UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07851
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FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices)(Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code:(650) 312-2000
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Date of fiscal year end: 12/31
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Date of reporting period: 06/30/07
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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JUNE 30, 2007
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Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
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WANT TO RECEIVE
FRANKLIN TEMPLETON THIS DOCUMENT
FUND ALLOCATOR SERIES FASTER VIA EMAIL?
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why
our funds can be used to build truly diversified
allocation plans covering every major asset
class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the semiannual report
Contents
SEMIANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton Conservative Target Fund ............................... 5
Franklin Templeton Moderate Target Fund ................................... 13
Franklin Templeton Growth Target Fund ..................................... 21
Financial Highlights and Statements of Investments ........................ 29
Financial Statements ...................................................... 47
Notes to Financial Statements ............................................. 52
Meeting of Shareholders ................................................... 62
Shareholder Information ................................................... 70
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Semiannual Report
Economic and Market Overview
During the six months ended June 30, 2007, the U.S. economy rebounded after an
initial slowdown. Gross domestic product growth decelerated to an annualized
0.6% rate in 2007's first quarter. Corporate profits and government spending
generally remained robust. The struggling housing market grew more fragile with
the abrupt unraveling of the subprime mortgage market. This exacerbated already
weak housing prices and an inventory glut in most of the nation's residential
real estate markets. In the second quarter, however, growth advanced at an
estimated annualized 3.4% rate, supported by federal defense spending,
accelerating exports and declining imports, greater business inventory
investment and increased spending for nonresidential structures.
The unemployment rate began and ended the reporting period at 4.5% while overall
job growth slowed in the face of rising labor costs. 1 Jobs in vehicle
manufacturing and housing-related industries experienced declines stemming from
reduced consumer demand. Consumer confidence fell to a 10-month low in June.
Gasoline prices rose in the first half of 2007 in response to perceived tight
supply and high demand for oil, refinery maintenance issues, and ongoing
geopolitical tensions in the Middle East and Africa. Although the rate of core
inflation moderated during the six-month reporting period, it rose 2.2% for the
12 months ended June 30, 2007, which was also the 10-year average rate. 2
The Federal Reserve Board kept the federal funds target rate at 5.25% and
indicated that inflation pressures remained a key concern. The 10-year Treasury
note yield began the period at 4.71%. Toward the end of the period, a bond
market sell-off caused yields on longer-term Treasuries to rise significantly,
reflecting expectations of a pick-up in inflation later in the year. The 10-year
Treasury yield reached 5.03% on June 30, 2007.
Outside the U.S., the global economy remained resilient throughout the six-month
period. Sustained consumer and corporate demand, reasonably low inflation, tight
or improving labor markets, and moderate, though higher, global interest rates
have consistently supported economic growth since the global economic recovery
began in 2002.
1. Source: Bureau of Labor Statistics.
2. Source: Bureau of Labor Statistics. Core inflation, as measured by the
Consumer Price Index, excludes food and energy costs.
Semiannual Report | 3
Financing costs increased gradually from unprecedented low levels, but global
liquidity -- petrodollars, corporate cash, private equity, household savings and
central banks' reserves -- remained abundant. As investible cash continued to
look for a home, global merger and acquisition activity remained at record
levels.
After global stock market sell-offs in late February and mid-March, markets
rebounded in the second quarter amid generally strong corporate earnings
reports. Domestically, the blue chip stocks of the Dow Jones Industrial Average
posted a six-month total return of +8.76%, and the broader Standard & Poor's 500
Index (S&P 500) returned +6.92%, while the technology-heavy NASDAQ Composite
Index returned +8.20%. 3 Most non-U.S. equity markets ended the six-month period
with double-digit total returns. Many stock market indexes in the U.S. and most
European countries reached seven-year highs, and many emerging market indexes in
Asia, Europe and Latin America neared or reached all-time highs during the
reporting period.
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 JUNE 30,
2007. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
4 | Semiannual Report
Franklin Templeton
Conservative Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target
Fund seeks the highest level of long-term total return consistent with a lower
level of risk. 1
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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ASSET ALLOCATION*
Franklin Templeton Conservative Target Fund
Based on Total Net Assets as of 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ............. 27.9%
Domestic Fixed Income ....... 27.6%
Foreign Equity .............. 12.3%
Foreign Fixed Income ........ 12.2%
Short-Term Investments &
Other Net Assets ............ 20.0%
* 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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We are pleased to bring you Franklin Templeton Conservative Target Fund's
semiannual report for the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A posted a +5.30% cumulative
total return for the six months under review. The Fund outperformed its hybrid
benchmark, which comprised a weighted combination of the Standard & Poor's 500
Index (S&P 500) and the Morgan Stanley Capital International (MSCI) 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.
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, WHICH BEGINS ON PAGE 34.
Semiannual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund 6/30/07
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% OF TOTAL
NET ASSETS
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Templeton Global Bond Fund 12.2%
- - Advisor Class
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Franklin U.S. Government Securities 11.7%
Fund - Advisor Class
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Franklin Total Return Fund 9.3%
- - Advisor Class
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Franklin Small Cap Growth Fund II 7.6%
- - Advisor Class
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Franklin Flex Cap Growth Fund 7.4%
- - Advisor Class
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Mutual Shares Fund 7.3%
- - Class Z
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Mutual European Fund 6.6%
- - Class Z
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Franklin Strategic Mortgage Portfolio 6.5%
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Templeton Foreign Fund 2.2%
- - Advisor Class
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Franklin Aggressive Growth Fund 2.1%
- - Advisor Class
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For the reporting period, the hybrid benchmark returned +4.16%. 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 69.4% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2007, 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 7.6% of the
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 69.3% of the Fund's total income
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.
P&R 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 T-Bill 20%. The indexes are unmanaged and include reinvested
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
6 | Semiannual Report
weighting, with the balance represented by foreign fixed income. Templeton
Global Bond Fund - Advisor Class was our largest fixed income fund weighting at
12.2% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500 during the six-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
also 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. Conversely, Franklin U.S. Government Securities Fund - Advisor
Class and Franklin Strategic Mortgage Portfolio underperformed 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 JUNE 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 7
Performance Summary as of 6/30/07
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FTCIX) CHANGE 6/30/07 12/31/06
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Net Asset Value (NAV) +$0.32 $13.65 $13.33
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DISTRIBUTIONS (1/1/07-6/30/07)
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Dividend Income $0.1424
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Long-Term Capital Gain $0.2289
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TOTAL $0.3713
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CLASS B (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
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Net Asset Value (NAV) +$0.31 $13.60 $13.29
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DISTRIBUTIONS (1/1/07-6/30/07)
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Dividend Income $0.1002
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Long-Term Capital Gain $0.2289
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TOTAL $0.3291
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CLASS C (SYMBOL: FTCCX) CHANGE 6/30/07 12/31/06
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Net Asset Value (NAV) +$0.30 $13.48 $13.18
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DISTRIBUTIONS (1/1/07-6/30/07)
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Dividend Income $0.1028
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Long-Term Capital Gain $0.2289
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TOTAL $0.3317
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CLASS R (SYMBOL: FTCRX) CHANGE 6/30/07 12/31/06
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Net Asset Value (NAV) +$0.32 $13.62 $13.30
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DISTRIBUTIONS (1/1/07-6/30/07)
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Dividend Income $0.1283
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Long-Term Capital Gain $0.2289
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TOTAL $0.3572
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ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
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Net Asset Value (NAV) +$0.33 $13.64 $13.31
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DISTRIBUTIONS (1/1/07-6/30/07)
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Dividend Income $0.1562
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Long-Term Capital Gain $0.2289
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TOTAL $0.3851
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8 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +5.30% +12.15% +49.48% +95.89%
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Average Annual Total Return 3 -0.73% +5.69% +7.10% +6.32%
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Value of $10,000 Investment 4 $ 9,927 $10,569 $14,090 $18,456
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Total Annual Operating Expenses 5
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Without Waiver 1.42%
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With Waiver 0.50%
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CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (12/1/03)
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Cumulative Total Return 2 +4.92% +11.27% +26.62% +29.62%
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Average Annual Total Return 3 +0.92% +7.27% +7.32% +6.81%
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Value of $10,000 Investment 4 $10,092 $10,727 $12,362 $12,662
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Total Annual Operating Expenses 5
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Without Waiver 2.17%
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With Waiver 1.25%
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CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +4.90% +11.25% +44.02% +81.62%
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Average Annual Total Return 3 +3.90% +10.25% +7.57% +6.15%
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Value of $10,000 Investment 4 $10,390 $11,025 $14,402 $18,162
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Total Annual Operating Expenses 5
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Without Waiver 2.16%
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With Waiver 1.25%
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CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
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Cumulative Total Return 2 +5.13% +11.82% +47.58% +45.65%
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Average Annual Total Return 3 +5.13% +11.82% +8.10% +7.09%
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Value of $10,000 Investment 4 $10,513 $11,182 $14,758 $14,565
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Total Annual Operating Expenses 5
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Without Waiver 1.67%
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With Waiver 0.75%
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ADVISOR CLASS 6 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +5.41% +12.44% +50.02% +96.60%
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Average Annual Total Return 3 +5.41% +12.44% +8.45% +6.99%
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Value of $10,000 Investment 4 $10,541 $11,244 $15,002 $19,660
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Total Annual Operating Expenses 5
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Without Waiver 1.17%
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With Waiver 0.25%
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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.
THE MANAGER HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL ANNUAL
FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 9
Performance Summary (CONTINUED)
ENDNOTES
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 manager has contractually agreed to limit Fund expenses so that total
annual Fund operating expenses do not exceed the amount shown with waiver (other
than certain non-routine expenses) for each share class until 4/30/09. If the
manager had not taken this action, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. 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 +17.04% and +10.48%.
10 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 11
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,053.00 $2.55
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Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,049.20 $6.35
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Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,049.00 $6.35
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.26
- ------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,051.30 $3.81
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.08 $3.76
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,054.10 $1.27
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.55 $1.25
- ------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; B: 1.25%; C: 1.25%; R: 0.75%; and Advisor: 0.25%),
multiplied by the average account value over the period, multiplied by 181/365
to reflect the one-half year period.
12 | Semiannual Report
Franklin Templeton
Moderate Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund
seeks the highest level of long-term total return consistent with 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 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ............. 39.0%
Domestic Fixed Income ....... 23.2%
Foreign Equity .............. 17.2%
Foreign Fixed Income ........ 10.6%
Short-Term Investments &
Other Net Assets ............ 10.0%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Moderate Target Fund's
semiannual report for the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A posted a +6.64% cumulative
total return for the six months under review. The Fund outperformed its hybrid
benchmark, which comprised a weighted combination of the Standard & Poor's 500
Index (S&P 500) and the Morgan Stanley Capital International (MSCI) 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
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, WHICH BEGINS ON PAGE 40.
Semiannual Report | 13
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund
6/30/07
- -------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- -------------------------------------------------------------------------
Templeton Global Bond Fund 10.6%
- - Advisor Class
- -------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 10.4%
- - Advisor Class
- -------------------------------------------------------------------------
Mutual Shares Fund 10.1%
- - Class Z
- -------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 10.1%
- - Advisor Class
- -------------------------------------------------------------------------
Franklin U.S. Government Securities Fund 9.9%
- - Advisor Class
- -------------------------------------------------------------------------
Mutual European Fund 9.2%
- - Class Z
- -------------------------------------------------------------------------
Franklin Total Return Fund 7.8%
- - Advisor Class
- -------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 5.4%
- -------------------------------------------------------------------------
Templeton Foreign Fund 3.4%
- - Advisor Class
- -------------------------------------------------------------------------
Franklin Aggressive Growth Fund 3.1%
- - Advisor Class
- -------------------------------------------------------------------------
assets. For the reporting period, the hybrid benchmark returned +5.06%. 2 You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 16.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series 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 June 30, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, representing 10.4% of the Fund's
total net assets, was our largest equity fund weighting at
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.
P&R 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 T-Bill 10%. The indexes are unmanaged and include reinvested
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
14 | Semiannual Report
period-end. On the fixed income side, domestic exposure was 68.6% of the Fund's
total income weighting, with the balance represented by foreign fixed income.
Templeton Global Bond Fund - Advisor Class was our largest fixed income fund
weighting at 10.6% of total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, outperformed the S&P 500 during the six-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
also 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. Conversely, Franklin U.S. Government Securities Fund - Advisor
Class and Franklin Strategic Mortgage Portfolio underperformed 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 JUNE 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 15
Performance Summary as of 6/30/07
FRANKLIN TEMPLETON MODERATE TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FMTIX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.49 $14.52 $14.03
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.1098
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3356
- --------------------------------------------------------------------------------
TOTAL $0.4454
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FBMTX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.47 $ 14.46 $13.99
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0637
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3356
- --------------------------------------------------------------------------------
TOTAL $0.3993
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTMTX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.46 $14.27 $13.81
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0659
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3356
- --------------------------------------------------------------------------------
TOTAL $0.4015
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FTMRX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.48 $14.48 $14.00
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0953
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3356
- --------------------------------------------------------------------------------
TOTAL $0.4309
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.49 $14.52 $14.03
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.1247
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3356
- --------------------------------------------------------------------------------
TOTAL $0.4603
- --------------------------------------------------------------------------------
16 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -----------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.64% +14.59% +60.86% +97.81%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +0.48% +8.02% +8.67% +6.43%
- -----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,048 $ 10,802 $ 15,154 $ 18,648
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------------------------
Without Waiver 1.47%
- -----------------------------------------------------------------------------------------------------------
With Waiver 0.50%
- -----------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (12/1/03)
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.25% +13.70% +32.94% +37.30%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +2.25% +9.70% +9.12% +8.58%
- -----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,225 $ 10,970 $ 12,994 $ 13,430
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------------------------
Without Waiver 2.22%
- -----------------------------------------------------------------------------------------------------------
With Waiver 1.25%
- -----------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.28% +13.76% +55.02% +83.39%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.28% +12.76% +9.16% +6.25%
- -----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,528 $ 11,276 $ 15,502 $ 18,339
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------------------------
Without Waiver 2.22%
- -----------------------------------------------------------------------------------------------------------
With Waiver 1.25%
- -----------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.55% +14.26% +58.93% +54.21%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +6.55% +14.26% +9.71% +8.21%
- -----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,655 $ 11,426 $ 15,893 $ 15,421
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------------------------
Without Waiver 1.72%
- -----------------------------------------------------------------------------------------------------------
With Waiver 0.75%
- -----------------------------------------------------------------------------------------------------------
ADVISOR CLASS 6 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.82% +14.86% +61.66% +98.79%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +6.82% +14.86% +10.08% +7.11%
- -----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,682 $ 11,486 $ 16,166 $ 19,879
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------------------------
Without Waiver 1.22%
- -----------------------------------------------------------------------------------------------------------
With Waiver 0.25%
- -----------------------------------------------------------------------------------------------------------
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.
THE MANAGER HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL ANNUAL
FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 17
Performance Summary (CONTINUED)
ENDNOTES
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 manager has contractually agreed to limit Fund expenses so that total
annual Fund operating expenses do not exceed the amount shown with waiver (other
than certain non-routine expenses) for each share class until 4/30/09. If the
manager had not taken this action, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. 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 +20.31% and +12.43%.
18 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON MODERATE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 19
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,066.40 $2.51
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.36 $2.46
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,062.50 $6.34
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,062.80 $6.34
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,065.50 $3.79
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.12 $3.71
- ---------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,068.20 $1.23
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.60 $1.20
- ---------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.49%; B: 1.24%; C: 1.24%; R: 0.74%; and Advisor: 0.24%),
multiplied by the average account value over the period, multiplied by 181/365
to reflect the one-half year period.
20 | Semiannual Report
Franklin Templeton
Growth Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Growth Target Fund
seeks the highest level of long-term total return consistent with a higher level
of risk. 1
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton Growth Target Fund
Based on Total Net Assets as of 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE GRAPH IN THE PRINTED MATERIAL.]
Domestic Equity ............. 55.6%
Domestic Fixed Income ....... 10.1%
Foreign Equity .............. 24.5%
Foreign Fixed Income ........ 4.7%
Short-Term Investments &
Other Net Assets ............ 5.1%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Growth Target Fund's semiannual
report for the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A posted a cumulative total return
of +8.52% for the six months under review. The Fund outperformed its hybrid
benchmark, which comprised a weighted combination of the Standard & Poor's 500
Index (S&P 500) and the Morgan Stanley Capital International (MSCI) 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.
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, WHICH BEGINS ON PAGE 46.
Semiannual Report | 21
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund
6/30/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Mutual Shares Fund 14.9%
- - Class Z
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 14.9%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 14.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual European Fund 12.9%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Foreign Fund 4.7%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton Global Bond Fund 4.7%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities Fund 4.3%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 4.2%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton China World Fund 3.8%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund 3.7%
- - Advisor Class
- --------------------------------------------------------------------------------
For the reporting period, the hybrid benchmark returned +6.81%. 2 You can find
the Fund's long-term performance data in the Performance Summary beginning on
page 24.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series 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 69.5% of its total equity weighting, with the balance represented by foreign
equity. The portfolio was diversified across capitalization sizes and investment
styles, and on June 30, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z and Franklin Small Cap Growth Fund II -Advisor
Class each represented 14.9% of the Fund's total net assets, and were
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.
P&R 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.
22 | Semiannual Report
our largest equity fund weightings at period-end. On the fixed income side,
domestic exposure was 68.3% of the Fund's total income weighting, with the
balance represented by foreign fixed income. Templeton Global Bond Fund -Advisor
Class was our largest fixed income fund weighting at 4.7% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500 during the six-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
also outperformed the S&P 500. Our largest foreign equity fund holding, Mutual
European Fund - Class Z, outperformed the MSCI EAFE Index. However, Templeton
Foreign Fund - Advisor Class trailed the MSCI EAFE. On the fixed income side,
Templeton Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate
Index. Conversely, Franklin U.S. Government Securities Fund - Advisor Class
underperformed 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 OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Growth Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 23
Performance Summary as of 6/30/07
FRANKLIN TEMPLETON GROWTH TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ----------------------------------------------------------------------------------------
CLASS A (SYMBOL: FGTIX) CHANGE 6/30/07 12/31/06
- ----------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.80 $ 16.43 $ 15.63
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- ----------------------------------------------------------------------------------------
Dividend Income $0.0041
- ----------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5202
- ----------------------------------------------------------------------------------------
TOTAL $0.5243
- ----------------------------------------------------------------------------------------
CLASS B (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- ----------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.72 $ 16.17 $ 15.45
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- ----------------------------------------------------------------------------------------
Dividend Income $0.0041
- ----------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5202
- ----------------------------------------------------------------------------------------
TOTAL $0.5243
- ----------------------------------------------------------------------------------------
CLASS C (SYMBOL: FTGTX) CHANGE 6/30/07 12/31/06
- ----------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.72 $ 16.16 $ 15.44
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- ----------------------------------------------------------------------------------------
Dividend Income $0.0041
- ----------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5202
- ----------------------------------------------------------------------------------------
TOTAL $0.5243
- ----------------------------------------------------------------------------------------
CLASS R (SYMBOL: FGTRX) CHANGE 6/30/07 12/31/06
- ----------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.77 $ 16.29 $ 15.52
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- ----------------------------------------------------------------------------------------
Dividend Income $0.0041
- ----------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5202
- ----------------------------------------------------------------------------------------
TOTAL $0.5243
- ----------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- ----------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.82 $ 16.46 $ 15.64
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- ----------------------------------------------------------------------------------------
Dividend Income $0.0041
- ----------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5202
- ----------------------------------------------------------------------------------------
TOTAL $0.5243
- ----------------------------------------------------------------------------------------
24 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ------------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.52% +17.85% +75.47% +103.08%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +2.30% +11.07% +10.58% +6.71%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,230 $11,107 $16,538 $19,136
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------------
Without Waiver 1.58%
- ------------------------------------------------------------------------------------------------------------
With Waiver 0.50%
- ------------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (12/1/03)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.17% +17.00% +42.38% +47.93%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +4.17% +13.00% +11.70% +10.92%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,417 $11,300 $13,938 $14,493
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------------
Without Waiver 2.33%
- ------------------------------------------------------------------------------------------------------------
With Waiver 1.25%
- ------------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.10% +16.95% +68.91% +88.64%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.10% +15.95% +11.05% +6.55%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,710 $11,595 $16,891 $18,864
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------------
Without Waiver 2.33%
- ------------------------------------------------------------------------------------------------------------
With Waiver 1.25%
- ------------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.38% +17.53% +73.15% +63.18%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.38% +17.53% +11.60% +9.33%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,838 $11,753 $17,315 $16,318
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------------
Without Waiver 1.83%
- ------------------------------------------------------------------------------------------------------------
With Waiver 0.75%
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 6 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.64% +18.14% +76.24% +103.97%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.64% +18.14% +12.00% +7.39%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,864 $11,814 $17,624 $20,397
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------------
Without Waiver 1.33%
- ------------------------------------------------------------------------------------------------------------
With Waiver 0.25%
- ------------------------------------------------------------------------------------------------------------
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.
THE MANAGER HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL ANNUAL
FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 25
Performance Summary (CONTINUED)
ENDNOTES
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 manager has contractually agreed to limit Fund expenses so that total
annual Fund operating expenses do not exceed the amount shown with waiver (other
than certain non-routine expenses) for each share class until 4/30/09. If the
manager had not taken this action, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. 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 +24.80% and +15.07%.
26 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON GROWTH TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 27
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,085.20 $2.53
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.36 $2.46
- --------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,081.70 $6.35
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.16
- --------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,081.00 $6.35
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.16
- --------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.80 $3.82
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.12 $3.71
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $1,086.40 $1.29
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.55 $1.25
- --------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.49%; B: 1.23%; C: 1.23%; R: 0.74%; and Advisor: 0.25%),
multiplied by the average account value over the period, multiplied by 181/365
to reflect the one-half year period.
28 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
---------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS A (UNAUDITED) 2006 2005 2004 h 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................ 0.18 0.41 0.29 0.12 0.23 0.23
Net realized and unrealized gains (losses) ....... 0.51 0.84 0.29 0.84 0.74 0.69
---------------------------------------------------------------------------
Total from investment operations .................... 0.69 1.25 0.58 0.96 0.97 0.92
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................ (0.14) (0.42) (0.32) (0.14) (0.22) (0.24)
Net realized gains ............................... (0.23) (0.24) -- -- -- --
---------------------------------------------------------------------------
Total distributions ................................. (0.37) (0.66) (0.32) (0.14) (0.22) (0.24)
---------------------------------------------------------------------------
Redemption fees ..................................... -- g -- g -- g -- g -- g --
---------------------------------------------------------------------------
Net asset value, end of period ...................... $ 13.65 $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91
===========================================================================
Total return d ...................................... 5.30% 9.92% 4.70% 8.30% 8.89% 8.99%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by
affiliates f ...................................... 0.68% 0.69% 0.73% 0.82% 0.85% 0.91%
Expenses net of waiver and payments
by affiliates f ................................... 0.50% 0.50% 0.69% 0.82% 0.85% 0.91%
Net investment income c ............................. 2.61% 3.09% 2.31% 2.40% 2.00% 2.21%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $217,077 $194,477 $162,079 $139,153 $117,013 $64,409
Portfolio turnover rate ............................. 1.33% 11.08% 8.16% 2.63% 3.71% 18.03%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.69%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 29
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
--------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2006 2005 2004 h 2004 i
--------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $13.29 $12.71 $12.46 $11.63 $11.67
--------------------------------------------------------------
Income from investment operations a:
Net investment income b,c .............................. 0.13 0.30 0.19 0.09 0.07
Net realized and unrealized gains (losses) ............. 0.51 0.84 0.29 0.84 0.04
--------------------------------------------------------------
Total from investment operations .......................... 0.64 1.14 0.48 0.93 0.11
--------------------------------------------------------------
Less distributions from:
Net investment income .................................. (0.10) (0.32) (0.23) (0.10) (0.15)
Net realized gains ..................................... (0.23) (0.24) -- -- --
--------------------------------------------------------------
Total distributions ....................................... (0.33) (0.56) (0.23) (0.10) (0.15)
--------------------------------------------------------------
Redemption fees ........................................... -- g -- g -- g -- g -- g
--------------------------------------------------------------
Net asset value, end of period ............................ $13.60 $13.29 $12.71 $12.46 $11.63
==============================================================
Total return d ............................................ 4.92% 9.05% 3.87% 8.02% 0.98%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ....... 1.43% 1.44% 1.48% 1.57% 1.60%
Expenses net of waiver and payments by affiliates f ....... 1.25% 1.25% 1.44% 1.57% 1.60%
Net investment income c ................................... 1.86% 2.34% 1.56% 1.65% 1.25%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $6,425 $6,422 $6,202 $5,223 $3,567
Portfolio turnover rate ................................... 1.33% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.69%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period December 31, 2003 (effective date) to July 31, 2004.
30 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-----------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS C (UNAUDITED) 2006 2005 2004 h 2004 2003
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................... $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14
-----------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.12 0.30 0.19 0.08 0.14 0.15
Net realized and unrealized gains (losses) .......... 0.51 0.85 0.28 0.84 0.73 0.67
-----------------------------------------------------------------------
Total from investment operations ....................... 0.63 1.15 0.47 0.92 0.87 0.82
-----------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (0.10) (0.33) (0.23) (0.09) (0.14) (0.16)
Net realized gains .................................. (0.23) (0.24) -- -- -- --
-----------------------------------------------------------------------
Total distributions .................................... (0.33) (0.57) (0.23) (0.09) (0.14) (0.16)
-----------------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g --
-----------------------------------------------------------------------
Net asset value, end of period ......................... $ 13.48 $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80
=======================================================================
Total return d ......................................... 4.90% 9.16% 3.83% 8.03% 8.04% 8.20%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 1.43% 1.43% 1.47% 1.57% 1.60% 1.66%
Expenses net of waiver and payments by affiliates f .... 1.25% 1.24% 1.43% 1.57% 1.60% 1.66%
Net investment income c ................................ 1.86% 2.35% 1.57% 1.65% 1.25% 1.46%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................... $89,513 $76,018 $63,298 $59,803 $52,881 $32,344
Portfolio turnover rate ................................ 1.33% 11.08% 8.16% 2.63% 3.71% 18.03%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.69%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
---------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS R (UNAUDITED) 2006 2005 2004 h 2004 2003
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................... $ 13.30 $ 12.71 $ 12.46 $ 11.63 $10.89 $10.23
---------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.16 0.37 0.26 0.11 0.21 0.19
Net realized and unrealized gains (losses) .......... 0.52 0.85 0.28 0.85 0.72 0.69
---------------------------------------------------------------------
Total from investment operations ....................... 0.68 1.22 0.54 0.96 0.93 0.88
---------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (0.13) (0.39) (0.29) (0.13) (0.19) (0.22)
Net realized gains .................................. (0.23) (0.24) -- -- -- --
---------------------------------------------------------------------
Total distributions .................................... (0.36) (0.63) (0.29) (0.13) (0.19) (0.22)
---------------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g --
---------------------------------------------------------------------
Net asset value, end of period ......................... $ 13.62 $ 13.30 $ 12.71 $ 12.46 $11.63 $10.89
=====================================================================
Total return d ......................................... 5.13% 9.73% 4.37% 8.27% 8.56% 8.79%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 0.93% 0.94% 0.98% 1.07% 1.10% 1.16%
Expenses net of waiver and payments by affiliates f .... 0.75% 0.75% 0.94% 1.07% 1.10% 1.16%
Net investment income c ................................ 2.36% 2.84% 2.06% 2.15% 1.75% 1.96%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................... $16,925 $14,490 $14,112 $12,199 $8,370 $5,718
Portfolio turnover rate ................................ 1.33% 11.08% 8.16% 2.63% 3.71% 18.03%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.69%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
32 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2007 DECEMBER 31, DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2006 2005 h
-------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $13.31 $12.72 $12.81
-------------------------------------------------
Income from investment operations a:
Net investment income b,c .................................................... 0.19 0.45 0.07
Net realized and unrealized gains (losses) ................................... 0.53 0.83 0.02
-------------------------------------------------
Total from investment operations ............................................... 0.72 1.28 0.09
-------------------------------------------------
Less distributions from:
Net investment income ........................................................ (0.16) (0.45) (0.18)
Net realized gains ........................................................... (0.23) (0.24) --
-------------------------------------------------
Total distributions ............................................................ (0.39) (0.69) (0.18)
-------------------------------------------------
Redemption fees ................................................................ -- g -- g -- g
-------------------------------------------------
Net asset value, end of period ................................................. $13.64 $13.31 $12.72
-------------------------------------------------
Total return d ................................................................. 5.41% 10.28% 0.68%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 0.43% 0.44% 0.48%
Expenses net of waiver and payments by affiliates f ............................ 0.25% 0.25% 0.44%
Net investment income c ........................................................ 2.86% 3.34% 2.56%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $2,881 $1,726 $ 753
Portfolio turnover rate ........................................................ 1.33% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.69%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 33
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 80.0%
DOMESTIC EQUITY 27.9%
b Franklin Aggressive Growth Fund, Advisor Class ................................................ 347,061 $ 6,875,288
Franklin Flex Cap Growth Fund, Advisor Class .................................................. 527,837 24,597,202
Franklin Natural Resources Fund, Advisor Class ................................................ 143,550 6,161,183
Franklin Real Estate Securities Fund, Advisor Class ........................................... 240,584 5,723,494
b Franklin Small Cap Growth Fund II, Advisor Class .............................................. 1,845,163 25,352,538
Mutual Shares Fund, Class Z ................................................................... 850,142 24,220,533
--------------
92,930,238
--------------
DOMESTIC FIXED INCOME 27.6%
Franklin Strategic Mortgage Portfolio ......................................................... 2,306,031 21,676,693
Franklin Total Return Fund, Advisor Class ..................................................... 3,147,588 30,940,793
Franklin U.S. Government Securities Fund, Advisor Class ....................................... 6,185,970 39,095,330
--------------
91,712,816
--------------
FOREIGN EQUITY 12.3%
Franklin Gold and Precious Metals Fund, Advisor Class ......................................... 158,669 5,415,387
Mutual European Fund, Class Z ................................................................. 767,471 22,003,393
Templeton China World Fund, Advisor Class ..................................................... 158,249 6,038,784
Templeton Foreign Fund, Advisor Class ......................................................... 501,454 7,476,679
--------------
40,934,243
--------------
FOREIGN FIXED INCOME 12.2%
Templeton Global Bond Fund, Advisor Class ..................................................... 3,577,089 40,599,964
--------------
TOTAL LONG TERM INVESTMENTS (COST $221,304,892) ............................................... 266,177,261
--------------
SHORT TERM INVESTMENT (COST $65,690,644) 19.7%
MONEY MARKET FUND 19.7%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% .......................... 65,690,644 65,690,644
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $286,995,536) 99.7% ............................... 331,867,905
OTHER ASSETS, LESS LIABILITIES 0.3% ........................................................... 953,359
--------------
NET ASSETS 100.0% ............................................................................. $332,821,264
==============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2007.
c The rate shown is the annualized seven-day yield at period end.
34 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS A (UNAUDITED) 2006 2005 2004 h 2004 2003
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.13 0.35 0.25 0.12 0.20 0.19
Net realized and unrealized gains (losses) ........... 0.81 1.15 0.50 1.05 1.00 0.81
------------------------------------------------------------------------
Total from investment operations ........................ 0.94 1.50 0.75 1.17 1.20 1.00
------------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (0.11) (0.38) (0.30) (0.13) (0.19) (0.19)
Net realized gains ................................... (0.34) (0.23) -- -- -- --
------------------------------------------------------------------------
Total distributions ..................................... (0.45) (0.61) (0.30) (0.13) (0.19) (0.19)
------------------------------------------------------------------------
Redemption fees ......................................... -- g -- g -- g -- g -- g --
------------------------------------------------------------------------
Net asset value, end of period .......................... $ 14.52 $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64
========================================================================
Total return d .......................................... 6.64% 11.57% 5.94% 10.14% 11.18% 10.47%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments
by affiliates f ....................................... 0.69% 0.70% 0.74% 0.81% 0.89% 0.98%
Expenses net of waiver and payments
by affiliates f ....................................... 0.50% 0.50% 0.69% 0.81% 0.89% 0.98%
Net investment income c ................................. 1.88% 2.56% 1.93% 2.32% 1.75% 1.89%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................... $442,951 $401,392 $316,754 $281,033 $219,273 $121,617
Portfolio turnover rate ................................. 2.41% 9.40% 10.59% 2.78% 4.13% 15.90%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.76%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
-----------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2006 2005 2004 h 2004 i
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................... $ 13.99 $ 13.10 $ 12.66 $11.62 $11.62
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ................................... 0.08 0.24 0.15 0.09 0.05
Net realized and unrealized gains (losses) .................. 0.80 1.15 0.50 1.03 0.09
-----------------------------------------------------------------
Total from investment operations ............................... 0.88 1.39 0.65 1.12 0.14
-----------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (0.06) (0.27) (0.21) (0.08) (0.14)
Net realized gains .......................................... (0.34) (0.23) -- -- --
-----------------------------------------------------------------
Total distributions ............................................ (0.40) (0.50) (0.21) (0.08) (0.14)
-----------------------------------------------------------------
Redemption fees ................................................ -- g -- g -- g -- g -- g
-----------------------------------------------------------------
Net asset value, end of period ................................. $ 14.47 $ 13.99 $ 13.10 $12.66 $11.62
=================================================================
Total return d ................................................. 6.25% 10.70% 5.18% 9.77% 1.18%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............ 1.44% 1.45% 1.49% 1.56% 1.64%
Expenses net of waiver and payments by affiliates f ............ 1.25% 1.25% 1.44% 1.56% 1.64%
Net investment income c ........................................ 1.13% 1.81% 1.18% 1.57% 1.00%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................. $11,742 $11,533 $10,170 $8,700 $5,417
Portfolio turnover rate ........................................ 2.41% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.76%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
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.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS C (UNAUDITED) 2006 2005 2004 h 2004 2003
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.08 0.24 0.15 0.08 0.12 0.11
Net realized and unrealized gains (losses) ........... 0.78 1.13 0.50 1.03 0.98 0.80
------------------------------------------------------------------------
Total from investment operations ........................ 0.86 1.37 0.65 1.11 1.10 0.91
------------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (0.06) (0.27) (0.21) (0.08) (0.11) (0.12)
Net realized gains ................................... (0.34) (0.23) -- -- -- --
------------------------------------------------------------------------
Total distributions ..................................... (0.40) (0.50) (0.21) (0.08) (0.11) (0.12)
------------------------------------------------------------------------
Redemption fees ......................................... -- g -- g -- g -- g -- g --
------------------------------------------------------------------------
Net asset value, end of period .......................... $ 14.27 $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48
========================================================================
Total return d .......................................... 6.28% 10.72% 5.25% 9.75% 10.39% 9.50%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments
by affiliates f ....................................... 1.44% 1.45% 1.48% 1.56% 1.64% 1.73%
Expenses net of waiver and payments
by affiliates f ....................................... 1.25% 1.25% 1.43% 1.56% 1.64% 1.73%
Net investment income c ................................. 1.13% 1.81% 1.19% 1.57% 1.00% 1.14%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................... $147,678 $134,465 $112,294 $105,966 $90,988 $56,341
Portfolio turnover rate ................................. 2.41% 9.40% 10.59% 2.78% 4.13% 15.90%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.76%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS R (UNAUDITED) 2006 2005 2004 h 2004 2003
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................... $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.12 0.31 0.21 0.11 0.18 0.13
Net realized and unrealized gains (losses) ........... 0.79 1.15 0.51 1.04 0.98 0.85
------------------------------------------------------------------------
Total from investment operations ........................ 0.91 1.46 0.72 1.15 1.16 0.98
------------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (0.09) (0.34) (0.27) (0.11) (0.16) (0.18)
Net realized gains ................................... (0.34) (0.23) -- -- -- --
------------------------------------------------------------------------
Total distributions ..................................... (0.43) (0.57) (0.27) (0.11) (0.16) (0.18)
------------------------------------------------------------------------
Redemption fees ......................................... -- g -- g -- g -- g -- g --
------------------------------------------------------------------------
Net asset value, end of period .......................... $ 14.48 $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62
========================================================================
Total return d .......................................... 6.55% 11.27% 5.73% 9.92% 10.95% 10.10%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments
by affiliates f ....................................... 0.94% 0.95% 0.99% 1.06% 1.14% 1.23%
Expenses net of waiver and payments
by affiliates f ....................................... 0.75% 0.75% 0.94% 1.06% 1.14% 1.23%
Net investment income c ................................. 1.63% 2.31% 1.68% 2.07% 1.50% 1.64%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ....................... $35,841 $31,719 $30,403 $25,162 $17,161 $10,989
Portfolio turnover rate ................................. 2.41% 9.40% 10.59% 2.78% 4.13% 15.90%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.76%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
38 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
----------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2007 DECEMBER 31, DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2006 2005 h
----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................... $14.03 $13.15 $13.23
----------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.15 0.40 0.08
Net realized and unrealized gains (losses) .......... 0.80 1.13 0.02
----------------------------------------------
Total from investment operations ....................... 0.95 1.53 0.10
----------------------------------------------
Less distributions from:
Net investment income ............................... (0.12) (0.42) (0.18)
Net realized gains .................................. (0.34) (0.23) --
----------------------------------------------
Total distributions .................................... (0.46) (0.65) (0.18)
----------------------------------------------
Redemption fees ........................................ -- g -- g -- g
----------------------------------------------
Net asset value, end of period ......................... $14.52 $14.03 $13.15
==============================================
Total return d ......................................... 6.82% 11.87% 0.68%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 0.44% 0.45% 0.49%
Expenses net of waiver and payments by affiliates f .... 0.25% 0.25% 0.44%
Net investment income c ................................ 2.13% 2.81% 2.18%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................... $8,387 $7,071 $3,890
Portfolio turnover rate ................................ 2.41% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.76%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 90.0%
DOMESTIC EQUITY 39.0%
b Franklin Aggressive Growth Fund, Advisor Class ........................ 1,017,222 $ 20,151,174
Franklin Flex Cap Growth Fund, Advisor Class .......................... 1,439,757 67,092,660
Franklin Natural Resources Fund, Advisor Class ........................ 443,155 19,020,198
Franklin Real Estate Securities Fund, Advisor Class ................... 635,712 15,123,577
b Franklin Small Cap Growth Fund II, Advisor Class ...................... 4,741,194 65,144,001
Mutual Shares Fund, Class Z ........................................... 2,294,001 65,356,097
--------------
251,887,707
--------------
DOMESTIC FIXED INCOME 23.2%
Franklin Strategic Mortgage Portfolio ................................. 3,724,036 35,005,943
Franklin Total Return Fund, Advisor Class ............................. 5,158,581 50,708,855
Franklin U.S. Government Securities Fund, Advisor Class ............... 10,150,111 64,148,699
--------------
149,863,497
--------------
FOREIGN EQUITY 17.2%
Franklin Gold and Precious Metals Fund, Advisor Class ................. 382,755 13,063,423
Mutual European Fund, Class Z ......................................... 2,071,518 59,390,425
Templeton China World Fund, Advisor Class ............................. 458,105 17,481,304
Templeton Foreign Fund, Advisor Class ................................. 1,455,131 21,696,000
--------------
111,631,152
--------------
FOREIGN FIXED INCOME 10.6%
Templeton Global Bond Fund, Advisor Class ............................. 6,057,052 68,747,537
--------------
TOTAL LONG TERM INVESTMENTS (COST $466,877,123) 582,129,893
--------------
SHORT TERM INVESTMENT (COST $65,717,908) 10.2%
MONEY MARKET FUND 10.2%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% .. 65,717,908 65,717,908
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $532,595,031) 100.2% ...... 647,847,801
OTHER ASSETS, LESS LIABILITIES (0.2)% ................................. (1,248,504)
--------------
NET ASSETS 100.0% ..................................................... $ 646,599,297
==============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2007.
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.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS A (UNAUDITED) 2006 2005 2004 h 2004 2003
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ................... 0.06 0.24 0.14 0.09 0.11 0.08
Net realized and unrealized gains (losses) .. 1.26 1.73 0.96 1.33 1.36 1.01
----------------------------------------------------------------------------
Total from investment operations ............... 1.32 1.97 1.10 1.42 1.47 1.09
----------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............ -- g (0.32) (0.17) (0.08) (0.10) (0.10)
Net realized gains .......................... (0.52) (0.12) -- -- -- --
----------------------------------------------------------------------------
Total distributions ............................ (0.52) (0.44) (0.17) (0.08) (0.10) (0.10)
----------------------------------------------------------------------------
Redemption fees ................................ -- g -- g -- g -- g -- g --
----------------------------------------------------------------------------
Net asset value, end of period ................. $ 16.43 $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46
============================================================================
Total return d ................................. 8.52% 13.90% 8.47% 12.04% 14.04% 11.64%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments
by affiliates f ................................ 0.73% 0.75% 0.79% 0.85% 0.83% 0.92%
Expenses net of waiver and payments
by affiliates f ................................ 0.50% 0.50% 0.72% 0.85% 0.83% 0.92%
Net investment income c ........................ 0.69% 1.59% 1.07% 1.72% 0.91% 0.84%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 366,701 $ 319,521 $ 230,686 $ 202,560 $ 165,500 $ 99,432
Portfolio turnover rate ........................ 1.40% 9.31% 10.50% 3.98% 3.46% 21.87%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.84%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
-------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2006 2005 2004 h 2004 i
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 15.45 $ 13.97 $ 13.09 $ 11.75 $ 11.80
-------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ............ -- g 0.12 0.04 0.06 (0.02)
Net realized and unrealized gains (losses) .. 1.24 1.72 0.96 1.32 0.09
-------------------------------------------------------------
Total from investment operations ............... 1.24 1.84 1.00 1.38 0.07
-------------------------------------------------------------
Less distributions from:
Net investment income and short term
gains received from Underlying Funds ...... -- g (0.24) (0.12) (0.04) (0.12)
Net realized gains .......................... (0.52) (0.12) -- -- --
-------------------------------------------------------------
Total distributions ............................ (0.52) (0.36) (0.12) (0.04) (0.12)
-------------------------------------------------------------
Redemption fees ................................ -- g -- g -- g -- g -- g
-------------------------------------------------------------
Net asset value, end of period ................. $ 16.17 $ 15.45 $ 13.97 $ 13.09 $ 11.75
=============================================================
Total return d ................................. 8.17% 13.06% 7.63% 11.76% 0.56%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments
by affiliates f .............................. 1.48% 1.50% 1.54% 1.60% 1.58%
Expenses net of waiver and payments
by affiliates f .............................. 1.25% 1.25% 1.47% 1.60% 1.58%
Net investment income (loss) c ................. (0.06)% 0.84% 0.32% 0.97% 0.16%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 8,482 $ 8,195 $ 6,468 $ 5,343 $ 3,178
Portfolio turnover rate ........................ 1.40% 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.
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.84%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
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.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
---------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS C (UNAUDITED) 2006 2005 2004 h 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................. $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c .......................... -- g 0.13 0.04 0.05 0.02 0.01
Net realized and unrealized gains (losses) ......... 1.24 1.70 0.96 1.32 1.35 1.00
---------------------------------------------------------------------------
Total from investment operations ...................... 1.24 1.83 1.00 1.37 1.37 1.01
---------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ................... -- g (0.24) (0.12) -- (0.03) (0.03)
Net realized gains ................................. (0.52) (0.12) -- -- -- --
---------------------------------------------------------------------------
Total distributions ................................... (0.52) (0.36) (0.12) -- (0.03) (0.03)
---------------------------------------------------------------------------
Redemption fees ....................................... -- g -- g -- g -- g -- g --
---------------------------------------------------------------------------
Net asset value, end of period ........................ $ 16.16 $ 15.44 $ 13.97 $ 13.09 $11.72 $ 10.38
===========================================================================
Total return d ........................................ 8.10% 13.08% 7.63% 11.69% 13.18% 10.74%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by
affiliates f ......................................... 1.48% 1.50% 1.54% 1.60% 1.58% 1.67%
Expenses net of waiver and payments by
affiliates f ......................................... 1.25% 1.25% 1.47% 1.60% 1.58% 1.67%
Net investment income (loss) c ........................ (0.06)% 0.84% 0.32% 0.97% 0.16% 0.09%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................... $ 135,502 $ 122,156 $88,986 $ 73,816 $61,179 $ 40,829
Portfolio turnover rate ............................... 1.40% 9.31% 10.50% 3.98% 3.46% 21.87%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.84%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS R (UNAUDITED) 2006 2005 2004 h 2004 2003
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40 $ 9.46
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.04 0.20 0.11 0.08 0.08 0.05
Net realized and unrealized gains (losses) ........ 1.25 1.71 0.95 1.33 1.36 1.00
----------------------------------------------------------------------------
Total from investment operations ..................... 1.29 1.91 1.06 1.41 1.44 1.05
----------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds .................. -- g (0.29) (0.15) (0.06) (0.08) (0.11)
Net realized gains ................................ (0.52) (0.12) -- -- -- --
----------------------------------------------------------------------------
Total distributions .................................. (0.52) (0.41) (0.15) (0.06) (0.08) (0.11)
----------------------------------------------------------------------------
Redemption fees ...................................... -- g -- g -- g -- g -- g --
----------------------------------------------------------------------------
Net asset value, end of period ....................... $ 16.29 $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40
============================================================================
Total return d ....................................... 8.38% 13.65% 8.10% 12.00% 13.89% 11.11%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .. 0.98% 1.00% 1.04% 1.10% 1.08% 1.17%
Expenses net of waiver and payments by affiliates f .. 0.75% 0.75% 0.97% 1.10% 1.08% 1.17%
Net investment income c .............................. 0.44% 1.34% 0.82% 1.47% 0.66% 0.59%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $ 31,994 $ 26,215 $ 19,461 $ 15,206 $ 11,714 $ 5,567
Portfolio turnover rate .............................. 1.40% 9.31% 10.50% 3.98% 3.46% 21.87%
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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.84%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
44 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
-----------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2007 DECEMBER 31, DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2006 2005 h
-----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................. $ 15.64 $ 14.10 $ 14.18
-----------------------------------------------
Income from investment operations a:
Net investment income b,c ..................................................... 0.08 0.29 0.11
Net realized and unrealized gains (losses) .................................... 1.26 1.72 (0.03)
-----------------------------------------------
Total from investment operations ................................................. 1.34 2.01 0.08
-----------------------------------------------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ........................................................... -- g (0.35) (0.16)
Net realized gains ............................................................ (0.52) (0.12) --
-----------------------------------------------
Total distributions .............................................................. (0.52) (0.47) (0.16)
-----------------------------------------------
Redemption fees .................................................................. -- g -- g -- g
-----------------------------------------------
Net asset value, end of period ................................................... $ 16.46 $ 15.64 $ 14.10
===============================================
Total return d ................................................................... 8.64% 14.26% 0.54%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .............................. 0.48% 0.50% 0.54%
Expenses net of waiver and payments by affiliates f .............................. 0.25% 0.25% 0.47%
Net investment income c .......................................................... 0.94% 1.84% 1.32%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................................ $ 8,216 $ 5,593 $ 3,320
Portfolio turnover rate .......................................................... 1.40% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.84%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 94.9%
DOMESTIC EQUITY 55.6%
b Franklin Aggressive Growth Fund, Advisor Class ..................................................... 1,174,796 $ 23,272,709
Franklin Flex Cap Growth Fund, Advisor Class ....................................................... 1,705,951 79,497,297
Franklin Natural Resources Fund, Advisor Class ..................................................... 471,961 20,256,584
Franklin Real Estate Securities Fund, Advisor Class ................................................ 822,270 19,561,808
b Franklin Small Cap Growth Fund II, Advisor Class ................................................... 5,954,290 81,811,943
Mutual Shares Fund, Class Z ........................................................................ 2,883,472 82,150,104
--------------
306,550,445
--------------
DOMESTIC FIXED INCOME 10.1%
Franklin Strategic Mortgage Portfolio .............................................................. 1,394,427 13,107,618
Franklin Total Return Fund, Advisor Class .......................................................... 1,927,333 18,945,683
Franklin U.S. Government Securities Fund, Advisor Class ............................................ 3,731,270 23,581,625
--------------
55,634,926
--------------
FOREIGN EQUITY 24.5%
Franklin Gold and Precious Metals Fund, Advisor Class .............................................. 490,351 16,735,667
Mutual European Fund, Class Z ...................................................................... 2,475,919 70,984,586
Templeton China World Fund, Advisor Class .......................................................... 549,561 20,971,230
Templeton Foreign Fund, Advisor Class .............................................................. 1,750,309 26,097,110
--------------
134,788,593
--------------
FOREIGN FIXED INCOME 4.7%
Templeton Global Bond Fund, Advisor Class .......................................................... 2,278,055 25,855,919
--------------
TOTAL LONG TERM INVESTMENTS (COST $398,641,831) .................................................... 522,829,883
--------------
SHORT TERM INVESTMENT (COST $28,050,521) 5.1%
MONEY MARKET FUND 5.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% ............................... 28,050,521 28,050,521
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $426,692,352) 100.0% ................................... 550,880,404
OTHER ASSETS, LESS LIABILITIES 0.0% d .............................................................. 14,394
--------------
NET ASSETS 100.0% .................................................................................. $ 550,894,798
==============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2007.
c The rate shown is the annualized seven-day yield at period end.
d Rounds to less than 0.1% of net assets.
46 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2007 (unaudited)
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost .......................................................................... $286,995,536 $532,595,031 $426,692,352
============================================
Value ......................................................................... $331,867,905 $647,847,801 $550,880,404
Receivables on capital shares sold ............................................... 1,837,242 1,304,445 1,768,155
--------------------------------------------
Total assets ............................................................... 333,705,147 649,152,246 552,648,559
--------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ....................................................... 512,611 1,759,829 1,181,515
Affiliates .................................................................... 268,203 536,844 411,634
Unaffiliated transfer agent fees .............................................. 98,617 196,905 132,097
Accrued expenses and other liabilities ........................................... 4,452 59,371 28,515
--------------------------------------------
Total liabilities .......................................................... 883,883 2,552,949 1,753,761
--------------------------------------------
Net assets, at value .................................................... $332,821,264 $646,599,297 $550,894,798
============================================
Net assets consist of:
Paid-in capital .................................................................. $286,943,789 $529,293,120 $425,456,057
Undistributed net investment income .............................................. 764,467 1,166,837 1,218,897
Net unrealized appreciation (depreciation) ....................................... 44,872,369 115,252,770 124,188,052
Accumulated net realized gain (loss) ............................................. 240,639 886,570 31,792
--------------------------------------------
Net assets, at value .................................................... $332,821,264 $646,599,297 $550,894,798
============================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2007 (unaudited)
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------
CLASS A:
Net assets, at value. ............................................................ $ 217,077,040 $442,951,306 $366,700,516
============================================
Shares outstanding ............................................................... 15,900,701 30,515,798 22,314,101
============================================
Net asset value per share a ...................................................... $ 13.65 $ 14.52 $ 16.43
============================================
Maximum offering price per share (net asset value per share / 94.25%) ............ $ 14.48 $ 15.41 $ 17.43
============================================
CLASS B:
Net assets, at value. ............................................................ $ 6,425,130 $ 11,741,930 $ 8,482,056
============================================
Shares outstanding ............................................................... 472,366 811,747 524,639
============================================
Net asset value and maximum offering price per share a ........................... $13.60 $ 14.47 $ 16.17
============================================
CLASS C:
Net assets, at value. ............................................................ $ 89,513,037 $147,677,902 $135,502,301
============================================
Shares outstanding ............................................................... 6,638,667 10,350,150 8,383,156
============================================
Net asset value and maximum offering price per share a ........................... $ 13.48 $ 14.27 $ 16.16
============================================
CLASS R:
Net assets, at value. ............................................................ $ 16,924,597 $ 35,841,373$ 31,993,933
============================================
Shares outstanding ............................................................... 1,242,455 2,474,786 1,963,674
============================================
Net asset value and maximum offering price per share a ........................... $ 13.62 $ 14.48 $ 16.29
============================================
ADVISOR CLASS:
Net assets, at value. ............................................................ $ 2,881,460 $ 8,386,786 $ 8,215,992
============================================
Shares outstanding ............................................................... 211,254 577,679 499,213
============================================
Net asset value and maximum offering price per share ............................. $ 13.64 $ 14.52 $ 16.46
============================================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
48 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2007 (unaudited)
--------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
--------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ......................................... $ 4,808,139 $ 7,266,140 $ 3,041,575
--------------------------------------------
Expenses:
Asset allocation fees (Note 3a) .................................................. 309,725 687,502 604,852
Distribution fees: (Note 3c)
Class A ....................................................................... 253,189 521,161 422,379
Class B ....................................................................... 31,655 57,473 40,998
Class C ....................................................................... 408,752 700,853 646,982
Class R ....................................................................... 40,968 84,295 71,406
Transfer agent fees (Note 3e) .................................................... 289,612 578,693 573,669
Reports to shareholders .......................................................... 11,302 24,585 24,120
Registration and filing fees ..................................................... 48,485 70,076 53,181
Professional fees ................................................................ 10,740 12,264 12,055
Trustees' fees and expenses ...................................................... 329 699 489
Other ............................................................................ 4,360 8,066 6,238
--------------------------------------------
Total expenses ............................................................. 1,409,117 2,745,667 2,456,369
Expenses waived/paid by affiliates (Note 3f) ............................... (288,520) (619,578) (636,829)
--------------------------------------------
Net expenses ............................................................ 1,120,597 2,126,089 1,819,540
--------------------------------------------
Net investment income ................................................ 3,687,542 5,140,051 1,222,035
--------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ....................................... 421,075 1,133,441 197,247
Realized gain distributions by Underlying Funds ............................... 30,011 80,982 101,792
--------------------------------------------
Net realized gain (loss) from Underlying Funds .......................... 451,086 1,214,423 299,039
--------------------------------------------
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds .............................................................. 11,505,830 32,679,844 39,929,406
--------------------------------------------
Net realized and unrealized gain (loss) ............................................. 11,956,916 33,894,267 40,228,445
--------------------------------------------
Net increase (decrease) in net assets resulting from operations ..................... $ 15,644,458 $ 39,034,318 $ 41,450,480
============================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
-------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED JUNE 30, 2007 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2006 (UNAUDITED) DECEMBER 31, 2006
-------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 3,687,542 $ 7,686,994 $ 5,140,051 $ 12,463,219
Net realized gain (loss) from Underlying Funds .. 451,086 9,122,650 1,214,423 23,092,394
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ............................. 11,505,830 8,514,289 32,679,844 21,975,614
-------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .............. 15,644,458 25,323,933 39,034,318 57,531,227
-------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ...................................... (2,159,661) (5,841,842) (3,212,676) (10,307,386)
Class B ...................................... (47,134) (157,308) (50,658) (214,821)
Class C ...................................... (644,734) (1,799,408) (657,352) (2,582,448)
Class R ...................................... (157,105) (392,941) (228,409) (728,940)
Advisor Class ................................ (31,354) (50,554) (71,606) (186,986)
Net realized gains:
Class A ...................................... (3,534,934) (3,318,674) (9,906,177) (6,318,031)
Class B ...................................... (109,002) (117,917) (265,317) (183,094)
Class C ...................................... (1,475,986) (1,314,610) (3,375,756) (2,177,152)
Class R ...................................... (273,519) (239,128) (809,094) (494,272)
Advisor Class ................................ (51,510) (27,311) (196,481) (106,561)
-------------------------------------------------------------------------
Total distributions to shareholders ................ (8,484,939) (13,259,693) (18,773,526) (23,299,691)
-------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ...................................... 17,815,815 24,368,768 27,628,228 61,461,304
Class B ...................................... (142,130) (57,283) (183,676) 655,366
Class C ...................................... 11,711,604 9,679,370 8,664,179 14,184,310
Class R ...................................... 2,025,153 (299,909) 2,997,895 (742,059)
Advisor Class ................................ 1,117,009 932,606 1,047,512 2,870,008
-------------------------------------------------------------------------
Total capital share transactions ................... 32,527,451 34,623,552 40,154,138 78,428,929
-------------------------------------------------------------------------
Redemption fees .................................... 963 1,280 4,518 9,418
-------------------------------------------------------------------------
Net increase (decrease) in net assets ..... 39,687,933 46,689,072 60,419,448 112,669,883
Net assets:
Beginning of period ................................ 293,133,331 246,444,259 586,179,849 473,509,966
-------------------------------------------------------------------------
End of period ...................................... $332,821,264 $ 293,133,331 $ 646,599,297 $ 586,179,849
=========================================================================
Undistributed net investment income included
in net assets:
End of period ................................ $ 764,467 $ 116,913 $ 1,166,837 $ 247,487
=========================================================================
50 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
---------------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
---------------------------------------
SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2006
---------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................. $ 1,222,035 $ 5,784,210
Net realized gain (loss) from Underlying Funds ........................ 299,039 26,401,184
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds ................................................... 39,929,406 21,414,539
---------------------------------------
Net increase (decrease) in net assets resulting from
operations ................................................... 41,450,480 53,599,933
---------------------------------------
Distributions to shareholders from:
Net investment income and short term gains from Underlying Funds:
Class A ............................................................ (83,274) (6,239,874)
Class B ............................................................ (2,116) (121,718)
Class C ............................................................ (33,310) (1,804,826)
Class R ............................................................ (7,391) (471,530)
Advisor Class ...................................................... (1,663) (111,697)
Net realized gains:
Class A ............................................................ (11,214,851) (2,313,310)
Class B ............................................................ (264,532) (59,985)
Class C ............................................................ (4,236,308) (893,913)
Class R ............................................................ (973,534) (190,290)
Advisor Class ...................................................... (234,255) (40,304)
---------------------------------------
Total distributions to shareholders ...................................... (17,051,234) (12,247,447)
---------------------------------------
Capital share transactions: (Note 2)
Class A ............................................................ 30,702,507 61,095,501
Class B ............................................................ (81,571) 1,006,265
Class C ............................................................ 7,445,436 22,990,099
Class R ............................................................ 4,463,148 4,438,592
Advisor Class ...................................................... 2,284,073 1,874,057
---------------------------------------
Total capital share transactions ......................................... 44,813,593 91,404,514
---------------------------------------
Redemption fees .......................................................... 1,677 2,778
---------------------------------------
Net increase (decrease) in net assets ........................... 69,214,516 132,759,778
Net assets:
Beginning of period ...................................................... 481,680,282 348,920,504
---------------------------------------
End of period ............................................................ $550,894,798 $481,680,282
=======================================
Undistributed net investment income included in net assets:
End of period ............................................................ $ 1,218,897 $ 124,616
=======================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940, 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 it is each fund's
policy 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 of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
52 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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 per share
distributions, by class, are generally due to differences in class specific
expenses.
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.
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2007, there were an unlimited number of shares authorized (no par
value). Transactions in the Funds' shares were as follows:
----------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
CLASS A SHARES:
Six months ended June 30, 2007
Shares sold ........................................... 2,915,585 $ 39,730,484 4,567,983 $ 65,829,755
Shares issued in reinvestment
of distributions .................................... 390,518 5,278,347 892,509 12,798,445
Shares redeemed ....................................... (2,000,047) (27,193,016) (3,550,217) (50,999,972)
----------------------------------------------------------------------
Net increase (decrease) ............................... 1,306,056 $ 17,815,815 1,910,275 $ 27,628,228
======================================================================
Semiannual Report | 53
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
CLASS A SHARES: (CONTINUED)
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
======================================================================
CLASS B SHARES:
Six months ended June 30, 2007
Shares sold ........................................... 38,613 $ 526,675 53,718 $ 775,344
Shares issued in reinvestment
of distributions .................................... 9,367 126,256 20,444 292,453
Shares redeemed ....................................... (58,969) (795,061) (86,681) (1,251,473)
----------------------------------------------------------------------
Net increase (decrease) ............................... (10,989) $ (142,130) (12,519) $ (183,676)
======================================================================
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
======================================================================
CLASS C SHARES:
Six months ended June 30, 2007
Shares sold ........................................... 1,279,546 $ 17,214,517 1,251,337 $ 17,723,263
Shares issued in reinvestment
of distributions .................................... 139,149 1,858,953 259,667 3,665,499
Shares redeemed ....................................... (549,716) (7,361,866) (898,229) (12,724,583)
----------------------------------------------------------------------
Net increase (decrease) ............................... 868,979 $ 11,711,604 612,775 $ 8,664,179
======================================================================
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
======================================================================
CLASS R SHARES:
Six months ended June 30, 2007
Shares sold ........................................... 539,669 $ 7,255,282 440,658 $ 6,310,704
Shares issued in reinvestment
of distributions .................................... 30,255 408,275 71,851 1,028,281
Shares redeemed ....................................... (416,981) (5,638,404) (302,651) (4,341,090)
----------------------------------------------------------------------
Net increase (decrease) ............................... 152,943 $ 2,025,153 209,858 $ 2,997,895
======================================================================
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)
======================================================================
54 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
ADVISOR CLASS SHARES:
Six months ended June 30, 2007
Shares sold ........................................... 107,511 $ 1,471,935 157,548 $ 2,256,311
Shares issued in reinvestment
of distributions .................................... 6,131 82,811 18,682 268,046
Shares redeemed ....................................... (32,084) (437,737) (102,457) (1,476,845)
----------------------------------------------------------------------
Net increase (decrease) ............................... 81,558 $ 1,117,009 73,773 $ 1,047,512
======================================================================
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
======================================================================
----------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------------
SHARES AMOUNT
----------------------------------
CLASS A SHARES:
Six months ended June 30, 2007
Shares sold ............................................................................... 3,314,848 $ 53,770,550
Shares issued in reinvestment of distributions ............................................ 669,363 10,861,845
Shares redeemed ........................................................................... (2,106,386) (33,929,888)
----------------------------------
Net increase (decrease) ................................................................... 1,877,825 $ 30,702,507
==================================
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
==================================
CLASS B SHARES:
Six months ended June 30, 2007
Shares sold ............................................................................... 17,039 $ 275,008
Shares issued in reinvestment of distributions ............................................ 16,221 259,162
Shares redeemed ........................................................................... (39,160) (615,741)
----------------------------------
Net increase (decrease) ................................................................... (5,900) $ (81,571)
==================================
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
==================================
CLASS C SHARES:
Six months ended June 30, 2007
Shares sold ............................................................................... 1,007,948 $ 16,055,209
Shares issued in reinvestment of distributions ............................................ 244,970 3,913,921
Shares redeemed ........................................................................... (779,775) (12,523,694)
----------------------------------
Net increase (decrease) ................................................................... 473,143 $ 7,445,436
==================================
Semiannual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------------
SHARES AMOUNT
----------------------------------
CLASS C SHARES: (CONTINUED)
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
==================================
CLASS R SHARES:
Six months ended June 30, 2007
Shares sold ............................................................................... 511,761 $ 8,243,778
Shares issued in reinvestment of distributions ............................................ 60,163 968,451
Shares redeemed ........................................................................... (296,863) (4,749,081)
----------------------------------
Net increase (decrease) ................................................................... 275,061 $ 4,463,148
==================================
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
==================================
ADVISOR CLASS SHARES:
Six months ended June 30, 2007
Shares sold ............................................................................... 157,476 $ 2,542,153
Shares issued in reinvestment of distributions ............................................ 14,508 235,852
Shares redeemed ........................................................................... (30,443) (493,932)
----------------------------------
Net increase (decrease) ................................................................... 141,541 $ 2,284,073
==================================
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
==================================
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
56 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. ASSET ALLOCATION FEES
The Funds pay an asset allocation fee to Advisers of 0.25% per year of the
average daily net assets of each of the Funds for investment advisory services,
consisting principally of determining the allocation of assets of the Funds
among the designated Underlying Funds.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
C. DISTRIBUTION FEES
The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the
Funds reimburse Distributors 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%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................... $78,560 $169,286 $115,429
Contingent deferred sales charges retained ...................... $12,875 $ 19,674 $ 13,018
Semiannual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
For the period ended June 30, 2007, 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 ................................ $138,009 $283,127 $298,892
F. WAIVER AND EXPENSE REIMBURSEMENTS
Advisers has agreed in advance to waive all or a portion of its fees and to
assume payment of other expenses through April 30, 2009. Total expenses
waived/paid are not subject to reimbursement by the Funds subsequent to the
Funds' fiscal year end. After April 30, 2009, Advisers may discontinue this
waiver at any time upon notice to the Funds' Board of Trustees.
4. INCOME TAXES
At June 30, 2007, the cost of investments, net unrealized appreciation
(depreciation), for income tax purposes were as follows:
----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------
Cost of investments ................................ $ 287,222,718 $ 532,974,061 $ 427,022,568
==============================================
Unrealized appreciation ............................ $ 47,795,393 $ 119,893,176 $ 125,631,165
Unrealized depreciation ............................ (3,150,206) (5,019,436) (1,773,329)
----------------------------------------------
Net unrealized appreciation (depreciation) ......... $ 44,645,187 $ 114,873,740 $ 123,857,836
==============================================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of short term capital gains distributions from
Underlying Funds.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and short term capital gains
distributions from Underlying Funds.
58 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended June 30, 2007, were as follows:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
Purchases .......................................... $ 20,838,648 $ 30,996,066 $ 33,243,706
Sales .............................................. $ 3,313,000 $ 13,369,000 $ 6,831,000
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At June 30, 2007, 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 ....................... 8.42%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Strategic Mortgage Portfolio ....................... 13.60%
Franklin Aggressive Growth Fund ............................. 7.81%
Franklin Small Cap Growth Fund II ........................... 5.86%
Franklin Total Return Fund .................................. 5.42%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Aggressive Growth Fund ............................. 9.02%
Franklin Small Cap Growth Fund II ........................... 7.36%
Franklin Strategic Mortgage Portfolio ....................... 5.09%
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.
Semiannual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY AND LITIGATION 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 and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Following the public comment
period, and once the SEC approves the final plan of distribution, disbursements
of settlement monies will be made promptly to individuals who were shareholders
of the designated funds during the relevant period, 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
The Funds adopted 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"), on June 29, 2007. FIN 48
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. The Funds have determined
that the adoption of FIN 48 did not have a material impact on the Funds'
financial statements.
60 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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.
Semiannual Report | 61
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED)
A Special Meeting of Shareholders of the Trust was held at the Trust's offices,
One Franklin Parkway, San Mateo, California on March 21, 2007 and reconvened on
April 11, 2007 and May 11, 2007. The purpose of the meeting was to elect
Trustees of the Trust and to vote on the following Proposals and Sub-Proposals:
to approve an Amended and Restated Agreement and Declaration of Trust; to
approve amendments to certain of the Franklin Templeton Conservative Target
Fund's, Franklin Templeton Moderate Target Fund's and Franklin Templeton Growth
Target Fund's (each, a "Fund") fundamental investment restrictions (including
several Sub-Proposals); and to approve the elimination of certain of the Funds'
fundamental investment restrictions. At the meeting, the following persons were
elected by the shareholders to serve as Independent Trustees of the Trust:
Harris J. Ashton, Robert F. Carlson, Sam Ginn, Edith E. Holiday, Frank W. T.
LaHaye, Frank A. Olson, Larry D. Thompson and John B. Wilson. Charles B. Johnson
and Gregory E. Johnson were elected by the shareholders to serve as Interested
Trustees. Shareholders also approved the Amended and Restated Agreement and
Declaration of Trust, amendments to certain of the Funds' fundamental investment
restrictions (including several Sub-Proposals), and the elimination of certain
of the Funds' fundamental investment restrictions. No other business was
transacted at the meeting.
Proposal 1. The Election of Trustees:
- ----------------------------------------------------------------------------------------------------------------
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
NAME FOR SHARES SHARES WITHHELD SHARES SHARES
- ----------------------------------------------------------------------------------------------------------------
Harris J. Ashton .......... 656,147,950.156 64.633% 98.373% 10,853,214.851 1.069% 1.627%
Robert F. Carlson ......... 656,105,078.791 64.629% 98.366% 10,896,086.216 1.073% 1.634%
Sam Ginn .................. 656,144,152.234 64.633% 98.372% 10,857,012.773 1.069% 1.628%
Edith E. Holiday .......... 656,038,770.213 64.622% 98.356% 10,962,394.794 1.080% 1.644%
Frank W.T. LaHaye ......... 655,699,168.411 64.589% 98.306% 11,301,996.596 1.113% 1.694%
Frank A. Olson ............ 655,910,551.769 64.610% 98.337% 11,090,613.238 1.092% 1.663%
Larry D. Thompson ......... 656,416,757.449 64.659% 98.413% 10,584,407.558 1.043% 1.587%
John B. Wilson ............ 656,301,596.063 64.648% 98.396% 10,699,568.944 1.054% 1.604%
Charles B. Johnson ........ 655,740,072.084 64.593% 98.312% 11,261,092.923 1.109% 1.688%
Gregory E. Johnson ........ 656,125,768.392 64.631% 98.370% 10,875,396.615 1.071% 1.630%
62 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED) (CONTINUED)
Proposal 2. To approve an Amended and Restated Agreement and Declaration of
Trust:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 7,833,009.496 35.664% 66.142%
Against ................... 142,698.942 0.650% 1.205%
Abstain ................... 809,020.403 3.684% 6.831%
Broker Non-Votes .......... 3,058,002.000 13.924% 25.822%
- ----------------------------------------------------------------------
TOTAL ..................... 11,842,730.841 53.922% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,216,861.930 34.147% 68.814%
Against ................... 201,540.460 0.484% 0.976%
Abstain ................... 1,034,324.260 2.484% 5.006%
Broker Non-Votes .......... 5,207,088.000 12.506% 25.204%
- ----------------------------------------------------------------------
TOTAL ..................... 20,659,814.650 49.621% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 9,317,098.765 30.466% 65.812%
Against ................... 130,505.989 0.427% 0.922%
Abstain ................... 1,075,165.170 3.515% 7.594%
Broker Non-Votes .......... 3,634,388.000 11.884% 25.672%
- ----------------------------------------------------------------------
TOTAL ..................... 14,157,157.924 46.292% 100.000%
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes several Sub-Proposals):
(a) To amend the Fund's fundamental investment restriction regarding borrowing:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,427,676.965 38.373% 69.536%
Against ................... 310,906.460 1.416% 2.565%
Abstain ................... 853,611.264 3.886% 7.043%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
Semiannual Report | 63
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes several Sub-Proposals): (CONTINUED)
(a) To amend the Fund's fundamental investment restriction regarding borrowing:
(CONTINUED)
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,173,826.672 34.043% 67.800%
Against ................... 478,375.015 1.149% 2.288%
Abstain ................... 1,058,007.069 2.541% 5.061%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,448,294.224 34.165% 67.154%
Against ................... 418,606.952 1.368% 2.691%
Abstain ................... 1,420,830.592 4.646% 9.132%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL ..................... 15,558,650.768 50.875% 100.000%
(b) To amend the Fund's fundamental investment restriction regarding
underwriting:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,470,212.630 38.567% 69.887%
Against ................... 256,417.410 1.167% 2.116%
Abstain ................... 865,564.649 3.941% 7.141%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,273,415.377 34.282% 68.276%
Against ................... 377,397.368 0.906% 1.805%
Abstain ................... 1,059,396.011 2.545% 5.068%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
64 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes several Sub-Proposals): (CONTINUED)
(b) To amend the Fund's fundamental investment restriction regarding
underwriting: (CONTINUED)
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,520,910.571 34.402% 67.621%
Against ................... 349,476.734 1.143% 2.246%
Abstain ................... 1,417,344.463 4.634% 9.110%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL 15,558,650.768 50.875% 100.000%
(c) To amend the Fund's fundamental investment restriction regarding lending:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,423,067.679 38.352% 69.498%
Against ................... 303,323.378 1.381% 2.503%
Abstain ................... 865,803.632 3.942% 7.143%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,181,427.591 34.061% 67.836%
Against ................... 444,448.573 1.067% 2.126%
Abstain ................... 1,084,332.592 2.605% 5.187%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,465,648.697 34.221% 67.266%
Against ................... 408,673.699 1.337% 2.626%
Abstain ................... 1,413,409.372 4.621% 9.085%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL ..................... 15,558,650.768 50.875% 100.000%
Semiannual Report | 65
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes several Sub-Proposals): (CONTINUED)
(d) To amend the Fund's fundamental investment restriction regarding investments
in real estate:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,482,517.368 38.623% 69.988%
Against ................... 252,944.937 1.151% 2.087%
Abstain ................... 856,732.384 3.901% 7.069%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,110,459.763 33.890% 67.497%
Against ................... 529,804.989 1.273% 2.535%
Abstain ................... 1,069,944.004 2.570% 5.117%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,511,409.762 34.371% 67.560%
Against ................... 361,793.548 1.183% 2.325%
Abstain ................... 1,414,528.458 4.625% 9.092%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL ..................... 15,558,650.768 50.875% 100.000%
(e) To amend the Fund's fundamental investment restriction regarding investments
in commodities:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,475,813.928 38.592% 69.933%
Against ................... 257,299.760 1.172% 2.123%
Abstain ................... 859,081.001 3.911% 7.088%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
66 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes several Sub-Proposals): (CONTINUED)
(e) To amend the Fund's fundamental investment restriction regarding
investments in commodities: (CONTINUED)
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,014,926.144 33.661% 67.040%
Against ................... 621,455.483 1.493% 2.973%
Abstain ................... 1,073,827.129 2.579% 5.136%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,468,200.763 34.230% 67.282%
Against ................... 386,664.707 1.264% 2.485%
Abstain ................... 1,432,866.298 4.685% 9.210%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL ..................... 15,558,650.768 50.875% 100.000%
(f) To amend the Fund's fundamental investment restriction regarding issuing
senior securities:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,520,698.715 38.796% 70.303%
Against ................... 238,421.194 1.086% 1.967%
Abstain ................... 833,074.780 3.793% 6.874%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,263,351.797 34.258% 68.228%
Against ................... 354,999.004 0.852% 1.698%
Abstain ................... 1,091,857.955 2.623% 5.223%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
Semiannual Report | 67
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes several Sub-Proposals): (CONTINUED)
(f) To amend the Fund's fundamental investment restriction regarding issuing
senior securities: (CONTINUED)
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,592,885.333 34.637% 68.084%
Against ................... 263,749.520 0.863% 1.695%
Abstain ................... 1,431,096.915 4.679% 9.198%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL ..................... 15,558,650.768 50.875% 100.000%
(g) To amend the Fund's fundamental investment restriction regarding industry
concentration:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,453,136.667 38.489% 69.746%
Against ................... 274,640.936 1.250% 2.266%
Abstain ................... 864,417.086 3.936% 7.132%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,199,085.580 34.103% 67.921%
Against ................... 450,825.246 1.083% 2.157%
Abstain ................... 1,060,297.930 2.547% 5.071%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,466,364.418 34.224% 67.271%
Against ................... 395,237.546 1.292% 2.541%
Abstain ................... 1,426,129.804 4.663% 9.165%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL ..................... 15,558,650.768 50.875% 100.000%
68 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007 AND MAY
11, 2007 (UNAUDITED) (CONTINUED)
Proposal 4. To approve the elimination of certain of the Funds' fundamental
investment restrictions:
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
CONSERVATIVE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,494,692.999 38.678% 70.089%
Against ................... 249,145.244 1.134% 2.056%
Abstain ................... 848,356.446 3.863% 6.999%
Broker Non-Votes .......... 2,527,669.000 11.509% 20.856%
- ----------------------------------------------------------------------
TOTAL ..................... 12,119,863.689 55.184% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
MODERATE TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 14,275,265.769 34.286% 68.285%
Against ................... 422,197.229 1.014% 2.019%
Abstain ................... 1,012,745.758 2.433% 4.845%
Broker Non-Votes .......... 5,195,288.000 12.478% 24.851%
- ----------------------------------------------------------------------
TOTAL ..................... 20,905,496.756 50.211% 100.000%
- ----------------------------------------------------------------------
% OF % OF
FRANKLIN TEMPLETON OUTSTANDING VOTED
GROWTH TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 10,572,831.237 34.572% 67.955%
Against ................... 292,830.011 0.957% 1.882%
Abstain ................... 1,422,070.520 4.650% 9.140%
Broker Non-Votes .......... 3,270,919.000 10.696% 21.023%
- ----------------------------------------------------------------------
TOTAL ..................... 15,558,650.768 50.875% 100.000%
Semiannual Report | 69
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 27, 2007, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series (Fund(s)). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
70 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the right to combine holdings in other funds
to obtain a reduced sales charge. Favorable consideration was given to
management's continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted that such systems and procedures had functioned smoothly during the
Florida hurricanes and blackouts experienced in recent years. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of each
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, the high industry ranking given to the
Franklin Templeton website, and the firsthand experience of individual Board
members who deal with the shareholder services department in their capacities as
shareholders in one or more of the various Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
the investment performance of Class A shares, in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
the one-year period ended December 31, 2006, and for additional periods ended
that date depending on when a particular Fund commenced operations. The
following summarizes the performance results for each of the Funds and the
Board's view of such performance.
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND - The performance universe for this
Fund consisted of the Fund and all retail and institutional mixed-asset target
allocation conservative funds as selected by Lipper. The Lipper report showed
that the Fund's income return for the one-year period was in the second-highest
quintile of its performance universe and on an annualized basis was in the upper
half of such universe for the previous three-year period and in the
second-lowest quintile of such
Semiannual Report | 71
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
universe for the previous five- and 10-year periods. The Lipper report showed
the Fund's total return for the one-year period as well as the previous three-,
five- and 10-year periods to be in the highest quintile of such performance
universe. The Board was satisfied with such performance.
FRANKLIN TEMPLETON MODERATE TARGET FUND - The performance universe of this Fund
consisted of the Fund and all retail and institutional mixed-asset target
allocation moderate funds as selected by Lipper. The Lipper report showed the
Fund's income return for the one-year period to be in the second-highest
quintile of this universe and on an annualized basis for each of the previous
three-, five-, and 10-year periods to be in the upper half of such performance
universe. The Lipper report showed the Fund's total return for the one-year
period was in the second-highest quintile of such performance universe and on an
annualized basis was in the highest or second-highest quintile of such universe
for the previous three-, five- and 10-year periods. The Board was satisfied with
this performance.
FRANKLIN TEMPLETON GROWTH TARGET FUND - The performance universe for this Fund
consisted of the Fund and all retail and institutional mixed-asset target
allocation growth funds as selected by Lipper. The Lipper report showed the
Fund's income return for the one-year period to be in the second-highest
quintile of such universe and on an annualized basis for the previous three- and
five-year periods was in the second-lowest quintile, and for the previous
10-year period was in the middle quintile of this performance universe. The
Lipper report showed the Fund's total return for the one-year period to be in
the highest quintile of such performance universe and on an annualized basis to
be in the highest or second-highest quintile of such universe for each of the
previous three-, five- and 10-year periods. The Board was satisfied with this
performance.
COMPARATIVE EXPENSE. Consideration was given to the management fee and total
expense ratios of each Fund compared with those of a group of retail front-end
load fund of funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparisons, the Board relied upon a survey showing that
the scope of management services covered under a Fund's management investment
agreement was similar to those provided by fund managers to other mutual fund
groups. In reviewing comparative costs, emphasis was given to each Fund's
contractual investment management fee in comparison with the contractual
investment management fee that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expenses of the Fund in comparison with those of its Lipper
expense group. The Board noted that Franklin Templeton Conservative Target Fund,
Franklin Templeton Moderate Target Fund, and Franklin Templeton Growth Target
Fund pay an asset allocation advisory fee. The Lipper contractual investment
management fee analysis includes the advisory and administrative fees directly
charged to each Fund as being part of the contractual investment management fee,
with the investment management fees charged underlying funds being included
within actual total expenses. Contractual investment management fees and total
expenses for comparative consistency are shown by Lipper for fund Class A
shares. The Lipper report for Franklin Templeton Conservative Target Fund showed
contractual investment management fee and actual
72 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
total expenses to be in the middle quintile of its Lipper expense group. The
Board found such expenses acceptable. The Lipper report for Franklin Templeton
Moderate Target Fund showed its contractual investment management fee to be in
the middle quintile of its Lipper expense group and its actual total expenses to
be in the least expensive quintile of such group. The Board was satisfied with
this Fund's expenses. The Lipper expense report for Franklin Templeton Growth
Target Fund showed both its contractual investment management fee and its actual
total expenses to be in the second least expensive quintile of its Lipper
expense group. The Board found such expenses to be satisfactory.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. Specific attention was given to the methodology
followed in allocating costs to each Fund, it being recognized that allocation
methodologies are inherently subjective and various allocation methodologies may
each be reasonable while producing different results. In this respect, the Board
noted that, while being continuously refined and reflecting changes in the
Manager's own cost accounting, the allocation methodology was consistent with
that followed in profitability report presentations for the Funds made in prior
years and that the Funds' independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Funds' Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to each Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Funds, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC requirements. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. The Board
also considered the extent to which the Manager and its affiliates might derive
ancillary benefits from fund operations, including its interest in a joint
venture entity that financed up-front commissions paid to brokers/dealers who
sold fund Class B shares prior to February 2005, when the offering of such
shares was discontinued, as well as potential benefits resulting from allocation
of fund brokerage and the use of "soft" commission dollars to pay for research.
Based upon its consideration of all these factors, the Board determined that the
level of profits realized by the Manager and its affiliates from providing
services to each Fund was not excessive in view of the nature, quality and
extent of services provided.
Semiannual Report | 73
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Managers as the Funds grow larger and the extent to which this
is reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Managers realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. With the exception of Templeton Global Long-Short
Fund which has a performance adjusted base fee, the fees charged all the
underlying funds in which the Funds may invest provide for management fee
breakpoints. Consequently, to the extent economies of scale may be realized by
the investment managers of these funds, the schedule of fees under their
investment management agreements provides a sharing of benefits with a Fund and
its shareholders.
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.
74 | Semiannual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON FUNDS
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 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
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 Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends 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(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
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 open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
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. The fund invests primarily in 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.
05/07 Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com.See inside for details.
SEMI ANNUAL REPORT AN D 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 S2007 08/07
[GRAPHIC OMITTED]
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JUNE 30, 2007
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Franklin Templeton
Corefolio Allocation Fund
Franklin Templeton
Founding Funds Allocation Fund
Franklin Templeton
Perspectives Allocation Fund
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why
our funds can be used to build truly diversified
allocation plans covering every major asset
class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ........................................................ 1
SEMIANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton Corefolio Allocation Fund .............................. 5
Franklin Templeton Founding Funds Allocation Fund ......................... 12
Franklin Templeton Perspectives Allocation Fund ........................... 19
Financial Highlights and Statements of Investments ........................ 26
Financial Statements ...................................................... 43
Notes to Financial Statements ............................................. 48
Meeting of Shareholders ................................................... 57
Shareholder Information ................................................... 61
- --------------------------------------------------------------------------------
Shareholder Letter
Dear Shareholder:
During the six months ended June 30, 2007, moderate economic growth was
supported by robust consumer spending and generally strong corporate profits.
Although the pace in the first quarter of 2007 was restrained by volatile energy
prices and ongoing housing market weakness, it rebounded in the second quarter.
Core inflation was mostly contained for much of the reporting period, although
headline, or overall, inflation rose due to higher food and energy prices. A
cautious Federal Reserve Board warned that inflation posed a greater risk to the
economy than recession. In this environment, the Standard & Poor's 500 Index
(S&P 500) had a +6.92% total return, the Dow Jones Industrial Average returned
+8.76% and the NASDAQ Composite Index returned +8.20% for the six months under
review.(1)
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The Dow Jones
Industrial Average is price weighted based on the average market price of 30
blue chip stocks of companies that are generally industry leaders. The NASDAQ
Composite Index measures all NASDAQ domestic and international based common type
stocks listed on The NASDAQ Stock Market. The index is market value weighted and
includes more than 3,000 companies.
- --------------------------------------------------------------------------------
eDELIVERY DETAILS
Log in at franklintempleton.com and click on eDelivery. Shareholders who are
registered at franklintempleton.com can receive these reports via email. Not all
accounts are eligible for eDelivery.
- -----------------------------------------------------
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
- -----------------------------------------------------
Not part of the semiannual report | 1
In the enclosed semiannual report for Franklin Templeton Fund Allocator Series,
the portfolio manager discusses market conditions and each Fund's performance
during the period under review. You will also find performance data and
financial information. Please remember that all securities markets fluctuate, as
do mutual fund share prices.
If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
As always, we recommend investors consult their financial advisors and review
their portfolios to design a long-term strategy and portfolio allocation that
meet their individual needs, goals and risk tolerance. We firmly believe that
most people benefit from professional advice, and that advice is invaluable as
investors navigate changing market environments.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Templeton Fund Allocator Series
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30, 2007. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
2 | Not part of the semiannual report
Semiannual Report
Economic and Market Overview
During the six months ended June 30, 2007, the U.S. economy rebounded after an
initial slowdown. Gross domestic product growth decelerated to an annualized
0.6% rate in 2007's first quarter. Corporate profits and government spending
generally remained robust. The struggling housing market grew more fragile with
the abrupt unraveling of the subprime mortgage market. This exacerbated already
weak housing prices and an inventory glut in most of the nation's residential
real estate markets. In the second quarter, however, growth advanced at an
estimated annualized 3.4% rate, supported by federal defense spending,
accelerating exports and declining imports, greater business inventory
investment and increased spending for nonresidential structures.
The unemployment rate began and ended the reporting period at 4.5% while overall
job growth slowed in the face of rising labor costs.1 Jobs in vehicle
manufacturing and housing-related industries experienced declines stemming from
reduced consumer demand. Consumer confidence fell to a 10-month low in June.
Gasoline prices rose in the first half of 2007 in response to perceived tight
supply and high demand for oil, refinery maintenance issues, and ongoing
geopolitical tensions in the Middle East and Africa. Although the rate of core
inflation moderated during the six-month reporting period, it rose 2.2% for the
12 months ended June 30, 2007, which was also the 10-year average rate. 2
The Federal Reserve Board kept the federal funds target rate at 5.25% and
indicated that inflation pressures remained a key concern. The 10-year Treasury
note yield began the period at 4.71%. Toward the end of the period, a bond
market sell-off caused yields on longer-term Treasuries to rise significantly,
reflecting expectations of a pick-up in inflation later in the year. The 10-year
Treasury yield reached 5.03% on June 30, 2007.
Outside the U.S., the global economy remained resilient throughout the six-month
period. Sustained consumer and corporate demand, reasonably low inflation, tight
or improving labor markets, and moderate, though higher, global interest rates
have consistently supported economic growth since the global economic recovery
began in 2002.
1. Source: Bureau of Labor Statistics.
2. Source: Bureau of Labor Statistics. Core inflation, as measured by the
Consumer Price Index, excludes food and energy costs.
Semiannual Report | 3
Financing costs increased gradually from unprecedented low levels, but global
liquidity -- petrodollars, corporate cash, private equity, household savings and
central banks' reserves -- remained abundant. As investible cash continued to
look for a home, global merger and acquisition activity remained at record
levels.
After global stock market sell-offs in late February and mid-March, markets
rebounded in the second quarter amid generally strong corporate earnings
reports. Domestically, the blue chip stocks of the Dow Jones Industrial Average
posted a six-month total return of +8.76%, and the broader Standard & Poor's 500
Index (S&P 500) returned +6.92%, while the technology-heavy NASDAQ Composite
Index returned +8.20%.3 Most non-U.S. equity markets ended the six-month period
with double-digit total returns. Many stock market indexes in the U.S. and most
European countries reached seven-year highs, and many emerging market indexes in
Asia, Europe and Latin America neared or reached all-time highs during the
reporting period.
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 JUNE 30,
2007. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
4 | Semiannual Report
Franklin Templeton Corefolio Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Corefolio Allocation
Fund seeks capital appreciation through investments in an equally weighted
combination of Franklin Capital Growth Fund, Franklin Growth Fund, Mutual Shares
Fund and Templeton Growth Fund.
- --------------------------------------------------------------------------------
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 OR CALL FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Corefolio Allocation Fund's
semiannual report for the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A posted a cumulative total
return of +8.25% for the six months under review. The Fund outperformed its
hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark's total return was
+7.56%.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 31.
Semiannual Report | 5
ASSET ALLOCATION*
Franklin Templeton Corefolio Allocation Fund Based on Total Net Assets as of
6/30/07**
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Equity 75.3%
Foreign Equity 24.8%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
** Short-term investments and other net assets equal -0.1%.
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 period under review, the Fund's performance benefited most from
Mutual Shares Fund - Class Z. All four of the Fund's underlying funds produced
positive results and helped performance during the period; however, Templeton
Growth Fund - Advisor Class underperformed the hybrid benchmark index.
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, CFA
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Corefolio Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2007, 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 | Semiannual Report
Performance Summary as of 6/30/07
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FTCOX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.90 $14.99 $14.09
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0147
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2248
- --------------------------------------------------------------------------------
TOTAL $0.2402
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FBCOX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.84 $14.83 $13.99
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0147
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2248
- --------------------------------------------------------------------------------
TOTAL $0.2402
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTCLX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.84 $14.80 $13.96
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0147
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2248
- --------------------------------------------------------------------------------
TOTAL $0.2402
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.88 $14.95 $14.07
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0147
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2248
- --------------------------------------------------------------------------------
TOTAL $0.2402
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.92 $15.04 $14.12
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0147
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0007
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2248
- --------------------------------------------------------------------------------
TOTAL $0.2402
- --------------------------------------------------------------------------------
Semiannual Report | 7
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10.000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.25% +20.41% +42.72% +64.82%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +2.02% +13.50% +10.39% +12.03%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,202 $11,350 $13,452 $15,534
- -------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------
Without Waiver 1.40%
- -------------------------------------------------------------------------------------------------
With Waiver 0.50%
- -------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.87% +19.61% +39.89% +60.51%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.87% +15.61% +11.03% +12.43%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,387 $11,561 $13,689 $15,751
- -------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------
Without Waiver 2.05%
- -------------------------------------------------------------------------------------------------
With Waiver 1.15%
- -------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.82% +19.56% +39.88% +60.38%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +6.82% +18.56% +11.84% +12.96%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,682 $11,856 $13,988 $16,038
- -------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------
Without Waiver 2.04%
- -------------------------------------------------------------------------------------------------
With Waiver 1.15%
- -------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.12% +20.20% +42.03% +63.74%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.12% +20.20% +12.41% +13.56%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,812 $12,020 $14,203 $16,374
- -------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------
Without Waiver 1.55%
- -------------------------------------------------------------------------------------------------
With Waiver 0.65%
- -------------------------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.37% +20.80% +44.08% +66.63%
- -------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.37% +20.80% +12.95% +14.08%
- -------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,837 $12,080 $14,408 $16,663
- -------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------
Without Waiver 1.05%
- -------------------------------------------------------------------------------------------------
With Waiver 0.15%
- -------------------------------------------------------------------------------------------------
PERFORMANCE DATE 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.
THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL
ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER
THAN CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
8 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO
THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER
THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM.
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 administrator has contractually agreed to limit Fund expenses so that
total annual Fund operating expenses do not exceed the amount shown with waiver
(other than certain non-routine expenses) for each share class until 4/30/09. If
the administrator had not taken this action, the Fund's total returns would have
been lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
Semiannual Report | 9
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.
10 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,082.50 $2.58
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,078.70 $5.93
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,078.20 $5.93
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,081.20 $3.35
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.70 $0.77
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- ------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; B: 1.15%; C: 1.15%; R: 0.65%; and Advisor: 0.15%),
multiplied by the average account value over the period, multiplied by 181/365
to reflect the one-half year period.
Semiannual Report | 11
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 OR CALL FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This semiannual report for Franklin Templeton Founding Funds Allocation Fund
covers the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A posted a +7.16%
cumulative total return for the six 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)
World Index. For the reporting period, the hybrid benchmark's total return was
+7.77%. 1 You can find other performance data in the Performance Summary
beginning on page 14.
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 37.
12 | Semiannual 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 period under review, the Fund's performance benefited most from
Mutual Shares Fund - Class Z. All three of the Fund's underlying funds produced
positive results and helped performance during the period; however, Franklin
Income Fund - Advisor Class and Templeton Growth Fund - Advisor Class
underperformed the hybrid benchmark index.
Thank you for your continued participation in Franklin Templeton Founding Funds
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Founding Funds Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2007, 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 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Equity 33.2%
Domestic Hybrid 33.1%
Foreign Equity 33.2%
Short-Term Investments & Other Net Assets 0.5%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
Semiannual Report | 13
Performance Summary as of 6/30/07
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FFALX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.75 $14.73 $13.98
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0070
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2273
- --------------------------------------------------------------------------------
TOTAL $0.2343
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FFABX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.69 $14.62 $13.93
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0070
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2273
- --------------------------------------------------------------------------------
TOTAL $0.2343
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FFACX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.69 $14.47 $13.78
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0070
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2273
- --------------------------------------------------------------------------------
TOTAL $0.2343
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FFARX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.74 $14.72 $13.98
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0070
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2273
- --------------------------------------------------------------------------------
TOTAL $0.2343
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.79 $14.84 $14.05
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0070
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2273
- --------------------------------------------------------------------------------
TOTAL $0.2343
- --------------------------------------------------------------------------------
14 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -------------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.16% +20.93% +50.35% +72.32%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +1.02% +13.99% +12.33% +13.33%
- -------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,102 $11,399 $14,175 $16,241
- -------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------------
Without Waiver 1.27%
- -------------------------------------------------------------------------------------------------------------
With Waiver 0.50%
- -------------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.75% +20.00% +47.37% +68.00%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +2.75% +16.00% +13.02% +13.79%
- -------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,275 $11,600 $14,437 $16,500
- -------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------------
Without Waiver 1.92%
- -------------------------------------------------------------------------------------------------------------
With Waiver 1.15%
- -------------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.83% +20.09% +47.37% +68.01%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.83% +19.09% +13.80% +14.32%
- -------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,583 $11,909 $14,737 $16,801
- -------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------------
Without Waiver 1.92%
- -------------------------------------------------------------------------------------------------------------
With Waiver 1.15%
- -------------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.09% +20.65% +49.54% +71.53%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.09% +20.65% +14.35% +14.93%
- -------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,709 $12,065 $14,954 $17,153
- -------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------------
Without Waiver 1.42%
- -------------------------------------------------------------------------------------------------------------
With Waiver 0.65%
- -------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- -------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.41% +21.36% +51.87% +74.77%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.41% +21.36% +14.95% +15.49%
- -------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,741 $12,136 $15,187 $17,477
- -------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------------
Without Waiver 0.92%
- -------------------------------------------------------------------------------------------------------------
With Waiver 0.15%
- -------------------------------------------------------------------------------------------------------------
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.
THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL
ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER
THAN CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 15
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO
THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER
THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM.
BONDS ARE AFFECTED BY CHANGES IN INTEREST RATES AND THE CREDITWORTHINESS OF
THEIR ISSUERS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST
RATES. THUS, AS 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 administrator has contractually agreed to limit Fund expenses so that
total annual Fund operating expenses do not exceed the amount shown with waiver
(other than certain non-routine expenses) for each share class until 4/30/09. If
the administrator had not taken this action, the Fund's total returns would have
been lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
16 | Semiannual 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.
Semiannual 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.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,071.60 $2.57
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,067.50 $5.90
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,068.30 $5.90
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,070.90 $3.34
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,074.10 $0.77
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- ------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; B: 1.15%; C: 1.15%; R: 0.65%; and Advisor: 0.15%),
multiplied by the average account value over the period, multiplied by 181/365
to reflect the one-half year period.
18 | Semiannual 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.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Templeton Perspectives Allocation Fund's
semiannual report for the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A posted a cumulative
total return of +8.39% for the six months under review. The Fund outperformed
its hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark's total return was
+7.77%. 1 You can find the Fund's long-term performance data in the Performance
Summary beginning on page 21.
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 42.
Semiannual Report | 19
ASSET ALLOCATION*
Franklin Templeton Perspectives
Allocation Fund
Based on Total Net Assets as of 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Equity 66.6%
Foreign Equity 33.1%
Short-Term Investments & Other Net Assets 0.3%
* 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 period under review, the Fund's performance benefited most from
Mutual Shares Fund - Class Z. All three of the Fund's underlying funds produced
positive results and helped Fund performance during the period; however,
Templeton Growth Fund - Advisor Class underperformed the hybrid benchmark index.
Thank you for your continued participation in Franklin Templeton Perspectives
Allocation Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Vice President of Advisers
Franklin Templeton Perspectives Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2007, 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.
20 | Semiannual Report
Performance Summary as of 6/30/07
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- -------------------------------------------------------------------------------
CLASS A (SYMBOL: FPAAX) CHANGE 6/30/07 12/31/06
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.86 $13.76 $12.90
- -------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- -------------------------------------------------------------------------------
Dividend Income $0.0051
- -------------------------------------------------------------------------------
Long-Term Capital Gain $0.1989
- -------------------------------------------------------------------------------
TOTAL $0.2040
- -------------------------------------------------------------------------------
CLASS C (SYMBOL: FPCAX) CHANGE 6/30/07 12/31/06
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.81 $13.63 $12.82
- -------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- -------------------------------------------------------------------------------
Dividend Income $0.0051
- -------------------------------------------------------------------------------
Long-Term Capital Gain $0.1989
- -------------------------------------------------------------------------------
TOTAL $0.2040
- -------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.84 $13.74 $12.90
- -------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- -------------------------------------------------------------------------------
Dividend Income $0.0051
- -------------------------------------------------------------------------------
Long-Term Capital Gain $0.1989
- -------------------------------------------------------------------------------
TOTAL $0.2040
- -------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.88 $13.81 $12.93
- -------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- -------------------------------------------------------------------------------
Dividend Income $0.0051
- -------------------------------------------------------------------------------
Long-Term Capital Gain $0.1989
- -------------------------------------------------------------------------------
TOTAL $0.2040
- -------------------------------------------------------------------------------
Semiannual Report | 21
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 CHARGES; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -----------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR INCEPTION (8/2/04)
- -----------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.39% +19.58% +51.52%
- -----------------------------------------------------------------------------------------
Average Annual Total Return 3 +2.13% +12.68% +13.03%
- -----------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,213 $11,268 $14,280
- -----------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------
Without Waiver 1.49%
- -----------------------------------------------------------------------------------------
With Waiver 0.50%
- -----------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR INCEPTION (8/2/04)
- -----------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.05% +18.77% +48.68%
- -----------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.05% +17.77% +14.60%
- -----------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,705 $11,777 $14,868
- -----------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------
Without Waiver 2.13%
- -----------------------------------------------------------------------------------------
With Waiver 1.15%
- -----------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/2/04)
- -----------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.23% +19.30% +50.78%
- -----------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.23% +19.30% +15.16%
- -----------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,823 $11,930 $15,078
- -----------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------
Without Waiver 1.64%
- -----------------------------------------------------------------------------------------
With Waiver 0.65%
- -----------------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/2/04)
- -----------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.53% +19.93% +52.86%
- -----------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.53% +19.93% +15.70%
- -----------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,853 $11,993 $15,286
- -----------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -----------------------------------------------------------------------------------------
Without Waiver 1.14%
- -----------------------------------------------------------------------------------------
With Waiver 0.15%
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.
THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL
ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER
THAN CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
22 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND IS SUBJECT TO THESE SAME
RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG
TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN
INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND
POLITICAL AND SOCIAL INSTABILITY. THE PORTFOLIO MAY INCLUDE INVESTMENTS IN THE
TECHNOLOGY SECTOR, WHICH HAS BEEN HIGHLY VOLATILE AND INVOLVES SPECIAL RISKS.
FRANKLIN FLEX CAP GROWTH FUND NORMALLY INVESTS A MAJORITY OF ITS ASSETS IN
SECURITIES LINKED TO THE STATE OF CALIFORNIA, WHICH MAY INVOLVE INCREASED
VOLATILITY ASSOCIATED WITH ECONOMIC OR REGULATORY DEVELOPMENTS IN THE STATE.
SMALLER OR RELATIVELY NEW OR UNSEASONED COMPANIES CAN BE PARTICULARLY SENSITIVE
TO CHANGING ECONOMIC CONDITIONS, AND THEIR PROSPECTS FOR GROWTH ARE LESS THAN
CERTAIN THAN THOSE OF LARGER, MORE ESTABLISHED COMPANIES. THE FUND'S PROSPECTUS
ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. The administrator has contractually agreed to limit Fund expenses so that
total annual Fund operating expenses do not exceed the amount shown with waiver
(other than certain non-routine expenses) for each share class until 4/30/09. If
the administrator had not taken this action, the Fund's total returns would have
been lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
Semiannual Report | 23
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.
24 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.90 $2.58
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,080.50 $5.83
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.19 $5.66
- ------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,082.30 $3.36
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,085.30 $0.78
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- ------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; C: 1.13%; R: 0.65%; and Advisor: 0.15%), multiplied by
the average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
Semiannual Report | 25
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
----------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS A (UNAUDITED) 2006 2005 2004 h 2004 i
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 14.09 $ 12.71 $ 12.20 $ 11.02 $ 10.00
----------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ....................... (0.03) 0.11 0.09 0.09 0.01
Net realized and unrealized gains (losses) ............. 1.17 1.81 0.71 1.21 1.07
----------------------------------------------------------------------
Total from investment operations .......................... 1.14 1.92 0.80 1.30 1.08
----------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ...................... (0.01) (0.16) (0.10) (0.07) --
Net realized gains ..................................... (0.23) (0.38) (0.19) (0.05) --
Tax return of capital .................................. -- -- -- -- (0.06)
----------------------------------------------------------------------
Total distributions ....................................... (0.24) (0.54) (0.29) (0.12) (0.06)
----------------------------------------------------------------------
Redemption fees ........................................... -- g -- g -- g -- g -- g
----------------------------------------------------------------------
Net asset value, end of period ............................ $ 14.99 $ 14.09 $ 12.71 $ 12.20 $ 11.02
======================================================================
Total return d ............................................ 8.25% 15.25% 6.63% 11.77% 10.85%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ....... 0.64% 0.65% 0.66% 0.68% 0.74%
Expenses net of waiver and payments by affiliates f ....... 0.50% 0.50% 0.58% 0.68% 0.47%
Net investment income (loss) c ............................ (0.41)% 0.82% 0.72% 1.86% 0.14%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 509,410 $458,460 $ 353,016 $238,564 $ 157,792
Portfolio turnover rate ................................... 0.49% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period August 15, 2003 (commencement of operations) to July 31, 2004.
26 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
----------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2006 2005 2004 h 2004 i
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 13.99 $ 12.62 $ 12.12 $ 10.95 $ 10.00
----------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ....................... (0.08) 0.01 0.01 0.06 (0.06)
Net realized and unrealized gains (losses) ............. 1.16 1.81 0.70 1.20 1.06
----------------------------------------------------------------------
Total from investment operations .......................... 1.08 1.82 0.71 1.26 1.00
----------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................... (0.01) (0.07) (0.02) (0.04) --
Net realized gains ..................................... (0.23) (0.38) (0.19) (0.05) --
Tax return of capital .................................. -- -- -- -- (0.05)
----------------------------------------------------------------------
Total distributions ....................................... (0.24) (0.45) (0.21) (0.09) (0.05)
----------------------------------------------------------------------
Redemption fees ........................................... -- g -- g -- g -- g -- g
----------------------------------------------------------------------
Net asset value, end of period ............................ $ 14.83 $ 13.99 $ 12.62 $ 12.12 $ 10.95
======================================================================
Total return d ............................................ 7.87% 14.55% 5.89% 11.50% 10.02%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ....... 1.29% 1.30% 1.31% 1.33% 1.39%
Expenses net of waiver and payments by affiliates f ....... 1.15% 1.15% 1.23% 1.33% 1.12%
Net investment income (loss) c ............................ (1.06)% 0.17% 0.07% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 78,608 $ 76,408 $ 71,496 $ 66,562 $ 44,297
Portfolio turnover rate ................................... 0.49% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period August 15, 2003 (commencement of operations) to July 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 27
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS C (UNAUDITED) 2006 2005 2004 h 2004 i
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 13.96 $ 12.61 $ 12.11 $ 10.94 $ 10.00
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.08) 0.02 0.01 0.06 (0.05)
Net realized and unrealized gains (losses) ........ 1.16 1.79 0.71 1.20 1.04
---------------------------------------------------------------------------
Total from investment operations ..................... 1.08 1.81 0.72 1.26 0.99
---------------------------------------------------------------------------
Less distributions from:
Net investment income and short term
gains received from Underlying Funds ........... (0.01) (0.08) (0.03) (0.04) --
Net realized gains ................................ (0.23) (0.38) (0.19) (0.05) --
Tax return of capital ............................. -- -- -- -- (0.05)
---------------------------------------------------------------------------
Total distributions .................................. (0.24) (0.46) (0.22) (0.09) (0.05)
---------------------------------------------------------------------------
Redemption fees ...................................... -- g -- g -- g -- g -- g
---------------------------------------------------------------------------
Net asset value, end of period ....................... $ 14.80 $ 13.96 $ 12.61 $ 12.11 $ 10.94
===========================================================================
Total return d ....................................... 7.82% 14.48% 6.02% 11.49% 9.93%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments
by affiliates f ................................... 1.29% 1.29% 1.29% 1.33% 1.39%
Expenses net of waiver and payments
by affiliates f ................................... 1.15% 1.14% 1.21% 1.33% 1.12%
Net investment income (loss) c ....................... (1.06)% 0.18% 0.09% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $ 185,226 $ 166,688 $ 132,459 $ 96,487 $ 73,272
Portfolio turnover rate .............................. 0.49% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period August 15, 2003 (commencement of operations) to July 31, 2004.
28 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
---------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS R (UNAUDITED) 2006 2005 2004 h 2004 i
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 14.07 $ 12.69 $ 12.18 $ 11.00 $ 10.00
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................. (0.04) 0.09 0.05 0.08 (0.02)
Net realized and unrealized gains (losses) ........ 1.16 1.81 0.73 1.21 1.08
---------------------------------------------------------------------------
Total from investment operations ..................... 1.12 1.90 0.78 1.29 1.06
---------------------------------------------------------------------------
Less distributions from:
Net investment income and short term
gains received from Underlying Funds ........... (0.01) (0.14) (0.08) (0.06) --
Net realized gains ................................ (0.23) (0.38) (0.19) (0.05) --
Tax return of capital ............................. -- -- -- -- (0.06)
---------------------------------------------------------------------------
Total distributions .................................. (0.24) (0.52) (0.27) (0.11) (0.06)
---------------------------------------------------------------------------
Redemption fees ...................................... -- g -- g -- g -- g -- g
---------------------------------------------------------------------------
Net asset value, end of period ....................... $ 14.95 $ 14.07 $ 12.69 $ 12.18 $ 11.00
===========================================================================
Total return d ....................................... 8.12% 15.10% 6.43% 11.73% 10.65%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments
by affiliates f ................................... 0.79% 0.80% 0.81% 0.83% 0.89%
Expenses net of waiver and payments
by affiliates f ................................... 0.65% 0.65% 0.73% 0.83% 0.62%
Net investment income (loss) c ....................... (0.56)% 0.67% 0.57% 1.71% (0.01)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $ 2,658 $ 2,534 $ 2,190 $ 1,944 $ 1,408
Portfolio turnover rate .............................. 0.49% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period August 15, 2003 (commencement of operations) to July 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 29
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
----------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
ADVISOR CLASS (UNAUDITED) 2006 2005 2004 h 2004 i
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................... $ 14.12 $ 12.73 $ 12.21 $ 11.02 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................... -- g 0.15 0.13 0.11 0.04
Net realized and unrealized gains (losses) .......... 1.16 1.83 0.72 1.21 1.05
-----------------------------------------------------------------
Total from investment operations ....................... 1.16 1.98 0.85 1.32 1.09
-----------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................ (0.01) (0.21) (0.14) (0.08) --
Net realized gains .................................. (0.23) (0.38) (0.19) (0.05) --
Tax return of capital -- -- -- -- (0.07)
-----------------------------------------------------------------
Total distributions .................................... (0.24) (0.59) (0.33) (0.13) (0.07)
-----------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g
-----------------------------------------------------------------
Net asset value, end of period ......................... $ 15.04 $ 14.12 $ 12.73 $ 12.21 $ 11.02
=================================================================
Total return d ......................................... 8.37% 15.65% 6.93% 12.09% 10.92%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 0.29% 0.30% 0.31% 0.33% 0.39%
Expenses net of waiver and payments by affiliates f .... 0.15% 0.15% 0.23% 0.33% 0.12%
Net investment income (loss) c ......................... (0.06)% 1.17% 1.07% 2.21% 0.49%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................... $ 3,400 $ 3,073 $ 2,792 $ 2,097 $ 1,181
Portfolio turnover rate ................................ 0.49% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period August 15, 2003 (commencement of operations) to July 31, 2004.
30 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 100.1%
DOMESTIC EQUITY 75.3%
Franklin Capital Growth Fund, Advisor Class ................................................... 15,071,456 $ 195,627,498
Franklin Growth Fund, Advisor Class ........................................................... 4,343,669 196,420,690
Mutual Shares Fund, Class Z ................................................................... 6,827,727 194,521,937
---------------
586,570,125
---------------
FOREIGN EQUITY 24.8%
Templeton Growth Fund Inc., Advisor Class ..................................................... 7,029,204 193,232,828
---------------
TOTAL LONG TERM INVESTMENTS (COST $607,548,937) ............................................... 779,802,953
---------------
SHORT TERM INVESTMENT (COST $714,875) 0.1%
MONEY MARKET FUND 0.1%
b Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% .......................... 714,875 714,875
---------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $608,263,812) 100.2% .............................. 780,517,828
OTHER ASSETS, LESS LIABILITIES (0.2)% ......................................................... (1,214,757)
---------------
NET ASSETS 100.0% ............................................................................. $ 779,303,071
===============
a See Note 6 regarding investments in Underlying Funds.
b The rate shown is the annualized seven-day yield at period end.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
--------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS A (UNAUDITED) 2006 2005 2004 h 2004 i
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 13.98 $ 12.50 $ 12.28 $ 11.21 $ 10.00
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.10 0.40 0.37 0.22 0.23
Net realized and unrealized gains (losses) ........ 0.88 1.99 0.40 1.14 1.07
--------------------------------------------------------------------------
Total from investment operations ..................... 0.98 2.39 0.77 1.36 1.30
--------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds .......................... (0.01) (0.44) (0.30) (0.23) (0.09)
Net realized gains ................................ (0.22) (0.47) (0.25) (0.06) --
--------------------------------------------------------------------------
Total distributions .................................. (0.23) (0.91) (0.55) (0.29) (0.09)
--------------------------------------------------------------------------
Redemption fees ...................................... -- g -- g -- g -- g -- g
--------------------------------------------------------------------------
Net asset value, end of period ....................... $ 14.73 $ 13.98 $ 12.50 $ 12.28 $ 11.21
==========================================================================
Total return d ....................................... 7.16% 19.34% 6.31% 12.16% 13.00%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .. 0.57% 0.57% 0.58% 0.60% 0.61%
Expenses net of waiver and payments by affiliates f .. 0.50% 0.50% 0.54% 0.60% 0.49%
Net investment income c .............................. 1.41% 3.00% 2.98% 4.48% 2.16%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $9,824,458 $7,288,143 $4,051,695 $1,640,876 $882,175
Portfolio turnover rate .............................. 0.15% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
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.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
--------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS B (UNAUDITED) 2006 2005 2004 h 2004 i
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 13.93 $ 12.46 $ 12.23 $ 11.16 $ 10.00
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.06 0.28 0.26 0.19 0.16
Net realized and unrealized gains (losses) ........ 0.86 2.00 0.43 1.13 1.08
--------------------------------------------------------------------------
Total from investment operations ..................... 0.92 2.28 0.69 1.32 1.24
--------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds .......................... (0.01) (0.34) (0.21) (0.19) (0.08)
Net realized gains ................................ (0.22) (0.47) (0.25) (0.06) --
--------------------------------------------------------------------------
Total distributions .................................. (0.23) (0.81) (0.46) (0.25) (0.08)
--------------------------------------------------------------------------
Redemption fees ...................................... -- g -- g -- g -- g -- g
--------------------------------------------------------------------------
Net asset value, end of period ....................... $ 14.62 $ 13.93 $ 12.46 $ 12.23 $ 11.16
--------------------------------------------------------------------------
Total return d ....................................... 6.75% 18.53% 5.58% 11.90% 12.39%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .. 1.22% 1.22% 1.23% 1.25% 1.26%
Expenses net of waiver and payments by affiliates f .. 1.15% 1.15% 1.19% 1.25% 1.14%
Net investment income c .............................. 0.76% 2.35% 2.33% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $ 793,761 $ 766,452 $ 688,590 $ 612,553 $357,282
Portfolio turnover rate .............................. 0.15% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period August 15, 2003 (commencement of operations) to July 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
--------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS C (UNAUDITED) 2006 2005 2004 h 2004 i
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 13.78 $ 12.36 $ 12.23 $ 11.16 $ 10.00
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.05 0.31 0.29 0.19 0.17
Net realized and unrealized gains (losses) ........ 0.87 1.95 0.39 1.13 1.07
--------------------------------------------------------------------------
Total from investment operations ..................... 0.92 2.26 0.68 1.32 1.24
--------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds .......................... (0.01) (0.37) (0.30) (0.19) (0.08)
Net realized gains ................................ (0.22) (0.47) (0.25) (0.06) --
--------------------------------------------------------------------------
Total distributions .................................. (0.23) (0.84) (0.55) (0.25) (0.08)
--------------------------------------------------------------------------
Redemption fees ...................................... -- g -- g -- g -- g -- g
--------------------------------------------------------------------------
Net asset value, end of period ....................... $ 14.47 $ 13.78 $ 12.36 $ 12.23 $ 11.16
==========================================================================
Total return d ....................................... 6.83% 18.50% 5.63% 11.79% 12.40%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .. 1.22% 1.22% 1.20% 1.25% 1.26%
Expenses net of waiver and payments by affiliates f .. 1.15% 1.15% 1.16% 1.25% 1.14%
Net investment income c .............................. 0.76% 2.35% 2.36% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $5,129,295 $3,692,307 $2,075,041 $ 927,786 $535,778
Portfolio turnover rate .............................. 0.15% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
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.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
CLASS R (UNAUDITED) 2006 2005 2004 h 2004 i
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $ 13.98 $ 12.50 $ 12.28 $ 11.22 $ 10.00
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ...................... 0.09 0.37 0.33 0.22 0.20
Net realized and unrealized gains (losses) ..... 0.88 1.99 0.42 1.13 1.11
------------------------------------------------------------------------
Total from investment operations .................. 0.97 2.36 0.75 1.35 1.31
------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds .............. (0.01) (0.41) (0.28) (0.23) (0.09)
Net realized gains ............................. (0.22) (0.47) (0.25) (0.06) --
------------------------------------------------------------------------
Total distributions ............................... (0.23) (0.88) (0.53) (0.29) (0.09)
------------------------------------------------------------------------
Redemption fees ................................... -- g -- g -- g -- g -- g
------------------------------------------------------------------------
Net asset value, end of period .................... $ 14.72 $ 13.98 $ 12.50 $ 12.28 $ 11.22
========================================================================
Total return d .................................... 7.09% 19.15% 6.12% 12.02% 13.09%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by
affiliates f ................................... 0.72% 0.72% 0.73% 0.75% 0.76%
Expenses net of waiver and payments by
affiliates f ................................... 0.65% 0.65% 0.69% 0.75% 0.64%
Net investment income c ........................... 1.26% 2.85% 2.83% 4.33% 2.01%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $ 29,565 $ 24,435 $ 17,247 $ 12,101 $ 5,225
Portfolio turnover rate ........................... 0.15% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
i For the period August 15, 2003 (commencement of operations) to July 31, 2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31, JULY 31,
ADVISOR CLASS (UNAUDITED) 2006 2005 2004 h 2004 i
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $ 14.05 $ 12.55 $ 12.32 $ 11.25 $ 10.00
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ...................... 0.12 0.47 0.39 0.24 0.25
Net realized and unrealized gains (losses) ..... 0.90 1.98 0.42 1.14 1.09
------------------------------------------------------------------------
Total from investment operations .................. 1.02 2.45 0.81 1.38 1.34
------------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds .............. (0.01) (0.48) (0.33) (0.25) (0.09)
Net realized gains ............................. (0.22) (0.47) (0.25) (0.06) --
------------------------------------------------------------------------
Total distributions ............................... (0.23) (0.95) (0.58) (0.31) (0.09)
------------------------------------------------------------------------
Redemption fees ................................... -- g -- g -- g -- g -- g
------------------------------------------------------------------------
Net asset value, end of period .................... $ 14.84 $ 14.05 $ 12.55 $ 12.32 $ 11.25
========================================================================
Total return d .................................... 7.41% 19.73% 6.63% 12.32% 13.46%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by
affiliates f ................................... 0.22% 0.22% 0.23% 0.25% 0.26%
Expenses net of waiver and payments by
affiliates f ................................... 0.15% 0.15% 0.19% 0.25% 0.14%
Net investment income c .......................... 1.76% 3.35% 3.33% 4.83% 2.51%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $ 49,733 $ 25,124 $ 12,535 $ 7,792 $ 4,991
Portfolio turnover rate ........................... 0.15% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
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.
| Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.5%
DOMESTIC EQUITY 33.2%
Mutual Shares Fund, Class Z ...................................... 184,368,647 $ 5,252,662,753
------------------
DOMESTIC HYBRID 33.1%
Franklin Income Fund, Advisor Class .............................. 1,919,299,895 5,239,688,714
------------------
FOREIGN EQUITY 33.2%
Templeton Growth Fund Inc., Advisor Class ........................ 190,901,475 5,247,881,550
------------------
TOTAL LONG TERM INVESTMENTS (COST $13,846,404,217) ............... 15,740,233,017
------------------
SHORT TERM INVESTMENT (COST $49,495,444) 0.3%
MONEY MARKET FUND 0.3%
b Franklin Institutional Fiduciary Trust Money Market Portfolio,
4.99% ............................................................ 49,495,444 49,495,444
------------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $13,895,899,661)
99.8% ............................................................ 15,789,728,461
OTHER ASSETS, LESS LIABILITIES 0.2% .............................. 37,085,172
------------------
NET ASSETS 100.0% ................................................ $ 15,826,813,633
==================
a See Note 6 regarding investments in Underlying Funds.
b The rate shown is the annualized seven-day yield at period end.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
---------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31,
CLASS A (UNAUDITED) 2006 2005 2004 h
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $ 12.90 $ 11.79 $ 11.19 $ 10.00
---------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ................ (0.02) 0.17 0.16 0.17
Net realized and unrealized gains (losses) ...... 1.08 1.55 0.73 1.12
---------------------------------------------------------------
Total from investment operations ................... 1.06 1.72 0.89 1.29
---------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............... -- g (0.19) (0.13) (0.07)
Net realized gains .............................. (0.20) (0.42) (0.16) (0.03)
---------------------------------------------------------------
Total distributions ................................ (0.20) (0.61) (0.29) (0.10)
---------------------------------------------------------------
Redemption fees .................................... -- g -- g -- g -- g
---------------------------------------------------------------
Net asset value, end of period ..................... $ 13.76 $ 12.90 $ 11.79 $ 11.19
===============================================================
Total return d ..................................... 8.39% 14.69% 7.93% 12.93%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by
affiliates f .................................... 0.71% 0.72% 0.90% 2.31%
Expenses net of waiver and payments by
affiliates f .................................... 0.50% 0.50% 0.46% 0.39%
Net investment income (loss) c ..................... (0.35)% 1.18% 1.41% 3.78%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $ 222,985 $ 190,189 $ 103,348 $ 16,155
Portfolio turnover rate ............................ 0.79% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 2, 2004 to December 31, 2004.
38 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
-------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31,
CLASS C (UNAUDITED) 2006 2005 2004 h
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $ 12.82 $ 11.74 $ 11.18 $ 10.00
---------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ................ (0.06) 0.08 0.09 0.15
Net realized and unrealized gains (losses) ...... 1.07 1.54 0.72 1.12
---------------------------------------------------------------
Total from investment operations ................... 1.01 1.62 0.81 1.27
---------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............... -- g (0.12) (0.09) (0.06)
Net realized gains .............................. (0.20) (0.42) (0.16) (0.03)
---------------------------------------------------------------
Total distributions ................................ (0.20) (0.54) (0.25) (0.09)
---------------------------------------------------------------
Redemption fees .................................... -- g -- g -- g -- g
---------------------------------------------------------------
Net asset value, end of period ..................... $ 13.63 $ 12.82 $ 11.74 $ 11.18
===============================================================
Total return d ..................................... 8.05% 13.92% 7.22% 12.66%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by
affiliates f .................................... 1.34% 1.36% 1.55% 2.96%
Expenses net of waiver and payments by
affiliates f .................................... 1.13% 1.14% 1.11% 1.04%
Net investment income (loss) c ..................... (0.98)% 0.54% 0.76% 3.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $ 80,022 $ 68,482 $ 36,568 $ 4,558
Portfolio turnover rate ............................ 0.79% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 2, 2004 (commencement of operations) to December 31,
2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
---------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31,
CLASS R (UNAUDITED) 2006 2005 2004 h
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $ 12.90 $ 11.79 $ 11.18 $ 10.00
---------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c ................ (0.03) 0.14 0.11 0.15
Net realized and unrealized gains (losses) ...... 1.07 1.55 0.77 1.13
---------------------------------------------------------------
Total from investment operations ................... 1.04 1.69 0.88 1.28
---------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............... -- g (0.16) (0.11) (0.07)
Net realized gains .............................. (0.20) (0.42) (0.16) (0.03)
---------------------------------------------------------------
Total distributions ................................ (0.20) (0.58) (0.27) (0.10)
---------------------------------------------------------------
Redemption fees .................................... -- g -- g -- g -- g
---------------------------------------------------------------
Net asset value, end of period ..................... $ 13.74 $ 12.90 $ 11.79 $ 11.18
===============================================================
Total return d ..................................... 8.23% 14.49% 7.86% 12.81%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by
affiliates f .................................... 0.86% 0.87% 1.05% 2.46%
Expenses net of waiver and payments by
affiliates f .................................... 0.65% 0.65% 0.61% 0.54%
Net investment income (loss) c ..................... (0.50)% 1.03% 1.26% 3.63%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $ 1,437 $ 1,539 $ 1,287 $ 260
Portfolio turnover rate ............................ 0.79% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 2, 2004 (commencement of operations) to December 31,
2004.
40 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2006 2005 2004 i
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................... $ 12.93 $ 11.81 $ 11.19 $ 10.00
------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................................... -- g 0.22 0.11 0.14
Net realized and unrealized gains (losses) .......................... 1.08 1.54 0.82 1.16
------------------------------------------------------
Total from investment operations ....................................... 1.08 1.76 0.93 1.30
------------------------------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying
Funds ............................................................. -- g (0.22) (0.15) (0.08)
Net realized gains .................................................. (0.20) (0.42) (0.16) (0.03)
------------------------------------------------------
Total distributions .................................................... (0.20) (0.64) (0.31) (0.11)
------------------------------------------------------
Redemption fees ........................................................ -- g -- g -- g -- g
------------------------------------------------------
Net asset value, end of period ......................................... $ 13.81 $ 12.93 $ 11.81 $ 11.19
======================================================
Total return d ......................................................... 8.53% 15.07% 8.31% 13.01%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .................... 0.36% 0.37% 0.55% 1.96%
Expenses net of waiver and payments by affiliates f .................... 0.15% 0.15% 0.11% 0.04%
Net investment income (loss) c ......................................... --% h 1.53% 1.76% 4.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................................... $ 2,045 $ 1,931 $ 1,104 $ 196
Portfolio turnover rate ................................................ 0.79% 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 Ratios are annualized for periods less than one year.
f 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 period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h Rounds to less than 0.01%.
i For the period August 2, 2004 (commencement of operations) to December 31,
2004.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.7%
DOMESTIC EQUITY 66.6%
Franklin Flex Cap Growth Fund, Advisor Class .................................... 2,191,786 $ 102,137,246
Mutual Shares Fund, Class Z ..................................................... 3,584,912 102,134,152
--------------
204,271,398
--------------
FOREIGN EQUITY 33.1%
Templeton Growth Fund Inc., Advisor Class ....................................... 3,689,021 101,411,195
--------------
TOTAL LONG TERM INVESTMENTS (COST $261,484,405) ................................. 305,682,593
--------------
SHORT TERM INVESTMENT (COST $354,352) 0.1%
MONEY MARKET FUND 0.1%
b Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% ............ 354,352 354,352
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $261,838,757) 99.8% ................. 306,036,945
OTHER ASSETS, LESS LIABILITIES 0.2% ............................................. 452,194
--------------
NET ASSETS 100.0% ............................................................... $ 306,489,139
==============
a See Note 6 regarding investments in Underlying Funds.
b The rate shown is the annualized seven-day yield at period end.
42 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2007 (unaudited)
-----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ................................................................ $ 608,263,812 $ 13,895,899,661 $ 261,838,757
=====================================================
Value ............................................................... $ 780,517,828 $ 15,789,728,461 $ 306,036,945
Receivables:
Investment securities sold .......................................... 28,316 -- 43,494
Capital shares sold ................................................. 809,763 96,418,946 1,359,322
-----------------------------------------------------
Total assets ........................................................ 781,355,907 15,886,147,407 307,439,761
-----------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ..................................... -- 20,769,243 --
Capital shares redeemed ............................................. 994,762 18,889,054 536,495
Affiliates .......................................................... 748,653 15,770,086 250,999
Unaffiliated transfer agent fees .................................... 223,251 2,935,213 98,755
Accrued expenses and other liabilities ................................. 86,170 970,178 64,373
-----------------------------------------------------
Total liabilities ................................................... 2,052,836 59,333,774 950,622
-----------------------------------------------------
Net assets, at value ............................................. $ 779,303,071 $ 15,826,813,633 $ 306,489,139
=====================================================
Net assets consist of:
Paid-in capital ........................................................ $ 609,759,055 $ 13,851,773,864 $ 262,997,073
Undistributed net investment income (loss) ............................. (2,337,904) 79,756,891 (726,366)
Net unrealized appreciation (depreciation) ............................. 172,254,016 1,893,828,800 44,198,188
Accumulated net realized gain (loss) ................................... (372,096) 1,454,078 20,244
-----------------------------------------------------
Net assets, at value ............................................. $ 779,303,071 $ 15,826,813,633 $ 306,489,139
=====================================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2007 (unaudited)
----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
----------------------------------------------------
CLASS A:
Net assets, at value ................................................... $ 509,410,314 $ 9,824,458,490 $ 222,985,066
====================================================
Shares outstanding ..................................................... 33,990,822 667,149,059 16,210,619
====================================================
Net asset value per share a ............................................ $ 14.99 $ 14.73 $ 13.76
====================================================
Maximum offering price per share (net asset value per share / 94.25%) .. $ 15.90 $ 15.63 $ 14.60
====================================================
CLASS B:
Net assets, at value ................................................... $ 78,608,153 $ 793,761,299
==================================
Shares outstanding ..................................................... 5,301,812 54,275,887
==================================
Net asset value and maximum offering price per share a ................. $ 14.83 $ 14.62
====================================================
CLASS C:
Net assets, at value ................................................... $ 185,226,370 $ 5,129,295,410 $ 80,022,216
====================================================
Shares outstanding ..................................................... 12,519,503 354,411,419 5,872,707
====================================================
Net asset value and maximum offering price per share a ................. $ 14.80 $ 14.47 $ 13.63
====================================================
CLASS R:
Net assets, at value ................................................... $ 2,657,942 $ 29,564,944 $ 1,436,933
====================================================
Shares outstanding ..................................................... 177,778 2,008,546 104,560
====================================================
Net asset value and maximum offering price per share a ................. $ 14.95 $ 14.72 $ 13.74
====================================================
ADVISOR CLASS:
Net assets, at value ................................................... $ 3,400,292 $ 49,733,490 $ 2,044,924
====================================================
Shares outstanding ..................................................... 226,036 3,351,694 148,074
====================================================
Net asset value and maximum offering price per share a ................. $ 15.04 $ 14.84 $ 13.81
====================================================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
44 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2007 (unaudited)
-----------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ............................... $ 327,222 $ 130,849,341 $ 218,607
-----------------------------------------------------
Expenses:
Administrative fees (Note 3a) .......................................... 369,305 6,809,641 141,269
Distribution fees (Note 3b)
Class A ............................................................. 843,212 14,871,098 360,364
Class B ............................................................. 384,491 3,876,701 --
Class C ............................................................. 873,538 21,910,496 362,585
Class R ............................................................. 6,501 67,782 3,664
Transfer agent fees (Note 3d) .......................................... 687,066 7,597,642 324,221
Reports to shareholders ................................................ 26,181 430,629 --
Registration and filing fees ........................................... 67,418 922,055 64,089
Professional fees ...................................................... 14,459 38,073 12,175
Trustees' fees and expenses ............................................ 562 10,221 269
Other .................................................................. 8,030 127,252 1,360
-----------------------------------------------------
Total expenses ...................................................... 3,280,763 56,661,590 1,269,996
Expenses waived/paid by affiliates (Note 3e) ........................ (618,289) (5,653,037) (331,257)
-----------------------------------------------------
Net expenses ..................................................... 2,662,474 51,008,553 938,739
-----------------------------------------------------
Net investment income (loss) .................................. (2,335,252) 79,840,788 (720,132)
-----------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ............................. 45,963 (437,574) (19,858)
Realized gain distributions by Underlying Funds ..................... 241,141 6,434,793 125,361
-----------------------------------------------------
Net realized gain (loss) from Underlying Funds ................ 287,104 5,997,219 105,503
-----------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds ................................................. 60,156,630 843,371,727 23,235,859
-----------------------------------------------------
Net realized and unrealized gain (loss) ................................... 60,443,734 849,368,946 23,341,362
-----------------------------------------------------
Net increase (decrease) in net assets resulting from operations ........... $ 58,108,482 $ 929,209,734 $ 22,621,230
=====================================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND FOUNDING FUNDS ALLOCATION FUND
--------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31, JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006 (UNAUDITED) 2006
--------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ......................... $ (2,335,252) $ 3,736,014 $ 79,840,788 $ 245,818,909
Net realized gain (loss) from Underlying Funds ....... 287,104 24,029,110 5,997,219 497,747,137
Net change in unrealized appreciation (depreciation)
on investments in Underlying Funds ................ 60,156,630 61,294,086 843,371,727 866,728,549
--------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ...................... 58,108,482 89,059,210 929,209,734 1,610,294,595
--------------------------------------------------------------------
Distributions to shareholders from:
Net investment income and short term gains
received from Underlying Funds:
Class A ........................................ (485,747) (5,156,182) (4,066,980) (215,722,803)
Class B ........................................ (79,056) (395,188) (381,344) (18,066,213)
Class C ........................................ (178,428) (951,148) (2,110,679) (93,577,572)
Class R ........................................ (2,762) (25,068) (13,150) (683,952)
Advisor Class .................................. (3,218) (44,139) (7,523) (799,059)
Net realized gains:
Class A ........................................ (7,466,394) (11,448,102) (131,421,460) (202,445,425)
Class B ........................................ (1,212,716) (2,054,806) (12,367,922) (25,277,173)
Class C ........................................ (2,742,937) (4,266,699) (68,812,615) (104,093,208)
Class R ........................................ (40,868) (65,663) (420,624) (727,036)
Advisor Class .................................. (49,369) (79,089) (595,164) (652,974)
--------------------------------------------------------------------
Total distributions to shareholders ........................ (12,261,495) (24,486,084) (220,197,461) (662,045,415)
--------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ........................................ 20,525,791 63,989,093 2,086,539,094 2,657,895,916
Class B ........................................ (2,377,096) (2,554,475) (11,466,043) (1,624,509)
Class C ........................................ 8,064,648 19,093,712 1,219,994,688 1,330,975,579
Class R ........................................ (39,348) 112,639 3,689,727 4,909,568
Advisor Class .................................. 118,700 (5,903) 22,533,202 10,900,983
--------------------------------------------------------------------
Total capital share transactions ........................... 26,292,695 80,635,066 3,321,290,668 4,003,057,537
--------------------------------------------------------------------
Redemption fees ............................................ 263 2,409 49,460 45,813
--------------------------------------------------------------------
Net increase (decrease) in net assets ............. 72,139,945 145,210,601 4,030,352,401 4,951,352,530
Net assets:
Beginning of period ..................................... 707,163,126 561,952,525 11,796,461,232 6,845,108,702
--------------------------------------------------------------------
End of period ........................................... $ 779,303,071 $ 707,163,126 $ 15,826,813,633 $ 11,796,461,232
--------------------------------------------------------------------
Undistributed net investment income (loss)
included in net assets:
End of period ........................................... $ (2,337,904) $ 746,559 $ 79,756,891 $ 6,495,779
--------------------------------------------------------------------
46 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
---------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
---------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006
---------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ............................................................ $ (720,132) $ 2,101,962
Net realized gain (loss) from Underlying Funds .......................................... 105,503 10,241,921
Net change in unrealized appreciation (depreciation) on investments
in Underlying Funds .................................................................. 23,235,859 16,328,995
---------------------------------
Net increase (decrease) in net assets resulting from operations ...................... 22,621,230 28,672,878
---------------------------------
Distributions to shareholders from:
Net investment income and short term gains received from Underlying Funds:
Class A .............................................................................. (81,709) (2,636,779)
Class C .............................................................................. (28,825) (608,817)
Class R .............................................................................. (757) (18,516)
Advisor Class ........................................................................ (750) (31,836)
Net realized gains:
Class A .............................................................................. (3,052,950) (5,309,666)
Class C .............................................................................. (1,100,106) (1,947,481)
Class R .............................................................................. (21,046) (48,316)
Advisor Class ........................................................................ (29,247) (51,944)
---------------------------------
Total distributions to shareholders ........................................................ (4,315,390) (10,653,355)
---------------------------------
Capital share transactions: (Note 2)
Class A .............................................................................. 19,300,475 73,695,077
Class C .............................................................................. 6,960,396 27,278,019
Class R .............................................................................. (201,839) 129,556
Advisor Class ........................................................................ (17,292) 709,790
---------------------------------
Total capital share transactions ........................................................... 26,041,740 101,812,442
---------------------------------
Redemption fees ............................................................................ 451 1,365
---------------------------------
Net increase (decrease) in net assets ................................................ 44,348,031 119,833,330
Net assets:
Beginning of period ........................................................................ 262,141,108 142,307,778
---------------------------------
End of period .............................................................................. $ 306,489,139 $ 262,141,108
=================================
Undistributed net investment income (loss) included in net assets:
End of period .............................................................................. $ (726,366) $ 105,807
=================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940, 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 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 Fund's 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 it is each fund's
policy 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 of
America. 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.
48 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
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.
Semiannual Report | 49
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2007, there were an unlimited number of shares authorized (no 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:
Six months ended June 30, 2007
Shares sold ......................................................... 3,703,248 $ 53,518,401 175,276,486 $2,517,897,604
Shares issued in reinvestment of distributions ...................... 549,317 7,547,608 9,342,985 128,279,155
Shares redeemed ..................................................... (2,795,866) (40,540,218) (38,958,831) (559,637,665)
---------------------------------------------------------
Net increase (decrease) ............................................. 1,456,699 $ 20,525,791 145,660,640 $2,086,539,094
=========================================================
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
=========================================================
CLASS B SHARES:
Six months ended June 30, 2007
Shares sold ......................................................... 71,812 $ 1,021,638 1,005,908 $ 14,330,280
Shares issued in reinvestment of distributions ...................... 90,214 1,228,723 871,390 11,903,248
Shares redeemed ..................................................... (322,541) (4,627,457) (2,640,268) (37,699,571)
---------------------------------------------------------
Net increase (decrease) ............................................. (160,515) $ (2,377,096) (762,970) $ (11,466,043)
=========================================================
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)
=========================================================
CLASS C SHARES:
Six months ended June 30, 2007
Shares sold ......................................................... 1,365,261 $ 19,509,760 98,169,043 $1,387,315,397
Shares issued in reinvestment of distributions ...................... 199,752 2,714,633 4,582,243 61,953,631
Shares redeemed ..................................................... (986,921) (14,159,745) (16,222,514) (229,274,340)
---------------------------------------------------------
Net increase (decrease) ............................................. 578,092 $ 8,064,648 86,528,772 $1,219,994,688
=========================================================
Year ended December 31, 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
=========================================================
50 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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:
Six months ended June 30, 2007
Shares sold ......................................................... 5,803 $ 83,345 386,308 $ 5,558,269
Shares issued in reinvestment of distributions ...................... 3,182 43,631 31,496 432,453
Shares redeemed ..................................................... (11,336) (166,324) (157,282) (2,300,995)
---------------------------------------------------------
Net increase (decrease) ............................................. (2,351) $ (39,348) 260,522 $ 3,689,727
=========================================================
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
=========================================================
ADVISOR CLASS SHARES:
Six months ended June 30, 2007
Shares sold ......................................................... 9,080 $ 131,813 1,743,222 $25,165,018
Shares issued in reinvestment of distributions ...................... 3,658 50,404 42,332 584,908
Shares redeemed ..................................................... (4,319) (63,517) (221,733) (3,216,724)
---------------------------------------------------------
Net increase (decrease) ............................................. 8,419 $ 118,700 1,563,821 $22,533,202
=========================================================
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
=========================================================
-----------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
-----------------------------
SHARES AMOUNT
-----------------------------
CLASS A SHARES:
Six months ended June 30, 2007
Shares sold ..................................................................................... 2,303,193 $ 30,542,034
Shares issued in reinvestment of distributions .................................................. 240,073 3,032,061
Shares redeemed ................................................................................. (1,071,447) (14,273,620)
-----------------------------
Net increase (decrease) ......................................................................... 1,471,819 $ 19,300,475
=============================
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
=============================
Semiannual Report | 51
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-----------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
-----------------------------
SHARES AMOUNT
-----------------------------
CLASS C SHARES:
Six months ended June 30, 2007
Shares sold ..................................................................................... 853,505 $11,241,916
Shares issued in reinvestment of distributions .................................................. 83,352 1,044,405
Shares redeemed ................................................................................. (404,583) (5,325,925)
-----------------------------
Net increase (decrease) ......................................................................... 532,274 $ 6,960,396
=============================
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
=============================
CLASS R SHARES:
Six months ended June 30, 2007
Shares sold ..................................................................................... 13,553 $ 178,864
Shares issued in reinvestment of distributions .................................................. 1,726 21,786
Shares redeemed ................................................................................. (29,992) (402,489)
-----------------------------
Net increase (decrease) ......................................................................... (14,713) $ (201,839)
=============================
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
=============================
ADVISOR CLASS SHARES:
Six months ended June 30, 2007
Shares sold ..................................................................................... 7,387 $ 98,306
Shares issued in reinvestment of distributions .................................................. 2,334 29,549
Shares redeemed ................................................................................. (10,995) (145,147)
-----------------------------
Net increase (decrease) ......................................................................... (1,274) $ (17,292)
=============================
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
=============================
52 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of some of the
Underlying Funds and of the following subsidiaries:
- ----------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- ----------------------------------------------------------------------------------------
Franklin 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 the
average daily net assets of each of the Funds 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%
The Board of Trustees has agreed to limit the current rate to 0.30% per year for
Class A shares for the period of August 1, 2007 through January 31, 2009.
C. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers .................... $292,652 $13,427,371 $161,112
Contingent deferred sales charges retained ................ $ 68,299 $ 844,784 $ 9,884
Semiannual Report | 53
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. TRANSFER AGENT FEES
For the period ended June 30, 2007, 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 ....................................... $400,454 $3,659,098 $191,814
E. WAIVER AND EXPENSE REIMBURSEMENTS
FT Services has agreed in advance to waive all or a portion of its fees and to
assume payment of other expenses through April 30, 2009. Total expenses
waived/paid are not subject to reimbursement by the Funds subsequent to the
Funds' fiscal year end. After April 30, 2009, FT Services may discontinue this
waiver at any time upon notice to the Funds' Board of Trustees.
4. INCOME TAXES
At June 30, 2007, the cost of investments and net unrealized appreciation
(depreciation) 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 ....................................... $608,928,986 $13,902,412,209 $261,950,887
============================================================
Unrealized appreciation ................................... $171,588,842 $ 1,887,316,252 $ 44,086,058
Unrealized depreciation ................................... -- -- --
------------------------------------------------------------
Net unrealized appreciation (depreciation) ................ $171,588,842 $ 1,887,316,252 $ 44,086,058
============================================================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of short term capital gains distributions from
Underlying Funds.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and short term capital gains
distributions from Underlying Funds.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended June 30, 2007, were as follows:
------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------------
Purchases ................................................. $15,931,148 $3,220,546,095 $22,715,308
Sales ..................................................... $ 3,647,519 $ 43,566,803 $ 2,257,339
54 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Franklin
Advisers, Inc., (Advisers), an affiliate of FT Services, or by an affiliate of
Advisers. The Funds do not invest in the Underlying Funds for the purpose of
exercising management or control. At June 30, 2007, 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 ............................ 12.56%
Franklin Growth Fund .................................... 6.61%
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund ...................................... 20.08%
Templeton Growth Fund Inc. .............................. 13.06%
Franklin Income Fund .................................... 8.65%
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 AND LITIGATION 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 and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Following the public comment
period, and once the SEC approves the final plan of distribution, disbursements
of settlement monies will be made promptly to individuals who were shareholders
of the designated funds during the relevant period, 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.
Semiannual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY AND LITIGATION MATTERS (CONTINUED)
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
The Funds adopted 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"), on June 29, 2007. FIN 48
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. The Funds have determined
that the adoption of FIN 48 did not have a material impact on the Funds'
financial statements.
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.
56 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007, MAY
11, 2007 AND MAY 18, 2007 (UNAUDITED)
A Special Meeting of Shareholders of the Trust was held at the Trust's offices,
One Franklin Parkway, San Mateo, California on March 21, 2007 and reconvened on
April 11, 2007, May 11, 2007 and May 18, 2007. The purpose of the meeting was to
elect Trustees of the Trust and to vote on the following Proposals and
Sub-Proposals: to approve an Amended and Restated Agreement and Declaration of
Trust and to approve amendments to certain of the Trust's fundamental investment
restrictions (including several Sub-Proposals). At the meeting, the following
persons were elected by the shareholders to serve as Independent Trustees of the
Trust: Harris J. Ashton, Robert F. Carlson, Sam L.Ginn, Edith E. Holiday, Frank
W.T. LaHaye, Frank A. Olson, Larry D. Thompson and John B. Wilson. Charles B.
Johnson and Gregory E. Johnson were elected by the shareholders to serve as
Interested Trustees. Shareholders also approved the Amended and Restated
Agreement and Declaration of Trust, and amendments to certain of the Trust's
fundamental investment restrictions (including three (3) Sub-Proposals). No
other business was transacted at the meeting.
The results of the voting at the meeting are as follows:
Proposal 1. The Election of Trustees:
- ---------------------------------------------------------------------------------------------------------------------
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
NAME FOR SHARES SHARES WITHHELD SHARES SHARES
- ---------------------------------------------------------------------------------------------------------------------
Harris J. Ashton ................. 656,147,950.156 64.633% 98.373% 10,853,214.851 1.069% 1.627%
Robert F. Carlson ................ 656,105,078.791 64.629% 98.366% 10,896,086.216 1.073% 1.634%
Sam L. Ginn ...................... 656,144,152.234 64.633% 98.372% 10,857,012.773 1.069% 1.628%
Edith E. Holiday ................. 656,038,770.213 64.622% 98.356% 10,962,394.794 1.080% 1.644%
Frank W.T. LaHaye ................ 655,699,168.411 64.589% 98.306% 11,301,996.596 1.113% 1.694%
Frank A. Olson ................... 655,910,551.769 64.610% 98.337% 11,090,613.238 1.092% 1.663%
Larry D. Thompson ................ 656,416,757.449 64.659% 98.413% 10,584,407.558 1.043% 1.587%
John B. Wilson ................... 656,301,596.063 64.648% 98.396% 10,699,568.944 1.054% 1.604%
Charles B. Johnson ............... 655,740,072.084 64.593% 98.312% 11,261,092.923 1.109% 1.688%
Gregory E. Johnson ............... 656,125,768.392 64.631% 98.370% 10,875,396.615 1.071% 1.630%
Proposal 2. To approve an Amended and Restated Agreement and Declaration of
Trust:
- -----------------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
COREFOLIO ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- -----------------------------------------------------------------------------
For .............................. 20,229,395.615 40.140% 62.397%
Against .......................... 369,836.920 0.734% 1.140%
Abstain .......................... 1,086,823.948 2.156% 3.353%
Broker Non-Votes ................. 10,734,547.000 21.300% 33.110%
- -----------------------------------------------------------------------------
TOTAL ............................ 32,420,603.483 64.330% 100.000%
- -----------------------------------------------------------------------------
Semiannual Report | 57
Franklin Templeton Fund Allocator Series
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007,
MAY 11, 2007 AND MAY 18, 2007 (UNAUDITED) (CONTINUED)
Proposal 2. To approve an Amended and Restated Agreement and Declaration of
Trust: (CONTINUED)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
FOUNDING FUNDS OUTSTANDING VOTED
ALLOCATION FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 318,539,990.405 37.490% 55.473%
Against ................... 6,626,577.625 0.780% 1.154%
Abstain ................... 17,122,669.547 2.015% 2.982%
Broker Non-Votes .......... 231,933,708.000 27.297% 40.391%
- ----------------------------------------------------------------------
TOTAL ..................... 574,222,945.577 67.582% 100.000%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
COREFOLIO ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,740,871.293 42.852% 66.391%
Against ................... 173,627.559 0.851% 1.319%
Abstain ................... 492,306.374 2.414% 3.739%
Broker Non-Votes .......... 3,758,893.000 18.428% 28.551%
- ----------------------------------------------------------------------
TOTAL ..................... 13,165,698.871 64.545% 100.000%
- ----------------------------------------------------------------------
Proposal 3. To approve amendments to certain of the Trust's fundamental
investment restrictions (includes three (3) Sub-Proposals):
(a) To amend the Trust's fundamental investment restriction regarding lending:
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
COREFOLIO ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 23,312,361.074 46.257% 67.826%
Against ................... 1,151,897.671 2.286% 3.351%
Abstain ................... 1,469,632.584 2.916% 4.276%
Broker Non-Votes .......... 8,437,158.000 16.741% 24.547%
- ----------------------------------------------------------------------
TOTAL ..................... 34,371,049.329 68.200% 100.000%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
FOUNDING FUNDS OUTSTANDING VOTED
ALLOCATION FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 398,075,993.207 46.851% 65.211%
Against ................... 13,155,747.015 1.548% 2.155%
Abstain ................... 29,648,148.929 3.489% 4.857%
Broker Non-Votes .......... 169,561,619.000 19.956% 27.777%
- ----------------------------------------------------------------------
TOTAL ..................... 610,441,508.151 71.844% 100.000%
- ----------------------------------------------------------------------
58 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007,
MAY 11, 2007 AND MAY 18, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Trust's fundamental
investment restrictions (includes three (3) Sub-Proposals): (CONTINUED)
(a) To amend the Trust's fundamental investment restriction regarding lending:
(CONTINUED)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
PERSPECTIVES ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,882,198.927 43.545% 68.045%
Against ................... 463,641.829 2.273% 3.552%
Abstain ................... 587,844.115 2.882% 4.503%
Broker Non-Votes .......... 3,119,702.000 15.294% 23.900%
- ----------------------------------------------------------------------
TOTAL ..................... 13,053,386.871 63.994% 100.000%
- ----------------------------------------------------------------------
(b) To amend the Trust's fundamental investment restriction regarding
investments in real estate:
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
COREFOLIO ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 23,258,271.426 46.150% 67.668%
Against ................... 1,174,599.715 2.330% 3.418%
Abstain ................... 1,501,020.188 2.979% 4.367%
Broker Non-Votes .......... 8,437,158.000 16.741% 24.547%
- ----------------------------------------------------------------------
TOTAL ..................... 34,371,049.329 68.200% 100.000%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
FOUNDING FUNDS OUTSTANDING VOTED
ALLOCATION FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 399,507,546.670 47.019% 65.446%
Against ................... 12,007,070.479 1.413% 1.967%
Abstain ................... 29,365,272.002 3.456% 4.810%
Broker Non-Votes .......... 169,561,619.000 19.956% 27.777%
- ----------------------------------------------------------------------
TOTAL ..................... 610,441,508.151 71.844% 100.000%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
PERSPECTIVES ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,898,845.874 43.627% 68.173%
Against ................... 487,837.655 2.391% 3.736%
Abstain ................... 547,001.342 2.682% 4.191%
Broker Non-Votes .......... 3,119,702.000 15.294% 23.900%
- ----------------------------------------------------------------------
TOTAL ..................... 13,053,386.871 63.994% 100.000%
- ----------------------------------------------------------------------
Semiannual Report | 59
Franklin Templeton Fund Allocator Series
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007,
MAY 11, 2007 AND MAY 18, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Trust's fundamental
investment restrictions (includes three (3) Sub-Proposals): (CONTINUED)
(c) To amend the Trust's fundamental investment restriction regarding
investments in commodities:
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
COREFOLIO ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 23,258,271.426 46.150% 67.668%
Against ................... 1,174,599.715 2.330% 3.418%
Abstain ................... 1,501,020.188 2.979% 4.367%
Broker Non-Votes .......... 8,437,158.000 16.741% 24.547%
- ----------------------------------------------------------------------
TOTAL ..................... 34,371,049.329 68.200% 100.000%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
FOUNDING FUNDS OUTSTANDING VOTED
ALLOCATION FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 397,309,212.194 46.760% 65.086%
Against ................... 13,871,331.015 1.633% 2.271%
Abstain ................... 29,699,345.942 3.495% 4.866%
Broker Non-Votes .......... 169,561,619.000 19.956% 27.777%
- ----------------------------------------------------------------------
TOTAL ..................... 610,441,508.151 71.844% 100.000%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
PERSPECTIVES ALLOCATION OUTSTANDING VOTED
FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 8,845,350.720 43.364% 67.763%
Against ................... 518,653.039 2.543% 3.972%
Abstain ................... 569,681.112 2.793% 4.365%
Broker Non-Votes .......... 3,119,702.000 15.294% 23.900%
- ----------------------------------------------------------------------
TOTAL ..................... 13,053,386.871 63.994% 100.000%
- ----------------------------------------------------------------------
60 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 27, 2007, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series (Fund(s)). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin
Semiannual Report | 61
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Templeton fund complex, the adherence to fair value pricing procedures
established by the Board, and the accuracy of net asset value calculations. The
Board also noted the extent of benefits provided Fund shareholders from being
part of the Franklin Templeton family of funds, including the right to exchange
investments between the same class of funds without a sales charge, the ability
to reinvest Fund dividends into other funds and the right to combine holdings in
other funds to obtain a reduced sales charge. Favorable consideration was given
to management's continuous efforts and expenditures in establishing back-up
systems and recovery procedures to function in the event of a natural disaster,
it being noted that such systems and procedures had functioned smoothly during
the Florida hurricanes and blackouts experienced in recent years. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of each
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, the high industry ranking given to the
Franklin Templeton website, and the firsthand experience of individual Board
members who deal with the shareholder services department in their capacities as
shareholders in one or more of the various Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
the investment performance of Class A shares, in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
the one-year period ended December 31, 2006, and for additional periods ended
that date depending on when a particular Fund commenced operations. The
following summarizes the performance results for each of the Funds and the
Board's view of such performance.
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND - The performance universe for this
Fund consisted of the Fund and all retail and institutional multi-cap core funds
as selected by Lipper. The Fund had been in operation for three full years at
the date of the Lipper report, which showed its income and total return for the
one-year period as well as for the previous two- and three-year periods on an
annualized basis to be in each case in the second-highest quintile of such
universe. The Board was satisfied with such performance.
62 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional multi-cap core
funds as selected by Lipper. This Fund had been in operation for three full
years at the date of the Lipper report, which showed its income and total return
for the one-year period to be in the highest quintile of such universe and its
income and total return on an annualized basis in each case to also be in the
highest quintile of such performance universe. The Board was satisfied with
such performance.
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional multi-cap core
funds as selected by Lipper. The Fund has been in operation for only two full
years at the date of the Lipper report, which showed its income return to be in
the highest quintile of such universe in each year and its total return to be in
the second-highest quintile of such universe in each year. The Board was
satisfied with such performance.
COMPARATIVE EXPENSE. Consideration was given to the management fee and total
expense ratios of each Fund compared with those of a group of retail front-end
load fund of funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparisons, the Board relied upon a survey showing that
the scope of management services covered under a Fund's investment management
agreement was similar to those provided by fund managers to other mutual fund
groups. In reviewing comparative costs, emphasis was given to each Fund's
contractual investment management fee in comparison with the contractual
investment management fee that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expenses of the Fund in comparison with those of its Lipper
expense group. The Board noted that for Franklin Templeton Corefolio Allocation
Fund, Franklin Templeton Founding Funds Allocation Fund, and Franklin Templeton
Perspectives Allocation Fund there is no investment management agreement or
investment advisory fee, but only an administration agreement with FT Services,
LLC. The Lipper contractual investment management fee analysis includes the
advisory and administrative fees directly charged to each Fund as being part of
the contractual investment management fee, with the investment management fees
charged underlying funds being included within actual total expenses.
Contractual investment management fees and total expenses for comparative
consistency are shown by Lipper for fund Class A shares. The Lipper reports for
each of Franklin Templeton Corefolio Allocation Fund, Franklin Templeton
Founding Funds Allocation Fund, and Franklin Templeton Perspectives Allocation
Fund showed that the contractual investment management fee for each Fund was in
the least expensive quintile of its Lipper expense group and that total expenses
of each Fund were in either the least or second least expensive quintile of its
Lipper expense group. The Board found such expenses to be satisfactory.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin
Semiannual Report | 63
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Templeton's U.S. fund business, as well as its profits in providing management
and other services to each of the individual funds. Specific attention was given
to the methodology followed in allocating costs to each Fund, it being
recognized that allocation methodologies are inherently subjective and various
allocation methodologies may each be reasonable while producing different
results. In this respect, the Board noted that, while being continuously refined
and reflecting changes in the Manager's own cost accounting, the allocation
methodology was consistent with that followed in profitability report
presentations for the Funds made in prior years and that the Funds' independent
registered public accounting firm had been engaged by the Manager to perform
certain procedures on a biennial basis, specified and approved by the Manager
and the Funds' Board solely for their purposes and use in reference to the
profitability analysis. In reviewing and discussing such analysis, management
discussed with the Board its belief that costs incurred in establishing the
infrastructure necessary for the type of mutual fund operations conducted by the
Manager and its affiliates may not be fully reflected in the expenses allocated
to each Fund in determining its profitability, as well as the fact that the
level of profits, to a certain extent, reflected operational cost savings and
efficiencies initiated by management. The Board also took into account
management's expenditures in improving shareholder services provided the Funds,
as well as the need to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC requirements. In addition,
the Board considered a third-party study comparing the profitability of the
Manager's parent on an overall basis as compared to other publicly held managers
broken down to show profitability from management operations exclusive of
distribution expenses, as well as profitability including distribution expenses.
The Board also considered the extent to which the Manager and its affiliates
might derive ancillary benefits from fund operations, including its interest in
a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005, when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of "soft" commission
dollars to pay for research. Based upon its consideration of all these factors,
the Board determined that the level of profits realized by the Manager and its
affiliates from providing services to each Fund was not excessive in view of the
nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Managers as the Funds grow larger and the extent to which this
is reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Managers realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. With the exception of Templeton Global Long-Short
Fund which has a performance adjusted base fee, the fees charged all the
underlying funds in which the Funds may invest provide for management fee
breakpoints. Consequently, to
64 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
the extent economies of scale may be realized by the investment managers of
these funds, the schedule of fees under their investment management agreements
provides a sharing of benefits with a Fund and its shareholders.
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.
Semiannual Report | 65
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON FUNDS
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 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
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 Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends 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(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
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 open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
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. The fund invests primarily in 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.
05/07 Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS2 S2007 08/07
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
JUNE 30, 2007
- --------------------------------------------------------------------------------
Franklin Templeton
2015 Retirement Target Fund
Franklin Templeton
2025 Retirement Target Fund
Franklin Templeton
2035 Retirement Target Fund
Franklin Templeton
2045 Retirement Target Fund
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why
our funds can be used to build truly diversified
allocation plans covering every major asset
class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the semiannual report
Contents
SEMIANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton 2015 Retirement Target Fund ............................ 5
Franklin Templeton 2025 Retirement Target Fund ............................ 13
Franklin Templeton 2035 Retirement Target Fund ............................ 21
Franklin Templeton 2045 Retirement Target Fund ............................ 29
Financial Highlights and Statements of Investments ........................ 37
Financial Statements ...................................................... 57
Notes to Financial Statements ............................................. 62
Meeting of Shareholders ................................................... 71
Shareholder Information ................................................... 75
- --------------------------------------------------------------------------------
Semiannual Report
Economic and Market Overview
During the six months ended June 30, 2007, the U.S. economy rebounded after an
initial slowdown. Gross domestic product growth decelerated to an annualized
0.6% rate in 2007's first quarter. Corporate profits and government spending
generally remained robust. The struggling housing market grew more fragile with
the abrupt unraveling of the subprime mortgage market. This exacerbated already
weak housing prices and an inventory glut in most of the nation's residential
real estate markets. In the second quarter, however, growth advanced at an
estimated annualized 3.4% rate, supported by federal defense spending,
accelerating exports and declining imports, greater business inventory
investment and increased spending for nonresidential structures.
The unemployment rate began and ended the reporting period at 4.5% while overall
job growth slowed in the face of rising labor costs. 1 Jobs in vehicle
manufacturing and housing-related industries experienced declines stemming from
reduced consumer demand. Consumer confidence fell to a 10-month low in June.
Gasoline prices rose in the first half of 2007 in response to perceived tight
supply and high demand for oil, refinery maintenance issues, and ongoing
geopolitical tensions in the Middle East and Africa. Although the rate of core
inflation moderated during the six-month reporting period, it rose 2.2% for the
12 months ended June 30, 2007, which was also the 10-year average rate. 2
The Federal Reserve Board kept the federal funds target rate at 5.25% and
indicated that inflation pressures remained a key concern. The 10-year Treasury
note yield began the period at 4.71%. Toward the end of the period, a bond
market sell-off caused yields on longer-term Treasuries to rise significantly,
reflecting expectations of a pick-up in inflation later in the year. The 10-year
Treasury yield reached 5.03% on June 30, 2007.
Outside the U.S., the global economy remained resilient throughout the six-month
period. Sustained consumer and corporate demand, reasonably low inflation, tight
or improving labor markets, and moderate, though higher, global interest rates
have consistently supported economic growth since the global economic recovery
began in 2002.
1. Source: Bureau of Labor Statistics.
2. Source: Bureau of Labor Statistics. Core inflation, as measured by the
Consumer Price Index, excludes food and energy costs.
Semiannual Report | 3
Financing costs increased gradually from unprecedented low levels, but global
liquidity -- petrodollars, corporate cash, private equity, household savings and
central banks' reserves -- remained abundant. As investible cash continued to
look for a home, global merger and acquisition activity remained at record
levels.
After global stock market sell-offs in late February and mid-March, markets
rebounded in the second quarter amid generally strong corporate earnings
reports. Domestically, the blue chip stocks of the Dow Jones Industrial Average
posted a six-month total return of +8.76%, and the broader Standard & Poor's 500
Index (S&P 500) returned +6.92%, while the technology-heavy NASDAQ Composite
Index returned +8.20%. 3 Most non-U.S. equity markets ended the six-month period
with double-digit total returns. Many stock market indexes in the U.S. and most
European countries reached seven-year highs, and many emerging market indexes in
Asia, Europe and Latin America neared or reached all-time highs during the
reporting period.
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 JUNE 30,
2007. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
4 | Semiannual Report
Franklin Templeton
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 of 2015 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 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity .................. 47.1%
Foreign Equity ................... 21.3%
Domestic Fixed Income ............ 17.3%
Foreign Fixed Income ............. 8.3%
Short-Term Investments &
Other Net Assets ................. 6.0%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This semiannual report for Franklin Templeton 2015 Retirement Target Fund covers
the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2015 Retirement Target Fund - Class A posted a +7.67%
cumulative total return for the six months ended June 30, 2007. By comparison
the Fund's benchmarks, the Standard & Poor's 500 Index (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
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 41.
Semiannual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton
2015 Retirement Target Fund
6/30/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 13.7%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 12.1%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 12.0%
- - Class Z
- --------------------------------------------------------------------------------
Mutual European Fund 11.4%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Global Bond Fund 8.3%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities Fund 7.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Total Return Fund 5.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 4.4%
- --------------------------------------------------------------------------------
Templeton Foreign Fund 3.8%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton China World Fund 3.4%
- - Advisor Class
- --------------------------------------------------------------------------------
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 +6.92%,
+11.09%, +0.98% and +2.53%, 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
maximizing income appropriate to the Fund's risk profile. 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
target 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 in accordance with the retirement date associated with the
portfolio.
At period-end, Franklin Templeton 2015 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
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.
P&R 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 distributions. One cannot invest directly in an index,
nor is an index representative of the Fund's portfolio.
6 | Semiannual Report
sizes and investment styles, and on June 30, 2007, 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, was our largest
equity fund weighting at period-end, representing 13.7% of the Fund's total net
assets. On the fixed income side, domestic exposure was 67.5% 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 8.3% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500, as did our largest domestic value fund
holding, Mutual Shares Fund - Class Z. Our largest foreign equity holding,
Mutual European - Class Z, outperformed the MSCI EAFE Index. However, 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. Conversely, Franklin U.S. Government Securities Fund - Advisor
Class and Franklin Strategic Mortgage Portfolio trailed the LB U.S. Aggregate
Index.
Thank you for your continued 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 JUNE 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 7
Performance Summary as of 6/30/07
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 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.65 $11.34 $10.69
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0358
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1347
- --------------------------------------------------------------------------------
TOTAL $0.1705
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.61 $11.28 $10.67
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0267
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1347
- --------------------------------------------------------------------------------
TOTAL $0.1614
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.65 $11.33 $10.68
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0329
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1347
- --------------------------------------------------------------------------------
TOTAL $0.1676
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.66 $11.36 $10.70
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0479
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1347
- --------------------------------------------------------------------------------
TOTAL $0.1826
- --------------------------------------------------------------------------------
8 | Semiannual 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 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.67% +16.92%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +1.50% +10.20%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,150 $11,020
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 7.75%
- --------------------------------------------------------------------------------------------------
With Waiver 0.50%
- --------------------------------------------------------------------------------------------------
CLASS C 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.22% +16.13%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +6.22% +15.13%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,622 $11,513
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 8.40%
- --------------------------------------------------------------------------------------------------
With Waiver 1.15%
- --------------------------------------------------------------------------------------------------
CLASS R 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.65% +16.78%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +7.65% +16.78%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,765 $11,678
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 7.90%
- --------------------------------------------------------------------------------------------------
With Waiver 0.65%
- --------------------------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.87% +17.31%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +7.87% +17.31%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,787 $11,731
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 7.40%
- --------------------------------------------------------------------------------------------------
With Waiver 0.15%
- --------------------------------------------------------------------------------------------------
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.
THE MANAGER HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL ANNUAL
FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 9
Performance Summary (CONTINUED)
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 THE FUND INVESTS
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 manager has contractually agreed to limit Fund expenses so that total
annual Fund operating expenses do not exceed the amount shown with waiver (other
than certain non-routine expenses) for each share class until 4/30/09. If the
manager had not taken this action, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Aggregate total return represents the change in value of an investment over
the periods indicated. Because the Fund has existed for less than one year,
average annual total returns are not available. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
10 | Semiannual Report
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.
Semiannual Report | 11
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,076.70 $2.57
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,072.20 $5.91
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,076.50 $3.35
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- ---------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,078.70 $0.77
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- ---------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by
the average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
12 | Semiannual Report
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 of 2025 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 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity .................. 56.0%
Foreign Equity ................... 25.4%
Domestic Fixed Income ............ 9.3%
Foreign Fixed Income ............. 4.5%
Short-Term Investments &
Other Net Assets ................. 4.8%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This semiannual report for Franklin Templeton 2025 Retirement Target Fund covers
the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2025 Retirement Target Fund - Class A posted a cumulative
total return of +8.32% for the six months ended June 30, 2007. By comparison the
Fund's benchmarks, the Standard & Poor's 500 Index (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
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 46.
Semiannual Report | 13
TOP 10 FUND HOLDINGS
Franklin Templeton
2025 Retirement Target Fund
6/30/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 16.2%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 14.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 14.2%
- - Class Z
- --------------------------------------------------------------------------------
Mutual European Fund 13.7%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Global Bond Fund 4.5%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton Foreign Fund 4.5%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton China World Fund 4.1%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 4.0%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities Fund 3.9%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund 3.9%
- - Advisor Class
- --------------------------------------------------------------------------------
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 +6.92%,
+11.09%, +0.98% and +2.53%, respectively, during the same time. 1 You can find
other performance data in the Performance Summary beginning on page 16.
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
maximizing income appropriate to the Fund's risk profile. 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
target 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 in accordance with the retirement date associated with the
portfolio.
At period-end, Franklin Templeton 2025 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
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.
P&R 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 distributions. One cannot invest directly in an index,
nor is an index representative of the Fund's portfolio.
14 | Semiannual Report
sizes and investment styles, and on June 30, 2007, 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 was our largest equity
fund weighting at period-end, representing 16.2% of the Fund's total net assets.
On the fixed income side, domestic exposure was 67.3% 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 4.5% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500, as did our largest domestic value fund
holding, Mutual Shares Fund - Class Z. Our largest foreign equity holding,
Mutual European - Class Z, outperformed the MSCI EAFE Index. However, 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. Conversely, Franklin U.S. Government Securities Fund - Advisor
Class trailed the LB U.S. Aggregate Index.
Thank you for your continued 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 JUNE 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 15
Performance Summary as of 6/30/07
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 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.70 $ 11.48 $ 10.78
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0143
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1829
- --------------------------------------------------------------------------------
TOTAL $0.1975
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.67 $ 11.44 $ 10.77
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0061
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1829
- --------------------------------------------------------------------------------
TOTAL $0.1893
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.70 $ 11.47 $ 10.77
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0115
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1829
- --------------------------------------------------------------------------------
TOTAL $0.1947
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.70 $ 11.49 $ 10.79
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0261
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.1829
- --------------------------------------------------------------------------------
TOTAL $0.2093
- --------------------------------------------------------------------------------
16 | Semiannual 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 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.32% +18.51%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +2.07% +11.70%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 10,207 $ 11,170
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 4.98%
- --------------------------------------------------------------------------------------------------
With Waiver 0.50%
- --------------------------------------------------------------------------------------------------
CLASS C 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.97% +17.90%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +6.97% +16.90%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 10,697 $ 11,690
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 5.63%
- --------------------------------------------------------------------------------------------------
With Waiver 1.15%
- --------------------------------------------------------------------------------------------------
CLASS R 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.30% +18.38%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +8.30% +18.38%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 10,830 $ 11,838
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 5.13%
- --------------------------------------------------------------------------------------------------
With Waiver 0.65%
- --------------------------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.42% +18.80%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +8.42% +18.80%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 10,842 $ 11,880
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 4.63%
- --------------------------------------------------------------------------------------------------
With Waiver 0.15%
- --------------------------------------------------------------------------------------------------
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.
THE MANAGER HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL ANNUAL
FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 17
Performance Summary (CONTINUED)
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 THE FUND INVESTS
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 manager has contractually agreed to limit Fund expenses so that total
annual Fund operating expenses do not exceed the amount shown with waiver (other
than certain non-routine expenses) for each share class until 4/30/09. If the
manager had not taken this action, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Aggregate total return represents the change in value of an investment over
the periods indicated. Because the Fund has existed for less than one year,
average annual total returns are not available. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
18 | Semiannual 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.
Semiannual Report | 19
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.20 $2.58
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
- -------------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,079.70 $5.93
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.09 $5.76
- -------------------------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,083.00 $3.36
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
- -------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,084.20 $0.78
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.05 $0.75
- -------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by
the average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
20 | Semiannual 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 of 2035 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 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Equity .................. 64.1%
Foreign Equity ................... 29.0%
Domestic Fixed Income ............ 1.6%
Foreign Fixed Income ............. 0.7%
Short-Term Investments &
Other Net Assets ................. 4.6%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This semiannual report for Franklin Templeton 2035 Retirement Target Fund covers
the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2035 Retirement Target Fund - Class A posted a +9.40%
cumulative total return for the six months ended June 30, 2007. By comparison
the Fund's benchmarks, the Standard & Poor's 500 Index (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 +6.92%, +11.09%, +0.98% and
+2.53%, respectively, during the same time. 1 You can find other performance
data in the Performance Summary beginning on page 24.
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.
P&R 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 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 SOI, WHICH BEGINS ON PAGE 51.
Semiannual Report | 21
TOP 10 FUND HOLDINGS
Franklin Templeton
2035 Retirement Target Fund 6/30/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II - Advisor Class 18.8%
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund - Advisor Class 16.5%
- --------------------------------------------------------------------------------
Mutual Shares Fund - Class Z 16.1%
- --------------------------------------------------------------------------------
Mutual European Fund - Class Z 15.6%
- --------------------------------------------------------------------------------
Templeton Foreign Fund - Advisor Class 5.2%
- --------------------------------------------------------------------------------
Templeton China World Fund - Advisor Class 4.6%
- --------------------------------------------------------------------------------
Franklin Aggressive Growth Fund - Advisor Class 4.4%
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund - Advisor Class 4.4%
- --------------------------------------------------------------------------------
Franklin Real Estate Securities Fund - Advisor Class 3.8%
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund - Advisor Class 3.6%
- --------------------------------------------------------------------------------
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 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 June 30, 2007, 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 was our largest equity fund
weighting at period-end, representing 18.8% of the Fund's total net assets. On
the fixed income side, domestic exposure was 67.4% 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 0.7% of total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500, as did our largest domestic value fund
holding, Mutual Shares Fund - Class Z. Our largest foreign equity holding,
Mutual European - Class Z, outperformed the MSCI EAFE Index; however, Templeton
Foreign Fund - Advisor Class underperformed. On the fixed income side, Templeton
Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate Index.
22 | Semiannual Report
Thank you for your continued 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 JUNE 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 23
Performance Summary as of 6/30/07
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 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.76 $11.64 $10.88
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0026
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2607
- --------------------------------------------------------------------------------
TOTAL $0.2643
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.71 $11.57 $10.86
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0026
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2607
- --------------------------------------------------------------------------------
TOTAL $0.2643
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.74 $11.62 $10.88
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0026
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2607
- --------------------------------------------------------------------------------
TOTAL $0.2643
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.78 $11.67 $10.89
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0026
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.2607
- --------------------------------------------------------------------------------
TOTAL $0.2643
- --------------------------------------------------------------------------------
24 | Semiannual 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 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.40% +20.82%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +3.15% +13.87%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,315 $11,387
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 9.90%
- --------------------------------------------------------------------------------------------------
With Waiver 0.50%
- --------------------------------------------------------------------------------------------------
CLASS C 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.96% +20.00%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +7.96% +19.00%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,796 $11,900
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 10.55%
- --------------------------------------------------------------------------------------------------
With Waiver 1.15%
- --------------------------------------------------------------------------------------------------
CLASS R 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.22% +20.57%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +9.22% +20.57%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,922 $12,057
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 10.05%
- --------------------------------------------------------------------------------------------------
With Waiver 0.65%
- --------------------------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.58% +21.20%
- --------------------------------------------------------------------------------------------------
Aggregate Total Return 3 +9.58% +21.20%
- --------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,958 $12,120
- --------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------
Without Waiver 9.55%
- --------------------------------------------------------------------------------------------------
With Waiver 0.15%
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.
THE MANAGER HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL ANNUAL
FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 25
Performance Summary (CONTINUED)
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 THE FUND INVESTS
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 manager has contractually agreed to limit Fund expenses so that total
annual Fund operating expenses do not exceed the amount shown with waiver (other
than certain non-routine expenses) for each share class until 4/30/09. If the
manager had not taken this action, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Aggregate total return represents the change in value of an investment over
the periods indicated. Because the Fund has existed for less than one year,
average annual total returns are not available. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
26 | Semiannual Report
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.
Semiannual Report | 27
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- -------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,094.00 $ 2.60
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.32 $ 2.51
- ------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,089.60 $ 5.96
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.09 $ 5.76
- ------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,092.20 $ 3.37
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.57 $ 3.26
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,095.80 $ 0.78
- ------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.05 $ 0.75
- ------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by
the average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
28 | Semiannual Report
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 of 2045 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 6/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity .................. 62.9%
Foreign Equity ................... 29.0%
Short-Term Investments &
Other Net Assets ................. 8.1%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
This semiannual report for Franklin Templeton 2045 Retirement Target Fund covers
the period ended June 30, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2045 Retirement Target Fund - Class A posted a +9.71%
cumulative total return for the six months ended June 30, 2007. By comparison
the Fund's benchmarks, the Standard & Poor's 500 Index (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 SOI, WHICH BEGINS ON PAGE 56.
Semiannual Report | 29
TOP 10 FUND HOLDINGS
Franklin Templeton
2045 Retirement Target Fund
6/30/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II 17.2%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual Shares Fund 16.5%
- - Class Z
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund 16.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Mutual European Fund 15.6%
- - Class Z
- --------------------------------------------------------------------------------
Templeton Foreign Fund 5.1%
- - Advisor Class
- --------------------------------------------------------------------------------
Templeton China World Fund 4.7%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Aggressive Growth Fund 4.6%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund 4.4%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Real Estate Securities Fund 3.8%
- - Advisor Class
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund 3.5%
- - Advisor Class
- --------------------------------------------------------------------------------
(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 +6.92%,
+11.09%, +0.98% and +2.53%, respectively, during the same time. 1 You can find
other performance data in the Performance Summary beginning on page 32.
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 in
accordance with the retirement date associated with the portfolio.
At period-end, Franklin Templeton 2045 Retirement Target Fund's domestic equity
exposure was 68.5% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization
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.
P&R 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 distributions. One cannot invest directly in an index,
nor is an index representative of the Fund's portfolio.
30 | Semiannual Report
sizes and investment styles, and on June 30, 2007, 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 was our largest equity
fund weighting at period-end, representing 17.2% of the Fund's total net assets.
Our largest domestic growth fund holding, Franklin Small Cap Growth Fund II -
Advisor Class, outperformed the S&P 500, as did our largest domestic value fund
holding, Mutual Shares Fund - Class Z. Our largest foreign equity holding,
Mutual European Fund - Class Z, also outperformed the MSCI EAFE Index. Templeton
Foreign Fund - Advisor Class lagged the MSCI EAFE Index, and Franklin Real
Estate Securities Fund - Advisor Class and Franklin Gold and Precious Metals
Fund - Advisor Class trailed the S&P 500.
Thank you for your continued 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 JUNE 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 31
Performance Summary as of 6/30/07
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 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.72 $11.61 $10.89
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0029
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3360
- --------------------------------------------------------------------------------
TOTAL $0.3399
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.68 $11.55 $10.87
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0029
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3360
- --------------------------------------------------------------------------------
TOTAL $0.3399
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.71 $11.59 $10.88
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0029
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3360
- --------------------------------------------------------------------------------
TOTAL $0.3399
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.74 $11.64 $10.90
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-6/30/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0029
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.3360
- --------------------------------------------------------------------------------
TOTAL $0.3399
- --------------------------------------------------------------------------------
32 | Semiannual 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 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +9.71% +21.29%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +3.44% +14.32%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,344 $11,432
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------
Without Waiver 10.11%
- --------------------------------------------------------------------------------
With Waiver 0.50%
- --------------------------------------------------------------------------------
CLASS C 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +9.36% +20.62%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +8.36% +19.62%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,836 $11,962
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------
Without Waiver 10.76%
- --------------------------------------------------------------------------------
With Waiver 1.15%
- --------------------------------------------------------------------------------
CLASS R 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +9.63% +21.08%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +9.63% +21.08%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,963 $12,108
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------
Without Waiver 10.26%
- --------------------------------------------------------------------------------
With Waiver 0.65%
- --------------------------------------------------------------------------------
ADVISOR CLASS 6-MONTH INCEPTION (8/1/06)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 +9.89% +21.67%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 +9.89% +21.67%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,989 $12,167
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------
Without Waiver 9.76%
- --------------------------------------------------------------------------------
With Waiver 0.15%
- --------------------------------------------------------------------------------
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.
THE MANAGER HAS CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES SO THAT TOTAL ANNUAL
FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH WAIVER (OTHER THAN
CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL 4/30/09.
Semiannual Report | 33
Performance Summary (CONTINUED)
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 THE FUND INVESTS
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 manager has contractually agreed to limit Fund expenses so that total
annual Fund operating expenses do not exceed the amount shown with waiver (other
than certain non-routine expenses) for each share class until 4/30/09. If the
manager had not taken this action, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Aggregate total return represents the change in value of an investment over
the periods indicated. Because the Fund has existed for less than one year,
average annual total returns are not available. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
34 | Semiannual 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.
Semiannual Report | 35
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/07 VALUE 6/30/07 PERIOD* 1/1/07-6/30/07
- ------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,097.10 $ 2.60
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.32 $ 2.51
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,093.60 $ 6.02
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.04 $ 5.81
- ------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,096.30 $ 3.38
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.57 $ 3.26
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,098.90 $ 0.78
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.05 $ 0.75
- ------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio, net of expense waivers,
for each class (A: 0.50%; C: 1.16%; R: 0.65%; and Advisor: 0.15%), multiplied by
the average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
36 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
-------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS A (UNAUDITED) 2006 h
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.69 $ 10.00
-------------------------------
Income from investment operations a:
Net investment income b, c ................................................................. 0.07 0.13
Net realized and unrealized gains (losses) ................................................. 0.75 0.73
-------------------------------
Total from investment operations .............................................................. 0.82 0.86
-------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................. (0.04) (0.15)
Net realized gains ......................................................................... (0.13) (0.02)
-------------------------------
Total distributions ........................................................................... (0.17) (0.17)
-------------------------------
Redemption fees ............................................................................... -- g --
-------------------------------
Net asset value, end of period ................................................................ $ 11.34 $ 10.69
===============================
Total return d ................................................................................ 7.67% 8.59%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 6.59% 12.13%
Expenses net of waiver and payments by affiliates f ........................................... 0.50% 0.50%
Net investment income c ....................................................................... 1.20% 2.92%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 2,762 $ 1,364
Portfolio turnover rate ....................................................................... 0.45% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.81%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
-------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS C (UNAUDITED) 2006 h
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.67 $ 10.00
-------------------------------
Income from investment operations a:
Net investment income b, c ................................................................. 0.03 0.14
Net realized and unrealized gains (losses) ................................................. 0.74 0.69
-------------------------------
Total from investment operations .............................................................. 0.77 0.83
-------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................. (0.03) (0.14)
Net realized gains ......................................................................... (0.13) (0.02)
-------------------------------
Total distributions ........................................................................... (0.16) (0.16)
-------------------------------
Redemption fees ............................................................................... -- g --
-------------------------------
Net asset value, end of period ................................................................ $ 11.28 $ 10.67
===============================
Total return d ................................................................................ 7.22% 8.30%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 7.24% 12.78%
Expenses net of waiver and payments by affiliates f ........................................... 1.15% 1.15%
Net investment income c ....................................................................... 0.55% 2.27%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 726 $ 63
Portfolio turnover rate ....................................................................... 0.45% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.81%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
38 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
-------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS R (UNAUDITED) 2006 h
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.68 $ 10.00
-------------------------------
Income from investment operations a:
Net investment income b, c ................................................................. 0.06 0.11
Net realized and unrealized gains (losses) ................................................. 0.75 0.74
-------------------------------
Total from investment operations .............................................................. 0.81 0.85
-------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................. (0.03) (0.15)
Net realized gains ......................................................................... (0.13) (0.02)
-------------------------------
Total distributions ........................................................................... (0.16) (0.17)
-------------------------------
Redemption fees ............................................................................... -- g --
-------------------------------
Net asset value, end of period ................................................................ $ 11.33 $ 10.68
===============================
Total return d ................................................................................ 7.65% 8.48%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 6.74% 12.28%
Expenses net of waiver and payments by affiliates f ........................................... 0.65% 0.65%
Net investment income c ....................................................................... 1.05% 2.77%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 425 $ 11
Portfolio turnover rate ....................................................................... 0.45% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.81%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
-------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2006 h
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.70 $ 10.00
-------------------------------
Income from investment operations a:
Net investment income b, c ................................................................. 0.09 0.17
Net realized and unrealized gains (losses) ................................................. 0.75 0.71
-------------------------------
Total from investment operations .............................................................. 0.84 0.88
-------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................. (0.05) (0.16)
Net realized gains ......................................................................... (0.13) (0.02)
-------------------------------
Total distributions ........................................................................... (0.18) (0.18)
-------------------------------
Redemption fees ............................................................................... -- g --
-------------------------------
Net asset value, end of period ................................................................ $ 11.36 $ 10.70
===============================
Total return d ................................................................................ 7.87% 8.75%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 6.24% 11.78%
Expenses net of waiver and payments by affiliates f ........................................... 0.15% 0.15%
Net investment income c ....................................................................... 1.55% 3.27%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 32 $ 20
Portfolio turnover rate ....................................................................... 0.45% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.81%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
40 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 94.0%
DOMESTIC EQUITY 47.1%
b Franklin Aggressive Growth Fund, Advisor Class ................................................ 6,340 $ 125,599
Franklin Flex Cap Growth Fund, Advisor Class .................................................. 10,244 477,371
Franklin Natural Resources Fund, Advisor Class ................................................ 3,000 128,761
Franklin Real Estate Securities Fund, Advisor Class ........................................... 4,704 111,898
b Franklin Small Cap Growth Fund II, Advisor Class .............................................. 39,426 541,713
Mutual Shares Fund, Class Z ................................................................... 16,611 473,254
-------------
1,858,596
-------------
DOMESTIC FIXED INCOME 17.3%
Franklin Strategic Mortgage Portfolio ......................................................... 18,636 175,175
Franklin Total Return Fund, Advisor Class ..................................................... 21,792 214,219
Franklin U.S. Government Securities Fund, Advisor Class ....................................... 46,262 292,378
-------------
681,772
-------------
FOREIGN EQUITY 21.3%
Franklin Gold and Precious Metals Fund, Advisor Class ......................................... 3,001 102,428
Mutual European Fund, Class Z ................................................................. 15,688 449,767
Templeton China World Fund, Advisor Class ..................................................... 3,559 135,818
Templeton Foreign Fund, Advisor Class ......................................................... 10,150 151,342
-------------
839,355
-------------
FOREIGN FIXED INCOME 8.3%
Templeton Global Bond Fund, Advisor Class ..................................................... 28,961 328,702
-------------
TOTAL LONG TERM INVESTMENTS (COST $3,474,813) ................................................. 3,708,425
-------------
SHORT TERM INVESTMENT (COST $131,797) 3.3%
MONEY MARKET FUND 3.3%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% .......................... 131,797 131,797
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $3,606,610) 97.3% ................................. 3,840,222
OTHER ASSETS, LESS LIABILITIES 2.7% ........................................................... 105,404
-------------
NET ASSETS 100.0% ............................................................................. $ 3,945,626
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2007.
c The rate shown is the annualized seven-day yield at period end.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
-------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS A (UNAUDITED) 2006 h
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................................ $ 10.78 $ 10.00
-------------------------------
Income from investment operations a:
Net investment income b, c ................................................................... 0.03 0.12
Net realized and unrealized gains (losses) ................................................... 0.86 0.82
-------------------------------
Total from investment operations ................................................................ 0.89 0.94
-------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................... (0.01) (0.14)
Net realized gains ........................................................................... (0.18) (0.02)
-------------------------------
Total distributions ............................................................................. (0.19) (0.16)
-------------------------------
Redemption fees ................................................................................. -- g -- g
-------------------------------
Net asset value, end of period .................................................................. $ 11.48 $ 10.78
===============================
Total return d .................................................................................. 8.32% 9.41%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................................. 6.25% 10.76%
Expenses net of waiver and payments by affiliates f ............................................. 0.50% 0.50%
Net investment income c ......................................................................... 0.54% 2.78%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................... $ 3,862 $ 1,699
Portfolio turnover rate ......................................................................... 11.55% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.86%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
42 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
-------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS C (UNAUDITED) 2006 h
-------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................................ $ 10.77 $ 10.00
-------------------------------
Income from investment operations a:
Net investment income b, c ................................................................... -- g 0.10
Net realized and unrealized gains (losses) ................................................... 0.86 0.82
-------------------------------
Total from investment operations ................................................................ 0.86 0.92
-------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................... (0.01) (0.13)
Net realized gains ........................................................................... (0.18) (0.02)
-------------------------------
Total distributions ............................................................................. (0.19) (0.15)
-------------------------------
Redemption fees ................................................................................. -- g -- g
-------------------------------
Net asset value, end of period .................................................................. $ 11.44 $ 10.77
===============================
Total return d .................................................................................. 7.97% 9.20%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................................. 6.90% 11.41%
Expenses net of waiver and payments by affiliates f ............................................. 1.15% 1.15%
Net investment income (loss) c .................................................................. (0.11)% 2.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................... $ 412 $ 54
Portfolio turnover rate ......................................................................... 11.55% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.86%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS R (UNAUDITED) 2006 h
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................................ $ 10.77 $ 10.00
--------------------------------
Income from investment operations a:
Net investment income b, c ................................................................... 0.02 0.11
Net realized and unrealized gains (losses) ................................................... 0.87 0.82
--------------------------------
Total from investment operations ................................................................ 0.89 0.93
--------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................... (0.01) (0.14)
Net realized gains ........................................................................... (0.18) (0.02)
--------------------------------
Total distributions ............................................................................. (0.19) (0.16)
--------------------------------
Redemption fees ................................................................................. -- g -- g
--------------------------------
Net asset value, end of period .................................................................. $ 11.47 $ 10.77
================================
Total return d .................................................................................. 8.30% 9.31%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................................. 6.40% 10.91%
Expenses net of waiver and payments by affiliates f ............................................. 0.65% 0.65%
Net investment income c ......................................................................... 0.39% 2.63%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................... $ 83 $ 19
Portfolio turnover rate ......................................................................... 11.55% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.86%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
44 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2006 h
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................................ $ 10.79 $ 10.00
--------------------------------
Income from investment operations a:
Net investment income b, c ................................................................... 0.06 0.20
Net realized and unrealized gains (losses) ................................................... 0.85 0.76
--------------------------------
Total from investment operations ................................................................ 0.91 0.96
--------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................... (0.03) (0.15)
Net realized gains ........................................................................... (0.18) (0.02)
--------------------------------
Total distributions ............................................................................. (0.21) (0.17)
--------------------------------
Redemption fees ................................................................................. -- g -- g
--------------------------------
Net asset value, end of period .................................................................. $ 11.49 $ 10.79
================================
Total return d .................................................................................. 8.42% 9.57%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates ............................................... 5.90% 10.41%
Expenses net of waiver and payments by affiliates f ............................................. 0.15% 0.15%
Net investment income c ......................................................................... 0.89% 3.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................... $ 118 $ 51
Portfolio turnover rate ......................................................................... 11.55% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.86%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 95.2%
DOMESTIC EQUITY 56.0%
b Franklin Aggressive Growth Fund, Advisor Class ................................................ 9,065 $ 179,577
Franklin Flex Cap Growth Fund, Advisor Class .................................................. 13,794 642,795
Franklin Natural Resources Fund, Advisor Class ................................................ 4,036 173,238
Franklin Real Estate Securities Fund, Advisor Class ........................................... 6,248 148,645
b Franklin Small Cap Growth Fund II, Advisor Class .............................................. 52,846 726,110
Mutual Shares Fund, Class Z ................................................................... 22,344 636,583
-------------
2,506,948
-------------
DOMESTIC FIXED INCOME 9.3%
Franklin Strategic Mortgage Portfolio ......................................................... 10,692 100,501
Franklin Total Return Fund, Advisor Class ..................................................... 13,996 137,578
Franklin U.S. Government Securities Fund, Advisor Class ....................................... 27,937 176,563
-------------
414,642
-------------
FOREIGN EQUITY 25.4%
Franklin Gold and Precious Metals Fund, Advisor Class ......................................... 4,031 137,586
Mutual European Fund, Class Z ................................................................. 21,327 611,458
Templeton China World Fund, Advisor Class ..................................................... 4,795 182,986
Templeton Foreign Fund, Advisor Class ......................................................... 13,536 201,815
-------------
1,133,845
-------------
FOREIGN FIXED INCOME 4.5%
Templeton Global Bond Fund, Advisor Class ..................................................... 17,790 201,913
-------------
TOTAL LONG TERM INVESTMENTS (COST $3,959,543) ................................................. 4,257,348
-------------
SHORT TERM INVESTMENT (COST $94,754) 2.1%
MONEY MARKET FUND 2.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% .......................... 94,754 94,754
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $4,054,297) 97.3% ................................. 4,352,102
OTHER ASSETS, LESS LIABILITIES 2.7% ........................................................... 122,763
-------------
NET ASSETS 100.0% ............................................................................. $ 4,474,865
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2007.
c The rate shown is the annualized seven-day yield at period end.
46 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS A (UNAUDITED) 2006 h
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.88 $ 10.00
--------------------------------
Income from investment operations a:
Net investment income (loss) b, c ........................................................... (0.01) 0.09
Net realized and unrealized gains (losses) .................................................. 1.03 0.95
--------------------------------
Total from investment operations .............................................................. 1.02 1.04
--------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ................... -- g (0.13)
Net realized gains .......................................................................... (0.26) (0.03)
--------------------------------
Total distributions ........................................................................... (0.26) (0.16)
--------------------------------
Net asset value, end of period ................................................................ $ 11.64 $ 10.88
================================
Total return d ................................................................................ 9.40% 10.44%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 9.51% 13.47%
Expenses net of waiver and payments by affiliates f ........................................... 0.50% 0.50%
Net investment income (loss) c ................................................................ (0.12)% 2.04%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 1,906 $ 1,171
Portfolio turnover rate ....................................................................... 4.63% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS C (UNAUDITED) 2006 h
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.86 $ 10.00
--------------------------------
Income from investment operations a:
Net investment income (loss) b, c .......................................................... (0.04) 0.12
Net realized and unrealized gains (losses) ................................................. 1.01 0.89
--------------------------------
Total from investment operations .............................................................. 0.97 1.01
--------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................. -- g (0.12)
Net realized gains ......................................................................... (0.26) (0.03)
--------------------------------
Total distributions ........................................................................... (0.26) (0.15)
--------------------------------
Net asset value, end of period ................................................................ $ 11.57 $ 10.86
================================
Total return d ................................................................................ 8.96% 10.14%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 10.16% 14.12%
Expenses net of waiver and payments by affiliates f ........................................... 1.15% 1.15%
Net investment income (loss) c ................................................................ (0.77)% 1.39%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 323 $ 57
Portfolio turnover rate ....................................................................... 4.63% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
48 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
----------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS R (UNAUDITED) 2006 h
----------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.88 $ 10.00
Income from investment operations a: ----------------------------------
Net investment income (loss) b, c .......................................................... (0.01) 0.11
Net realized and unrealized gains (losses) ................................................. 1.01 0.93
----------------------------------
Total from investment operations .............................................................. 1.00 1.04
Less distributions from: ----------------------------------
Net investment income and short term gains received from Underlying Funds .................. -- g (0.13)
Net realized gains ......................................................................... (0.26) (0.03)
----------------------------------
Total distributions ........................................................................... (0.26) (0.16)
----------------------------------
Net asset value, end of period ................................................................ $ 11.62 $ 10.88
==================================
Total return d ................................................................................ 9.22% 10.40%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 9.66% 13.62%
Expenses net of waiver and payments by affiliates f ........................................... 0.65% 0.65%
Net investment income (loss) c ................................................................ (0.27)% 1.89%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 106 $ 23
Portfolio turnover rate ....................................................................... 4.63% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
---------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2006 h
---------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.89 $ 10.00
----------------------------------
Income from investment operations a:
Net investment income b, c ................................................................ 0.01 0.18
Net realized and unrealized gains (losses) ................................................. 1.03 0.88
----------------------------------
Total from investment operations .............................................................. 1.04 1.06
----------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................. -- g (0.14)
Net realized gains ......................................................................... (0.26) (0.03)
----------------------------------
Total distributions ........................................................................... (0.26) (0.17)
----------------------------------
Net asset value, end of period ................................................................ $ 11.67 $ 10.89
==================================
Total return d ................................................................................ 9.58% 10.60%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 9.16% 13.12%
Expenses net of waiver and payments by affiliates f ........................................... 0.15% 10.15%
Net investment income c ....................................................................... 0.23% 2.39%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 113 $ 59
Portfolio turnover rate ....................................................................... 4.63% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
50 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 95.4%
DOMESTIC EQUITY 64.1%
b Franklin Aggressive Growth Fund, Advisor Class ................................................ 5,490 $ 108,760
Franklin Flex Cap Growth Fund, Advisor Class .................................................. 8,682 404,580
Franklin Natural Resources Fund, Advisor Class ................................................ 2,503 107,426
Franklin Real Estate Securities Fund, Advisor Class ........................................... 3,932 93,539
b Franklin Small Cap Growth Fund II, Advisor Class .............................................. 33,455 459,672
Mutual Shares Fund, Class Z ................................................................... 13,839 394,281
-------------
1,568,258
-------------
DOMESTIC FIXED INCOME 1.6%
Franklin Strategic Mortgage Portfolio ......................................................... 1,054 9,905
Franklin Total Return Fund, Advisor Class ..................................................... 1,253 12,317
Franklin U.S. Government Securities Fund, Advisor Class ....................................... 2,499 15,793
-------------
38,015
-------------
FOREIGN EQUITY 29.0%
Franklin Gold and Precious Metals Fund, Advisor Class ......................................... 2,553 87,134
Mutual European Fund, Class Z ................................................................. 13,304 381,415
Templeton China World Fund, Advisor Class ..................................................... 2,976 113,563
Templeton Foreign Fund, Advisor Class ......................................................... 8,540 127,329
-------------
709,441
-------------
FOREIGN FIXED INCOME 0.7%
Templeton Global Bond Fund, Advisor Class ..................................................... 1,622 18,408
-------------
TOTAL LONG TERM INVESTMENTS (COST $2,122,355) ................................................. 2,334,122
-------------
SHORT TERM INVESTMENT (COST $84,272) 3.4%
MONEY MARKET FUND 3.4%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% .......................... 84,272 84,272
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $2,206,627) 98.8% ................................. 2,418,394
OTHER ASSETS, LESS LIABILITIES 1.2% ........................................................... 29,888
-------------
NET ASSETS 100.0% ............................................................................. $ 2,448,282
-------------
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2007.
c The rate shown is the annualized seven-day yield at period end.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS A (UNAUDITED) 2006 h
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................................ $ 10.89 $ 10.00
--------------------------------
Income from investment operations a:
Net investment income (loss) b, c ............................................................. (0.01) 0.08
Net realized and unrealized gains (losses) .................................................... 1.07 0.97
--------------------------------
Total from investment operations ................................................................ 1.06 1.05
--------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ..................... -- g (0.13)
Net realized gains ............................................................................ (0.34) (0.03)
--------------------------------
Total distributions ............................................................................. (0.34) (0.16)
--------------------------------
Net asset value, end of period .................................................................. $ 11.61 $ 10.89
--------------------------------
Total return d .................................................................................. 9.71% 10.55%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................................. 11.42% 13.15%
Expenses net of waiver and payments by affiliates f ............................................. 0.50% 0.50%
Net investment income (loss) c .................................................................. (0.25)% 1.97%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................... $ 1,632 $ 1,169
Portfolio turnover rate ......................................................................... 3.85% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
52 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS C (UNAUDITED) 2006 h
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................................ $ 10.87 $ 10.00
--------------------------------
Income from investment operations a:
Net investment income (loss) b, c ............................................................. (0.05) 0.16
Net realized and unrealized gains (losses) .................................................... 1.07 0.87
--------------------------------
Total from investment operations ................................................................ 1.02 1.03
--------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ..................... -- g (0.13)
Net realized gains ............................................................................ (0.34) (0.03)
--------------------------------
Total distributions ............................................................................. (0.34) (0.16)
--------------------------------
Net asset value, end of period .................................................................. $ 11.55 $ 10.87
--------------------------------
Total return d .................................................................................. 9.36% 10.30%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................................. 12.08% 13.74%
Expenses net of waiver and payments by affiliates f ............................................. 1.16% 1.09%
Net investment income (loss) c .................................................................. (0.91)% 1.38%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................... $ 201 $ 67
Portfolio turnover rate ......................................................................... 3.85% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
CLASS R (UNAUDITED) 2006 h
--------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................................................ $ 10.88 $ 10.00
--------------------------------
Income from investment operations a:
Net investment income (loss) b, c ............................................................. (0.02) 0.08
Net realized and unrealized gains (losses) .................................................... 1.07 0.96
--------------------------------
Total from investment operations ................................................................ 1.05 1.04
--------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ..................... -- g (0.13)
Net realized gains ............................................................................ (0.34) (0.03)
--------------------------------
Total distributions ............................................................................. (0.34) (0.16)
--------------------------------
Net asset value, end of period .................................................................. $ 11.59 $ 10.88
--------------------------------
Total return d .................................................................................. 9.63% 10.44%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................................. 11.57% 13.30%
Expenses net of waiver and payments by affiliates f ............................................. 0.65% 0.65%
Net investment income (loss) c .................................................................. (0.40)% 1.82%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................... $ 81 $ 12
Portfolio turnover rate ......................................................................... 3.85% 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 contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
e Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
54 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
-------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006 h
-------------------------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................................... $ 10.90 $ 10.00
-------------------------------
Income from investment operations a:
Net investment income b,c .................................................................. -- g 0.12
Net realized and unrealized gains (losses) ................................................. 1.08 0.95
-------------------------------
Total from investment operations .............................................................. 1.08 1.07
-------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .................. -- g (0.14)
Net realized gains ......................................................................... (0.34) (0.03)
-------------------------------
Total distributions ........................................................................... (0.34) (0.17)
-------------------------------
Net asset value, end of period ................................................................ $ 11.64 $ 10.90
===============================
Total return d ................................................................................ 9.89% 10.72%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................................... 11.07% 12.80%
Expenses net of waiver and payments by affiliates f ........................................... 0.15% 0.15%
Net investment income c ....................................................................... 0.10% 2.32%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $ 20 $ 17
Portfolio turnover rate ....................................................................... 3.85% 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 Ratios are annualized for periods less than one year.
f Does not include expenses of the Underlying Funds in which the Fund invests.
The annualized weighted average expense ratio of the Underlying Funds was 0.90%
for the period ended June 30, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 55
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2007 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 91.9%
DOMESTIC EQUITY 62.9%
b Franklin Aggressive Growth Fund, Advisor Class ................................................... 4,510 $ 89,342
Franklin Flex Cap Growth Fund, Advisor Class ..................................................... 6,827 318,157
Franklin Natural Resources Fund, Advisor Class ................................................... 1,992 85,479
Franklin Real Estate Securities Fund, Advisor Class .............................................. 3,056 72,709
b Franklin Small Cap Growth Fund II, Advisor Class ................................................. 24,190 332,372
Mutual Shares Fund, Class Z ...................................................................... 11,181 318,550
-------------
1,216,609
-------------
FOREIGN EQUITY 29.0%
Franklin Gold and Precious Metals Fund, Advisor Class ............................................ 1,995 68,106
Mutual European Fund, Class Z .................................................................... 10,513 301,407
Templeton China World Fund, Advisor Class ........................................................ 2,376 90,682
Templeton Foreign Fund, Advisor Class ............................................................ 6,652 99,183
-------------
559,378
-------------
TOTAL LONG TERM INVESTMENTS (COST $1,589,333) .................................................... 1,775,987
-------------
SHORT TERM INVESTMENT (COST $21,793) 1.1%
MONEY MARKET FUND 1.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.99% ............................. 21,793 21,793
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $1,611,126) 93.0% .................................... 1,797,780
OTHER ASSETS, LESS LIABILITIES 7.0% .............................................................. 136,327
-------------
NET ASSETS 100.0% ................................................................................ $ 1,934,107
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended June 30, 2007.
c The rate shown is the annualized seven-day yield at period end.
56 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2007 (unaudited)
----------------------------------------------------------------------------------
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 .................................... $ 3,606,610 $ 4,054,297 $ 2,206,627 $ 1,611,126
==================================================================================
Value ................................... $ 3,840,222 $ 4,352,102 $ 2,418,394 $ 1,797,780
Receivables:
Capital shares sold ..................... 42,188 58,740 2,068 68,977
Affiliates .............................. 79,664 83,062 80,439 81,843
Offering costs ............................. 3,530 1,439 2,061 3,268
----------------------------------------------------------------------------------
Total assets ......................... 3,965,604 4,495,343 2,502,962 1,951,868
----------------------------------------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ................. -- -- 37,017 620
Reports to shareholders ................. 2,095 1,658 2,466 1,999
Professional fees ....................... 12,593 13,015 12,941 12,974
Registration and filing fees ............ 3,337 3,896 1,136 905
Accrued expenses and other liabilities ..... 1,953 1,909 1,120 1,263
----------------------------------------------------------------------------------
Total liabilities .................... 19,978 20,478 54,680 17,761
----------------------------------------------------------------------------------
Net assets, at value .............. $ 3,945,626 $ 4,474,865 $ 2,448,282 $ 1,934,107
==================================================================================
Net assets consist of:
Paid-in capital ............................ $ 3,708,132 $ 4,197,251 $ 2,242,003 $ 1,751,422
Undistributed net investment income (loss).. 4,546 3,287 (1,528) (2,205)
Net unrealized appreciation (depreciation).. 233,612 297,805 211,767 186,654
Accumulated net realized gain (loss) ....... (664) (23,478) (3,960) (1,764)
----------------------------------------------------------------------------------
Net assets, at value .............. $ 3,945,626 $ 4,474,865 $ 2,448,282 $ 1,934,107
==================================================================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 57
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2007 (unaudited)
----------------------------------------------------------------------------------
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 ....................... $ 2,762,021 $ 3,862,103 $ 1,906,442 $ 1,631,985
==================================================================================
Shares outstanding ......................... 243,512 336,337 163,844 140,595
==================================================================================
Net asset value per share a ................ $ 11.34 $ 11.48 $ 11.64 $ 11.61
==================================================================================
Maximum offering price per share
(net asset value per share / 94.25%) ..... $ 12.03 $ 12.18 $ 12.35 $ 12.32
==================================================================================
CLASS C:
Net assets, at value ....................... $ 726,194 $ 412,083 $ 322,736 $ 200,780
==================================================================================
Shares outstanding ......................... 64,364 36,023 27,885 17,385
==================================================================================
Net asset value and maximum offering
price per share a ........................ $ 11.28 $ 11.44 $ 11.57 $ 11.55
==================================================================================
CLASS R:
Net assets, at value ....................... $ 425,474 $ 82,552 $ 105,841 $ 81,364
==================================================================================
Shares outstanding ......................... 37,561 7,195 9,109 7,020
==================================================================================
Net asset value and maximum offering
price per share a ........................ $ 11.33 $ 11.47 $ 11.62 $ 11.59
==================================================================================
ADVISOR CLASS:
Net assets, at value ....................... $ 31,937 $ 118,127 $ 113,263 $ 19,978
==================================================================================
Shares outstanding ......................... 2,812 10,280 9,707 1,717
==================================================================================
Net asset value and maximum offering
price per share .......................... $ 11.36 $ 11.49 $ 11.67 $ 11.64
==================================================================================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
58 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2007 (unaudited)
----------------------------------------------------------------------------------
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) ... $ 23,734 $ 15,906 $ 3,572 $ 1,932
Interest ................................... 167 49 -- --
----------------------------------------------------------------------------------
Total investment income .............. 23,901 15,955 3,572 1,932
----------------------------------------------------------------------------------
Expenses:
Asset allocation fees (Note 3a) ............ 3,329 3,710 2,292 1,881
Distribution fees: (Note 3c)
Class A ................................. 3,687 4,864 2,747 2,379
Class C ................................. 1,900 978 788 521
Class R ................................. 732 132 170 101
Transfer agent fees (Note 3e) ................. 3,199 4,350 3,158 3,508
Reports to shareholders ....................... 3,966 4,535 4,096 3,710
Registration and filing fees .................. 24,784 25,357 22,624 22,340
Professional fees ............................. 13,470 14,180 14,069 14,073
Trustees' fees and expenses ................... 52 54 34 41
Amortization of offering costs ................ 39,390 39,428 39,429 39,429
Other ......................................... 247 258 458 182
----------------------------------------------------------------------------------
Total expenses ....................... 94,756 97,846 89,865 88,165
Expenses waived/paid by affiliates
(Note 3f) ......................... (86,338) (89,574) (84,771) (84,027)
----------------------------------------------------------------------------------
Net expenses ...................... 8,418 8,272 5,094 4,138
----------------------------------------------------------------------------------
Net investment income (loss) ... 15,483 7,683 (1,522) (2,206)
----------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds.. (793) (22,431) (2,678) (668)
Distributions by Underlying Funds ....... 586 764 489 395
----------------------------------------------------------------------------------
Net realized gain (loss) ....... (207) (21,667) (2,189) (273)
----------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ........................ 200,335 264,269 170,476 144,725
----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) ....... 200,128 242,602 168,287 144,452
----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .................. $ 215,611 $ 250,285 $ 166,765 $ 142,246
==================================================================================
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 59
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------
FRANKLIN TEMPLETON 2015 FRANKLIN TEMPLETON 2025
RETIREMENT TARGET FUND RETIREMENT TARGET FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31, JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006 a (UNAUDITED) 2006 a
-------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................... $ 15,483 $ 14,810 $ 7,683 $ 15,985
Net realized gain (loss) from
Underlying Funds ..................... (207) 52,764 (21,667) 76,897
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ..................... 200,335 33,277 264,269 33,536
-------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations ..................... 215,611 100,851 250,285 126,418
-------------------------------------------------------------------
Distributions to shareholders from:
Net investment income and short term
gains received from Underlying Funds:
Class A .............................. (8,453) (19,061) (4,445) (22,186)
Class C .............................. (1,599) (827) (159) (641)
Class R .............................. (1,219) (149) (76) (247)
Advisor Class ........................ (133) (289) (249) (691)
Net realized gains:
Class A .............................. (32,276) (2,441) (59,363) (3,104)
Class C .............................. (8,389) (112) (6,093) (97)
Class R .............................. (4,975) (19) (1,262) (34)
Advisor Class ........................ (375) (36) (1,853) (92)
-------------------------------------------------------------------
Total distributions to shareholders ........ (57,419) (22,934) (73,500) (27,092)
-------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A .............................. 1,273,998 1,289,499 2,001,416 1,604,063
Class C .............................. 650,144 61,466 349,309 50,514
Class R .............................. 394,909 10,000 59,406 18,158
Advisor Class ........................ 10,211 19,249 65,348 50,386
-------------------------------------------------------------------
Total capital share transactions ........... 2,329,262 1,380,214 2,475,479 1,723,121
-------------------------------------------------------------------
Redemption fees ............................ 41 -- 151 3
-------------------------------------------------------------------
Net increase (decrease) in net
assets .......................... 2,487,495 1,458,131 2,652,415 1,822,450
Net assets:
Beginning of period ........................ 1,458,131 -- 1,822,450 --
------------------------------------------------------------------
End of period .............................. $ 3,945,626 $ 1,458,131 $ 4,474,865 $ 1,822,450
===================================================================
Undistributed net investment income (loss)
included in net assets:
End of period .............................. $ 4,546 $ 467 $ 3,287 $ 533
===================================================================
a For the period August 1, 2006 (commencement of operations) to December 31,
2006.
60 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------
FRANKLIN TEMPLETON 2035 FRANKLIN TEMPLETON 2045
RETIREMENT TARGET FUND RETIREMENT TARGET FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2007 DECEMBER 31, JUNE 30, 2007 DECEMBER 31,
(UNAUDITED) 2006 a (UNAUDITED) 2006 a
-------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ............ $ (1,522) $ 9,489 $ (2,206) $ 9,142
Net realized gain (loss) from
Underlying Funds ..................... (2,189) 60,838 (273) 60,512
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ..................... 170,476 41,291 144,725 41,929
-------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations ..................... 166,765 111,618 142,246 111,583
-------------------------------------------------------------------
Distributions to shareholders from:
Net investment income and short term
gains received from Underlying Funds:
Class A .............................. (350) (14,155) (332) (14,304)
Class C .............................. (26) (627) (24) (776)
Class R .............................. (6) (271) (4) (145)
Advisor Class ........................ (13) (736) (5) (213)
Net realized gains:
Class A .............................. (41,696) (3,461) (46,590) (3,421)
Class C .............................. (6,842) (166) (3,550) (194)
Class R .............................. (2,330) (68) (2,237) (35)
Advisor Class ........................ (2,490) (171) (572) (48)
-------------------------------------------------------------------
Total distributions to shareholders ........ (53,753) (19,655) (53,314) (19,136)
-------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A .............................. 637,042 1,084,636 381,753 1,079,556
Class C .............................. 260,739 54,747 128,569 65,871
Class R .............................. 77,322 21,604 67,718 11,306
Advisor Class ........................ 50,214 57,003 2,217 15,738
-------------------------------------------------------------------
Total capital share transactions ........... 1,025,317 1,217,990 580,257 1,172,471
-------------------------------------------------------------------
Net increase (decrease) in net
assets ......................... 1,138,329 1,309,953 669,189 1,264,918
Net assets:
Beginning of period ........................ 1,309,953 -- 1,264,918 --
-------------------------------------------------------------------
End of period .............................. $ 2,448,282 $ 1,309,953 $ 1,934,107 $ 1,264,918
===================================================================
Undistributed net investment income (loss)
included in net assets:
End of period .............................. $ (1,528) $ 389 $ (2,205) $ 366
===================================================================
a For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940, 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 it is each fund's
policy 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 of
America. 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.
62 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
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.
Semiannual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2007, there were an unlimited number of shares authorized (no par
value).
Transactions in the Fund's shares were as follows:
-----------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
CLASS A SHARES:
Six months ended June 30, 2007
Shares sold ................................................ 117,195 $ 1,288,898 213,845 $ 2,380,508
Shares issued in reinvestment of distributions ............. 2,121 24,151 3,853 44,448
Shares redeemed ............................................ (3,446) (39,051) (38,939) (423,540)
-----------------------------------------------------------------
Net increase (decrease) .................................... 115,870 $ 1,273,998 178,759 $ 2,001,416
=================================================================
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:
Six months ended June 30, 2007
Shares sold ................................................ 80,118 $ 890,990 31,371 $ 353,116
Shares issued in reinvestment of distributions ............. 878 9,949 515 5,926
Shares redeemed ............................................ (22,570) (250,795) (850) (9,733)
-----------------------------------------------------------------
Net increase (decrease) .................................... 58,426 $ 650,144 31,036 $ 349,309
=================================================================
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:
Six months ended June 30, 2007
Shares sold ................................................ 38,789 $ 419,979 5,338 $ 58,262
Shares issued in reinvestment of distributions ............. 545 6,193 99 1,144
Shares redeemed ............................................ (2,773) (31,263) -- --
-----------------------------------------------------------------
Net increase (decrease) .................................... 36,561 $ 394,909 5,437 $ 59,406
=================================================================
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
=================================================================
64 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-----------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
ADVISOR CLASS SHARES:
Six months ended June 30, 2007
Shares sold ................................................ 940 $ 10,100 9,110 $ 103,955
Shares issued in reinvestment of distributions ............. 29 326 164 1,893
Shares redeemed ............................................ (19) (215) (3,726) (40,500)
-----------------------------------------------------------------
Net increase (decrease) .................................... 950 $ 10,211 5,548 $ 65,348
=================================================================
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:
Six months ended June 30, 2007
Shares sold ................................................ 61,212 $ 694,910 33,240 $ 381,849
Shares issued in reinvestment of distributions ............. 1,402 16,408 1,194 13,952
Shares redeemed ............................................ (6,408) (74,276) (1,243) (14,048)
-----------------------------------------------------------------
Net increase (decrease) .................................... 56,206 $ 637,042 33,191 $ 381,753
=================================================================
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:
Six months ended June 30, 2007
Shares sold ................................................ 22,094 $ 254,205 12,154 $ 139,228
Shares issued in reinvestment of distributions ............. 567 6,603 278 3,234
Shares redeemed ............................................ (6) (69) (1,193) (13,893)
-----------------------------------------------------------------
Net increase (decrease) .................................... 22,655 $ 260,739 11,239 $ 128,569
=================================================================
Period ended December 31, 2006 a
Shares sold ................................................ 5,178 $ 54,183 6,073 $ 65,075
Shares issued in reinvestment of distributions ............. 59 639 74 811
Shares redeemed ............................................ (7) (75) (1) (15)
-----------------------------------------------------------------
Net increase (decrease) .................................... 5,230 $ 54,747 6,146 $ 65,871
=================================================================
Semiannual Report | 65
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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:
Six months ended June 30, 2007
Shares sold ................................................ 6,799 $ 75,250 5,736 $ 65,817
Shares issued in reinvestment of distributions ............. 177 2,072 163 1,901
-----------------------------------------------------------------
Net increase (decrease) .................................... 6,976 $ 77,322 5,899 $ 67,718
=================================================================
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:
Six months ended June 30, 2007
Shares sold ................................................ 5,057 $ 57,976 233 $ 2,621
Shares issued in reinvestment of distributions ............. 191 2,238 20 237
Shares redeemed ............................................ (925) (10,000) (59) (641)
-----------------------------------------------------------------
Net increase (decrease) .................................... 4,323 $ 50,214 194 $ 2,217
=================================================================
Period ended December 31, 2006 a
Shares sold ................................................ 5,318 $ 56,281 1,515 $ 15,649
Shares issued in reinvestment of distributions ............. 68 737 8 89
Shares redeemed ............................................ (1) (15) -- --
-----------------------------------------------------------------
Net increase (decrease) .................................... 5,385 $ 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 Transfer agent
Services)
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.
66 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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' 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 as follows:
Class A ........................................................... 0.35%
Class C ........................................................... 1.00%
Class R ........................................................... 0.50%
The Board of Trustees has agreed to limit the current rate to 0.30% per year for
Class A shares for the period of August 1, 2007 through January 31, 2009.
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 ................... $5,014 $8,678 $3,417 $1,998
Contingent deferred sales charges retained ....... $ -- $ 18 $ -- $ --
E. TRANSFER AGENT FEES
For the period ended June 30, 2007, 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 .............................. $1,126 $2,027 $1,820 $1,893
Semiannual Report | 67
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
F. WAIVER AND EXPENSE REIMBURSEMENTS
Advisers has agreed in advance to waive its fees and assume payment of other
expenses through April 30, 2009. Total expenses waived/paid are not subject to
reimbursement by the Funds subsequent to the Funds' fiscal year end. After April
30, 2009, Advisers may discontinue this waiver at any time upon notice to the
Funds' Board of Trustees.
G. OTHER AFFILIATED TRANSACTIONS
At June 30, 2007, Advisers owned a percentage of the Fund's 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
- --------------------------------------------------------------------------------
28.72% 25.65% 47.50% 59.98%
4. INCOME TAXES
At June 30, 2007, the cost of investments and net unrealized appreciation
(depreciation) 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 .............................. $ 3,607,538 $ 4,078,524 $ 2,210,863 $ 1,613,742
=======================================================
Unrealized appreciation .......................... $ 256,009 $ 297,996 $ 219,393 $ 192,347
Unrealized depreciation .......................... (23,325) (24,418) (11,862) (8,309)
------------------------------------------------------
Net unrealized appreciation (depreciation) ....... $ 232,684 $ 273,578 $ 207,531 $ 184,038
=======================================================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of short term capital gains 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 gains distributions
from Underlying Funds and wash sales.
68 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended June 30, 2007, 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 ........................................ $ 2,158,387 $2,634,049 $ 1,036,161 $ 520,654
Sales ............................................ $ 11,643 $ 342,825 $ 82,230 $ 55,821
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At June 30, 2007, the Funds
held no positions which exceed 5% of the Underlying Funds.
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 AND LITIGATION 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 and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
Semiannual Report | 69
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY AND LITIGATION MATTERS (CONTINUED)
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Following the public comment
period, and once the SEC approves the final plan of distribution, disbursements
of settlement monies will be made promptly to individuals who were shareholders
of the designated funds during the relevant period, 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
The Funds adopted 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"), on June 29, 2007. FIN 48
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. The Funds have determined
that the adoption of FIN 48 did not have a material impact on the Funds'
financial statements.
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.
70 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON
APRIL 11, 2007 (UNAUDITED)
A Special Meeting of Shareholders of the Trust was held at the Trust's offices,
One Franklin Parkway, San Mateo, California on March 21, 2007 and reconvened on
April 11, 2007. The purpose of the meeting was to elect Trustees of the Trust
and to vote on the following Proposals and Sub-Proposals: to approve an Amended
and Restated Agreement and Declaration of Trust; and to approve amendments to
certain of the Franklin Templeton 2015 Retirement Target Fund's, Franklin
Templeton 2025 Retirement Target Fund's, Franklin Templeton 2035 Retirement
Target Fund's and Franklin Templeton 2045 Retirement Target Fund's (each, a
"Fund") fundamental investment restrictions (including two (2) Sub-Proposals).
At the meeting, the following persons were elected by the shareholders to serve
as Independent Trustees of the Trust: Harris J. Ashton, Robert F. Carlson, Sam
Ginn, Edith E. Holiday, Frank W. T. LaHaye, Frank A. Olson, Larry D. Thompson
and John B. Wilson. Charles B. Johnson and Gregory E. Johnson were elected by
the shareholders to serve as Interested Trustees. Shareholders also approved the
Amended and Restated Agreement and Declaration of Trust and amendments to
certain of the Funds' fundamental investment restrictions (including two (2)
Sub-Proposals).
Proposal 1. The Election of Trustees:
- ----------------------------------------------------------------------------------------------------------------
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
NAME FOR SHARES SHARES WITHHELD SHARES SHARES
- ----------------------------------------------------------------------------------------------------------------
Harris J. Ashton ........... 656,147,950.156 64.633% 98.373% 10,853,214.851 1.069% 1.627%
Robert F. Carlson .......... 656,105,078.791 64.629% 98.366% 10,896,086.216 1.073% 1.634%
Sam Ginn ................... 656,144,152.234 64.633% 98.372% 10,857,012.773 1.069% 1.628%
Edith E. Holiday ........... 656,038,770.213 64.622% 98.356% 10,962,394.794 1.080% 1.644%
Frank W.T. LaHaye .......... 655,699,168.411 64.589% 98.306% 11,301,996.596 1.113% 1.694%
Frank A. Olson ............. 655,910,551.769 64.610% 98.337% 11,090,613.238 1.092% 1.663%
Larry D. Thompson .......... 656,416,757.449 64.659% 98.413% 10,584,407.558 1.043% 1.587%
John B. Wilson ............. 656,301,596.063 64.648% 98.396% 10,699,568.944 1.054% 1.604%
Charles B. Johnson ......... 655,740,072.084 64.593% 98.312% 11,261,092.923 1.109% 1.688%
Gregory E. Johnson ......... 656,125,768.392 64.631% 98.370% 10,875,396.615 1.071% 1.630%
Proposal 2. To approve an Amended and Restated Agreement and Declaration of
Trust:
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2015 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 122,403.943 89.781% 93.657%
Against ................... 55.524 0.040% 0.043%
Abstain ................... -- -- --
Broker Non-Votes .......... 8,234.000 6.039% 6.300%
- ----------------------------------------------------------------------
TOTAL ..................... 130,693.467 95.860% 100.000%
Semiannual Report | 71
Franklin Templeton Fund Allocator Series
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON
APRIL 11, 2007 (UNAUDITED) (CONTINUED)
Proposal 2. To approve an Amended and Restated Agreement and Declaration of
Trust: (CONTINUED)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2025 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 127,008.652 74.657% 76.481%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 39,056.000 22.957% 23.519%
- ----------------------------------------------------------------------
TOTAL ..................... 166,064.652 97.614% 100.000%
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2035 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 119,643.779 97.605% 99.203%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 961.000 0.784% 0.797%
- ----------------------------------------------------------------------
TOTAL ..................... 120,604.779 98.389% 100.000%
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2045 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 109,974.408 94.598% 95.754%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 4,877.000 4.195% 4.246%
- ----------------------------------------------------------------------
TOTAL ..................... 114,851.408 98.793 100.000%
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes two (2) Sub-Proposals):
(c) To amend the Fund's fundamental investment restriction regarding lending:
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2015 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 122,403.943 89.781% 93.658%
Against ................... -- -- --
Abstain ................... 55.524 0.040% 0.042%
Broker Non-Votes .......... 8,234.000 6.039% 6.300%
- ----------------------------------------------------------------------
TOTAL ..................... 130,693.467 95.860% 100.000%
72 | Semiannual Report
Franklin Templeton Fund Allocator Series
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON
APRIL 11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes two (2) Sub-Proposals): (CONTINUED)
(c) To amend the Fund's fundamental investment restriction regarding lending:
(CONTINUED)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2025 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 127,008.652 74.657% 76.481%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 39,056.000 22.957% 23.519%
- ----------------------------------------------------------------------
TOTAL ..................... 166,064.652 97.614% 100.000%
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2035 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 119,643.779 97.605% 99.203%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 961.000 0.784% 0.797%
- ----------------------------------------------------------------------
TOTAL ..................... 120,604.779 98.389% 100.000%
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2045 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 109,770.013 94.422% 95.576%
Against ................... 204.395 0.176% 0.178%
Abstain ................... -- -- --
Broker Non-Votes .......... 4,877.000 4.195% 4.246%
- ----------------------------------------------------------------------
TOTAL ..................... 114,851.408 98.793% 100.000%
(d) To amend the Fund's fundamental investment restriction regarding investments
in real estate:
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2015 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 122,403.943 89.781% 93.657%
Against ................... 55.524 0.040% 0.043%
Abstain ................... -- -- --
Broker Non-Votes .......... 8,234.000 6.039% 6.300%
- ----------------------------------------------------------------------
TOTAL ..................... 130,693.467 95.860% 100.000%
Semiannual Report | 73
Franklin Templeton Fund Allocator Series
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON
APRIL 11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes two (2) Sub-Proposals): (CONTINUED)
(d) To amend the Fund's fundamental investment restriction regarding investments
in real estate: (CONTINUED)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2025 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 127,008.652 74.657% 76.481%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 39,056.000 22.957% 23.519%
- ----------------------------------------------------------------------
TOTAL ..................... 166,064.652 97.614% 100.000%
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2035 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 119,643.779 97.605% 99.203%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 961.000 0.784% 0.797%
- ----------------------------------------------------------------------
TOTAL ..................... 120,604.779 98.389% 100.000%
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON % OF % OF
2045 RETIREMENT OUTSTANDING VOTED
TARGET FUND SHARES VOTED SHARES SHARES
- ----------------------------------------------------------------------
For ....................... 109,974.408 94.598% 95.754%
Against ................... -- -- --
Abstain ................... -- -- --
Broker Non-Votes .......... 4,877.000 4.195% 4.246%
- ----------------------------------------------------------------------
TOTAL ..................... 114,851.408 98.793% 100.000%
74 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 27, 2007, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series other than the recently formed four
Retirement Target Funds whose investment management agreements were not up for
renewal.
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.
Semiannual 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 FUNDS
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 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
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 Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends 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(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
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 open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
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. The fund invests primarily in 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.
Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
RTF S2007 08/07
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 John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date August 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 August 27, 2007
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date August 27, 2007