETS, LESS LIABILITIES 7.5% ................................. 97,623
----------
NET ASSETS 100.0% ................................................... $1,309,953
==========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2006.
c Rounds to less than 0.1% of net assets.
d The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
-------------
PERIOD ENDED
DECEMBER 31,
CLASS A 2006 f
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.08
Net realized and unrealized gains (losses) .............................. 0.97
-----------
Total from investment operations ......................................... 1.05
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.13)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.16)
-----------
Net asset value, end of period ........................................... $ 10.89
===========
Total return d ........................................................... 10.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 1,169
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 13.15% g
Expenses net of waiver and payments by affiliates e ..................... 0.50% g
Net investment income c ................................................. 1.97% g
Portfolio turnover rate .................................................. 8.01%
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 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 the contingent deferred
sales charge, 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
48 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
CLASS C 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.16
Net realized and unrealized gains (losses) .............................. 0.87
-----------
Total from investment operations ......................................... 1.03
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.13)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.16)
-----------
Net asset value, end of period ........................................... $ 10.87
===========
Total return d ........................................................... 10.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 67
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 13.74% g
Expenses net of waiver and payments by affiliates e ..................... 1.09% g
Net investment income c ................................................. 1.38% g
Portfolio turnover rate .................................................. 8.01%
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 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 the contingent deferred
sales charge, 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
-------------
PERIOD ENDED
DECEMBER 31,
CLASS R 2006 f
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.08
Net realized and unrealized gains (losses) .............................. 0.96
-----------
Total from investment operations ......................................... 1.04
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.13)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.16)
-----------
Net asset value, end of period ........................................... $ 10.88
===========
Total return d ........................................................... 10.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 12
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 13.30% g
Expenses net of waiver and payments by affiliates e ..................... 0.65% g
Net investment income c ................................................. 1.82% g
Portfolio turnover rate .................................................. 8.01%
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 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 the contingent deferred
sales charge, 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
50 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
--------------
PERIOD ENDED
DECEMBER 31,
ADVISOR CLASS 2006 f
--------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $ 10.00
-----------
Income from investment operations a:
Net investment income b, c .............................................. 0.12
Net realized and unrealized gains (losses) .............................. 0.95
-----------
Total from investment operations ......................................... 1.07
-----------
Less distributions from:
Net investment income and short term gains received from Underlying Funds (0.14)
Net realized gains ...................................................... (0.03)
-----------
Total distributions ...................................................... (0.17)
-----------
Net asset value, end of period ........................................... $ 10.90
===========
Total return d ........................................................... 10.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $ 17
Ratios to average net assets:
Expenses before waiver and payments by affiliates e ..................... 12.80% g
Expenses net of waiver and payments by affiliates e ..................... 0.15% g
Net investment income c ................................................. 2.32% g
Portfolio turnover rate .................................................. 8.01%
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 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 0.89% for the period ended December 31, 2006.
f For the period August 1, 2006 (commencement of operations) to December 31,
2006.
g Annualized.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2006
- ---------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 92.3%
DOMESTIC EQUITY 63.6%
b Franklin Aggressive Growth Fund, Advisor Class ...................... 3,207 $ 58,017
Franklin Flex Cap Growth Fund, Advisor Class ........................ 4,928 210,187
Franklin Natural Resources Fund, Advisor Class ...................... 1,413 49,321
Franklin Real Estate Securities Fund, Advisor Class ................. 2,150 57,076
b Franklin Small Cap Growth Fund II, Advisor Class .................... 19,137 239,017
Mutual Shares Fund, Class Z ......................................... 7,312 190,781
----------
804,399
----------
FOREIGN EQUITY 28.7%
Franklin Gold and Precious Metals Fund, Advisor Class ............... 1,763 57,953
Mutual European Fund, Class Z ....................................... 7,570 186,151
Templeton China World Fund, Advisor Class ........................... 1,690 54,203
Templeton Foreign Fund, Advisor Class ............................... 4,738 64,391
----------
362,698
----------
TOTAL LONG TERM INVESTMENTS (COST $1,125,168) ....................... 1,167,097
----------
SHORT TERM INVESTMENT (COST $13) 0.0% c
MONEY MARKET FUND 0.0% c
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.97% 13 13
----------
TOTAL INVESTMENTS (COST $1,125,181) 92.3% ........................... 1,167,110
OTHER ASSETS, LESS LIABILITIES 7.7% ................................. 97,808
----------
NET ASSETS 100.0% ................................................... $1,264,918
==========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2006.
c Rounds to less than 0.1% of net assets.
d The rate shown is the annualized seven-day yield at period end.
52 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2006
-------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost .................................... $1,327,277 $1,689,795 $1,171,039 $1,125,181
===========================================================================
Value ................................... $1,360,554 $1,723,331 $1,212,330 $1,167,110
Receivables:
Investment securities sold .............. 11,592 15,974 16,100 12,790
Capital shares sold ..................... -- 3,815 -- 388
Affiliates .............................. 57,033 56,708 58,429 57,240
Offering costs ........................... 46,181 46,181 46,181 46,181
---------------------------------------------------------------------------
Total assets ...................... 1,475,360 1,846,009 1,333,040 1,283,709
---------------------------------------------------------------------------
Liabilities:
Payables:
Reports to shareholders ................. 1,500 1,500 1,700 1,500
Professional fees ....................... 250 250 250 250
Funds advanced by custodian .............. 11,580 15,972 16,096 12,786
Accrued expenses and other liabilities ... 3,899 5,837 5,041 4,255
---------------------------------------------------------------------------
Total liabilities ................. 17,229 23,559 23,087 18,791
---------------------------------------------------------------------------
Net assets, at value ........ $1,458,131 $1,822,450 $1,309,953 $1,264,918
===========================================================================
Net assets consist of:
Paid-in capital .......................... $1,378,829 $1,721,621 $1,216,686 $1,171,165
Undistributed net investment income ...... 467 533 389 366
Net unrealized appreciation (depreciation) 33,277 33,536 41,291 41,929
Accumulated net realized gain (loss) ..... 45,558 66,760 51,587 51,458
---------------------------------------------------------------------------
Net assets, at value ........ $1,458,131 $1,822,450 $1,309,953 $1,264,918
===========================================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2006
------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------------------------------------
CLASS A:
Net assets, at value ...................... $1,364,190 $1,698,741 $1,171,321 $1,169,324
==========================================================================
Shares outstanding ........................ 127,642 157,578 107,638 107,404
==========================================================================
Net asset value per share a ............... $ 10.69 $ 10.78 $ 10.88 $ 10.89
==========================================================================
Maximum offering price per share (net asset
value per share / 94.25%) ................ $ 11.34 $ 11.44 $ 11.54 $ 11.55
==========================================================================
CLASS C:
Net assets, at value ...................... $ 63,341 $ 53,687 $ 56,781 $ 66,799
==========================================================================
Shares outstanding ........................ 5,938 4,987 5,230 6,146
==========================================================================
Net asset value and maximum offering price
per share a .............................. $ 10.67 $ 10.77 $ 10.86 $ 10.87
==========================================================================
CLASS R:
Net assets, at value ...................... $ 10,681 $ 18,941 $ 23,200 $ 12,194
==========================================================================
Shares outstanding ........................ 1,000 1,758 2,133 1,121
==========================================================================
Net asset value and maximum offering price
per share a .............................. $ 10.68 $ 10.77 $ 10.88 $ 10.88
==========================================================================
ADVISOR CLASS:
Net assets, at value ...................... $ 19,919 $ 51,081 $ 58,651 $ 16,601
==========================================================================
Shares outstanding ........................ 1,862 4,732 5,384 1,523
==========================================================================
Net asset value and maximum offering price
per share a .............................. $ 10.70 $ 10.79 $ 10.89 $ 10.90
==========================================================================
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
54 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the period ended December 31, 2006 a
------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------------------------------------
Investment income:
Dividends from Underlying Funds
(Note 6) .................................... $ 17,430 $ 18,956 $ 11,864 $ 11,532
---------------------------------------------------------------------------
Expenses:
Asset allocation fees (Note 3a) .............. 1,217 1,399 1,162 1,161
Distribution fees: (Note 3c)
Class A ..................................... 1,700 1,918 1,518 1,564
Class C ..................................... 134 162 121 102
Class R ..................................... 22 25 35 23
Transfer agent fees (Note 3e) ................ 333 542 501 427
Reports to shareholders ...................... 1,500 1,500 1,728 1,500
Registration and filing fees ................. 1,176 1,057 2,317 1,002
Professional fees ............................ 21,839 21,839 21,839 21,839
Trustees' fees and expenses .................. 25 25 25 25
Amortization of offering costs ............... 33,329 33,329 33,329 33,329
Other ........................................ 558 501 351 501
---------------------------------------------------------------------------
Total expenses ........................... 61,833 62,297 62,926 61,473
Expenses waived/paid by affiliates
(Note 3f) ............................ (59,213) (59,326) (60,551) (59,083)
---------------------------------------------------------------------------
Net expenses ....................... 2,620 2,971 2,375 2,390
---------------------------------------------------------------------------
Net investment income ............. 14,810 15,985 9,489 9,142
---------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ..... (255) (1,579) (846) (735)
Realized gain distributions by
Underlying Funds .......................... 53,019 78,476 61,684 61,247
---------------------------------------------------------------------------
Net realized gain (loss) from
Underlying Funds ................ 52,764 76,897 60,838 60,512
---------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ............................ 33,277 33,536 41,291 41,929
---------------------------------------------------------------------------
Net realized and unrealized gain (loss) ....... 86,041 110,433 102,129 102,441
---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .............................. $ 100,851 $ 126,418 $ 111,618 $ 111,583
===========================================================================
a For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 55
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 a 2006 a 2006 a 2006 a
----------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .................. $ 14,810 $ 15,985 $ 9,489 $ 9,142
Net realized gain (loss) from
Underlying Funds ..................... 52,764 76,897 60,838 60,512
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ..................... 33,277 33,536 41,291 41,929
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ..... 100,851 126,418 111,618 111,583
----------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income and short term
gains received from Underlying Funds:
Class A .............................. (19,061) (22,186) (14,155) (14,304)
Class C .............................. (827) (641) (627) (776)
Class R .............................. (149) (247) (271) (145)
Advisor Class ........................ (289) (691) (736) (213)
Net realized gains:
Class A .............................. (2,441) (3,104) (3,461) (3,421)
Class C .............................. (112) (97) (166) (194)
Class R .............................. (19) (34) (68) (35)
Advisor Class ........................ (36) (92) (171) (48)
----------------------------------------------------------------------------
Total distributions to shareholders ..... (22,934) (27,092) (19,655) (19,136)
----------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A .............................. 1,289,499 1,604,063 1,084,636 1,079,556
Class C .............................. 61,466 50,514 54,747 65,871
Class R .............................. 10,000 18,158 21,604 11,306
Advisor Class ........................ 19,249 50,386 57,003 15,738
----------------------------------------------------------------------------
Total capital share transactions ........ 1,380,214 1,723,121 1,217,990 1,172,471
----------------------------------------------------------------------------
Redemption fees ......................... -- 3 -- --
----------------------------------------------------------------------------
Net increase (decrease) in
net assets ........................ 1,458,131 1,822,450 1,309,953 1,264,918
Net assets:
Beginning of period ..................... $ -- $ -- $ -- $ --
----------------------------------------------------------------------------
End of period ........................... $ 1,458,131 $ 1,822,450 $ 1,309,953 $ 1,264,918
============================================================================
Undistributed net investment income
included in net assets:
End of period
$ 467 $ 533 $ 389 $ 366
============================================================================
a For the period August 1, 2006 (commencement of operations) to December 31,
2006.
56 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940, as amended, (the 1940 Act) as an open-end
investment company, consisting of ten separate funds. All funds included in this
report (the Funds) are diversified. The financial statements of the remaining
funds in the Trust are presented separately. The Funds invest primarily in
Franklin Templeton mutual funds (the Underlying Funds). The Funds offer four
classes of shares: Class A, 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.
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.
Estimated expenses are accrued daily. Dividend income and realized gain
distributions by Underlying Funds are 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.
Annual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in class-level
expenses may result in payment of different per share distributions by class.
D. OFFERING COSTS
Offering costs are amortized on a straight line basis over twelve months.
E. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
F. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Funds and accounted for as an addition to paid-in
capital.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and directors 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. Currently, the Trust expects the
risk of loss to be remote.
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 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
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
CLASS A SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 127,176 $ 1,284,518 157,296 $ 1,600,839
Shares issued in reinvestment of distributions 473 5,061 892 9,629
Shares redeemed .............................. (7) (80) (610) (6,405)
-----------------------------------------------------------
Net increase (decrease) ...................... 127,642 $ 1,289,499 157,578 $ 1,604,063
===========================================================
CLASS C SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 5,865 $ 60,687 4,935 $ 49,955
Shares issued in reinvestment of distributions 73 779 53 574
Shares redeemed .............................. -- -- (1) (15)
-----------------------------------------------------------
Net increase (decrease) ...................... 5,938 $ 61,466 4,987 $ 50,514
===========================================================
CLASS R SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 1,000 $ 10,000 1,748 $ 18,053
Shares issued in reinvestment of distributions -- -- 11 120
Shares redeemed .............................. -- -- (1) (15)
-----------------------------------------------------------
Net increase (decrease) ...................... 1,000 $ 10,000 1,758 $ 18,158
===========================================================
ADVISOR CLASS SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 1,848 $ 19,100 6,173 $ 65,450
Shares issued in reinvestment of distributions 14 149 57 616
Shares redeemed .............................. -- -- (1,498) (15,680)
-----------------------------------------------------------
Net increase (decrease) ...................... 1,862 $ 19,249 4,732 $ 50,386
===========================================================
-----------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
CLASS A SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 107,501 $ 1,083,143 107,433 $ 1,079,816
Shares issued in reinvestment of distributions 158 1,718 151 1,642
Shares redeemed .............................. (21) (225) (180) (1,902)
-----------------------------------------------------------
Net increase (decrease) ...................... 107,638 $ 1,084,636 107,404 $ 1,079,556
===========================================================
CLASS C SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 5,178 $ 54,184 6,073 $ 65,075
Shares issued in reinvestment of distributions 59 638 74 811
Shares redeemed .............................. (7) (75) (1) (15)
-----------------------------------------------------------
Net increase (decrease) ...................... 5,230 $ 54,747 6,146 $ 65,871
===========================================================
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
CLASS R SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 2,120 $ 21,455 1,122 $ 11,320
Shares issued in reinvestment of distributions 16 179 2 16
Shares redeemed .............................. (3) (30) (3) (30)
---------------------------------------------------------
Net increase (decrease) ...................... 2,133 $ 21,604 1,121 $ 11,306
=========================================================
ADVISOR CLASS SHARES:
Period ended December 31, 2006 a
Shares sold .................................. 5,318 $ 56,281 1,515 $ 15,649
Shares issued in reinvestment of distributions 67 737 8 89
Shares redeemed .............................. (1) (15) -- --
---------------------------------------------------------
Net increase (decrease) ...................... 5,384 $ 57,003 1,523 $ 15,738
=========================================================
a For the period August 1, 2006 (commencement of operations) to December 31,
2006.
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.
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ................................. 0.35%
Class C ................................. 1.00%
Class R ................................. 0.50%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
-------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------------------------------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ....................... $881 $2,676 $478 $581
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 FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------------------------------
Transfer agent fees ................................. $215 $419 $344 $292
F. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS
Advisers agreed in advance to voluntarily waive asset allocation fees and assume
payment of other expenses through December 31, 2007. Total expenses waived/paid
by Advisers are not subject to reimbursement by the Funds subsequent to the
Funds' fiscal year end. After December 31, 2007, Advisers may discontinue this
waiver at any time.
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
G. OTHER AFFILIATED TRANSACTIONS
At December 31, 2006, Advisers owned a percentage of the Funds' outstanding
shares as listed below:
---------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------------------------------------------------------
73.29% 59.15% 83.07% 86.06%
4. INCOME TAXES
The tax character of distributions paid during the period ended December 31,
2006, was as follows:
---------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------------------
Distributions paid from:
Ordinary income .......... $ 20,516 $ 23,883 $ 16,605 $ 16,084
Long-term capital gain ... 2,418 3,209 3,050 3,052
---------------------------------------------------------
$ 22,934 $ 27,092 $ 19,655 $ 19,136
=========================================================
At December 31, 2006, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------------------
Cost of investments ...................... $ 1,327,730 $ 1,691,597 $ 1,172,708 $ 1,126,657
============================================================
Unrealized appreciation .................. $ 36,755 $ 42,130 $ 42,472 $ 43,107
Unrealized depreciation .................. (3,931) (10,396) (2,850) (2,654)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 32,824 $ 31,734 $ 39,622 $ 40,453
============================================================
Undistributed ordinary income ............ $ 475 $ 638 $ 508 $ 510
Undistributed long term capital gains .... 46,003 68,457 53,137 52,789
------------------------------------------------------------
Distributable earnings ................... $ 46,478 $ 69,095 $ 53,645 $ 53,299
============================================================
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of short term capital gain distributions from
Underlying Funds and offering costs.
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 December 31, 2006, were as follows:
------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------------------
Purchases ..... $ 1,354,828 $ 1,760,362 $ 1,260,852 $ 1,211,092
Sales ......... $ 27,361 $ 69,031 $ 89,017 $ 85,189
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At December 31, 2006, the Funds
held no positions which exceed 5% of the Underlying Funds' shares outstanding.
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, including the Securities and Exchange
Commission ("SEC"), 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 ("marketing support"), 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 SEC, among others, concerning market
timing and marketing support.
Annual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY MATTERS (CONTINUED)
On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006. The Trust did not participate in that
Settlement.
The plan of distribution for the market timing settlement is currently under
review by the SEC staff. After publication of notice of the plan and a 30-day
comment period, the proposed plan of distribution will be submitted to the SEC
for approval. Following the SEC's approval of the plan of distribution, with
modifications as appropriate, distribution of the settlement monies will begin
in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and 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.). The lawsuits relate to the industry
practices referenced above, as well as to allegedly excessive commissions and
advisory and distribution fees.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Trust, it is
committed to making the Trust or their shareholders whole, as appropriate.
64 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (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. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period in 2007. The Funds
are currently evaluating the impact, if any, of applying the various provisions
of FIN 48.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Trust believes the adoption of SFAS 157
will have no material impact on its financial statements.
Annual Report | 65
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton 2015 Retirement
Target Fund, Franklin Templeton 2025 Retirement Target Fund, Franklin Templeton
2035 Retirement Target Fund, and Franklin Templeton 2045 Retirement Target Fund
(separate portfolios of Franklin Templeton Fund Allocator Series, hereafter
referred to as the "Funds") at December 31, 2006, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for the period August 1, 2006 (commencement of operations) to December 31, 2006,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments in the
Underlying Funds at December 31, 2006 by correspondence with the transfer agent
of the Underlying Funds, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 22, 2007
66 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2006:
----------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------------------------------------------------------------------------
$48,421 $71,666 $56,187 $55,841
Under Section 871(k)(2)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as a short term capital gain
dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended December 31, 2006:
----------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------------------------------------------------------------------------
$198 $223 $ 935 $791
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2006.
----------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------------------------------------------------------------------------
11.65% 14.81% 16.68% 16.99%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2006.
----------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------------------------------------------------------------------------
$9,455 $13,877 $11,053 $11,009
In January 2007, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2006.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Annual Report | 67
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member will serve until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -----------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 142 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- -----------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2005 57 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems
(CALPERS); and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
- -----------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 143 Director, Hess Corporation (formerly
One Franklin Parkway Amerada Hess Corporation)
San Mateo, CA 94403-1906 (exploration and refining of oil and
gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National Railway
(railroad) and White Mountains
Insurance Group, Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary
of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary
and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- -----------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 116 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).
- ------------------------------------------------------------------------------------------------------------------------------------
68 | Annual Report
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Trustee Since February 46 None
One Franklin Parkway 2006
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial
Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Executive Vice
President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company
(1986-1990).
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -----------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 142 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 41 of the investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 126 None
One Franklin Parkway President and 1995 and
San Mateo, CA 94403-1906 Chief President and
Executive Chief Executive
Officer - Officer -
Investment Investment
Management Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- -----------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources,
Inc. (1994-2001).
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Report | 69
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -----------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 30 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most
of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- -----------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services,
LLC, Franklin Mutual Advisers, LLC, Franklin Templeton Institutional, LLC, Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; Vice President, Templeton Global Advisors Limited and officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director,
Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
- -----------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Vice President Not Applicable Not Applicable
One Franklin Parkway and Secretary since February
San Mateo, CA 94403-1906 2006 and
Secretary since
April 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President and Secretary, Templeton Funds Annuity Company;
and officer of 30 of the investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------------------------------------------------------------------------
70 | Annual Report
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -----------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- -----------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987
and 1991-2004).
- -----------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust and under the federal securities laws due
to their positions as officers and directors and major shareholders of
Franklin Resources, Inc., which is the parent company of the Fund's
investment manager and distributor.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
Note 2: Prior to December 31, 2006, S. Joseph Fortunato and Gordon S. Macklin
ceased to be a trustee of the Trust.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 71
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 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.
72 | Annual Report
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund 1
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 1
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 Floating Rate Daily Access Fund
Franklin High Income Fund 5
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 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
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 Michigan 7
Arizona Minnesota 7
California 8 Missouri
Colorado New Jersey
Connecticut New York 8
Florida 8 North Carolina
Georgia Ohio 7
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 7 Virginia
INSURANCE FUNDS
Templeton Variable Insurance Products Trust 9
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. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy
remained the same.
6. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
7. Portfolio of insured municipal securities.
8. 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).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632 -2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
RTF A2006 02/07
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.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date February 27, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date February 27, 2007
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date February 27, 2007