UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07851
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FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA
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94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31/07
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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DECEMBER 31, 2007
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Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why
our funds can be used to build truly diversified
allocation plans covering every major asset
class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton Conservative Target Fund ............................... 5
Franklin Templeton Moderate Target Fund ................................... 15
Franklin Templeton Growth Target Fund ..................................... 25
Financial Highlights and Statements of Investments ........................ 35
Financial Statements ...................................................... 53
Notes to Financial Statements ............................................. 58
Report of Independent Registered Public Accounting Firm ................... 68
Tax Designation ........................................................... 69
Board Members and Officers ................................................ 70
Shareholder Information ................................................... 75
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Annual Report
Economic and Market Overview
During the 12 months ended December 31, 2007, the U.S. economy advanced at a
moderate but uneven pace. After slow first quarter growth, gross domestic
product (GDP) advanced solidly in the second quarter, supported by federal
defense spending, accelerating exports and declining imports, and greater
business spending. In the third quarter, growth accelerated despite a struggling
housing market and the abrupt unraveling of the subprime mortgage market. The
housing downturn affected the overall economy by fourth quarter 2007 when GDP
growth decelerated as credit conditions worsened and consumer spending slowed.
Consumer confidence declined through period-end largely due to rising mortgage
and fuel costs, falling home prices and a weaker job market. Oil prices were
volatile and established a new record high in November, nearing $99 per barrel.
For the 12 months ended December 31, 2007, the core Consumer Price Index (CPI),
which excludes food and energy costs, rose 2.4%, which was higher than its
10-year average rate. 1
Facing the prospect of slower economic growth, the Federal Reserve Board lowered
the federal funds target rate to 4.25% from 5.25% during the period. As
investors fled riskier, poorer-performing assets, U.S. Treasuries rallied and
the 10-year Treasury note yield fell from 4.71% at the beginning of the period
to 4.04% on December 31, 2007.
The global economy remained resilient despite elevated energy prices and
widespread fears of contagion from the deteriorating U.S. housing situation.
Consumer and corporate demand strength, particularly in China and other
developing economies, generally favorable employment and accommodative monetary
policies continued to underpin the current global expansionary period that began
in 2002.
These factors also contributed to the strength of global equity markets during
2007. However, concerns about slower growth and declining asset quality surfaced
in the first quarter. Initially centered on the U.S. subprime mortgage market,
they spread in August to global capital markets. Difficulties in assessing risk
and the value of collateral in the structured finance industry contributed to
declining risk appetite among lenders and investors. The private equity
industry, which relies on the availability of cheap credit, played a pivotal
role
1. Source: Bureau of Labor Statistics.
Annual Report | 3
in several large and high-profile acquisitions, helped boost merger and
acquisition activity in the first half of 2007, and was an important driver of
equity performance. A second-half tightening of liquidity led to slower deal
activity and weighed on market performance. However, in 2007, global merger and
acquisition activity still reached record levels.
To alleviate the credit crunch and restore investor confidence, the world's
major central banks infused capital into the system. However, credit and equity
markets continued to face headwinds as write-downs and losses from subprime
mortgage financing affected many large financial institutions toward the end of
the year, and equity prices remained volatile. For the year, however, global and
non-U.S. equity markets registered the fifth consecutive year of double-digit
total returns. Broad-based stock performance by European and Asian shares at
least doubled that of U.S. stocks, while emerging market equity returns more
than tripled those in developed markets. In addition, U.S. dollar weakness
versus the currencies of many major trading partners enhanced equity returns for
U.S.-based investors holding stocks denominated in these currencies.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Annual Report
Franklin Templeton
Conservative Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target
Fund
seeks the highest level of long-term total return consistent with a lower level
of risk. 1
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ASSET ALLOCATION*
Franklin Templeton Conservative Target Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ................................ 27.8%
Domestic Fixed Income .......................... 26.5%
Foreign Fixed Income ........................... 12.7%
Foreign Equity ................................. 12.6%
Short-Term Investments & Other Net Assets ...... 20.4%
*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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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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We are pleased to bring you Franklin Templeton Conservative Target Fund's annual
report for the fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A posted a cumulative total
return of +8.29% for the 12 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 P&R 90 Day U.S. T-Bill Index
for short-term investments and other net assets. For the reporting
1. The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 40.
Annual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund 12/31/07
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% OF TOTAL
NET ASSETS
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Templeton Global Bond Fund
- - Advisor Class 12.7%
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Franklin U.S. Government Securities
Fund - Advisor Class 12.4%
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Franklin Total Return Fund
- - Advisor Class 9.5%
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Mutual Shares Fund
- - Class Z 8.9%
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Franklin Flex Cap Growth Fund
- - Advisor Class 7.6%
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Franklin Small Cap Growth Fund II
- - Advisor Class 6.5%
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Franklin Strategic Mortgage Portfolio 4.7%
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Mutual European Fund - Class Z 4.4%
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Templeton Foreign Fund - Advisor Class 2.4%
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Templeton China World Fund
- - Advisor Class 2.2%
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period, the hybrid benchmark returned +6.83%.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 68.8% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z representing 8.9% of the Fund's total net assets,
was our largest equity fund weighting at period-end. On the fixed income side,
domestic exposure was 67.6% of the Fund's total income weighting, with the
2. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance in
global developed markets excluding the U.S. and Canada. The LB U.S. Aggregate
Index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond markets,
with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The P&R 90 Day U.S.
T-Bill Index is a total return index based on a constant maturity instrument.
Payden & Rygel includes both accrued interest and change in market price in its
monthly total return calculations. The value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The benchmark index's
weightings are as follows: S&P 500 28%, MSCI EAFE 12%, LB U.S. Aggregate 40% and
P&R 90 Day T-Bill 20%. The indexes are unmanaged and include reinvested
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
6 | Annual Report
balance represented by foreign fixed income. Templeton Global Bond Fund
- - Advisor Class was our largest fixed income fund weighting at 12.7% of total
net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund
- - Advisor Class, outperformed the S&P 500 during the 12-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund
- - Class Z, underperformed 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 and Franklin U.S.
Government Securities Fund - Advisor Class outperformed the LB U.S. Aggregate
Index.
Thank you for your continued participation in Franklin Templeton Conservative
Target Fund. We look forward to serving your future investment needs.
[GRAPHIC OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Conservative Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 7
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FTCIX) CHANGE 12/31/07 12/31/06
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Net Asset Value (NAV) +$0.26 $13.59 $13.33
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DISTRIBUTIONS (1/1/07-12/31/07)
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Dividend Income $0.4656
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Short-Term Capital Gain $0.0064
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Long-Term Capital Gain $0.3439
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TOTAL $0.8159
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CLASS B (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
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Net Asset Value (NAV) +$0.26 $13.55 $13.29
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DISTRIBUTIONS (1/1/07-12/31/07)
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Dividend Income $0.3621
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Short-Term Capital Gain $0.0064
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Long-Term Capital Gain $0.3439
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TOTAL $0.7124
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CLASS C (SYMBOL: FTCCX) CHANGE 12/31/07 12/31/06
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Net Asset Value (NAV) +$0.24 $13.42 $13.18
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DISTRIBUTIONS (1/1/07-12/31/07)
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Dividend Income $0.3708
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Short-Term Capital Gain $0.0064
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Long-Term Capital Gain $0.3439
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TOTAL $0.7211
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CLASS R (SYMBOL: FTCRX) CHANGE 12/31/07 12/31/06
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Net Asset Value (NAV) +$0.25 $13.55 $13.30
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DISTRIBUTIONS (1/1/07-12/31/07)
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Dividend Income $0.4362
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Short-Term Capital Gain $0.0064
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Long-Term Capital Gain $0.3439
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TOTAL $0.7865
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ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
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Net Asset Value (NAV) +$0.26 $13.57 $13.31
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DISTRIBUTIONS (1/1/07-12/31/07)
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Dividend Income $0.4988
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Short-Term Capital Gain $0.0064
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Long-Term Capital Gain $0.3439
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TOTAL $0.8491
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8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +8.29% +57.92% +92.14%
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Average Annual Total Return 3 +2.08% +8.28% +6.12%
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Value of $10,000 Investment 4 $10,208 $14,888 $18,116
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Total Annual Operating Expenses 5
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Without Waiver 1.42%
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With Waiver 1.18%
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CLASS B 1-YEAR 3-YEAR INCEPTION (12/1/03)
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Cumulative Total Return 2 +7.42% +21.67% +32.72%
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Average Annual Total Return 3 +3.42% +5.87% +6.78%
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Value of $10,000 Investment 4 $10,342 $11,867 $13,072
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Total Annual Operating Expenses 5
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Without Waiver 2.17%
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With Waiver 1.93%
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CLASS C 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +7.48% +52.06% +78.25%
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Average Annual Total Return 3 +6.48% +8.74% +5.95%
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Value of $10,000 Investment 4 $10,648 $15,206 $17,825
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Total Annual Operating Expenses 5
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Without Waiver 2.16%
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With Waiver 1.92%
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CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
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Cumulative Total Return 2 +7.91% +55.87% +49.51%
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Average Annual Total Return 3 +7.91% +9.28% +6.94%
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Value of $10,000 Investment 4 $10,791 $15,587 $14,951
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Total Annual Operating Expenses 5
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Without Waiver 1.67%
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With Waiver 1.43%
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ADVISOR CLASS 6 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 2 +8.48% +58.60% +92.97%
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Average Annual Total Return 3 +8.48% +9.66% +6.79%
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Value of $10,000 Investment 4 $10,848 $15,860 $19,297
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Total Annual Operating Expenses 5
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Without Waiver 1.17%
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With Waiver 0.93%
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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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
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CLASS A 12/31/07
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1-Year +2.08%
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5-Year +8.28%
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10-Year +6.12%
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CLASS A (1/1/98-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Conservative Target Fund S&P 500 7 MSCI EAFE Index 7 LB U.S. Aggregate Index 7 P&R 90 Day U.S. T-Bill Index 7
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1/1/1998 $ 9,429 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,420 $10,111 $10,460 $10,128 $10,050
2/28/1998 $ 9,684 $10,840 $11,133 $10,121 $10,089
3/31/1998 $ 9,897 $11,395 $11,479 $10,156 $10,139
4/30/1998 $ 9,950 $11,510 $11,572 $10,209 $10,185
5/31/1998 $ 9,853 $11,312 $11,518 $10,305 $10,229
6/30/1998 $ 9,855 $11,771 $11,608 $10,393 $10,271
7/31/1998 $ 9,731 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 9,165 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 9,324 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 9,440 $11,463 $11,007 $10,775 $10,459
11/30/1998 $ 9,610 $12,157 $11,574 $10,836 $10,493
12/31/1998 $ 9,709 $12,858 $12,033 $10,869 $10,536
1/31/1999 $ 9,774 $13,396 $12,001 $10,946 $10,577
2/28/1999 $ 9,645 $12,979 $11,717 $10,755 $10,611
3/31/1999 $ 9,790 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,032 $14,021 $12,707 $10,849 $10,696
5/31/1999 $ 9,948 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,111 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,045 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,055 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,041 $13,548 $13,086 $10,793 $10,910
10/31/1999 $10,315 $14,405 $13,579 $10,832 $10,953
11/30/1999 $10,872 $14,698 $14,054 $10,832 $10,997
12/31/1999 $11,678 $15,563 $15,318 $10,779 $11,047
1/31/2000 $11,552 $14,781 $14,348 $10,744 $11,090
2/29/2000 $12,512 $14,502 $14,737 $10,874 $11,140
3/31/2000 $12,337 $15,920 $15,311 $11,017 $11,196
4/30/2000 $11,879 $15,441 $14,508 $10,986 $11,253
5/31/2000 $11,625 $15,124 $14,156 $10,981 $11,314
6/30/2000 $11,960 $15,497 $14,713 $11,209 $11,362
7/31/2000 $11,930 $15,255 $14,099 $11,311 $11,415
8/31/2000 $12,393 $16,203 $14,224 $11,475 $11,474
9/30/2000 $12,265 $15,347 $13,535 $11,547 $11,537
10/31/2000 $12,096 $15,282 $13,218 $11,623 $11,595
11/30/2000 $11,658 $14,078 $12,725 $11,813 $11,659
12/31/2000 $12,034 $14,146 $13,180 $12,033 $11,726
1/31/2001 $12,360 $14,648 $13,174 $12,229 $11,803
2/28/2001 $11,971 $13,313 $12,187 $12,336 $11,850
3/31/2001 $11,663 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,032 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,106 $13,528 $11,758 $12,421 $12,005
6/30/2001 $12,053 $13,199 $11,282 $12,468 $12,040
7/31/2001 $12,000 $13,069 $11,077 $12,746 $12,080
8/31/2001 $11,851 $12,251 $10,799 $12,892 $12,120
9/30/2001 $11,204 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $11,515 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $11,794 $12,357 $10,324 $13,132 $12,231
12/31/2001 $11,924 $12,465 $10,385 $13,049 $12,250
1/31/2002 $11,913 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $11,902 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $12,147 $12,499 $10,444 $13,061 $12,302
4/30/2002 $12,180 $11,741 $10,520 $13,314 $12,320
5/31/2002 $12,136 $11,655 $10,663 $13,427 $12,340
6/30/2002 $11,785 $10,825 $10,242 $13,543 $12,358
7/31/2002 $11,310 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $11,388 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $11,036 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $11,247 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $11,547 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $11,472 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $11,427 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $11,394 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $11,378 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $11,795 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $12,246 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $12,316 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $12,327 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $12,598 $11,259 $10,096 $14,545 $12,562
9/30/2003 $12,684 $11,139 $10,409 $14,930 $12,573
10/31/2003 $12,990 $11,769 $11,059 $14,791 $12,583
11/30/2003 $13,194 $11,873 $11,306 $14,826 $12,593
12/31/2003 $13,463 $12,495 $12,190 $14,977 $12,603
1/31/2004 $13,566 $12,725 $12,363 $15,098 $12,613
2/29/2004 $13,692 $12,902 $12,651 $15,261 $12,622
3/31/2004 $13,711 $12,707 $12,727 $15,375 $12,632
4/30/2004 $13,367 $12,508 $12,450 $14,975 $12,641
5/31/2004 $13,447 $12,679 $12,503 $14,915 $12,650
6/30/2004 $13,607 $12,926 $12,783 $15,000 $12,656
7/31/2004 $13,423 $12,498 $12,369 $15,148 $12,668
8/31/2004 $13,527 $12,549 $12,427 $15,437 $12,680
9/30/2004 $13,748 $12,684 $12,753 $15,479 $12,694
10/31/2004 $13,945 $12,878 $13,189 $15,609 $12,709
11/30/2004 $14,303 $13,399 $14,094 $15,485 $12,722
12/31/2004 $14,537 $13,855 $14,713 $15,627 $12,746
1/31/2005 $14,351 $13,518 $14,444 $15,725 $12,764
2/28/2005 $14,572 $13,802 $15,071 $15,632 $12,784
3/31/2005 $14,375 $13,558 $14,698 $15,552 $12,814
4/30/2005 $14,223 $13,300 $14,369 $15,762 $12,841
5/31/2005 $14,433 $13,724 $14,391 $15,933 $12,870
6/30/2005 $14,563 $13,743 $14,588 $16,020 $12,899
7/31/2005 $14,786 $14,254 $15,036 $15,874 $12,927
8/31/2005 $14,845 $14,124 $15,421 $16,078 $12,963
9/30/2005 $14,954 $14,239 $16,111 $15,912 $13,000
10/31/2005 $14,730 $14,001 $15,641 $15,786 $13,030
11/30/2005 $15,036 $14,531 $16,028 $15,856 $13,073
12/31/2005 $15,221 $14,536 $16,775 $16,007 $13,114
1/31/2006 $15,687 $14,921 $17,806 $16,007 $13,151
2/28/2006 $15,687 $14,961 $17,769 $16,061 $13,193
3/31/2006 $15,853 $15,147 $18,364 $15,903 $13,245
4/30/2006 $16,021 $15,351 $19,254 $15,874 $13,293
5/31/2006 $15,697 $14,909 $18,530 $15,857 $13,344
6/30/2006 $15,708 $14,929 $18,537 $15,891 $13,395
7/31/2006 $15,708 $15,021 $18,722 $16,106 $13,449
8/31/2006 $15,927 $15,379 $19,242 $16,352 $13,509
9/30/2006 $15,987 $15,775 $19,276 $16,496 $13,568
10/31/2006 $16,330 $16,289 $20,027 $16,605 $13,621
11/30/2006 $16,660 $16,599 $20,631 $16,798 $13,679
12/31/2006 $16,730 $16,832 $21,280 $16,700 $13,738
1/31/2007 $16,881 $17,086 $21,426 $16,693 $13,793
2/28/2007 $16,918 $16,752 $21,602 $16,951 $13,847
3/31/2007 $17,086 $16,939 $22,163 $16,951 $13,910
4/30/2007 $17,414 $17,690 $23,167 $17,043 $13,970
5/31/2007 $17,666 $18,307 $23,604 $16,914 $14,033
6/30/2007 $17,617 $18,003 $23,641 $16,863 $14,086
7/31/2007 $17,488 $17,445 $23,295 $17,004 $14,140
8/31/2007 $17,540 $17,706 $22,937 $17,213 $14,220
9/30/2007 $18,108 $18,368 $24,168 $17,343 $14,272
10/31/2007 $18,511 $18,661 $25,120 $17,499 $14,315
11/30/2007 $18,134 $17,880 $24,301 $17,814 $14,380
12/31/2007 $18,116 $17,756 $23,755 $17,864 $14,413
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS B 12/31/07
- --------------------------------------------------------------------------------
1-Year +3.42%
- --------------------------------------------------------------------------------
3-Year +5.87%
- --------------------------------------------------------------------------------
Since Inception (12/1/03) +6.78%
- --------------------------------------------------------------------------------
CLASS B (12/1/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Conservative Target Fund S&P 500 7 MSCI EAFE Index 7 LB U.S. Aggregate Index 7 P&R 90 Day U.S. T-Bill Index 7
- --------------------------------------------------------------------------------------------------------------------------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,239 $10,718 $10,935 $10,183 $10,016
2/29/2004 $10,326 $10,867 $11,189 $10,293 $10,023
3/31/2004 $10,337 $10,703 $11,257 $10,370 $10,031
4/30/2004 $10,068 $10,535 $11,012 $10,101 $10,038
5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,237 $10,887 $11,306 $10,117 $10,050
7/31/2004 $10,098 $10,527 $10,941 $10,217 $10,059
8/31/2004 $10,168 $10,569 $10,991 $10,412 $10,069
9/30/2004 $10,329 $10,684 $11,280 $10,440 $10,080
10/31/2004 $10,468 $10,847 $11,666 $10,528 $10,092
11/30/2004 $10,738 $11,286 $12,466 $10,444 $10,102
12/31/2004 $10,908 $11,670 $13,013 $10,540 $10,122
1/31/2005 $10,751 $11,385 $12,775 $10,606 $10,136
2/28/2005 $10,917 $11,625 $13,330 $10,544 $10,151
3/31/2005 $10,757 $11,419 $13,001 $10,489 $10,175
4/30/2005 $10,643 $11,202 $12,710 $10,631 $10,196
5/31/2005 $10,792 $11,559 $12,729 $10,746 $10,220
6/30/2005 $10,878 $11,575 $12,903 $10,805 $10,243
7/31/2005 $11,045 $12,006 $13,299 $10,707 $10,265
8/31/2005 $11,080 $11,896 $13,639 $10,844 $10,293
9/30/2005 $11,150 $11,993 $14,250 $10,732 $10,323
10/31/2005 $10,982 $11,793 $13,834 $10,647 $10,347
11/30/2005 $11,194 $12,239 $14,177 $10,694 $10,381
12/31/2005 $11,330 $12,243 $14,837 $10,796 $10,414
1/31/2006 $11,669 $12,567 $15,749 $10,797 $10,443
2/28/2006 $11,669 $12,601 $15,717 $10,833 $10,477
3/31/2006 $11,779 $12,758 $16,243 $10,726 $10,518
4/30/2006 $11,886 $12,929 $17,030 $10,707 $10,555
5/31/2006 $11,645 $12,557 $16,389 $10,695 $10,597
6/30/2006 $11,650 $12,574 $16,395 $10,718 $10,637
7/31/2006 $11,632 $12,652 $16,560 $10,863 $10,680
8/31/2006 $11,795 $12,953 $17,019 $11,029 $10,727
9/30/2006 $11,835 $13,287 $17,049 $11,126 $10,774
10/31/2006 $12,071 $13,720 $17,714 $11,200 $10,816
11/30/2006 $12,316 $13,981 $18,248 $11,330 $10,862
12/31/2006 $12,355 $14,177 $18,822 $11,264 $10,909
1/31/2007 $12,457 $14,391 $18,951 $11,259 $10,953
2/28/2007 $12,485 $14,110 $19,106 $11,433 $10,996
3/31/2007 $12,593 $14,267 $19,603 $11,433 $11,046
4/30/2007 $12,836 $14,899 $20,491 $11,495 $11,094
5/31/2007 $13,013 $15,419 $20,878 $11,408 $11,143
6/30/2007 $12,962 $15,163 $20,910 $11,374 $11,185
7/31/2007 $12,857 $14,693 $20,604 $11,469 $11,228
8/31/2007 $12,886 $14,913 $20,287 $11,609 $11,292
9/30/2007 $13,299 $15,471 $21,376 $11,698 $11,333
10/31/2007 $13,587 $15,717 $22,219 $11,803 $11,367
11/30/2007 $13,299 $15,060 $21,494 $12,015 $11,419
12/31/2007 $13,072 $14,955 $21,011 $12,049 $11,445
10 | Annual Report
Performance Summary (CONTINUED)
CLASS C (1/1/98-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Conservative Target Fund S&P 500 7 MSCI EAFE Index 7 LB U.S. Aggregate Index 7 P&R 90 Day U.S. T-Bill Index 7
- ------------------------------------------------------------------------------------------------------------------------------------
1/1/1998 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,981 $10,111 $10,460 $10,128 $10,050
2/28/1998 $10,253 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,478 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,525 $11,510 $11,572 $10,209 $10,185
5/31/1998 $10,422 $11,312 $11,518 $10,305 $10,229
6/30/1998 $10,414 $11,771 $11,608 $10,393 $10,271
7/31/1998 $10,273 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 9,671 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 9,833 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 9,947 $11,463 $11,007 $10,775 $10,459
11/30/1998 $10,117 $12,157 $11,574 $10,836 $10,493
12/31/1998 $10,218 $12,858 $12,033 $10,869 $10,536
1/31/1999 $10,277 $13,396 $12,001 $10,946 $10,577
2/28/1999 $10,140 $12,979 $11,717 $10,755 $10,611
3/31/1999 $10,291 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,527 $14,021 $12,707 $10,849 $10,696
5/31/1999 $10,438 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,598 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,528 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,528 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,513 $13,548 $13,086 $10,793 $10,910
10/31/1999 $10,792 $14,405 $13,579 $10,832 $10,953
11/30/1999 $11,359 $14,698 $14,054 $10,832 $10,997
12/31/1999 $12,201 $15,563 $15,318 $10,779 $11,047
1/31/2000 $12,058 $14,781 $14,348 $10,744 $11,090
2/29/2000 $13,057 $14,502 $14,737 $10,874 $11,140
3/31/2000 $12,861 $15,920 $15,311 $11,017 $11,196
4/30/2000 $12,380 $15,441 $14,508 $10,986 $11,253
5/31/2000 $12,113 $15,124 $14,156 $10,981 $11,314
6/30/2000 $12,442 $15,497 $14,713 $11,209 $11,362
7/31/2000 $12,411 $15,255 $14,099 $11,311 $11,415
8/31/2000 $12,875 $16,203 $14,224 $11,475 $11,474
9/30/2000 $12,739 $15,347 $13,535 $11,547 $11,537
10/31/2000 $12,562 $15,282 $13,218 $11,623 $11,595
11/30/2000 $12,093 $14,078 $12,725 $11,813 $11,659
12/31/2000 $12,477 $14,146 $13,180 $12,033 $11,726
1/31/2001 $12,806 $14,648 $13,174 $12,229 $11,803
2/28/2001 $12,400 $13,313 $12,187 $12,336 $11,850
3/31/2001 $12,073 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,447 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,513 $13,528 $11,758 $12,421 $12,005
6/30/2001 $12,446 $13,199 $11,282 $12,468 $12,040
7/31/2001 $12,391 $13,069 $11,077 $12,746 $12,080
8/31/2001 $12,225 $12,251 $10,799 $12,892 $12,120
9/30/2001 $11,552 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $11,864 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $12,143 $12,357 $10,324 $13,132 $12,231
12/31/2001 $12,281 $12,465 $10,385 $13,049 $12,250
1/31/2002 $12,246 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $12,224 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $12,476 $12,499 $10,444 $13,061 $12,302
4/30/2002 $12,498 $11,741 $10,520 $13,314 $12,320
5/31/2002 $12,441 $11,655 $10,663 $13,427 $12,340
6/30/2002 $12,080 $10,825 $10,242 $13,543 $12,358
7/31/2002 $11,588 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $11,668 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $11,298 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $11,505 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $11,803 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $11,722 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $11,664 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $11,630 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $11,606 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $12,012 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $12,476 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $12,539 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $12,539 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $12,806 $11,259 $10,096 $14,545 $12,562
9/30/2003 $12,884 $11,139 $10,409 $14,930 $12,573
10/31/2003 $13,186 $11,769 $11,059 $14,791 $12,583
11/30/2003 $13,384 $11,873 $11,306 $14,826 $12,593
12/31/2003 $13,651 $12,495 $12,190 $14,977 $12,603
1/31/2004 $13,745 $12,725 $12,363 $15,098 $12,613
2/29/2004 $13,862 $12,902 $12,651 $15,261 $12,622
3/31/2004 $13,878 $12,707 $12,727 $15,375 $12,632
4/30/2004 $13,514 $12,508 $12,450 $14,975 $12,641
5/31/2004 $13,597 $12,679 $12,503 $14,915 $12,650
6/30/2004 $13,734 $12,926 $12,783 $15,000 $12,656
7/31/2004 $13,546 $12,498 $12,369 $15,148 $12,668
8/31/2004 $13,640 $12,549 $12,427 $15,437 $12,680
9/30/2004 $13,865 $12,684 $12,753 $15,479 $12,694
10/31/2004 $14,053 $12,878 $13,189 $15,609 $12,709
11/30/2004 $14,406 $13,399 $14,094 $15,485 $12,722
12/31/2004 $14,634 $13,855 $14,713 $15,627 $12,746
1/31/2005 $14,421 $13,518 $14,444 $15,725 $12,764
2/28/2005 $14,646 $13,802 $15,071 $15,632 $12,784
3/31/2005 $14,439 $13,558 $14,698 $15,552 $12,814
4/30/2005 $14,285 $13,300 $14,369 $15,762 $12,841
5/31/2005 $14,475 $13,724 $14,391 $15,933 $12,870
6/30/2005 $14,603 $13,743 $14,588 $16,020 $12,899
7/31/2005 $14,817 $14,254 $15,036 $15,874 $12,927
8/31/2005 $14,865 $14,124 $15,421 $16,078 $12,963
9/30/2005 $14,961 $14,239 $16,111 $15,912 $13,000
10/31/2005 $14,734 $14,001 $15,641 $15,786 $13,030
11/30/2005 $15,020 $14,531 $16,028 $15,856 $13,073
12/31/2005 $15,194 $14,536 $16,775 $16,007 $13,114
1/31/2006 $15,664 $14,921 $17,806 $16,007 $13,151
2/28/2006 $15,652 $14,961 $17,769 $16,061 $13,193
3/31/2006 $15,814 $15,147 $18,364 $15,903 $13,245
4/30/2006 $15,959 $15,351 $19,254 $15,874 $13,293
5/31/2006 $15,620 $14,909 $18,530 $15,857 $13,344
6/30/2006 $15,638 $14,929 $18,537 $15,891 $13,395
7/31/2006 $15,614 $15,021 $18,722 $16,106 $13,449
8/31/2006 $15,822 $15,379 $19,242 $16,352 $13,509
9/30/2006 $15,878 $15,775 $19,276 $16,496 $13,568
10/31/2006 $16,211 $16,289 $20,027 $16,605 $13,621
11/30/2006 $16,530 $16,599 $20,631 $16,798 $13,679
12/31/2006 $16,585 $16,832 $21,280 $16,700 $13,738
1/31/2007 $16,723 $17,086 $21,426 $16,693 $13,793
2/28/2007 $16,748 $16,752 $21,602 $16,951 $13,847
3/31/2007 $16,909 $16,939 $22,163 $16,951 $13,910
4/30/2007 $17,225 $17,690 $23,167 $17,043 $13,970
5/31/2007 $17,465 $18,307 $23,604 $16,914 $14,033
6/30/2007 $17,398 $18,003 $23,641 $16,863 $14,086
7/31/2007 $17,256 $17,445 $23,295 $17,004 $14,140
8/31/2007 $17,307 $17,706 $22,937 $17,213 $14,220
9/30/2007 $17,844 $18,368 $24,168 $17,343 $14,272
10/31/2007 $18,246 $18,661 $25,120 $17,499 $14,315
11/30/2007 $17,857 $17,880 $24,301 $17,814 $14,380
12/31/2007 $17,825 $17,756 $23,755 $17,864 $14,413
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 12/31/07
- --------------------------------------------------------------------------------
1-Year +6.48%
- --------------------------------------------------------------------------------
5-Year +8.74%
- --------------------------------------------------------------------------------
10-Year +5.95%
- --------------------------------------------------------------------------------
CLASS R (1/1/02-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Conservative Target Fund S&P 500 7 MSCI EAFE Index 7 LB U.S. Aggregate Index 7 P&R 90 Day U.S. T-Bill Index 7
- ------------------------------------------------------------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,982 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,972 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,178 $10,027 $10,057 $10,009 $10,042
4/30/2002 $10,196 $ 9,420 $10,130 $10,203 $10,057
5/31/2002 $10,159 $ 9,350 $10,267 $10,290 $10,073
6/30/2002 $ 9,869 $ 8,684 $ 9,862 $10,379 $10,088
7/31/2002 $ 9,461 $ 8,007 $ 8,889 $10,504 $10,102
8/31/2002 $ 9,526 $ 8,060 $ 8,871 $10,682 $10,117
9/30/2002 $ 9,232 $ 7,184 $ 7,921 $10,855 $10,133
10/31/2002 $ 9,409 $ 7,816 $ 8,347 $10,805 $10,149
11/30/2002 $ 9,650 $ 8,276 $ 8,727 $10,802 $10,165
12/31/2002 $ 9,591 $ 7,790 $ 8,434 $11,025 $10,175
1/31/2003 $ 9,554 $ 7,586 $ 8,083 $11,035 $10,186
2/28/2003 $ 9,516 $ 7,472 $ 7,898 $11,188 $10,195
3/31/2003 $ 9,510 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 9,850 $ 8,166 $ 8,517 $11,271 $10,217
5/31/2003 $10,228 $ 8,596 $ 9,041 $11,481 $10,227
6/30/2003 $10,284 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $10,293 $ 8,859 $ 9,491 $11,073 $10,247
8/31/2003 $10,511 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $10,584 $ 8,936 $10,023 $11,442 $10,263
10/31/2003 $10,831 $ 9,442 $10,648 $11,335 $10,272
11/30/2003 $11,002 $ 9,525 $10,887 $11,362 $10,280
12/31/2003 $11,228 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,314 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,410 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,431 $10,194 $12,255 $11,783 $10,312
4/30/2004 $11,134 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,210 $10,172 $12,040 $11,431 $10,326
6/30/2004 $11,328 $10,370 $12,308 $11,495 $10,331
7/31/2004 $11,174 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,260 $10,067 $11,966 $11,831 $10,351
9/30/2004 $11,449 $10,176 $12,280 $11,863 $10,363
10/31/2004 $11,604 $10,332 $12,700 $11,962 $10,375
11/30/2004 $11,902 $10,750 $13,571 $11,867 $10,385
12/31/2004 $12,098 $11,115 $14,167 $11,976 $10,405
1/31/2005 $11,932 $10,844 $13,908 $12,051 $10,420
2/28/2005 $12,117 $11,073 $14,512 $11,980 $10,436
3/31/2005 $11,948 $10,877 $14,153 $11,919 $10,460
4/30/2005 $11,821 $10,670 $13,837 $12,080 $10,482
5/31/2005 $11,996 $11,010 $13,858 $12,211 $10,506
6/30/2005 $12,097 $11,025 $14,047 $12,277 $10,530
7/31/2005 $12,283 $11,435 $14,479 $12,165 $10,553
8/31/2005 $12,332 $11,331 $14,849 $12,321 $10,582
9/30/2005 $12,415 $11,423 $15,513 $12,194 $10,612
10/31/2005 $12,228 $11,232 $15,061 $12,098 $10,636
11/30/2005 $12,474 $11,657 $15,433 $12,151 $10,672
12/31/2005 $12,627 $11,661 $16,153 $12,267 $10,705
1/31/2006 $13,013 $11,970 $17,145 $12,268 $10,736
2/28/2006 $13,013 $12,003 $17,110 $12,308 $10,770
3/31/2006 $13,155 $12,152 $17,683 $12,188 $10,812
4/30/2006 $13,284 $12,315 $18,540 $12,165 $10,851
5/31/2006 $13,005 $11,961 $17,843 $12,152 $10,893
6/30/2006 $13,025 $11,977 $17,849 $12,178 $10,934
7/31/2006 $13,015 $12,051 $18,028 $12,343 $10,979
8/31/2006 $13,197 $12,338 $18,528 $12,532 $11,028
9/30/2006 $13,239 $12,655 $18,561 $12,642 $11,076
10/31/2006 $13,524 $13,068 $19,284 $12,726 $11,119
11/30/2006 $13,798 $13,316 $19,866 $12,873 $11,166
12/31/2006 $13,855 $13,503 $20,491 $12,798 $11,215
1/31/2007 $13,969 $13,707 $20,631 $12,793 $11,260
2/28/2007 $14,000 $13,439 $20,800 $12,990 $11,304
3/31/2007 $14,134 $13,590 $21,341 $12,991 $11,355
4/30/2007 $14,406 $14,192 $22,308 $13,061 $11,404
5/31/2007 $14,615 $14,687 $22,729 $12,962 $11,455
6/30/2007 $14,565 $14,443 $22,764 $12,924 $11,499
7/31/2007 $14,458 $13,995 $22,431 $13,031 $11,542
8/31/2007 $14,501 $14,205 $22,086 $13,191 $11,608
9/30/2007 $14,953 $14,736 $23,272 $13,291 $11,650
10/31/2007 $15,297 $14,970 $24,189 $13,411 $11,686
11/30/2007 $14,974 $14,344 $23,399 $13,652 $11,738
12/31/2007 $14,951 $14,245 $22,874 $13,690 $11,766
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS R 12/31/07
- --------------------------------------------------------------------------------
1-Year +7.91%
- --------------------------------------------------------------------------------
5-Year +9.28%
- --------------------------------------------------------------------------------
Since Inception (1/1/02) +6.94%
- --------------------------------------------------------------------------------
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 6 12/31/07
- --------------------------------------------------------------------------------
1-Year +8.48%
- --------------------------------------------------------------------------------
5-Year +9.66%
- --------------------------------------------------------------------------------
10-Year +6.79%
- --------------------------------------------------------------------------------
ADVISOR CLASS (1/1/98-12/31/07) 6
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Conservative Target Fund S&P 500 7 MSCI EAFE Index 7 LB U.S. Aggregate Index 7 P&R 90 Day U.S. T-Bill Index 7
- ------------------------------------------------------------------------------------------------------------------------------------
1/1/1998 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,991 $10,111 $10,460 $10,128 $10,050
2/28/1998 $10,270 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,497 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,553 $11,510 $11,572 $10,209 $10,185
5/31/1998 $10,450 $11,312 $11,518 $10,305 $10,229
6/30/1998 $10,452 $11,771 $11,608 $10,393 $10,271
7/31/1998 $10,320 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 9,720 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 9,889 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $10,012 $11,463 $11,007 $10,775 $10,459
11/30/1998 $10,192 $12,157 $11,574 $10,836 $10,493
12/31/1998 $10,298 $12,858 $12,033 $10,869 $10,536
1/31/1999 $10,366 $13,396 $12,001 $10,946 $10,577
2/28/1999 $10,229 $12,979 $11,717 $10,755 $10,611
3/31/1999 $10,383 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,639 $14,021 $12,707 $10,849 $10,696
5/31/1999 $10,551 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,723 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,654 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,664 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,649 $13,548 $13,086 $10,793 $10,910
10/31/1999 $10,940 $14,405 $13,579 $10,832 $10,953
11/30/1999 $11,531 $14,698 $14,054 $10,832 $10,997
12/31/1999 $12,385 $15,563 $15,318 $10,779 $11,047
1/31/2000 $12,252 $14,781 $14,348 $10,744 $11,090
2/29/2000 $13,269 $14,502 $14,737 $10,874 $11,140
3/31/2000 $13,085 $15,920 $15,311 $11,017 $11,196
4/30/2000 $12,598 $15,441 $14,508 $10,986 $11,253
5/31/2000 $12,329 $15,124 $14,156 $10,981 $11,314
6/30/2000 $12,684 $15,497 $14,713 $11,209 $11,362
7/31/2000 $12,653 $15,255 $14,099 $11,311 $11,415
8/31/2000 $13,143 $16,203 $14,224 $11,475 $11,474
9/30/2000 $13,008 $15,347 $13,535 $11,547 $11,537
10/31/2000 $12,828 $15,282 $13,218 $11,623 $11,595
11/30/2000 $12,364 $14,078 $12,725 $11,813 $11,659
12/31/2000 $12,763 $14,146 $13,180 $12,033 $11,726
1/31/2001 $13,108 $14,648 $13,174 $12,229 $11,803
2/28/2001 $12,697 $13,313 $12,187 $12,336 $11,850
3/31/2001 $12,370 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,761 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,839 $13,528 $11,758 $12,421 $12,005
6/30/2001 $12,783 $13,199 $11,282 $12,468 $12,040
7/31/2001 $12,726 $13,069 $11,077 $12,746 $12,080
8/31/2001 $12,569 $12,251 $10,799 $12,892 $12,120
9/30/2001 $11,883 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $12,213 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $12,508 $12,357 $10,324 $13,132 $12,231
12/31/2001 $12,646 $12,465 $10,385 $13,049 $12,250
1/31/2002 $12,635 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $12,623 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $12,883 $12,499 $10,444 $13,061 $12,302
4/30/2002 $12,918 $11,741 $10,520 $13,314 $12,320
5/31/2002 $12,871 $11,655 $10,663 $13,427 $12,340
6/30/2002 $12,499 $10,825 $10,242 $13,543 $12,358
7/31/2002 $11,996 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $12,078 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $11,705 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $11,929 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $12,247 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $12,167 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $12,120 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $12,084 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $12,067 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $12,510 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $12,987 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $13,062 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $13,074 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $13,362 $11,259 $10,096 $14,545 $12,562
9/30/2003 $13,452 $11,139 $10,409 $14,930 $12,573
10/31/2003 $13,777 $11,769 $11,059 $14,791 $12,583
11/30/2003 $13,993 $11,873 $11,306 $14,826 $12,593
12/31/2003 $14,278 $12,495 $12,190 $14,977 $12,603
1/31/2004 $14,387 $12,725 $12,363 $15,098 $12,613
2/29/2004 $14,521 $12,902 $12,651 $15,261 $12,622
3/31/2004 $14,541 $12,707 $12,727 $15,375 $12,632
4/30/2004 $14,176 $12,508 $12,450 $14,975 $12,641
5/31/2004 $14,262 $12,679 $12,503 $14,915 $12,650
6/30/2004 $14,431 $12,926 $12,783 $15,000 $12,656
7/31/2004 $14,236 $12,498 $12,369 $15,148 $12,668
8/31/2004 $14,346 $12,549 $12,427 $15,437 $12,680
9/30/2004 $14,581 $12,684 $12,753 $15,479 $12,694
10/31/2004 $14,789 $12,878 $13,189 $15,609 $12,709
11/30/2004 $15,170 $13,399 $14,094 $15,485 $12,722
12/31/2004 $15,418 $13,855 $14,713 $15,627 $12,746
1/31/2005 $15,220 $13,518 $14,444 $15,725 $12,764
2/28/2005 $15,455 $13,802 $15,071 $15,632 $12,784
3/31/2005 $15,246 $13,558 $14,698 $15,552 $12,814
4/30/2005 $15,084 $13,300 $14,369 $15,762 $12,841
5/31/2005 $15,308 $13,724 $14,391 $15,933 $12,870
6/30/2005 $15,445 $13,743 $14,588 $16,020 $12,899
7/31/2005 $15,682 $14,254 $15,036 $15,874 $12,927
8/31/2005 $15,744 $14,124 $15,421 $16,078 $12,963
9/30/2005 $15,860 $14,239 $16,111 $15,912 $13,000
10/31/2005 $15,622 $14,001 $15,641 $15,786 $13,030
11/30/2005 $15,947 $14,531 $16,028 $15,856 $13,073
12/31/2005 $16,131 $14,536 $16,775 $16,007 $13,114
1/31/2006 $16,638 $14,921 $17,806 $16,007 $13,151
2/28/2006 $16,638 $14,961 $17,769 $16,061 $13,193
3/31/2006 $16,821 $15,147 $18,364 $15,903 $13,245
4/30/2006 $16,999 $15,351 $19,254 $15,874 $13,293
5/31/2006 $16,655 $14,909 $18,530 $15,857 $13,344
6/30/2006 $16,678 $14,929 $18,537 $15,891 $13,395
7/31/2006 $16,678 $15,021 $18,722 $16,106 $13,449
8/31/2006 $16,910 $15,379 $19,242 $16,352 $13,509
9/30/2006 $16,985 $15,775 $19,276 $16,496 $13,568
10/31/2006 $17,349 $16,289 $20,027 $16,605 $13,621
11/30/2006 $17,701 $16,599 $20,631 $16,798 $13,679
12/31/2006 $17,789 $16,832 $21,280 $16,700 $13,738
1/31/2007 $17,949 $17,086 $21,426 $16,693 $13,793
2/28/2007 $17,989 $16,752 $21,602 $16,951 $13,847
3/31/2007 $18,175 $16,939 $22,163 $16,951 $13,910
4/30/2007 $18,524 $17,690 $23,167 $17,043 $13,970
5/31/2007 $18,806 $18,307 $23,604 $16,914 $14,033
6/30/2007 $18,752 $18,003 $23,641 $16,863 $14,086
7/31/2007 $18,614 $17,445 $23,295 $17,004 $14,140
8/31/2007 $18,669 $17,706 $22,937 $17,213 $14,220
9/30/2007 $19,273 $18,368 $24,168 $17,343 $14,272
10/31/2007 $19,716 $18,661 $25,120 $17,499 $14,315
11/30/2007 $19,315 $17,880 $24,301 $17,814 $14,380
12/31/2007 $19,297 $17,756 $23,755 $17,864 $14,413
ENDNOTES
BECAUSE THE FUND INVESTS IN VARIOUS UNDERLYING FUNDS THAT 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. If the manager had not waived fees, 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.
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 +20.44% and +9.34%.
7. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 6 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate Index
and the P&R 90 Day U.S. T-Bill Index.
12 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,028.40 $2.51
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.74 $2.50
- -------------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,023.90 $6.33
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.95 $6.31
- -------------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,024.60 $6.28
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.00 $6.26
- -------------------------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,026.50 $3.78
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.48 $3.77
- -------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,029.10 $1.23
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.00 $1.22
- -------------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.49%; B: 1.24%; C: 1.23%; R: 0.74%; and Advisor: 0.24%),
multiplied by the average account value over the period, multiplied by 184/365
to reflect the one-half year period.
14 | Annual Report
Franklin Templeton
Moderate Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund
seeks the highest level of long-term total return consistent with a moderate
level of risk. 1
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton Moderate Target Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity .......................................... 37.4%
Domestic Fixed Income .................................... 23.9%
Foreign Equity ........................................... 17.1%
Foreign Fixed Income ..................................... 11.3%
Short-Term Investments & Other Net Assets ................ 10.3%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Moderate Target Fund's annual
report for the fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A posted a +9.40% cumulative
total return for the 12 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 P&R 90 Day U.S. T-Bill Index for
short-term investments and other net assets. For the reporting
1. The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 46.
Annual Report | 15
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund 12/31/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Mutual Shares Fund
- - Class Z 11.7%
- --------------------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 11.3%
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities
Fund - Advisor Class 11.1%
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 10.2%
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 8.7%
- --------------------------------------------------------------------------------
Franklin Total Return Fund
- - Advisor Class 8.5%
- --------------------------------------------------------------------------------
Mutual European Fund - Class Z 6.1%
- --------------------------------------------------------------------------------
Franklin Strategic Mortgage Portfolio 4.2%
- --------------------------------------------------------------------------------
Templeton Foreign Fund - Advisor Class 3.3%
- --------------------------------------------------------------------------------
Franklin Growth Opportunities Fund
- - Advisor Class 3.2%
- --------------------------------------------------------------------------------
period, the hybrid benchmark returned +7.06%. 2 You can find the Fund's
long-term performance data in the Performance Summary beginning on page 18.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series is intended to increase
the consistency of the Target Funds' results relative to one another. For your
reference, Franklin Templeton Moderate Target Fund seeks to maintain the
following asset class allocations: 55% equity funds, 35% fixed income funds, and
10% short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Moderate Target Fund's domestic equity
exposure was 68.6% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z representing 11.7% of the Fund's total net assets,
was our largest equity fund weighting at period-end. On the fixed income side,
domestic exposure was 67.9% of the Fund's total income weighting, with the
2. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance in
global developed markets excluding the U.S. and Canada. The LB U.S. Aggregate
Index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond markets,
with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The P&R 90 Day U.S.
T-Bill Index is a total return index based on a constant maturity instrument.
Payden & Rygel includes both accrued interest and change in market price in its
monthly total return calculations. The value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The benchmark index's
weightings are as follows: S&P 500 39%, MSCI EAFE 16%, LB U.S. Aggregate 35% and
P&R 90 Day T-Bill 10%. The indexes are unmanaged and include reinvested
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
16 | Annual Report
balance represented by foreign fixed income. Templeton Global Bond Fund -
Advisor Class was our largest fixed income fund weighting at 11.3% of total net
assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, outperformed the S&P 500 during the 12-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
underperformed 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 and Franklin U.S. Government
Securities Fund - Advisor Class outperformed the LB U.S. Aggregate Index.
Thank you for your continued participation in Franklin Templeton Moderate Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Moderate Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 17
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------
CLASS A (SYMBOL: FMTIX) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.32 $14.35 $14.03
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.4310
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0133
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5345
- ---------------------------------------------------------------------------------------
TOTAL $0.9788
- ---------------------------------------------------------------------------------------
CLASS B (SYMBOL: FBMTX) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.32 $14.31 $13.99
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.3219
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0133
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5345
- ---------------------------------------------------------------------------------------
TOTAL $0.8697
- ---------------------------------------------------------------------------------------
CLASS C (SYMBOL: FTMTX) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.30 $14.11 $13.81
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.3258
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0133
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5345
- ---------------------------------------------------------------------------------------
TOTAL $0.8736
- ---------------------------------------------------------------------------------------
CLASS R (SYMBOL: FTMRX) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.32 $14.32 $14.00
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.3963
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0133
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5345
- ---------------------------------------------------------------------------------------
TOTAL $0.9441
- ---------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.32 $14.35 $14.03
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.4666
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0133
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.5345
- ---------------------------------------------------------------------------------------
TOTAL $1.0144
- ---------------------------------------------------------------------------------------
18 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.40% +73.50% +93.77%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.08% +10.35% +6.21%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,308 $16,360 $18,268
- --------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------------
Without Waiver 1.47%
- --------------------------------------------------------------------------------------------------------
With Waiver 1.25%
- --------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (12/1/03)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.61% +26.46% +40.35%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +4.61% +7.28% +8.28%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,461 $12,346 $13,835
- --------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------------
Without Waiver 2.22%
- --------------------------------------------------------------------------------------------------------
With Waiver 2.00%
- --------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.61% +67.22% +79.53%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.61% +10.83% +6.03%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,761 $16,722 $17,953
- --------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------------
Without Waiver 2.22%
- --------------------------------------------------------------------------------------------------------
With Waiver 2.00%
- --------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.16% +71.50% +57.99%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +9.16% +11.39% +7.93%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,916 $17,150 $15,799
- --------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------------
Without Waiver 1.72%
- --------------------------------------------------------------------------------------------------------
With Waiver 1.50%
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS 6 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.66% +74.49% +94.88%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +9.66% +11.78% +6.90%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,966 $17,449 $19,488
- --------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------------------
Without Waiver 1.22%
- --------------------------------------------------------------------------------------------------------
With Waiver 1.00%
- --------------------------------------------------------------------------------------------------------
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.
Annual Report | 19
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------------------
CLASS A 12/31/07
- ------------------------------------------------------------
1-Year +3.08%
- ------------------------------------------------------------
5-Year +10.35%
- ------------------------------------------------------------
10-Year +6.21%
- ------------------------------------------------------------
CLASS A (1/1/98-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
LB U.S. Aggregate P&R 90 Day U.S.
DATE FT Moderate Target Fund S&P 500 7 MSCI EAFE Index 7 Index 7 T-Bill Index 7
- ---------------------------------------------------------------------------------------------------------------
1/1/1998 $ 9,428 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,383 $10,111 $10,460 $10,128 $10,050
2/28/1998 $ 9,732 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,023 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,076 $11,510 $11,572 $10,209 $10,185
5/31/1998 $ 9,906 $11,312 $11,518 $10,305 $10,229
6/30/1998 $ 9,906 $11,771 $11,608 $10,393 $10,271
7/31/1998 $ 9,672 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 8,702 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 8,896 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 9,086 $11,463 $11,007 $10,775 $10,459
11/30/1998 $ 9,294 $12,157 $11,574 $10,836 $10,493
12/31/1998 $ 9,442 $12,858 $12,033 $10,869 $10,536
1/31/1999 $ 9,526 $13,396 $12,001 $10,946 $10,577
2/28/1999 $ 9,339 $12,979 $11,717 $10,755 $10,611
3/31/1999 $ 9,548 $13,498 $12,209 $10,815 $10,656
4/30/1999 $ 9,839 $14,021 $12,707 $10,849 $10,696
5/31/1999 $ 9,745 $13,690 $12,055 $10,754 $10,736
6/30/1999 $ 9,935 $14,450 $12,528 $10,720 $10,776
7/31/1999 $ 9,841 $13,999 $12,903 $10,674 $10,821
8/31/1999 $ 9,860 $13,929 $12,953 $10,669 $10,862
9/30/1999 $ 9,841 $13,548 $13,086 $10,793 $10,910
10/31/1999 $10,212 $14,405 $13,579 $10,832 $10,953
11/30/1999 $10,924 $14,698 $14,054 $10,832 $10,997
12/31/1999 $12,014 $15,563 $15,318 $10,779 $11,047
1/31/2000 $11,869 $14,781 $14,348 $10,744 $11,090
2/29/2000 $13,188 $14,502 $14,737 $10,874 $11,140
3/31/2000 $12,925 $15,920 $15,311 $11,017 $11,196
4/30/2000 $12,301 $15,441 $14,508 $10,986 $11,253
5/31/2000 $11,960 $15,124 $14,156 $10,981 $11,314
6/30/2000 $12,703 $15,497 $14,713 $11,209 $11,362
7/31/2000 $12,576 $15,255 $14,099 $11,311 $11,415
8/31/2000 $13,271 $16,203 $14,224 $11,475 $11,474
9/30/2000 $12,978 $15,347 $13,535 $11,547 $11,537
10/31/2000 $12,504 $15,282 $13,218 $11,623 $11,595
11/30/2000 $11,487 $14,078 $12,725 $11,813 $11,659
12/31/2000 $11,883 $14,146 $13,180 $12,033 $11,726
1/31/2001 $12,308 $14,648 $13,174 $12,229 $11,803
2/28/2001 $11,650 $13,313 $12,187 $12,336 $11,850
3/31/2001 $11,199 $12,469 $11,380 $12,398 $11,910
4/30/2001 $11,758 $13,438 $12,178 $12,346 $11,959
5/31/2001 $11,819 $13,528 $11,758 $12,421 $12,005
6/30/2001 $11,707 $13,199 $11,282 $12,468 $12,040
7/31/2001 $11,563 $13,069 $11,077 $12,746 $12,080
8/31/2001 $11,298 $12,251 $10,799 $12,892 $12,120
9/30/2001 $10,464 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $10,835 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $11,206 $12,357 $10,324 $13,132 $12,231
12/31/2001 $11,386 $12,465 $10,385 $13,049 $12,250
1/31/2002 $11,344 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $11,270 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $11,606 $12,499 $10,444 $13,061 $12,302
4/30/2002 $11,574 $11,741 $10,520 $13,314 $12,320
5/31/2002 $11,500 $11,655 $10,663 $13,427 $12,340
6/30/2002 $11,071 $10,825 $10,242 $13,543 $12,358
7/31/2002 $10,443 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $10,518 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $10,024 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $10,323 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $10,686 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $10,529 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $10,453 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $10,388 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $10,355 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $10,842 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $11,372 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $11,461 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $11,537 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $11,884 $11,259 $10,096 $14,545 $12,562
9/30/2003 $11,922 $11,139 $10,409 $14,930 $12,573
10/31/2003 $12,335 $11,769 $11,059 $14,791 $12,583
11/30/2003 $12,585 $11,873 $11,306 $14,826 $12,593
12/31/2003 $12,886 $12,495 $12,190 $14,977 $12,603
1/31/2004 $13,006 $12,725 $12,363 $15,098 $12,613
2/29/2004 $13,149 $12,902 $12,651 $15,261 $12,622
3/31/2004 $13,181 $12,707 $12,727 $15,375 $12,632
4/30/2004 $12,774 $12,508 $12,450 $14,975 $12,641
5/31/2004 $12,906 $12,679 $12,503 $14,915 $12,650
6/30/2004 $13,092 $12,926 $12,783 $15,000 $12,656
7/31/2004 $12,827 $12,498 $12,369 $15,148 $12,668
8/31/2004 $12,926 $12,549 $12,427 $15,437 $12,680
9/30/2004 $13,206 $12,684 $12,753 $15,479 $12,694
10/31/2004 $13,416 $12,878 $13,189 $15,609 $12,709
11/30/2004 $13,847 $13,399 $14,094 $15,485 $12,722
12/31/2004 $14,128 $13,855 $14,713 $15,627 $12,746
1/31/2005 $13,872 $13,518 $14,444 $15,725 $12,764
2/28/2005 $14,161 $13,802 $15,071 $15,632 $12,784
3/31/2005 $13,926 $13,558 $14,698 $15,552 $12,814
4/30/2005 $13,703 $13,300 $14,369 $15,762 $12,841
5/31/2005 $13,971 $13,724 $14,391 $15,933 $12,870
6/30/2005 $14,147 $13,743 $14,588 $16,020 $12,899
7/31/2005 $14,460 $14,254 $15,036 $15,874 $12,927
8/31/2005 $14,516 $14,124 $15,421 $16,078 $12,963
9/30/2005 $14,662 $14,239 $16,111 $15,912 $13,000
10/31/2005 $14,381 $14,001 $15,641 $15,786 $13,030
11/30/2005 $14,763 $14,531 $16,028 $15,856 $13,073
12/31/2005 $14,968 $14,536 $16,775 $16,007 $13,114
1/31/2006 $15,549 $14,921 $17,806 $16,007 $13,151
2/28/2006 $15,537 $14,961 $17,769 $16,061 $13,193
3/31/2006 $15,776 $15,147 $18,364 $15,903 $13,245
4/30/2006 $15,947 $15,351 $19,254 $15,874 $13,293
5/31/2006 $15,513 $14,909 $18,530 $15,857 $13,344
6/30/2006 $15,541 $14,929 $18,537 $15,891 $13,395
7/31/2006 $15,483 $15,021 $18,722 $16,106 $13,449
8/31/2006 $15,737 $15,379 $19,242 $16,352 $13,509
9/30/2006 $15,798 $15,775 $19,276 $16,496 $13,568
10/31/2006 $16,203 $16,289 $20,027 $16,605 $13,621
11/30/2006 $16,609 $16,599 $20,631 $16,798 $13,679
12/31/2006 $16,699 $16,832 $21,280 $16,700 $13,738
1/31/2007 $16,889 $17,086 $21,426 $16,693 $13,793
2/28/2007 $16,901 $16,752 $21,602 $16,951 $13,847
3/31/2007 $17,111 $16,939 $22,163 $16,951 $13,910
4/30/2007 $17,528 $17,690 $23,167 $17,043 $13,970
5/31/2007 $17,875 $18,307 $23,604 $16,914 $14,033
6/30/2007 $17,808 $18,003 $23,641 $16,863 $14,086
7/31/2007 $17,600 $17,445 $23,295 $17,004 $14,140
8/31/2007 $17,673 $17,706 $22,937 $17,213 $14,220
9/30/2007 $18,363 $18,368 $24,168 $17,343 $14,272
10/31/2007 $18,881 $18,661 $25,120 $17,499 $14,315
11/30/2007 $18,314 $17,880 $24,301 $17,814 $14,380
12/31/2007 $18,268 $17,756 $23,755 $17,864 $14,413
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------------------
CLASS B 12/31/07
- ------------------------------------------------------------
1-Year +4.61%
- ------------------------------------------------------------
3-Year +7.28%
- ------------------------------------------------------------
Since Inception (12/1/03) +8.28%
- ------------------------------------------------------------
CLASS B (12/1/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
LB U.S. Aggregate P&R 90 Day U.S.
DATE FT Moderate Target Fund S&P 500 7 MSCI EAFE Index 7 Index 7 T-Bill Index 7
- ---------------------------------------------------------------------------------------------------------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,189 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,284 $10,718 $10,935 $10,183 $10,016
2/29/2004 $10,389 $10,867 $11,189 $10,293 $10,023
3/31/2004 $10,410 $10,703 $11,257 $10,370 $10,031
4/30/2004 $10,088 $10,535 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,327 $10,887 $11,306 $10,117 $10,050
7/31/2004 $10,110 $10,527 $10,941 $10,217 $10,059
8/31/2004 $10,188 $10,569 $10,991 $10,412 $10,069
9/30/2004 $10,393 $10,684 $11,280 $10,440 $10,080
10/31/2004 $10,550 $10,847 $11,666 $10,528 $10,092
11/30/2004 $10,890 $11,286 $12,466 $10,444 $10,102
12/31/2004 $11,098 $11,670 $13,013 $10,540 $10,122
1/31/2005 $10,896 $11,385 $12,775 $10,606 $10,136
2/28/2005 $11,115 $11,625 $13,330 $10,544 $10,151
3/31/2005 $10,917 $11,419 $13,001 $10,489 $10,175
4/30/2005 $10,742 $11,202 $12,710 $10,631 $10,196
5/31/2005 $10,944 $11,559 $12,729 $10,746 $10,220
6/30/2005 $11,079 $11,575 $12,903 $10,805 $10,243
7/31/2005 $11,317 $12,006 $13,299 $10,707 $10,265
8/31/2005 $11,352 $11,896 $13,639 $10,844 $10,293
9/30/2005 $11,454 $11,993 $14,250 $10,732 $10,323
10/31/2005 $11,225 $11,793 $13,834 $10,647 $10,347
11/30/2005 $11,516 $12,239 $14,177 $10,694 $10,381
12/31/2005 $11,672 $12,243 $14,837 $10,796 $10,414
1/31/2006 $12,118 $12,567 $15,749 $10,797 $10,443
2/28/2006 $12,100 $12,601 $15,717 $10,833 $10,477
3/31/2006 $12,274 $12,758 $16,243 $10,726 $10,518
4/30/2006 $12,408 $12,929 $17,030 $10,707 $10,555
5/31/2006 $12,060 $12,557 $16,389 $10,695 $10,597
6/30/2006 $12,075 $12,574 $16,395 $10,718 $10,637
7/31/2006 $12,021 $12,652 $16,560 $10,863 $10,680
8/31/2006 $12,209 $12,953 $17,019 $11,029 $10,727
9/30/2006 $12,252 $13,287 $17,049 $11,126 $10,774
10/31/2006 $12,559 $13,720 $17,714 $11,200 $10,816
11/30/2006 $12,856 $13,981 $18,248 $11,330 $10,862
12/31/2006 $12,922 $14,177 $18,822 $11,264 $10,909
1/31/2007 $13,060 $14,391 $18,951 $11,259 $10,953
2/28/2007 $13,070 $14,110 $19,106 $11,433 $10,996
3/31/2007 $13,216 $14,267 $19,603 $11,433 $11,046
4/30/2007 $13,530 $14,899 $20,491 $11,495 $11,094
5/31/2007 $13,789 $15,419 $20,878 $11,408 $11,143
6/30/2007 $13,729 $15,163 $20,910 $11,374 $11,185
7/31/2007 $13,559 $14,693 $20,604 $11,469 $11,228
8/31/2007 $13,606 $14,913 $20,287 $11,609 $11,292
9/30/2007 $14,133 $15,471 $21,376 $11,698 $11,333
10/31/2007 $14,523 $15,717 $22,219 $11,803 $11,367
11/30/2007 $14,076 $15,060 $21,494 $12,015 $11,419
12/31/2007 $13,835 $14,955 $21,011 $12,049 $11,445
20 | Annual Report
Performance Summary (CONTINUED)
CLASS C (1/1/98-12/31/07)
FT Moderate MSCI LB U.S. P&R 90-Day U.S.
DATE Target Fund S&P 500 7 EAFE Index 7 Aggregate Index 7 T-Bill Index 7
- -----------------------------------------------------------------------------------------------------------------------
1/1/1998 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,933 $10,111 $10,460 $10,128 $10,050
2/28/1998 $10,306 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,603 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,641 $11,510 $11,572 $10,209 $10,185
5/31/1998 $10,469 $11,312 $11,518 $10,305 $10,229
6/30/1998 $10,452 $11,771 $11,608 $10,393 $10,271
7/31/1998 $10,203 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 9,169 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 9,372 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 9,565 $11,463 $11,007 $10,775 $10,459
11/30/1998 $ 9,767 $12,157 $11,574 $10,836 $10,493
12/31/1998 $ 9,923 $12,858 $12,033 $10,869 $10,536
1/31/1999 $10,003 $13,396 $12,001 $10,946 $10,577
2/28/1999 $ 9,804 $12,979 $11,717 $10,755 $10,611
3/31/1999 $10,013 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,312 $14,021 $12,707 $10,849 $10,696
5/31/1999 $10,202 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,393 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,293 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,303 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,284 $13,548 $13,086 $10,793 $10,910
10/31/1999 $10,665 $14,405 $13,579 $10,832 $10,953
11/30/1999 $11,398 $14,698 $14,054 $10,832 $10,997
12/31/1999 $12,533 $15,563 $15,318 $10,779 $11,047
1/31/2000 $12,369 $14,781 $14,348 $10,744 $11,090
2/29/2000 $13,730 $14,502 $14,737 $10,874 $11,140
3/31/2000 $13,458 $15,920 $15,311 $11,017 $11,196
4/30/2000 $12,801 $15,441 $14,508 $10,986 $11,253
5/31/2000 $12,431 $15,124 $14,156 $10,981 $11,314
6/30/2000 $13,210 $15,497 $14,713 $11,209 $11,362
7/31/2000 $13,056 $15,255 $14,099 $11,311 $11,415
8/31/2000 $13,777 $16,203 $14,224 $11,475 $11,474
9/30/2000 $13,464 $15,347 $13,535 $11,547 $11,537
10/31/2000 $12,956 $15,282 $13,218 $11,623 $11,595
11/30/2000 $11,898 $14,078 $12,725 $11,813 $11,659
12/31/2000 $12,303 $14,146 $13,180 $12,033 $11,726
1/31/2001 $12,738 $14,648 $13,174 $12,229 $11,803
2/28/2001 $12,048 $13,313 $12,187 $12,336 $11,850
3/31/2001 $11,572 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,147 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,200 $13,528 $11,758 $12,421 $12,005
6/30/2001 $12,071 $13,199 $11,282 $12,468 $12,040
7/31/2001 $11,922 $13,069 $11,077 $12,746 $12,080
8/31/2001 $11,644 $12,251 $10,799 $12,892 $12,120
9/30/2001 $10,774 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $11,150 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $11,515 $12,357 $10,324 $13,132 $12,231
12/31/2001 $11,695 $12,465 $10,385 $13,049 $12,250
1/31/2002 $11,640 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $11,563 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $11,911 $12,499 $10,444 $13,061 $12,302
4/30/2002 $11,867 $11,741 $10,520 $13,314 $12,320
5/31/2002 $11,779 $11,655 $10,663 $13,427 $12,340
6/30/2002 $11,333 $10,825 $10,242 $13,543 $12,358
7/31/2002 $10,693 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $10,748 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $10,248 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $10,536 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $10,912 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $10,736 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $10,647 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $10,580 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $10,542 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $11,022 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $11,558 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $11,641 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $11,708 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $12,055 $11,259 $10,096 $14,545 $12,562
9/30/2003 $12,095 $11,139 $10,409 $14,930 $12,573
10/31/2003 $12,498 $11,769 $11,059 $14,791 $12,583
11/30/2003 $12,744 $11,873 $11,306 $14,826 $12,593
12/31/2003 $13,046 $12,495 $12,190 $14,977 $12,603
1/31/2004 $13,159 $12,725 $12,363 $15,098 $12,613
2/29/2004 $13,294 $12,902 $12,651 $15,261 $12,622
3/31/2004 $13,311 $12,707 $12,727 $15,375 $12,632
4/30/2004 $12,905 $12,508 $12,450 $14,975 $12,641
5/31/2004 $13,018 $12,679 $12,503 $14,915 $12,650
6/30/2004 $13,207 $12,926 $12,783 $15,000 $12,656
7/31/2004 $12,925 $12,498 $12,369 $15,148 $12,668
8/31/2004 $13,015 $12,549 $12,427 $15,437 $12,680
9/30/2004 $13,288 $12,684 $12,753 $15,479 $12,694
10/31/2004 $13,491 $12,878 $13,189 $15,609 $12,709
11/30/2004 $13,921 $13,399 $14,094 $15,485 $12,722
12/31/2004 $14,186 $13,855 $14,713 $15,627 $12,746
1/31/2005 $13,925 $13,518 $14,444 $15,725 $12,764
2/28/2005 $14,208 $13,802 $15,071 $15,632 $12,784
3/31/2005 $13,963 $13,558 $14,698 $15,552 $12,814
4/30/2005 $13,735 $13,300 $14,369 $15,762 $12,841
5/31/2005 $13,997 $13,724 $14,391 $15,933 $12,870
6/30/2005 $14,161 $13,743 $14,588 $16,020 $12,899
7/31/2005 $14,469 $14,254 $15,036 $15,874 $12,927
8/31/2005 $14,514 $14,124 $15,421 $16,078 $12,963
9/30/2005 $14,647 $14,239 $16,111 $15,912 $13,000
10/31/2005 $14,350 $14,001 $15,641 $15,786 $13,030
11/30/2005 $14,727 $14,531 $16,028 $15,856 $13,073
12/31/2005 $14,930 $14,536 $16,775 $16,007 $13,114
1/31/2006 $15,496 $14,921 $17,806 $16,007 $13,151
2/28/2006 $15,473 $14,961 $17,769 $16,061 $13,193
3/31/2006 $15,699 $15,147 $18,364 $15,903 $13,245
4/30/2006 $15,872 $15,351 $19,254 $15,874 $13,293
5/31/2006 $15,421 $14,909 $18,530 $15,857 $13,344
6/30/2006 $15,443 $14,929 $18,537 $15,891 $13,395
7/31/2006 $15,373 $15,021 $18,722 $16,106 $13,449
8/31/2006 $15,618 $15,379 $19,242 $16,352 $13,509
9/30/2006 $15,662 $15,775 $19,276 $16,496 $13,568
10/31/2006 $16,059 $16,289 $20,027 $16,605 $13,621
11/30/2006 $16,445 $16,599 $20,631 $16,798 $13,679
12/31/2006 $16,530 $16,832 $21,280 $16,700 $13,738
1/31/2007 $16,710 $17,086 $21,426 $16,693 $13,793
2/28/2007 $16,710 $16,752 $21,602 $16,951 $13,847
3/31/2007 $16,900 $16,939 $22,163 $16,951 $13,910
4/30/2007 $17,308 $17,690 $23,167 $17,043 $13,970
5/31/2007 $17,632 $18,307 $23,604 $16,914 $14,033
6/30/2007 $17,568 $18,003 $23,641 $16,863 $14,086
7/31/2007 $17,346 $17,445 $23,295 $17,004 $14,140
8/31/2007 $17,395 $17,706 $22,937 $17,213 $14,220
9/30/2007 $18,067 $18,368 $24,168 $17,343 $14,272
10/31/2007 $18,573 $18,661 $25,120 $17,499 $14,315
11/30/2007 $18,005 $17,880 $24,301 $17,814 $14,380
12/31/2007 $17,953 $17,756 $23,755 $17,864 $14,413
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 12/31/07
- --------------------------------------------------------------------------------
1-Year +7.61%
- --------------------------------------------------------------------------------
5-Year +10.83%
- --------------------------------------------------------------------------------
10-Year +6.03%
- --------------------------------------------------------------------------------
CLASS R (1/1/02-12/31/07)
FT Moderate MSCI LB U.S. P&R 90-Day U.S.
DATE Target Fund S&P 500 7 EAFE Index 7 Aggregate Index 7 T-Bill Index 7
- -----------------------------------------------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,954 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,889 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,182 $10,027 $10,057 $10,009 $10,042
4/30/2002 $10,154 $ 9,420 $10,130 $10,203 $10,057
5/31/2002 $10,089 $ 9,350 $10,267 $10,290 $10,073
6/30/2002 $ 9,703 $ 8,684 $ 9,862 $10,379 $10,088
7/31/2002 $ 9,162 $ 8,007 $ 8,889 $10,504 $10,102
8/31/2002 $ 9,218 $ 8,060 $ 8,871 $10,682 $10,117
9/30/2002 $ 8,787 $ 7,184 $ 7,921 $10,855 $10,133
10/31/2002 $ 9,040 $ 7,816 $ 8,347 $10,805 $10,149
11/30/2002 $ 9,360 $ 8,276 $ 8,727 $10,802 $10,165
12/31/2002 $ 9,212 $ 7,790 $ 8,434 $11,025 $10,175
1/31/2003 $ 9,146 $ 7,586 $ 8,083 $11,035 $10,186
2/28/2003 $ 9,089 $ 7,472 $ 7,898 $11,188 $10,195
3/31/2003 $ 9,066 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 9,483 $ 8,166 $ 8,517 $11,271 $10,217
5/31/2003 $ 9,948 $ 8,596 $ 9,041 $11,481 $10,227
6/30/2003 $10,021 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $10,088 $ 8,859 $ 9,491 $11,073 $10,247
8/31/2003 $10,383 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $10,420 $ 8,936 $10,023 $11,442 $10,263
10/31/2003 $10,772 $ 9,442 $10,648 $11,335 $10,272
11/30/2003 $10,991 $ 9,525 $10,887 $11,362 $10,280
12/31/2003 $11,256 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,361 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,477 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,500 $10,194 $12,255 $11,783 $10,312
4/30/2004 $11,153 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,259 $10,172 $12,040 $11,431 $10,326
6/30/2004 $11,424 $10,370 $12,308 $11,495 $10,331
7/31/2004 $11,193 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,270 $10,067 $11,966 $11,831 $10,351
9/30/2004 $11,507 $10,176 $12,280 $11,863 $10,363
10/31/2004 $11,690 $10,332 $12,700 $11,962 $10,375
11/30/2004 $12,067 $10,750 $13,571 $11,867 $10,385
12/31/2004 $12,303 $11,115 $14,167 $11,976 $10,405
1/31/2005 $12,079 $10,844 $13,908 $12,051 $10,420
2/28/2005 $12,332 $11,073 $14,512 $11,980 $10,436
3/31/2005 $12,122 $10,877 $14,153 $11,919 $10,460
4/30/2005 $11,927 $10,670 $13,837 $12,080 $10,482
5/31/2005 $12,161 $11,010 $13,858 $12,211 $10,506
6/30/2005 $12,317 $11,025 $14,047 $12,277 $10,530
7/31/2005 $12,581 $11,435 $14,479 $12,165 $10,553
8/31/2005 $12,630 $11,331 $14,849 $12,321 $10,582
9/30/2005 $12,748 $11,423 $15,513 $12,194 $10,612
10/31/2005 $12,504 $11,232 $15,061 $12,098 $10,636
11/30/2005 $12,836 $11,657 $15,433 $12,151 $10,672
12/31/2005 $13,007 $11,661 $16,153 $12,267 $10,705
1/31/2006 $13,513 $11,970 $17,145 $12,268 $10,736
2/28/2006 $13,503 $12,003 $17,110 $12,308 $10,770
3/31/2006 $13,700 $12,152 $17,683 $12,188 $10,812
4/30/2006 $13,849 $12,315 $18,540 $12,165 $10,851
5/31/2006 $13,472 $11,961 $17,843 $12,152 $10,893
6/30/2006 $13,496 $11,977 $17,849 $12,178 $10,934
7/31/2006 $13,436 $12,051 $18,028 $12,343 $10,979
8/31/2006 $13,657 $12,338 $18,528 $12,532 $11,028
9/30/2006 $13,702 $12,655 $18,561 $12,642 $11,076
10/31/2006 $14,053 $13,068 $19,284 $12,726 $11,119
11/30/2006 $14,396 $13,316 $19,866 $12,873 $11,166
12/31/2006 $14,473 $13,503 $20,491 $12,798 $11,215
1/31/2007 $14,639 $13,707 $20,631 $12,793 $11,260
2/28/2007 $14,649 $13,439 $20,800 $12,990 $11,304
3/31/2007 $14,826 $13,590 $21,341 $12,991 $11,355
4/30/2007 $15,178 $14,192 $22,308 $13,061 $11,404
5/31/2007 $15,478 $14,687 $22,729 $12,962 $11,455
6/30/2007 $15,421 $14,443 $22,764 $12,924 $11,499
7/31/2007 $15,240 $13,995 $22,431 $13,031 $11,542
8/31/2007 $15,293 $14,205 $22,086 $13,191 $11,608
9/30/2007 $15,894 $14,736 $23,272 $13,291 $11,650
10/31/2007 $16,343 $14,970 $24,189 $13,411 $11,686
11/30/2007 $15,840 $14,344 $23,399 $13,652 $11,738
12/31/2007 $15,799 $14,245 $22,874 $13,690 $11,766
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS R 12/31/07
- --------------------------------------------------------------------------------
1-Year +9.16%
- --------------------------------------------------------------------------------
5-Year +11.39%
- --------------------------------------------------------------------------------
Since Inception (1/1/02) +7.93%
- --------------------------------------------------------------------------------
Annual Report | 21
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 6 12/31/07
- --------------------------------------------------------------------------------
1-Year +9.66%
- --------------------------------------------------------------------------------
5-Year +11.78%
- --------------------------------------------------------------------------------
10-Year +6.90%
- --------------------------------------------------------------------------------
ADVISOR CLASS (1/1/98-12/31/07) 6
FT Moderate MSCI LB U.S. P&R 90-Day U.S.
DATE Target Fund S&P 500 7 EAFE Index 7 Aggregate Index 7 T-Bill Index 7
- -----------------------------------------------------------------------------------------------------------------------
1/1/1998 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,953 $10,111 $10,460 $10,128 $10,050
2/28/1998 $10,323 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,631 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,688 $11,510 $11,572 $10,209 $10,185
5/31/1998 $10,508 $11,312 $11,518 $10,305 $10,229
6/30/1998 $10,507 $11,771 $11,608 $10,393 $10,271
7/31/1998 $10,259 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 9,231 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 9,437 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 9,638 $11,463 $11,007 $10,775 $10,459
11/30/1998 $ 9,858 $12,157 $11,574 $10,836 $10,493
12/31/1998 $10,015 $12,858 $12,033 $10,869 $10,536
1/31/1999 $10,104 $13,396 $12,001 $10,946 $10,577
2/28/1999 $ 9,906 $12,979 $11,717 $10,755 $10,611
3/31/1999 $10,128 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,436 $14,021 $12,707 $10,849 $10,696
5/31/1999 $10,337 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,538 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,438 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,458 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,439 $13,548 $13,086 $10,793 $10,910
10/31/1999 $10,832 $14,405 $13,579 $10,832 $10,953
11/30/1999 $11,587 $14,698 $14,054 $10,832 $10,997
12/31/1999 $12,744 $15,563 $15,318 $10,779 $11,047
1/31/2000 $12,590 $14,781 $14,348 $10,744 $11,090
2/29/2000 $13,988 $14,502 $14,737 $10,874 $11,140
3/31/2000 $13,709 $15,920 $15,311 $11,017 $11,196
4/30/2000 $13,048 $15,441 $14,508 $10,986 $11,253
5/31/2000 $12,687 $15,124 $14,156 $10,981 $11,314
6/30/2000 $13,475 $15,497 $14,713 $11,209 $11,362
7/31/2000 $13,340 $15,255 $14,099 $11,311 $11,415
8/31/2000 $14,077 $16,203 $14,224 $11,475 $11,474
9/30/2000 $13,766 $15,347 $13,535 $11,547 $11,537
10/31/2000 $13,263 $15,282 $13,218 $11,623 $11,595
11/30/2000 $12,184 $14,078 $12,725 $11,813 $11,659
12/31/2000 $12,605 $14,146 $13,180 $12,033 $11,726
1/31/2001 $13,056 $14,648 $13,174 $12,229 $11,803
2/28/2001 $12,357 $13,313 $12,187 $12,336 $11,850
3/31/2001 $11,879 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,472 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,537 $13,528 $11,758 $12,421 $12,005
6/30/2001 $12,417 $13,199 $11,282 $12,468 $12,040
7/31/2001 $12,266 $13,069 $11,077 $12,746 $12,080
8/31/2001 $11,984 $12,251 $10,799 $12,892 $12,120
9/30/2001 $11,100 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $11,493 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $11,886 $12,357 $10,324 $13,132 $12,231
12/31/2001 $12,077 $12,465 $10,385 $13,049 $12,250
1/31/2002 $12,032 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $11,954 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $12,311 $12,499 $10,444 $13,061 $12,302
4/30/2002 $12,277 $11,741 $10,520 $13,314 $12,320
5/31/2002 $12,198 $11,655 $10,663 $13,427 $12,340
6/30/2002 $11,743 $10,825 $10,242 $13,543 $12,358
7/31/2002 $11,077 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $11,156 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $10,633 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $10,950 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $11,335 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $11,168 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $11,088 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $11,019 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $10,984 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $11,500 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $12,063 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $12,157 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $12,238 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $12,606 $11,259 $10,096 $14,545 $12,562
9/30/2003 $12,646 $11,139 $10,409 $14,930 $12,573
10/31/2003 $13,084 $11,769 $11,059 $14,791 $12,583
11/30/2003 $13,349 $11,873 $11,306 $14,826 $12,593
12/31/2003 $13,668 $12,495 $12,190 $14,977 $12,603
1/31/2004 $13,796 $12,725 $12,363 $15,098 $12,613
2/29/2004 $13,947 $12,902 $12,651 $15,261 $12,622
3/31/2004 $13,981 $12,707 $12,727 $15,375 $12,632
4/30/2004 $13,549 $12,508 $12,450 $14,975 $12,641
5/31/2004 $13,689 $12,679 $12,503 $14,915 $12,650
6/30/2004 $13,887 $12,926 $12,783 $15,000 $12,656
7/31/2004 $13,606 $12,498 $12,369 $15,148 $12,668
8/31/2004 $13,711 $12,549 $12,427 $15,437 $12,680
9/30/2004 $14,007 $12,684 $12,753 $15,479 $12,694
10/31/2004 $14,230 $12,878 $13,189 $15,609 $12,709
11/30/2004 $14,688 $13,399 $14,094 $15,485 $12,722
12/31/2004 $14,986 $13,855 $14,713 $15,627 $12,746
1/31/2005 $14,714 $13,518 $14,444 $15,725 $12,764
2/28/2005 $15,021 $13,802 $15,071 $15,632 $12,784
3/31/2005 $14,772 $13,558 $14,698 $15,552 $12,814
4/30/2005 $14,535 $13,300 $14,369 $15,762 $12,841
5/31/2005 $14,819 $13,724 $14,391 $15,933 $12,870
6/30/2005 $15,006 $13,743 $14,588 $16,020 $12,899
7/31/2005 $15,338 $14,254 $15,036 $15,874 $12,927
8/31/2005 $15,398 $14,124 $15,421 $16,078 $12,963
9/30/2005 $15,552 $14,239 $16,111 $15,912 $13,000
10/31/2005 $15,254 $14,001 $15,641 $15,786 $13,030
11/30/2005 $15,660 $14,531 $16,028 $15,856 $13,073
12/31/2005 $15,886 $14,536 $16,775 $16,007 $13,114
1/31/2006 $16,514 $14,921 $17,806 $16,007 $13,151
2/28/2006 $16,502 $14,961 $17,769 $16,061 $13,193
3/31/2006 $16,754 $15,147 $18,364 $15,903 $13,245
4/30/2006 $16,948 $15,351 $19,254 $15,874 $13,293
5/31/2006 $16,487 $14,909 $18,530 $15,857 $13,344
6/30/2006 $16,527 $14,929 $18,537 $15,891 $13,395
7/31/2006 $16,466 $15,021 $18,722 $16,106 $13,449
8/31/2006 $16,735 $15,379 $19,242 $16,352 $13,509
9/30/2006 $16,798 $15,775 $19,276 $16,496 $13,568
10/31/2006 $17,242 $16,289 $20,027 $16,605 $13,621
11/30/2006 $17,673 $16,599 $20,631 $16,798 $13,679
12/31/2006 $17,771 $16,832 $21,280 $16,700 $13,738
1/31/2007 $17,986 $17,086 $21,426 $16,693 $13,793
2/28/2007 $17,999 $16,752 $21,602 $16,951 $13,847
3/31/2007 $18,216 $16,939 $22,163 $16,951 $13,910
4/30/2007 $18,661 $17,690 $23,167 $17,043 $13,970
5/31/2007 $19,043 $18,307 $23,604 $16,914 $14,033
6/30/2007 $18,984 $18,003 $23,641 $16,863 $14,086
7/31/2007 $18,761 $17,445 $23,295 $17,004 $14,140
8/31/2007 $18,827 $17,706 $22,937 $17,213 $14,220
9/30/2007 $19,574 $18,368 $24,168 $17,343 $14,272
10/31/2007 $20,139 $18,661 $25,120 $17,499 $14,315
11/30/2007 $19,534 $17,880 $24,301 $17,814 $14,380
12/31/2007 $19,488 $17,756 $23,755 $17,864 $14,413
ENDNOTES
BECAUSE THE FUND INVESTS IN VARIOUS UNDERLYING FUNDS THAT 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. If the manager had not waived fees, 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.
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 +23.51% and +10.67%.
7. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 16 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate Index
and the P&R 90 Day U.S. T-Bill Index.
22 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON MODERATE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 23
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,025.80 $2.55
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.68 $2.55
- ---------------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,022.20 $6.37
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36
- ---------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,021.90 $6.37
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.36
- ---------------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,024.50 $3.83
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.82
- ---------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,026.60 $1.28
- ---------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,023.95 $1.28
- ---------------------------------------------------------------------------------------------------------------
*Expenses are calculated using the most recent six-month expense ratio excluding
expenses of the underlying funds, net of expense waivers, annualized for each
class (A: 0.50%; B: 1.25%; C: 1.25%; R: 0.75%; and Advisor: 0.25%), multiplied
by the average account value over the period, multiplied by 184/365 to reflect
the one-half year period.
24 | Annual Report
Franklin Templeton
Growth Target Fund
YOUR FUND'S GOALS 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
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton Growth Target Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity .................................... 55.2%
Foreign Equity ..................................... 24.4%
Domestic Fixed Income .............................. 10.7%
Foreign Fixed Income ............................... 5.0%
Short-Term Investments & Other Net Assets .......... 4.7%
*The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Growth Target Fund's annual
report for the fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A posted a +10.58% cumulative
total return for the 12 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 P&R 90 Day U.S. T-Bill Index for
short-term investments and other net assets. For the reporting
1. The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 52.
Annual Report | 25
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund 12/31/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Mutual Shares Fund - Class Z 17.3%
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 14.9%
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 13.1%
- --------------------------------------------------------------------------------
Mutual European Fund - Class Z 8.6%
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities
Fund - Advisor Class 5.0%
- --------------------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 5.0%
- --------------------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 4.8%
- --------------------------------------------------------------------------------
Franklin Growth Opportunities Fund
- - Advisor Class 4.4%
- --------------------------------------------------------------------------------
Templeton China World Fund
- - Advisor Class 4.4%
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund
- - Advisor Class 3.9%
- --------------------------------------------------------------------------------
period, the hybrid benchmark returned +7.25%. 2 You can find the Fund's
long-term performance data in the Performance Summary beginning on page 28.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series is intended to increase
the consistency of the Target Funds' results relative to one another. For your
reference, Franklin Templeton Growth Target Fund seeks to maintain the following
asset class allocations: 80% equity funds, 15% fixed income funds, and 5%
short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Growth Target Fund's domestic equity exposure
was 69.3% of its total equity weighting, with the balance represented by foreign
equity. The portfolio was diversified across capitalization sizes and investment
styles, and on December 31, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, representing 17.3% of the Fund's total net assets,
was our largest equity fund weighting at period-end. On the fixed income side,
domestic exposure was 68.2% of the Fund's total income weighting, with the
2. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance in
global developed markets excluding the U.S. and Canada. The LB U.S. Aggregate
Index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond markets,
with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The P&R 90 Day U.S.
T-Bill Index is a total return index based on a constant maturity instrument.
Payden & Rygel includes both accrued interest and change in market price in its
monthly total return calculations. The value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The benchmark index's
weightings are as follows: S&P 500 56%, MSCI EAFE 24%, LB U.S. Aggregate 15% and
P&R 90 Day U.S. T-Bill 5%. The indexes are unmanaged and include reinvested
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
26 | Annual Report
balance represented by foreign fixed income. Templeton Global Bond Fund -
Advisor Class and Franklin U.S. Government Securities Fund - Advisor Class were
our largest fixed income fund weightings at 5.0% of total net assets each.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, outperformed the S&P 500 during the 12-month reporting period,
while our largest domestic value fund holding, Mutual Shares Fund - Class Z,
underperformed 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 and Franklin U.S. Government
Securities Fund - Advisor Class outperformed the LB U.S. Aggregate Index.
Thank you for your continued participation in Franklin Templeton Growth Target
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Growth Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 27
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FGTIX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.54 $16.17 $15.63
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.3228
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.7739
- --------------------------------------------------------------------------------
TOTAL $1.0967
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.46 $15.91 $15.45
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.2494
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.7739
- --------------------------------------------------------------------------------
TOTAL $1.0233
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTGTX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.46 $15.90 $15.44
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.2530
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.7739
- --------------------------------------------------------------------------------
TOTAL $1.0269
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FGTRX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.50 $16.02 $15.52
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.3004
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.7739
- --------------------------------------------------------------------------------
TOTAL $1.0743
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.55 $16.19 $15.64
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.3467
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.7739
- --------------------------------------------------------------------------------
TOTAL $1.1206
- --------------------------------------------------------------------------------
28 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.58% +97.82% +100.26%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +4.25% +13.28% +6.56%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,425 $18,650 $18,878
- -------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------
Without Waiver 1.58%
- -------------------------------------------------------------------------------------------------------
With Waiver 1.32%
- -------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (12/1/03)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.76% +33.57% +50.11%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.76% +9.30% +10.10%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,576 $13,057 $14,811
- -------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------
Without Waiver 2.33%
- -------------------------------------------------------------------------------------------------------
With Waiver 2.07%
- -------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.72% +90.25% +85.89%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.72% +13.73% +6.40%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,872 $19,025 $18,589
- -------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------
Without Waiver 2.33%
- -------------------------------------------------------------------------------------------------------
With Waiver 2.07%
- -------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.31% +95.40% +66.09%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +10.31% +14.34% +8.83%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,031 $19,540 $16,609
- -------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------
Without Waiver 1.83%
- -------------------------------------------------------------------------------------------------------
With Waiver 1.57%
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS 6 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.80% +98.84% +101.30%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +10.80% +14.74% +7.25%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,080 $19,884 $20,130
- -------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------------------
Without Waiver 1.33%
- -------------------------------------------------------------------------------------------------------
With Waiver 1.07%
- -------------------------------------------------------------------------------------------------------
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.
Annual Report | 29
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS A 12/31/07
- ------------------------------------
1-Year +4.25%
- ------------------------------------
5-Year +13.28%
- ------------------------------------
10-Year +6.56%
- ------------------------------------
CLASS A (1/1/98-12/31/07)
DATE FT Growth Target Fund S&P 500 7 MSCI EAFE Index 7 LB U.S. Aggregate Index 7 P&R 90 Day U.S. T-Bill Index 7
- --------------------------------------------------------------------------------------------------------------------------------
1/1/1998 $ 9,427 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,392 $10,111 $10,460 $10,128 $10,050
2/28/1998 $ 9,826 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,165 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,226 $11,510 $11,572 $10,209 $10,185
5/31/1998 $ 9,991 $11,312 $11,518 $10,305 $10,229
6/30/1998 $ 9,965 $11,771 $11,608 $10,393 $10,271
7/31/1998 $ 9,696 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 8,506 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 8,712 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 8,966 $11,463 $11,007 $10,775 $10,459
11/30/1998 $ 9,219 $12,157 $11,574 $10,836 $10,493
12/31/1998 $ 9,416 $12,858 $12,033 $10,869 $10,536
1/31/1999 $ 9,562 $13,396 $12,001 $10,946 $10,577
2/28/1999 $ 9,361 $12,979 $11,717 $10,755 $10,611
3/31/1999 $ 9,636 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,020 $14,021 $12,707 $10,849 $10,696
5/31/1999 $ 9,901 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,194 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,075 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,130 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,124 $13,548 $13,086 $10,793 $10,910
10/31/1999 $10,659 $14,405 $13,579 $10,832 $10,953
11/30/1999 $11,618 $14,698 $14,054 $10,832 $10,997
12/31/1999 $13,292 $15,563 $15,318 $10,779 $11,047
1/31/2000 $13,072 $14,781 $14,348 $10,744 $11,090
2/29/2000 $15,125 $14,502 $14,737 $10,874 $11,140
3/31/2000 $14,691 $15,920 $15,311 $11,017 $11,196
4/30/2000 $13,702 $15,441 $14,508 $10,986 $11,253
5/31/2000 $13,154 $15,124 $14,156 $10,981 $11,314
6/30/2000 $14,237 $15,497 $14,713 $11,209 $11,362
7/31/2000 $13,958 $15,255 $14,099 $11,311 $11,415
8/31/2000 $15,056 $16,203 $14,224 $11,475 $11,474
9/30/2000 $14,572 $15,347 $13,535 $11,547 $11,537
10/31/2000 $13,808 $15,282 $13,218 $11,623 $11,595
11/30/2000 $12,142 $14,078 $12,725 $11,813 $11,659
12/31/2000 $12,610 $14,146 $13,180 $12,033 $11,726
1/31/2001 $13,186 $14,648 $13,174 $12,229 $11,803
2/28/2001 $11,994 $13,313 $12,187 $12,336 $11,850
3/31/2001 $11,280 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,064 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,104 $13,528 $11,758 $12,421 $12,005
6/30/2001 $11,883 $13,199 $11,282 $12,468 $12,040
7/31/2001 $11,594 $13,069 $11,077 $12,746 $12,080
8/31/2001 $11,126 $12,251 $10,799 $12,892 $12,120
9/30/2001 $9,920 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $10,400 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $10,919 $12,357 $10,324 $13,132 $12,231
12/31/2001 $11,181 $12,465 $10,385 $13,049 $12,250
1/31/2002 $11,079 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $10,926 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $11,437 $12,499 $10,444 $13,061 $12,302
4/30/2002 $11,273 $11,741 $10,520 $13,314 $12,320
5/31/2002 $11,151 $11,655 $10,663 $13,427 $12,340
6/30/2002 $10,557 $10,825 $10,242 $13,543 $12,358
7/31/2002 $ 9,688 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $ 9,718 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $ 9,023 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $ 9,401 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $ 9,862 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $ 9,543 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $ 9,409 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $ 9,285 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $ 9,254 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $ 9,843 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $10,474 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $10,587 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $10,815 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $11,260 $11,259 $10,096 $14,545 $12,562
9/30/2003 $11,198 $11,139 $10,409 $14,930 $12,573
10/31/2003 $11,787 $11,769 $11,059 $14,791 $12,583
11/30/2003 $12,107 $11,873 $11,306 $14,826 $12,593
12/31/2003 $12,417 $12,495 $12,190 $14,977 $12,603
1/31/2004 $12,573 $12,725 $12,363 $15,098 $12,613
2/29/2004 $12,730 $12,902 $12,651 $15,261 $12,622
3/31/2004 $12,751 $12,707 $12,727 $15,375 $12,632
4/30/2004 $12,302 $12,508 $12,450 $14,975 $12,641
5/31/2004 $12,469 $12,679 $12,503 $14,915 $12,650
6/30/2004 $12,730 $12,926 $12,783 $15,000 $12,656
7/31/2004 $12,334 $12,498 $12,369 $15,148 $12,668
8/31/2004 $12,375 $12,549 $12,427 $15,437 $12,680
9/30/2004 $12,709 $12,684 $12,753 $15,479 $12,694
10/31/2004 $12,938 $12,878 $13,189 $15,609 $12,709
11/30/2004 $13,491 $13,399 $14,094 $15,485 $12,722
12/31/2004 $13,818 $13,855 $14,713 $15,627 $12,746
1/31/2005 $13,472 $13,518 $14,444 $15,725 $12,764
2/28/2005 $13,860 $13,802 $15,071 $15,632 $12,784
3/31/2005 $13,567 $13,558 $14,698 $15,552 $12,814
4/30/2005 $13,241 $13,300 $14,369 $15,762 $12,841
5/31/2005 $13,609 $13,724 $14,391 $15,933 $12,870
6/30/2005 $13,851 $13,743 $14,588 $16,020 $12,899
7/31/2005 $14,302 $14,254 $15,036 $15,874 $12,927
8/31/2005 $14,334 $14,124 $15,421 $16,078 $12,963
9/30/2005 $14,593 $14,239 $16,111 $15,912 $13,000
10/31/2005 $14,215 $14,001 $15,641 $15,786 $13,030
11/30/2005 $14,741 $14,531 $16,028 $15,856 $13,073
12/31/2005 $14,988 $14,536 $16,775 $16,007 $13,114
1/31/2006 $15,753 $14,921 $17,806 $16,007 $13,151
2/28/2006 $15,721 $14,961 $17,769 $16,061 $13,193
3/31/2006 $16,103 $15,147 $18,364 $15,903 $13,245
4/30/2006 $16,295 $15,351 $19,254 $15,874 $13,293
5/31/2006 $15,656 $14,909 $18,530 $15,857 $13,344
6/30/2006 $15,720 $14,929 $18,537 $15,891 $13,395
7/31/2006 $15,549 $15,021 $18,722 $16,106 $13,449
8/31/2006 $15,858 $15,379 $19,242 $16,352 $13,509
9/30/2006 $15,910 $15,775 $19,276 $16,496 $13,568
10/31/2006 $16,444 $16,289 $20,027 $16,605 $13,621
11/30/2006 $16,936 $16,599 $20,631 $16,798 $13,679
12/31/2006 $17,071 $16,832 $21,280 $16,700 $13,738
1/31/2007 $17,366 $17,086 $21,426 $16,693 $13,793
2/28/2007 $17,312 $16,752 $21,602 $16,951 $13,847
3/31/2007 $17,567 $16,939 $22,163 $16,951 $13,910
4/30/2007 $18,092 $17,690 $23,167 $17,043 $13,970
5/31/2007 $18,594 $18,307 $23,604 $16,914 $14,033
6/30/2007 $18,525 $18,003 $23,641 $16,863 $14,086
7/31/2007 $18,164 $17,445 $23,295 $17,004 $14,140
8/31/2007 $18,266 $17,706 $22,937 $17,213 $14,220
9/30/2007 $19,151 $18,368 $24,168 $17,343 $14,272
10/31/2007 $19,841 $18,661 $25,120 $17,499 $14,315
11/30/2007 $18,959 $17,880 $24,301 $17,814 $14,380
12/31/2007 $18,878 $17,756 $23,755 $17,864 $14,413
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS B 12/31/07
- ------------------------------------
1-Year +5.76%
- ------------------------------------
3-Year +9.30%
- ------------------------------------
Since Inception (12/1/03) +10.10%
- ------------------------------------
CLASS B (12/1/03-12/31/07)
DATE FT Growth Target Fund S&P 500 7 MSCI EAFE Index 7 LB U.S. Aggregate Index 7 P&R 90 Day U.S. T-Bill Index 7
- --------------------------------------------------------------------------------------------------------------------------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,175 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,295 $10,718 $10,935 $10,183 $10,016
2/29/2004 $10,415 $10,867 $11,189 $10,293 $10,023
3/31/2004 $10,424 $10,703 $11,257 $10,370 $10,031
4/30/2004 $10,047 $10,535 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,389 $10,887 $11,306 $10,117 $10,050
7/31/2004 $10,056 $10,527 $10,941 $10,217 $10,059
8/31/2004 $10,090 $10,569 $10,991 $10,412 $10,069
9/30/2004 $10,355 $10,684 $11,280 $10,440 $10,080
10/31/2004 $10,535 $10,847 $11,666 $10,528 $10,092
11/30/2004 $10,971 $11,286 $12,466 $10,444 $10,102
12/31/2004 $11,238 $11,670 $13,013 $10,540 $10,122
1/31/2005 $10,946 $11,385 $12,775 $10,606 $10,136
2/28/2005 $11,255 $11,625 $13,330 $10,544 $10,151
3/31/2005 $11,012 $11,419 $13,001 $10,489 $10,175
4/30/2005 $10,737 $11,202 $12,710 $10,631 $10,196
5/31/2005 $11,029 $11,559 $12,729 $10,746 $10,220
6/30/2005 $11,218 $11,575 $12,903 $10,805 $10,243
7/31/2005 $11,578 $12,006 $13,299 $10,707 $10,265
8/31/2005 $11,596 $11,896 $13,639 $10,844 $10,293
9/30/2005 $11,793 $11,993 $14,250 $10,732 $10,323
10/31/2005 $11,484 $11,793 $13,834 $10,647 $10,347
11/30/2005 $11,913 $12,239 $14,177 $10,694 $10,381
12/31/2005 $12,096 $12,243 $14,837 $10,796 $10,414
1/31/2006 $12,711 $12,567 $15,749 $10,797 $10,443
2/28/2006 $12,676 $12,601 $15,717 $10,833 $10,477
3/31/2006 $12,973 $12,758 $16,243 $10,726 $10,518
4/30/2006 $13,129 $12,929 $17,030 $10,707 $10,555
5/31/2006 $12,608 $12,557 $16,389 $10,695 $10,597
6/30/2006 $12,643 $12,574 $16,395 $10,718 $10,637
7/31/2006 $12,495 $12,652 $16,560 $10,863 $10,680
8/31/2006 $12,738 $12,953 $17,019 $11,029 $10,727
9/30/2006 $12,765 $13,287 $17,049 $11,126 $10,774
10/31/2006 $13,191 $13,720 $17,714 $11,200 $10,816
11/30/2006 $13,574 $13,981 $18,248 $11,330 $10,862
12/31/2006 $13,676 $14,177 $18,822 $11,264 $10,909
1/31/2007 $13,906 $14,391 $18,951 $11,259 $10,953
2/28/2007 $13,853 $14,110 $19,106 $11,433 $10,996
3/31/2007 $14,052 $14,267 $19,603 $11,433 $11,046
4/30/2007 $14,459 $14,899 $20,491 $11,495 $11,094
5/31/2007 $14,849 $15,419 $20,878 $11,408 $11,143
6/30/2007 $14,793 $15,163 $20,910 $11,374 $11,185
7/31/2007 $14,491 $14,693 $20,604 $11,469 $11,228
8/31/2007 $14,564 $14,913 $20,287 $11,609 $11,292
9/30/2007 $15,262 $15,471 $21,376 $11,698 $11,333
10/31/2007 $15,802 $15,717 $22,219 $11,803 $11,367
11/30/2007 $15,088 $15,060 $21,494 $12,015 $11,419
12/31/2007 $14,811 $14,955 $21,011 $12,049 $11,445
30 | Annual Report
Performance Summary (CONTINUED)
CLASS C (1/1/98-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
DATE Target Fund S&P 500 7 Index 7 Aggregate Index 7 T-Bill Index 7
- --------------------------------------------------------------------------------------------------
1/1/1998 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,963 $10,111 $10,460 $10,128 $10,050
2/28/1998 $10,416 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,767 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,823 $11,510 $11,572 $10,209 $10,185
5/31/1998 $10,564 $11,312 $11,518 $10,305 $10,229
6/30/1998 $10,536 $11,771 $11,608 $10,393 $10,271
7/31/1998 $10,240 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 8,974 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 9,200 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 9,458 $11,463 $11,007 $10,775 $10,459
11/30/1998 $ 9,717 $12,157 $11,574 $10,836 $10,493
12/31/1998 $ 9,922 $12,858 $12,033 $10,869 $10,536
1/31/1999 $10,067 $13,396 $12,001 $10,946 $10,577
2/28/1999 $ 9,854 $12,979 $11,717 $10,755 $10,611
3/31/1999 $10,125 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,531 $14,021 $12,707 $10,849 $10,696
5/31/1999 $10,396 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,695 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,560 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,618 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,605 $13,548 $13,086 $10,793 $10,910
10/31/1999 $11,157 $14,405 $13,579 $10,832 $10,953
11/30/1999 $12,156 $14,698 $14,054 $10,832 $10,997
12/31/1999 $13,897 $15,563 $15,318 $10,779 $11,047
1/31/2000 $13,665 $14,781 $14,348 $10,744 $11,090
2/29/2000 $15,800 $14,502 $14,737 $10,874 $11,140
3/31/2000 $15,329 $15,920 $15,311 $11,017 $11,196
4/30/2000 $14,291 $15,441 $14,508 $10,986 $11,253
5/31/2000 $13,707 $15,124 $14,156 $10,981 $11,314
6/30/2000 $14,837 $15,497 $14,713 $11,209 $11,362
7/31/2000 $14,534 $15,255 $14,099 $11,311 $11,415
8/31/2000 $15,673 $16,203 $14,224 $11,475 $11,474
9/30/2000 $15,162 $15,347 $13,535 $11,547 $11,537
10/31/2000 $14,352 $15,282 $13,218 $11,623 $11,595
11/30/2000 $12,613 $14,078 $12,725 $11,813 $11,659
12/31/2000 $13,087 $14,146 $13,180 $12,033 $11,726
1/31/2001 $13,687 $14,648 $13,174 $12,229 $11,803
2/28/2001 $12,435 $13,313 $12,187 $12,336 $11,850
3/31/2001 $11,680 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,497 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,528 $13,528 $11,758 $12,421 $12,005
6/30/2001 $12,291 $13,199 $11,282 $12,468 $12,040
7/31/2001 $11,981 $13,069 $11,077 $12,746 $12,080
8/31/2001 $11,494 $12,251 $10,799 $12,892 $12,120
9/30/2001 $10,251 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $10,727 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $11,255 $12,357 $10,324 $13,132 $12,231
12/31/2001 $11,520 $12,465 $10,385 $13,049 $12,250
1/31/2002 $11,404 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $11,245 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $11,763 $12,499 $10,444 $13,061 $12,302
4/30/2002 $11,594 $11,741 $10,520 $13,314 $12,320
5/31/2002 $11,456 $11,655 $10,663 $13,427 $12,340
6/30/2002 $10,843 $10,825 $10,242 $13,543 $12,358
7/31/2002 $ 9,944 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $ 9,965 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $ 9,246 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $ 9,626 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $10,092 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $ 9,771 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $ 9,622 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $ 9,495 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $ 9,442 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $10,036 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $10,673 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $10,789 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $11,012 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $11,458 $11,259 $10,096 $14,545 $12,562
9/30/2003 $11,394 $11,139 $10,409 $14,930 $12,573
10/31/2003 $11,977 $11,769 $11,059 $14,791 $12,583
11/30/2003 $12,296 $11,873 $11,306 $14,826 $12,593
12/31/2003 $12,602 $12,495 $12,190 $14,977 $12,603
1/31/2004 $12,751 $12,725 $12,363 $15,098 $12,613
2/29/2004 $12,910 $12,902 $12,651 $15,261 $12,622
3/31/2004 $12,910 $12,707 $12,727 $15,375 $12,632
4/30/2004 $12,453 $12,508 $12,450 $14,975 $12,641
5/31/2004 $12,623 $12,679 $12,503 $14,915 $12,650
6/30/2004 $12,868 $12,926 $12,783 $15,000 $12,656
7/31/2004 $12,464 $12,498 $12,369 $15,148 $12,668
8/31/2004 $12,506 $12,549 $12,427 $15,437 $12,680
9/30/2004 $12,825 $12,684 $12,753 $15,479 $12,694
10/31/2004 $13,049 $12,878 $13,189 $15,609 $12,709
11/30/2004 $13,591 $13,399 $14,094 $15,485 $12,722
12/31/2004 $13,921 $13,855 $14,713 $15,627 $12,746
1/31/2005 $13,559 $13,518 $14,444 $15,725 $12,764
2/28/2005 $13,942 $13,802 $15,071 $15,632 $12,784
3/31/2005 $13,640 $13,558 $14,698 $15,552 $12,814
4/30/2005 $13,299 $13,300 $14,369 $15,762 $12,841
5/31/2005 $13,661 $13,724 $14,391 $15,933 $12,870
6/30/2005 $13,895 $13,743 $14,588 $16,020 $12,899
7/31/2005 $14,342 $14,254 $15,036 $15,874 $12,927
8/31/2005 $14,374 $14,124 $15,421 $16,078 $12,963
9/30/2005 $14,608 $14,239 $16,111 $15,912 $13,000
10/31/2005 $14,225 $14,001 $15,641 $15,786 $13,030
11/30/2005 $14,746 $14,531 $16,028 $15,856 $13,073
12/31/2005 $14,982 $14,536 $16,775 $16,007 $13,114
1/31/2006 $15,733 $14,921 $17,806 $16,007 $13,151
2/28/2006 $15,701 $14,961 $17,769 $16,061 $13,193
3/31/2006 $16,068 $15,147 $18,364 $15,903 $13,245
4/30/2006 $16,251 $15,351 $19,254 $15,874 $13,293
5/31/2006 $15,606 $14,909 $18,530 $15,857 $13,344
6/30/2006 $15,660 $14,929 $18,537 $15,891 $13,395
7/31/2006 $15,477 $15,021 $18,722 $16,106 $13,449
8/31/2006 $15,778 $15,379 $19,242 $16,352 $13,509
9/30/2006 $15,812 $15,775 $19,276 $16,496 $13,568
10/31/2006 $16,339 $16,289 $20,027 $16,605 $13,621
11/30/2006 $16,813 $16,599 $20,631 $16,798 $13,679
12/31/2006 $16,942 $16,832 $21,280 $16,700 $13,738
1/31/2007 $17,227 $17,086 $21,426 $16,693 $13,793
2/28/2007 $17,162 $16,752 $21,602 $16,951 $13,847
3/31/2007 $17,396 $16,939 $22,163 $16,951 $13,910
4/30/2007 $17,912 $17,690 $23,167 $17,043 $13,970
5/31/2007 $18,395 $18,307 $23,604 $16,914 $14,033
6/30/2007 $18,314 $18,003 $23,641 $16,863 $14,086
7/31/2007 $17,952 $17,445 $23,295 $17,004 $14,140
8/31/2007 $18,042 $17,706 $22,937 $17,213 $14,220
9/30/2007 $18,896 $18,368 $24,168 $17,343 $14,272
10/31/2007 $19,566 $18,661 $25,120 $17,499 $14,315
11/30/2007 $18,681 $17,880 $24,301 $17,814 $14,380
12/31/2007 $18,589 $17,756 $23,755 $17,864 $14,413
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------------------
CLASS C 12/31/07
- ------------------------------------------------------------
1-Year +8.72%
- ------------------------------------------------------------
5-Year +13.73%
- ------------------------------------------------------------
10-Year +6.40%
- ------------------------------------------------------------
CLASS R (1/1/02-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
DATE Target Fund S&P 500 7 Index 7 Aggregate Index 7 T-Bill Index 7
- --------------------------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,908 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,771 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,219 $10,027 $10,057 $10,009 $10,042
4/30/2002 $10,082 $ 9,420 $10,130 $10,203 $10,057
5/31/2002 $ 9,963 $ 9,350 $10,267 $10,290 $10,073
6/30/2002 $ 9,442 $ 8,684 $ 9,862 $10,379 $10,088
7/31/2002 $ 8,664 $ 8,007 $ 8,889 $10,504 $10,102
8/31/2002 $ 8,682 $ 8,060 $ 8,871 $10,682 $10,117
9/30/2002 $ 8,051 $ 7,184 $ 7,921 $10,855 $10,133
10/31/2002 $ 8,390 $ 7,816 $ 8,347 $10,805 $10,149
11/30/2002 $ 8,792 $ 8,276 $ 8,727 $10,802 $10,165
12/31/2002 $ 8,516 $ 7,790 $ 8,434 $11,025 $10,175
1/31/2003 $ 8,395 $ 7,586 $ 8,083 $11,035 $10,186
2/28/2003 $ 8,284 $ 7,472 $ 7,898 $11,188 $10,195
3/31/2003 $ 8,247 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 8,775 $ 8,166 $ 8,517 $11,271 $10,217
5/31/2003 $ 9,330 $ 8,596 $ 9,041 $11,481 $10,227
6/30/2003 $ 9,432 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $ 9,626 $ 8,859 $ 9,491 $11,073 $10,247
8/31/2003 $10,034 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $ 9,969 $ 8,936 $10,023 $11,442 $10,263
10/31/2003 $10,487 $ 9,442 $10,648 $11,335 $10,272
11/30/2003 $10,774 $ 9,525 $10,887 $11,362 $10,280
12/31/2003 $11,057 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,187 $10,208 $11,904 $11,570 $10,297
2/29/2004 $11,327 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,336 $10,194 $12,255 $11,783 $10,312
4/30/2004 $10,935 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,094 $10,172 $12,040 $11,431 $10,326
6/30/2004 $11,318 $10,370 $12,308 $11,495 $10,331
7/31/2004 $10,963 $10,026 $11,911 $11,609 $10,341
8/31/2004 $11,001 $10,067 $11,966 $11,831 $10,351
9/30/2004 $11,299 $10,176 $12,280 $11,863 $10,363
10/31/2004 $11,495 $10,332 $12,700 $11,962 $10,375
11/30/2004 $11,979 $10,750 $13,571 $11,867 $10,385
12/31/2004 $12,278 $11,115 $14,167 $11,976 $10,405
1/31/2005 $11,960 $10,844 $13,908 $12,051 $10,420
2/28/2005 $12,297 $11,073 $14,512 $11,980 $10,436
3/31/2005 $12,040 $10,877 $14,153 $11,919 $10,460
4/30/2005 $11,740 $10,670 $13,837 $12,080 $10,482
5/31/2005 $12,068 $11,010 $13,858 $12,211 $10,506
6/30/2005 $12,284 $11,025 $14,047 $12,277 $10,530
7/31/2005 $12,678 $11,435 $14,479 $12,165 $10,553
8/31/2005 $12,706 $11,331 $14,849 $12,321 $10,582
9/30/2005 $12,931 $11,423 $15,513 $12,194 $10,612
10/31/2005 $12,594 $11,232 $15,061 $12,098 $10,636
11/30/2005 $13,062 $11,657 $15,433 $12,151 $10,672
12/31/2005 $13,273 $11,661 $16,153 $12,267 $10,705
1/31/2006 $13,945 $11,970 $17,145 $12,268 $10,736
2/28/2006 $13,916 $12,003 $17,110 $12,308 $10,770
3/31/2006 $14,252 $12,152 $17,683 $12,188 $10,812
4/30/2006 $14,422 $12,315 $18,540 $12,165 $10,851
5/31/2006 $13,862 $11,961 $17,843 $12,152 $10,893
6/30/2006 $13,910 $11,977 $17,849 $12,178 $10,934
7/31/2006 $13,748 $12,051 $18,028 $12,343 $10,979
8/31/2006 $14,024 $12,338 $18,528 $12,532 $11,028
9/30/2006 $14,061 $12,655 $18,561 $12,642 $11,076
10/31/2006 $14,537 $13,068 $19,284 $12,726 $11,119
11/30/2006 $14,966 $13,316 $19,866 $12,873 $11,166
12/31/2006 $15,084 $13,503 $20,491 $12,798 $11,215
1/31/2007 $15,337 $13,707 $20,631 $12,793 $11,260
2/28/2007 $15,288 $13,439 $20,800 $12,990 $11,304
3/31/2007 $15,515 $13,590 $21,341 $12,991 $11,355
4/30/2007 $15,972 $14,192 $22,308 $13,061 $11,404
5/31/2007 $16,410 $14,687 $22,729 $12,962 $11,455
6/30/2007 $16,348 $14,443 $22,764 $12,924 $11,499
7/31/2007 $16,027 $13,995 $22,431 $13,031 $11,542
8/31/2007 $16,117 $14,205 $22,086 $13,191 $11,608
9/30/2007 $16,885 $14,736 $23,272 $13,291 $11,650
10/31/2007 $17,498 $14,970 $24,189 $13,411 $11,686
11/30/2007 $16,714 $14,344 $23,399 $13,652 $11,738
12/31/2007 $16,609 $14,245 $22,874 $13,690 $11,766
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------------------
CLASS R 12/31/07
- ------------------------------------------------------------
1-Year +10.31%
- ------------------------------------------------------------
5-Year +14.34%
- ------------------------------------------------------------
Since Inception (1/1/02) +8.83%
- ------------------------------------------------------------
Annual Report | 31
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------------------
ADVISOR CLASS 6 12/31/07
- ------------------------------------------------------------
1-Year +10.80%
- ------------------------------------------------------------
5-Year +14.74%
- ------------------------------------------------------------
10-Year +7.25%
- ------------------------------------------------------------
ADVISOR CLASS (1/1/98-12/31/07) 6
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Growth MSCI EAFE LB U.S. P&R 90 Day U.S.
DATE Target Fund S&P 500 7 Index 7 Aggregate Index 7 T-Bill Index 7
- --------------------------------------------------------------------------------------------------
1/1/1998 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1998 $ 9,963 $10,111 $10,460 $10,128 $10,050
2/28/1998 $10,424 $10,840 $11,133 $10,121 $10,089
3/31/1998 $10,783 $11,395 $11,479 $10,156 $10,139
4/30/1998 $10,848 $11,510 $11,572 $10,209 $10,185
5/31/1998 $10,599 $11,312 $11,518 $10,305 $10,229
6/30/1998 $10,571 $11,771 $11,608 $10,393 $10,271
7/31/1998 $10,286 $11,646 $11,729 $10,415 $10,316
8/31/1998 $ 9,023 $ 9,962 $10,278 $10,584 $10,365
9/30/1998 $ 9,242 $10,600 $ 9,966 $10,832 $10,419
10/31/1998 $ 9,511 $11,463 $11,007 $10,775 $10,459
11/30/1998 $ 9,780 $12,157 $11,574 $10,836 $10,493
12/31/1998 $ 9,989 $12,858 $12,033 $10,869 $10,536
1/31/1999 $10,144 $13,396 $12,001 $10,946 $10,577
2/28/1999 $ 9,931 $12,979 $11,717 $10,755 $10,611
3/31/1999 $10,222 $13,498 $12,209 $10,815 $10,656
4/30/1999 $10,629 $14,021 $12,707 $10,849 $10,696
5/31/1999 $10,503 $13,690 $12,055 $10,754 $10,736
6/30/1999 $10,814 $14,450 $12,528 $10,720 $10,776
7/31/1999 $10,688 $13,999 $12,903 $10,674 $10,821
8/31/1999 $10,746 $13,929 $12,953 $10,669 $10,862
9/30/1999 $10,740 $13,548 $13,086 $10,793 $10,910
10/31/1999 $11,308 $14,405 $13,579 $10,832 $10,953
11/30/1999 $12,325 $14,698 $14,054 $10,832 $10,997
12/31/1999 $14,101 $15,563 $15,318 $10,779 $11,047
1/31/2000 $13,867 $14,781 $14,348 $10,744 $11,090
2/29/2000 $16,046 $14,502 $14,737 $10,874 $11,140
3/31/2000 $15,585 $15,920 $15,311 $11,017 $11,196
4/30/2000 $14,535 $15,441 $14,508 $10,986 $11,253
5/31/2000 $13,954 $15,124 $14,156 $10,981 $11,314
6/30/2000 $15,103 $15,497 $14,713 $11,209 $11,362
7/31/2000 $14,807 $15,255 $14,099 $11,311 $11,415
8/31/2000 $15,971 $16,203 $14,224 $11,475 $11,474
9/30/2000 $15,459 $15,347 $13,535 $11,547 $11,537
10/31/2000 $14,647 $15,282 $13,218 $11,623 $11,595
11/30/2000 $12,881 $14,078 $12,725 $11,813 $11,659
12/31/2000 $13,377 $14,146 $13,180 $12,033 $11,726
1/31/2001 $13,988 $14,648 $13,174 $12,229 $11,803
2/28/2001 $12,724 $13,313 $12,187 $12,336 $11,850
3/31/2001 $11,966 $12,469 $11,380 $12,398 $11,910
4/30/2001 $12,798 $13,438 $12,178 $12,346 $11,959
5/31/2001 $12,840 $13,528 $11,758 $12,421 $12,005
6/30/2001 $12,606 $13,199 $11,282 $12,468 $12,040
7/31/2001 $12,299 $13,069 $11,077 $12,746 $12,080
8/31/2001 $11,803 $12,251 $10,799 $12,892 $12,120
9/30/2001 $10,524 $11,262 $ 9,708 $13,043 $12,173
10/31/2001 $11,033 $11,476 $ 9,956 $13,316 $12,205
11/30/2001 $11,584 $12,357 $10,324 $13,132 $12,231
12/31/2001 $11,861 $12,465 $10,385 $13,049 $12,250
1/31/2002 $11,753 $12,283 $ 9,834 $13,154 $12,267
2/28/2002 $11,590 $12,046 $ 9,904 $13,282 $12,283
3/31/2002 $12,133 $12,499 $10,444 $13,061 $12,302
4/30/2002 $11,959 $11,741 $10,520 $13,314 $12,320
5/31/2002 $11,829 $11,655 $10,663 $13,427 $12,340
6/30/2002 $11,199 $10,825 $10,242 $13,543 $12,358
7/31/2002 $10,277 $ 9,981 $ 9,232 $13,707 $12,375
8/31/2002 $10,310 $10,046 $ 9,213 $13,938 $12,394
9/30/2002 $ 9,572 $ 8,955 $ 8,226 $14,164 $12,413
10/31/2002 $ 9,973 $ 9,743 $ 8,669 $14,099 $12,432
11/30/2002 $10,461 $10,316 $ 9,063 $14,096 $12,452
12/31/2002 $10,124 $ 9,710 $ 8,759 $14,387 $12,465
1/31/2003 $ 9,981 $ 9,456 $ 8,394 $14,399 $12,478
2/28/2003 $ 9,850 $ 9,314 $ 8,202 $14,598 $12,489
3/31/2003 $ 9,817 $ 9,404 $ 8,047 $14,587 $12,503
4/30/2003 $10,442 $10,179 $ 8,845 $14,707 $12,516
5/31/2003 $11,111 $10,715 $ 9,389 $14,982 $12,528
6/30/2003 $11,232 $10,852 $ 9,622 $14,952 $12,544
7/31/2003 $11,473 $11,043 $ 9,856 $14,449 $12,552
8/31/2003 $11,944 $11,259 $10,096 $14,545 $12,562
9/30/2003 $11,879 $11,139 $10,409 $14,930 $12,573
10/31/2003 $12,504 $11,769 $11,059 $14,791 $12,583
11/30/2003 $12,844 $11,873 $11,306 $14,826 $12,593
12/31/2003 $13,172 $12,495 $12,190 $14,977 $12,603
1/31/2004 $13,338 $12,725 $12,363 $15,098 $12,613
2/29/2004 $13,504 $12,902 $12,651 $15,261 $12,622
3/31/2004 $13,526 $12,707 $12,727 $15,375 $12,632
4/30/2004 $13,051 $12,508 $12,450 $14,975 $12,641
5/31/2004 $13,228 $12,679 $12,503 $14,915 $12,650
6/30/2004 $13,504 $12,926 $12,783 $15,000 $12,656
7/31/2004 $13,084 $12,498 $12,369 $15,148 $12,668
8/31/2004 $13,128 $12,549 $12,427 $15,437 $12,680
9/30/2004 $13,482 $12,684 $12,753 $15,479 $12,694
10/31/2004 $13,725 $12,878 $13,189 $15,609 $12,709
11/30/2004 $14,312 $13,399 $14,094 $15,485 $12,722
12/31/2004 $14,659 $13,855 $14,713 $15,627 $12,746
1/31/2005 $14,291 $13,518 $14,444 $15,725 $12,764
2/28/2005 $14,703 $13,802 $15,071 $15,632 $12,784
3/31/2005 $14,392 $13,558 $14,698 $15,552 $12,814
4/30/2005 $14,047 $13,300 $14,369 $15,762 $12,841
5/31/2005 $14,437 $13,724 $14,391 $15,933 $12,870
6/30/2005 $14,693 $13,743 $14,588 $16,020 $12,899
7/31/2005 $15,172 $14,254 $15,036 $15,874 $12,927
8/31/2005 $15,206 $14,124 $15,421 $16,078 $12,963
9/30/2005 $15,481 $14,239 $16,111 $15,912 $13,000
10/31/2005 $15,080 $14,001 $15,641 $15,786 $13,030
11/30/2005 $15,637 $14,531 $16,028 $15,856 $13,073
12/31/2005 $15,901 $14,536 $16,775 $16,007 $13,114
1/31/2006 $16,713 $14,921 $17,806 $16,007 $13,151
2/28/2006 $16,691 $14,961 $17,769 $16,061 $13,193
3/31/2006 $17,092 $15,147 $18,364 $15,903 $13,245
4/30/2006 $17,307 $15,351 $19,254 $15,874 $13,293
5/31/2006 $16,639 $14,909 $18,530 $15,857 $13,344
6/30/2006 $16,707 $14,929 $18,537 $15,891 $13,395
7/31/2006 $16,515 $15,021 $18,722 $16,106 $13,449
8/31/2006 $16,854 $15,379 $19,242 $16,352 $13,509
9/30/2006 $16,908 $15,775 $19,276 $16,496 $13,568
10/31/2006 $17,488 $16,289 $20,027 $16,605 $13,621
11/30/2006 $18,010 $16,599 $20,631 $16,798 $13,679
12/31/2006 $18,169 $16,832 $21,280 $16,700 $13,738
1/31/2007 $18,482 $17,086 $21,426 $16,693 $13,793
2/28/2007 $18,424 $16,752 $21,602 $16,951 $13,847
3/31/2007 $18,696 $16,939 $22,163 $16,951 $13,910
4/30/2007 $19,265 $17,690 $23,167 $17,043 $13,970
5/31/2007 $19,800 $18,307 $23,604 $16,914 $14,033
6/30/2007 $19,738 $18,003 $23,641 $16,863 $14,086
7/31/2007 $19,354 $17,445 $23,295 $17,004 $14,140
8/31/2007 $19,462 $17,706 $22,937 $17,213 $14,220
9/30/2007 $20,404 $18,368 $24,168 $17,343 $14,272
10/31/2007 $21,151 $18,661 $25,120 $17,499 $14,315
11/30/2007 $20,212 $17,880 $24,301 $17,814 $14,380
12/31/2007 $20,130 $17,756 $23,755 $17,864 $14,413
ENDNOTES
BECAUSE THE FUND INVESTS IN VARIOUS UNDERLYING FUNDS THAT 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. If the manager had not waived fees, 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.
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 +27.28% and +12.28%.
7. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 26 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate Index
and the P&R 90 Day U.S. T-Bill Index.
32 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON GROWTH TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 33
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,019.10 $2.49
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.74 $2.50
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,014.80 $6.30
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.95 $6.31
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,015.00 $6.30
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.95 $6.31
- ------------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,017.80 $3.76
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.48 $3.77
- ------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,019.90 $1.22
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.00 $1.22
- ------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
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 184/365
to reflect the one-half year period.
34 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-------------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS A 2007 2006 2005 2004 h 2004 2003
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23
-------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c .......................... 0.48 0.41 0.29 0.12 0.23 0.23
Net realized and unrealized gains (losses) ......... 0.60 0.84 0.29 0.84 0.74 0.69
-------------------------------------------------------------------------
Total from investment operations ...................... 1.08 1.25 0.58 0.96 0.97 0.92
-------------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (0.47) (0.42) (0.32) (0.14) (0.22) (0.24)
Net realized gains ................................. (0.35) (0.24) -- -- -- --
-------------------------------------------------------------------------
Total distributions ................................... (0.82) (0.66) (0.32) (0.14) (0.22) (0.24)
-------------------------------------------------------------------------
Redemption fees ....................................... -- g -- g -- g -- g -- g --
-------------------------------------------------------------------------
Net asset value, end of year .......................... $ 13.59 $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91
=========================================================================
Total return d ........................................ 8.29% 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 ... 0.49% 0.50% 0.69% 0.82% 0.85% 0.91%
Net investment income c ............................... 3.52% 3.09% 2.31% 2.40% 2.00% 2.21%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $251,570 $194,477 $162,079 $139,153 $117,013 $64,409
Portfolio turnover rate ............................... 8.11% 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 repurchases 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 0.68%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
--------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2007 2006 2005 2004 h 2004 i
--------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 13.29 $ 12.71 $ 12.46 $ 11.63 $ 11.67
Income from investment operations a:
Net investment income b,c ........................... 0.36 0.30 0.19 0.09 0.07
Net realized and unrealized gains (losses) .......... 0.61 0.84 0.29 0.84 0.04
--------------------------------------------------------------
Total from investment operations ....................... 0.97 1.14 0.48 0.93 0.11
--------------------------------------------------------------
Less distributions from:
Net investment income ............................... (0.36) (0.32) (0.23) (0.10) (0.15)
Net realized gains .................................. (0.35) (0.24) -- -- --
--------------------------------------------------------------
Total distributions .................................... (0.71) (0.56) (0.23) (0.10) (0.15)
--------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g
--------------------------------------------------------------
Net asset value, end of year ........................... $ 13.55 $ 13.29 $ 12.71 $ 12.46 $ 11.63
==============================================================
Total return d ......................................... 7.42% 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 .... 1.24% 1.25% 1.44% 1.57% 1.60%
Net investment income c 2.77% 2.34% 1.56% 1.65% 1.25%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 6,497 $ 6,422 $ 6,202 $ 5,223 $ 3,567
Portfolio turnover rate ................................ 8.11% 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 repurchases 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 0.68%
for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
----------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS C 2007 2006 2005 2004 h 2004 2003
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14
----------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.38 0.30 0.19 0.08 0.14 0.15
Net realized and unrealized gains (losses) .......... 0.58 0.85 0.28 0.84 0.73 0.67
----------------------------------------------------------------------
Total from investment operations ....................... 0.96 1.15 0.47 0.92 0.87 0.82
----------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (0.37) (0.33) (0.23) (0.09) (0.14) (0.16)
Net realized gains .................................. (0.35) (0.24) -- -- -- --
----------------------------------------------------------------------
Total distributions .................................... (0.72) (0.57) (0.23) (0.09) (0.14) (0.16)
----------------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g --
----------------------------------------------------------------------
Net asset value, end of year ........................... $ 13.42 $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80
======================================================================
Total return d ......................................... 7.48% 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 .... 1.24% 1.24% 1.43% 1.57% 1.60% 1.66%
Net investment income c ................................ 2.77% 2.35% 1.57% 1.65% 1.25% 1.46%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 110,914 $ 76,018 $ 63,298 $ 59,803 $ 52,881 $ 32,344
Portfolio turnover rate ................................ 8.11% 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 repurchases 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 0.68%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS R 2007 2006 2005 2004 h 2004 2003
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 13.30 $ 12.71 $ 12.46 $ 11.63 $ 10.89 $ 10.23
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.47 0.37 0.26 0.11 0.21 0.19
Net realized and unrealized gains (losses) .......... 0.57 0.85 0.28 0.85 0.72 0.69
-------------------------------------------------------------------
Total from investment operations ....................... 1.04 1.22 0.54 0.96 0.93 0.88
-------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (0.44) (0.39) (0.29) (0.13) (0.19) (0.22)
Net realized gains .................................. (0.35) (0.24) -- -- -- --
-------------------------------------------------------------------
Total distributions .................................... (0.79) (0.63) (0.29) (0.13) (0.19) (0.22)
-------------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g --
-------------------------------------------------------------------
Net asset value, end of year ........................... $ 13.55 $ 13.30 $ 12.71 $ 12.46 $ 11.63 $ 10.89
===================================================================
Total return d ......................................... 7.91% 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 .... 0.74% 0.75% 0.94% 1.07% 1.10% 1.16%
Net investment income c ................................ 3.27% 2.84% 2.06% 2.15% 1.75% 1.96%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 25,476 $ 14,490 $ 14,112 $ 12,199 $ 8,370 $ 5,718
Portfolio turnover rate ................................ 8.11% 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 repurchases 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 0.68%
for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
-------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
2007 2006 2005 h
-------------------------------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................................... $ 13.31 $ 12.72 $ 12.81
-------------------------------------
Income from investment operations a:
Net investment income b,c ............................................ 0.53 0.45 0.07
Net realized and unrealized gains (losses) ........................... 0.58 0.83 0.02
-------------------------------------
Total from investment operations ........................................ 1.11 1.28 0.09
-------------------------------------
Less distributions from:
Net investment income ................................................ (0.50) (0.45) (0.18)
Net realized gains ................................................... (0.35) (0.24) --
-------------------------------------
Total distributions ..................................................... (0.85) (0.69) (0.18)
-------------------------------------
Redemption fees ......................................................... -- g -- g -- g
-------------------------------------
Net asset value, end of year ............................................ $ 13.57 $ 13.31 $ 12.72
=====================================
Total return d .......................................................... 8.48% 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 ..................... 0.24% 0.25% 0.44%
Net investment income c ................................................. 3.77% 3.34% 2.56%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................................... $ 3,536 $ 1,726 $ 753
Portfolio turnover rate ................................................. 8.11% 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 repurchases 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 0.68%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- -----------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 79.6%
DOMESTIC EQUITY 27.8%
Franklin Flex Cap Growth Fund, Advisor Class ............................ 622,639 $ 30,409,676
b Franklin Growth Opportunities Fund, Advisor Class ....................... 377,038 8,272,207
Franklin MicroCap Value Fund, Advisor Class ............................. 86,572 2,951,241
Franklin Natural Resources Fund, Advisor Class .......................... 169,017 7,634,510
b Franklin Small Cap Growth Fund II, Advisor Class ........................ 2,442,447 25,938,790
Mutual Shares Fund, Class Z ............................................. 1,397,240 35,406,064
--------------
110,612,488
--------------
DOMESTIC FIXED INCOME 26.5%
Franklin Strategic Mortgage Portfolio ................................... 2,045,071 18,670,896
Franklin Total Return Fund, Advisor Class ............................... 3,934,671 37,671,193
Franklin U.S. Government Securities Fund, Advisor Class ................. 7,565,765 49,253,139
--------------
105,595,228
--------------
FOREIGN EQUITY 12.6%
Franklin Global Real Estate Fund, Advisor Class ......................... 682,477 6,783,826
Franklin Gold and Precious Metals Fund, Advisor Class ................... 192,341 7,207,001
Mutual European Fund, Class Z ........................................... 659,914 17,368,933
Templeton China World Fund, Advisor Class ............................... 203,073 8,953,469
Templeton Foreign Fund, Advisor Class ................................... 769,573 9,588,882
--------------
49,902,111
--------------
FOREIGN FIXED INCOME 12.7%
Templeton Global Bond Fund, Advisor Class ............................... 4,428,668 50,486,812
--------------
TOTAL LONG TERM INVESTMENTS (COST $281,931,805) ......................... 316,596,639
--------------
SHORT TERM INVESTMENT (COST $80,430,045) 20.2%
MONEY MARKET FUND 20.2%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% .... 80,430,045 80,430,045
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $362,361,850) 99.8% ......... 397,026,684
OTHER ASSETS, LESS LIABILITIES 0.2% ..................................... 966,169
--------------
NET ASSETS 100.0% ....................................................... $ 397,992,853
==============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
---------------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS A 2007 2006 2005 2004 h 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ......................... 0.43 0.35 0.25 0.12 0.20 0.19
Net realized and unrealized gains (losses) ........ 0.87 1.15 0.50 1.05 1.00 0.81
---------------------------------------------------------------------------
Total from investment operations ..................... 1.30 1.50 0.75 1.17 1.20 1.00
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.43) (0.38) (0.30) (0.13) (0.19) (0.19)
Net realized gains ................................ (0.55) (0.23) -- -- -- --
---------------------------------------------------------------------------
Total distributions .................................. (0.98) (0.61) (0.30) (0.13) (0.19) (0.19)
---------------------------------------------------------------------------
Redemption fees ...................................... -- g -- g -- g -- g -- g --
---------------------------------------------------------------------------
Net asset value, end of year ......................... $ 14.35 $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64
===========================================================================
Total return d ....................................... 9.40% 11.57% 5.94% 10.14% 11.18% 10.47%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .. 0.68% 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 .............................. 2.92% 2.56% 1.93% 2.32% 1.75% 1.89%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $ 491,451 $ 401,392 $ 316,754 $ 281,033 $ 219,273 $ 121,617
Portfolio turnover rate .............................. 10.29% 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 repurchases 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 0.75%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2007 2006 2005 2004 h 2004 i
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................ $ 13.99 $ 13.10 $ 12.66 $ 11.62 $ 11.62
------------------------------------------------------------
Income from investment operations a:
Net investment income b,c .................................. 0.31 0.24 0.15 0.09 0.05
Net realized and unrealized gains (losses) ................. 0.88 1.15 0.50 1.03 0.09
------------------------------------------------------------
Total from investment operations .............................. 1.19 1.39 0.65 1.12 0.14
------------------------------------------------------------
Less distributions from:
Net investment income ...................................... (0.32) (0.27) (0.21) (0.08) (0.14)
Net realized gains ......................................... (0.55) (0.23) -- -- --
------------------------------------------------------------
Total distributions ........................................... (0.87) (0.50) (0.21) (0.08) (0.14)
Redemption fees ............................................... -- g -- g -- g -- g -- g
------------------------------------------------------------
Net asset value, end of year .................................. $ 14.31 $ 13.99 $ 13.10 $ 12.66 $ 11.62
============================================================
Total return d ................................................ 8.61% 10.70% 5.18% 9.77% 1.18%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........... 1.43% 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 ....................................... 2.17% 1.81% 1.18% 1.57% 1.00%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $ 12,445 $ 11,533 $ 10,170 $ 8,700 $ 5,417
Portfolio turnover rate ....................................... 10.29% 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 repurchases 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 0.75%
for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
--------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS C 2007 2006 2005 2004 h 2004 2003
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................ $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69
--------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c .............................. 0.31 0.24 0.15 0.08 0.12 0.11
Net realized and unrealized gains (losses) ............. 0.87 1.13 0.50 1.03 0.98 0.80
--------------------------------------------------------------------
Total from investment operations .......................... 1.18 1.37 0.65 1.11 1.10 0.91
--------------------------------------------------------------------
Less distributions from:
Net investment income .................................. (0.33) (0.27) (0.21) (0.08) (0.11) (0.12)
Net realized gains ..................................... (0.55) (0.23) -- -- -- --
--------------------------------------------------------------------
Total distributions ....................................... (0.88) (0.50) (0.21) (0.08) (0.11) (0.12)
--------------------------------------------------------------------
Redemption fees ........................................... -- g -- g -- g -- g -- g --
--------------------------------------------------------------------
Net asset value, end of year .............................. $ 14.11 $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48
====================================================================
Total return d ............................................ 8.61% 10.72% 5.25% 9.75% 10.39% 9.50%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ....... 1.43% 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 ................................... 2.17% 1.81% 1.19% 1.57% 1.00% 1.14%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................... $ 160,563 $ 134,465 $ 112,294 $ 105,966 $ 90,988 $ 56,341
Portfolio turnover rate ................................... 10.29% 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 repurchases 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 0.75%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
---------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS R 2007 2006 2005 2004 h 2004 2003
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82
---------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.39 0.31 0.21 0.11 0.18 0.13
Net realized and unrealized gains (losses) ........... 0.88 1.15 0.51 1.04 0.98 0.85
---------------------------------------------------------------------
Total from investment operations ........................ 1.27 1.46 0.72 1.15 1.16 0.98
---------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (0.40) (0.34) (0.27) (0.11) (0.16) (0.18)
Net realized gains ................................... (0.55) (0.23) -- -- -- --
---------------------------------------------------------------------
Total distributions ..................................... (0.95) (0.57) (0.27) (0.11) (0.16) (0.18)
---------------------------------------------------------------------
Redemption fees ......................................... -- g -- g -- g -- g -- g --
---------------------------------------------------------------------
Net asset value, end of year ............................ $ 14.32 $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62
=====================================================================
Total return d .......................................... 9.16% 11.27% 5.73% 9.92% 10.95% 10.10%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ..... 0.93% 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 ................................. 2.67% 2.31% 1.68% 2.07% 1.50% 1.64%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 40,102 $ 31,719 $ 30,403 $ 25,162 $ 17,161 $ 10,989
Portfolio turnover rate ................................. 10.29% 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 repurchases 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 0.75%
for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
-----------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
ADVISOR CLASS 2007 2006 2005 h
-----------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 14.03 $ 13.15 $ 13.23
-----------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.46 0.40 0.08
Net realized and unrealized gains (losses) ........... 0.88 1.13 0.02
-----------------------------------
Total from investment operations ........................ 1.34 1.53 0.10
-----------------------------------
Less distributions from:
Net investment income ................................ (0.47) (0.42) (0.18)
Net realized gains ................................... (0.55) (0.23) --
-----------------------------------
Total distributions ..................................... (1.02) (0.65) (0.18)
-----------------------------------
Redemption fees ......................................... -- g -- g -- g
-----------------------------------
Net asset value, end of year ............................ $ 14.35 $ 14.03 $ 13.15
===================================
Total return d .......................................... 9.66% 11.87% 0.68%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ..... 0.43% 0.45% 0.49%
Expenses net of waiver and payments by affiliates f ..... 0.25% 0.25% 0.44%
Net investment income c ................................. 3.17% 2.81% 2.18%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 9,699 $ 7,071 $ 3,890
Portfolio turnover rate ................................. 10.29% 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 repurchases 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 0.75%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- --------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 89.7%
DOMESTIC EQUITY 37.4%
Franklin Flex Cap Growth Fund, Advisor Class ................................................ 1,488,359 $ 72,691,433
b Franklin Growth Opportunities Fund, Advisor Class ........................................... 1,036,014 22,730,159
Franklin MicroCap Value Fund, Advisor Class ................................................. 208,053 7,092,525
Franklin Natural Resources Fund, Advisor Class .............................................. 400,354 18,083,972
b Franklin Small Cap Growth Fund II, Advisor Class ............................................ 5,879,464 62,439,911
Mutual Shares Fund, Class Z ................................................................. 3,308,206 83,829,932
-------------
266,867,932
-------------
DOMESTIC FIXED INCOME 23.9%
Franklin Strategic Mortgage Portfolio ....................................................... 3,169,682 30,016,887
Franklin Total Return Fund, Advisor Class ................................................... 6,135,118 60,921,725
Franklin U.S. Government Securities Fund, Advisor Class ..................................... 12,192,915 79,375,877
-------------
170,314,489
-------------
FOREIGN EQUITY 17.1%
Franklin Global Real Estate Fund, Advisor Class ............................................. 1,576,353 15,668,950
Franklin Gold and Precious Metals Fund, Advisor Class ....................................... 477,567 17,894,441
Mutual European Fund, Class Z ............................................................... 1,649,041 43,402,774
Templeton China World Fund, Advisor Class ................................................... 491,170 21,655,690
Templeton Foreign Fund, Advisor Class ....................................................... 1,899,703 23,670,298
-------------
122,292,153
-------------
FOREIGN FIXED INCOME 11.3%
Templeton Global Bond Fund, Advisor Class ................................................... 7,107,970 81,030,853
-------------
TOTAL LONG TERM INVESTMENTS (COST $552,490,572) ............................................. 640,505,427
-------------
SHORT TERM INVESTMENT (COST $72,494,942) 10.1%
MONEY MARKET FUND 10.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ........................ 72,494,942 72,494,942
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $624,985,514) 99.8% ............................. 713,000,369
OTHER ASSETS, LESS LIABILITIES 0.2% ......................................................... 1,258,682
-------------
NET ASSETS 100.0% ........................................................................... $ 714,259,051
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS A 2007 2006 2005 2004 h 2004 2003
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47
----------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.32 0.24 0.14 0.09 0.11 0.08
Net realized and unrealized gains (losses) ........... 1.31 1.73 0.96 1.33 1.36 1.01
----------------------------------------------------------------------
Total from investment operations ........................ 1.63 1.97 1.10 1.42 1.47 1.09
----------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ....................... (0.32) (0.32) (0.17) (0.08) (0.10) (0.10)
Net realized gains ................................... (0.77) (0.12) -- -- -- --
----------------------------------------------------------------------
Total distributions ..................................... (1.09) (0.44) (0.17) (0.08) (0.10) (0.10)
----------------------------------------------------------------------
Redemption fees ......................................... -- g -- g -- g -- g -- g --
----------------------------------------------------------------------
Net asset value, end of year ............................ $ 16.17 $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46
======================================================================
Total return d .......................................... 10.58% 13.90% 8.47% 12.04% 14.04% 11.64%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ..... 0.74% 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 ................................. 1.93% 1.59% 1.07% 1.72% 0.91% 0.84%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $394,689 $319,521 $230,686 $202,560 $165,500 $99,432
Portfolio turnover rate ................................. 10.36% 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 repurchases 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 0.83%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
---------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2007 2006 2005 2004 h 2004 i
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $ 15.45 $ 13.97 $ 13.09 $ 11.75 $ 11.80
---------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .............................. 0.17 0.12 0.04 0.06 (0.02)
Net realized and unrealized gains (losses) .................... 1.31 1.72 0.96 1.32 0.09
---------------------------------------------------------
Total from investment operations ................................. 1.48 1.84 1.00 1.38 0.07
---------------------------------------------------------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ............................................ (0.25) (0.24) (0.12) (0.04) (0.12)
Net realized gains ............................................ (0.77) (0.12) -- -- --
---------------------------------------------------------
Total distributions .............................................. (1.02) (0.36) (0.12) (0.04) (0.12)
---------------------------------------------------------
Redemption fees .................................................. -- g -- g -- g -- g -- g
---------------------------------------------------------
Net asset value, end of year ..................................... $ 15.91 $ 15.45 $ 13.97 $ 13.09 $ 11.75
=========================================================
Total return d ................................................... 9.76% 13.06% 7.63% 11.76% 0.56%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .............. 1.49% 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 c .......................................... 1.18% 0.84% 0.32% 0.97% 0.16%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $ 8,292 $ 8,195 $ 6,468 $ 5,343 $ 3,178
Portfolio turnover rate .......................................... 10.36% 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 repurchases 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 0.83%
for the year ended December 31, 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.
48 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS C 2007 2006 2005 2004 h 2004 2003
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................ $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40
----------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c .............................. 0.19 0.13 0.04 0.05 0.02 0.01
Net realized and unrealized gains (losses) ............. 1.29 1.70 0.96 1.32 1.35 1.00
----------------------------------------------------------------------
Total from investment operations .......................... 1.48 1.83 1.00 1.37 1.37 1.01
----------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ................................ (0.25) (0.24) (0.12) -- (0.03) (0.03)
Net realized gains ..................................... (0.77) (0.12) -- -- -- --
----------------------------------------------------------------------
Total distributions ....................................... (1.02) (0.36) (0.12) -- (0.03) (0.03)
----------------------------------------------------------------------
Redemption fees ........................................... -- g -- g -- g -- g -- g --
----------------------------------------------------------------------
Net asset value, end of year .............................. $ 15.90 $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38
======================================================================
Total return d ............................................ 9.72% 13.08% 7.63% 11.69% 13.18% 10.74%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ....... 1.49% 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 c ................................... 1.18% 0.84% 0.32% 0.97% 0.16% 0.09%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................... $ 145,218 $ 122,156 $ 88,986 $ 73,816 $ 61,179 $ 40,829
Portfolio turnover rate ................................... 10.36% 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 repurchases 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 0.83%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
----------------------------------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS R 2007 2006 2005 2004 h 2004 2003
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40 $ 9.46
----------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................ 0.29 0.20 0.11 0.08 0.08 0.05
Net realized and unrealized gains (losses) ........... 1.28 1.71 0.95 1.33 1.36 1.00
----------------------------------------------------------------------
Total from investment operations ........................ 1.57 1.91 1.06 1.41 1.44 1.05
----------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds .............................. (0.30) (0.29) (0.15) (0.06) (0.08) (0.11)
Net realized gains ................................... (0.77) (0.12) -- -- -- --
----------------------------------------------------------------------
Total distributions ..................................... (1.07) (0.41) (0.15) (0.06) (0.08) (0.11)
----------------------------------------------------------------------
Redemption fees ......................................... -- g -- g -- g -- g -- g --
----------------------------------------------------------------------
Net asset value, end of year ............................ $ 16.02 $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40
======================================================================
Total return d .......................................... 10.31% 13.65% 8.10% 12.00% 13.89% 11.11%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ..... 0.99% 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 ................................. 1.68% 1.34% 0.82% 1.47% 0.66% 0.59%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 36,757 $ 26,215 $ 19,461 $ 15,206 $ 11,714 $ 5,567
Portfolio turnover rate ................................. 10.36% 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 repurchases 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 0.83%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 1, 2004 to December 31, 2004.
50 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
ADVISOR CLASS 2007 2006 2005 h
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................ $ 15.64 $ 14.10 $ 14.18
------------------------------------
Income from investment operations a:
Net investment income b,c ...................................................... 0.38 0.29 0.11
Net realized and unrealized gains (losses) ..................................... 1.29 1.72 (0.03)
------------------------------------
Total from investment operations .................................................. 1.67 2.01 0.08
------------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ...... (0.35) (0.35) (0.16)
Net realized gains ............................................................. (0.77) (0.12) --
------------------------------------
Total distributions ............................................................... (1.12) (0.47) (0.16)
------------------------------------
Redemption fees ................................................................... -- g -- g -- g
------------------------------------
Net asset value, end of year ...................................................... $ 16.19 $ 15.64 $ 14.10
====================================
Total return d .................................................................... 10.80% 14.26% 0.54%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................... 0.49% 0.50% 0.54%
Expenses net of waiver and payments by affiliates f ............................... 0.25% 0.25% 0.47%
Net investment income c ........................................................... 2.18% 1.84% 1.32%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................... $ 9,917 $ 5,593 $ 3,320
Portfolio turnover rate ........................................................... 10.36% 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 repurchases 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 0.83%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period December 1, 2005 (effective date) to December 31, 2005.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 95.3%
DOMESTIC EQUITY 55.2%
Franklin Flex Cap Growth Fund, Advisor Class ................................................. 1,818,274 $ 88,804,513
b Franklin Growth Opportunities Fund, Advisor Class ............................................ 1,193,225 26,179,348
Franklin MicroCap Value Fund, Advisor Class .................................................. 254,883 8,688,951
Franklin Natural Resources Fund, Advisor Class ............................................... 515,560 23,287,836
b Franklin Small Cap Growth Fund II, Advisor Class ............................................. 7,362,051 78,184,980
Mutual Shares Fund, Class Z .................................................................. 4,071,721 103,177,402
-------------
328,323,030
-------------
DOMESTIC FIXED INCOME 10.7%
Franklin Strategic Mortgage Portfolio ........................................................ 1,192,710 11,294,966
Franklin Total Return Fund, Advisor Class .................................................... 2,243,926 22,282,190
Franklin U.S. Government Securities Fund, Advisor Class ...................................... 4,603,454 29,968,483
-------------
63,545,639
-------------
FOREIGN EQUITY 24.4%
Franklin Global Real Estate Fund, Advisor Class .............................................. 1,903,708 18,922,856
Franklin Gold and Precious Metals Fund, Advisor Class ........................................ 550,072 20,611,207
Mutual European Fund, Class Z ................................................................ 1,953,937 51,427,635
Templeton China World Fund, Advisor Class .................................................... 587,303 25,894,198
Templeton Foreign Fund, Advisor Class ........................................................ 2,278,374 28,388,539
-------------
145,244,435
-------------
FOREIGN FIXED INCOME 5.0%
Templeton Global Bond Fund, Advisor Class .................................................... 2,625,284 29,928,238
-------------
TOTAL LONG TERM INVESTMENTS (COST $477,412,345) .............................................. 567,041,342
-------------
SHORT TERM INVESTMENT (COST $30,738,945) 5.2%
MONEY MARKET FUND 5.2%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ......................... 30,738,945 30,738,945
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $508,151,290) 100.5% ............................. 597,780,287
OTHER ASSETS, LESS LIABILITIES (0.5)% ........................................................ (2,906,685)
-------------
NET ASSETS 100.0% ............................................................................ $ 594,873,602
=============
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2007.
c The rate shown is the annualized seven-day yield at period end.
52 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2007
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ................................................................. $362,361,850 $624,985,514 $508,151,290
================================================
Value ................................................................ $397,026,684 $713,000,369 $597,780,287
Receivables on capital shares sold ......................................... 2,613,686 4,142,470 1,533,826
------------------------------------------------
Total assets ...................................................... 399,640,370 717,142,839 599,314,113
------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed .............................................. 1,224,536 2,101,136 3,844,071
Affiliates ........................................................... 270,455 528,919 359,829
Unaffiliated transfer agent fees ..................................... 120,605 209,469 192,288
Accrued expenses and other liabilities .................................. 31,921 44,264 44,323
------------------------------------------------
Total liabilities ................................................. 1,647,517 2,883,788 4,440,511
------------------------------------------------
Net assets, at value .......................................... $397,992,853 $714,259,051 $594,873,602
================================================
Net assets consist of:
Paid-in capital ......................................................... $354,683,062 $605,553,109 $479,940,480
Undistributed net investment income ..................................... 221,449 431,170 348,055
Net unrealized appreciation (depreciation) .............................. 34,664,834 88,014,855 89,628,997
Accumulated net realized gain (loss) .................................... 8,423,508 20,259,917 24,956,070
------------------------------------------------
Net assets, at value .......................................... $397,992,853 $714,259,051 $594,873,602
================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2007
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------
CLASS A:
Net assets, at value .................................................... $251,570,256 $491,450,854 $394,689,060
================================================
Shares outstanding ...................................................... 18,516,432 34,236,463 24,415,615
================================================
Net asset value per share a ............................................. $ 13.59 $ 14.35 $ 16.17
================================================
Maximum offering price per share (net asset value per share / 94.25%) ... $ 14.42 $ 15.23 $ 17.16
================================================
CLASS B:
Net assets, at value .................................................... $ 6,496,757 $ 12,444,515 $ 8,292,020
================================================
Shares outstanding ...................................................... 479,631 869,651 521,292
================================================
Net asset value and maximum offering price per share a .................. $ 13.55 $ 14.31 $ 15.91
================================================
CLASS C:
Net assets, at value .................................................... $110,913,830 $160,563,190 $145,218,123
================================================
Shares outstanding ...................................................... 8,266,316 11,382,000 9,133,785
================================================
Net asset value and maximum offering price per share a .................. $ 13.42 $ 14.11 $ 15.90
================================================
CLASS R:
Net assets, at value .................................................... $ 25,475,664 $ 40,101,680 $ 36,757,079
================================================
Shares outstanding ...................................................... 1,879,630 2,799,972 2,293,785
================================================
Net asset value and maximum offering price per share a .................. $ 13.55 $ 14.32 $ 16.02
================================================
ADVISOR CLASS:
Net assets, at value .................................................... $ 3,536,346 $ 9,698,812 $ 9,917,320
================================================
Shares outstanding ...................................................... 260,555 675,647 612,689
================================================
Net asset value and maximum offering price per share .................... $ 13.57 $ 14.35 $ 16.19
================================================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
54 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2007
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ................................ $ 13,489,713 $ 22,044,564 $ 13,176,249
------------------------------------------------
Expenses:
Asset allocation fees (Note 3a) ......................................... 670,528 1,452,092 1,287,415
Distribution fees: (Note 3c)
Class A .............................................................. 545,250 1,105,821 901,577
Class B .............................................................. 64,063 117,919 83,563
Class C .............................................................. 902,315 1,474,745 1,351,870
Class R .............................................................. 90,753 179,995 157,712
Transfer agent fees (Note 3e) ........................................... 584,252 1,124,498 1,170,654
Reports to shareholders ................................................. 29,385 51,294 67,698
Registration and filing fees ............................................ 105,750 114,796 112,196
Professional fees ....................................................... 25,981 29,692 28,395
Trustees' fees and expenses ............................................. 1,505 2,925 2,459
Other ................................................................... 10,680 16,058 14,564
------------------------------------------------
Total expenses .................................................... 3,030,462 5,669,835 5,178,103
Expenses waived/paid by affiliates (Note 3f) ...................... (607,423) (1,186,267) (1,344,539)
------------------------------------------------
Net expenses .................................................. 2,423,039 4,483,568 3,833,564
------------------------------------------------
Net investment income ...................................... 11,066,674 17,560,996 9,342,685
------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds .............................. 2,250,342 6,510,400 4,373,363
Realized gain distributions by Underlying Funds ...................... 10,429,405 25,730,557 31,624,623
------------------------------------------------
Net realized gain (loss) ................................... 12,679,747 32,240,957 35,997,986
------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds ..................................................... 1,298,295 5,441,929 5,370,351
------------------------------------------------
Net realized and unrealized gain (loss) .................................... 13,978,042 37,682,886 41,368,337
------------------------------------------------
Net increase (decrease) in net assets resulting from operations ............ $ 25,044,716 $ 55,243,882 $ 50,711,022
================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 55
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
--------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2007 2006 2007 2006
--------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 11,066,674 $ 7,686,994 $ 17,560,996 $ 12,463,219
Net realized gain (loss) from Underlying Funds ............. 12,679,747 9,122,650 32,240,957 23,092,394
Net change in unrealized appreciation (depreciation)
on investments in Underlying Funds ....................... 1,298,295 8,514,289 5,441,929 21,975,614
--------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ..................................... 25,044,716 25,323,933 55,243,882 57,531,227
--------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ................................................. (7,827,189) (5,841,842) (13,678,690) (10,307,386)
Class B ................................................. (169,537) (157,308) (266,922) (214,821)
Class C ................................................. (2,738,556) (1,799,408) (3,504,431) (2,582,448)
Class R ................................................. (691,739) (392,941) (1,047,371) (728,940)
Advisor Class ........................................... (114,381) (50,554) (289,700) (186,986)
Net realized gains:
Class A ................................................. (5,708,542) (3,318,674) (16,900,630) (6,318,031)
Class B ................................................. (165,679) (117,917) (444,317) (183,094)
Class C ................................................. (2,453,393) (1,314,610) (5,720,106) (2,177,152)
Class R ................................................. (501,465) (239,128) (1,395,923) (494,272)
Advisor Class ........................................... (82,400) (27,311) (335,235) (106,561)
--------------------------------------------------------------
Total distributions to shareholders ........................... (20,452,881) (13,259,693) (43,583,325) (23,299,691)
--------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ................................................. 53,837,470 24,368,768 81,959,202 61,461,304
Class B ................................................. (45,467) (57,283) 661,569 655,366
Class C ................................................. 33,874,823 9,679,370 23,513,166 14,184,310
Class R ................................................. 10,789,707 (299,909) 7,788,466 (742,059)
Advisor Class ........................................... 1,808,846 932,606 2,488,553 2,870,008
--------------------------------------------------------------
Total capital share transactions .............................. 100,265,379 34,623,552 116,410,956 78,428,929
--------------------------------------------------------------
Redemption fees ............................................... 2,308 1,280 7,689 9,418
--------------------------------------------------------------
Net increase (decrease) in net assets ................ 104,859,522 46,689,072 128,079,202 112,669,883
Net assets:
Beginning of year ............................................. 293,133,331 246,444,259 586,179,849 473,509,966
--------------------------------------------------------------
End of year ................................................... $ 397,992,853 $ 293,133,331 $ 714,259,051 $ 586,179,849
==============================================================
Undistributed net investment income included in net assets:
End of year ................................................... $ 221,449 $ 116,913 $ 431,170 $ 247,487
==============================================================
56 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
-------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------------
YEAR ENDED DECEMBER 31,
2007 2006
-------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................................................... $ 9,342,685 $ 5,784,210
Net realized gain (loss) from Underlying Funds ............................................. 35,997,986 26,401,184
Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .... 5,370,351 21,414,539
-------------------------------
Net increase (decrease) in net assets resulting from operations ...................... 50,711,022 53,599,933
-------------------------------
Distributions to shareholders from:
Net investment income and short term gains received from Underlying Funds:
Class A ................................................................................. (7,570,294) (6,239,874)
Class B ................................................................................. (126,683) (121,718)
Class C ................................................................................. (2,228,923) (1,804,826)
Class R ................................................................................. (666,373) (471,530)
Advisor Class ........................................................................... (199,883) (111,697)
Net realized gains:
Class A ................................................................................. (17,221,275) (2,313,310)
Class B ................................................................................. (393,145) (59,985)
Class C ................................................................................. (6,480,615) (893,913)
Class R ................................................................................. (1,546,719) (190,290)
Advisor Class ........................................................................... (383,485) (40,304)
-------------------------------
Total distributions to shareholders ........................................................... (36,817,395) (12,247,447)
-------------------------------
Capital share transactions: (Note 2)
Class A ................................................................................. 65,581,672 61,095,501
Class B ................................................................................. (137,062) 1,006,265
Class C ................................................................................. 19,702,856 22,990,099
Class R ................................................................................. 9,979,926 4,438,592
Advisor Class ........................................................................... 4,168,665 1,874,057
-------------------------------
Total capital share transactions .............................................................. 99,296,057 91,404,514
-------------------------------
Redemption fees ............................................................................... 3,636 2,778
-------------------------------
Net increase (decrease) in net assets ................................................ 113,193,320 132,759,778
Net assets:
Beginning of year ............................................................................. 481,680,282 348,920,504
-------------------------------
End of year ................................................................................... $ 594,873,602 $ 481,680,282
===============================
Undistributed net investment income included in net assets:
End of year ................................................................................... $ 348,055 $ 124,616
===============================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment
company, consisting of ten separate funds. All funds included in this report
(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 (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.
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in 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, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 2007, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
----------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Year ended December 31, 2007
Shares sold .............................................. 7,078,140 $ 97,213,137 10,075,503 $ 146,783,957
Shares issued in reinvestment of distributions ........... 917,963 12,445,343 2,072,310 29,756,594
Shares redeemed .......................................... (4,074,316) (55,821,010) (6,516,873) (94,581,349)
----------------------------------------------------------------
Net increase (decrease) .................................. 3,921,787 $ 53,837,470 5,630,940 $ 81,959,202
================================================================
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:
Year ended December 31, 2007
Shares sold .............................................. 75,828 $ 1,039,277 142,091 $ 2,071,530
Shares issued in reinvestment of distributions ........... 20,207 273,102 46,068 659,454
Shares redeemed .......................................... (99,759) (1,357,846) (142,774) (2,069,415)
----------------------------------------------------------------
Net increase (decrease) .................................. (3,724) $ (45,467) 45,385 $ 661,569
================================================================
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:
Year ended December 31, 2007
Shares sold .............................................. 3,221,426 $ 43,702,669 2,656,444 $ 38,027,015
Shares issued in reinvestment of distributions ........... 334,604 4,481,670 590,251 8,334,505
Shares redeemed .......................................... (1,059,402) (14,309,516) (1,602,070) (22,848,354)
----------------------------------------------------------------
Net increase (decrease) .................................. 2,496,628 $ 33,874,823 1,644,625 $ 23,513,166
================================================================
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
================================================================
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS R SHARES:
Year ended December 31, 2007
Shares sold .............................................. 1,454,253 $ 19,847,027 1,210,627 $ 17,652,708
Shares issued in reinvestment of distributions ........... 84,244 1,140,279 168,596 2,415,935
Shares redeemed .......................................... (748,379) (10,197,599) (844,179) (12,280,177)
----------------------------------------------------------------
Net increase (decrease) .................................. 790,118 $ 10,789,707 535,044 $ 7,788,466
================================================================
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)
================================================================
ADVISOR CLASS SHARES:
Year ended December 31, 2007
Shares sold .............................................. 199,132 $ 2,746,355 286,936 $ 4,165,520
Shares issued in reinvestment of distributions ........... 14,487 196,279 43,439 623,886
Shares redeemed .......................................... (82,760) (1,133,788) (158,634) (2,300,853)
----------------------------------------------------------------
Net increase (decrease) .................................. 130,859 $ 1,808,846 171,741 $ 2,488,553
================================================================
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:
Year ended December 31, 2007
Shares sold .............................................................................. 6,798,084 $ 111,758,870
Shares issued in reinvestment of distributions ........................................... 1,467,899 23,798,123
Shares redeemed .......................................................................... (4,286,644) (69,975,321)
-------------------------------
Net increase (decrease) .................................................................. 3,979,339 $ 65,581,672
===============================
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
===============================
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------------
SHARES AMOUNT
-------------------------------
CLASS B SHARES:
Year ended December 31, 2007
Shares sold .............................................................................. 42,490 $ 697,796
Shares issued in reinvestment of distributions ........................................... 31,417 501,388
Shares redeemed .......................................................................... (83,154) (1,336,246)
-------------------------------
Net increase (decrease) .................................................................. (9,247) $ (137,062)
===============================
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:
Year ended December 31, 2007
Shares sold .............................................................................. 2,165,566 $ 35,001,780
Shares issued in reinvestment of distributions ........................................... 496,954 7,928,135
Shares redeemed .......................................................................... (1,438,748) (23,227,059)
-------------------------------
Net increase (decrease) .................................................................. 1,223,772 $ 19,702,856
===============================
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:
Year ended December 31, 2007
Shares sold .............................................................................. 1,107,656 $ 18,148,876
Shares issued in reinvestment of distributions ........................................... 136,113 2,188,209
Shares redeemed .......................................................................... (638,597) (10,357,159)
-------------------------------
Net increase (decrease) .................................................................. 605,172 $ 9,979,926
===============================
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:
Year ended December 31, 2007
Shares sold .............................................................................. 301,327 $ 4,948,640
Shares issued in reinvestment of distributions ........................................... 35,509 576,489
Shares redeemed .......................................................................... (81,819) (1,356,464)
-------------------------------
Net increase (decrease) .................................................................. 255,017 $ 4,168,665
===============================
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
===============================
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of certain of the
Underlying Funds and of the following subsidiaries:
- ---------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- ---------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. ASSET ALLOCATION FEES
The Funds pay an asset allocation fee to Advisers of 0.25% per year of the
average daily net assets of each of the Funds for investment advisory services,
consisting principally of determining the allocation of assets of the Funds
among the designated Underlying Funds.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
C. DISTRIBUTION FEES
The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the
Funds reimburse Distributors for costs incurred in connection with the
servicing, sale and distribution of each fund's shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
In addition, under the Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ............................................................... 0.25%
Class B ............................................................... 1.00%
Class C ............................................................... 1.00%
Class R ............................................................... 0.50%
Annual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ................................................... $ 191,946 $ 366,491 $ 225,006
Contingent deferred sales charges retained .......................... $ 22,729 $ 39,685 $ 30,278
E. TRANSFER AGENT FEES
For the year ended December 31, 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 ................................................. $ 275,806 $ 559,563 $ 598,521
F. WAIVER AND EXPENSE REIMBURSEMENTS
Advisers and Investor Services have agreed in advance to waive all or a portion
of their 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
The Funds have reviewed the tax positions taken on federal income tax returns,
for each of the three open tax years and as of December 31, 2007 and have
determined that no provision for income tax is required in the Funds' financial
statements.
The tax character of distributions paid during the years ended December 31, 2007
and 2006, was as follows:
----------------------------
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
----------------------------
2007 2006
----------------------------
Distributions paid from:
Ordinary income .............................. $ 11,724,151 $ 8,475,271
Long-term capital gain ....................... 8,728,730 4,784,422
----------------------------
$ 20,452,881 $ 13,259,693
============================
64 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
----------------------------
FRANKLIN TEMPLETON
MODERATE TARGET FUND
----------------------------
2007 2006
----------------------------
Distributions paid from:
Ordinary income .............................. $ 19,429,120 $ 14,143,400
Long-term capital gain ....................... 24,154,205 9,156,291
----------------------------
$ 43,583,325 $ 23,299,691
============================
----------------------------
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------
2007 2006
----------------------------
Distributions paid from:
Ordinary income .............................. $ 10,792,156 $ 8,749,645
Long-term capital gain ....................... 26,025,239 3,497,802
----------------------------
$ 36,817,395 $ 12,247,447
============================
At December 31, 2007, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
Cost of investments ............................. $362,625,839 $ 625,429,278 $ 508,607,556
=============================================
Unrealized appreciation ......................... $ 36,939,731 $ 92,831,092 $ 94,056,159
Unrealized depreciation ......................... (2,538,886) (5,260,001) (4,883,428)
---------------------------------------------
Net unrealized appreciation (depreciation) ...... $ 34,400,845 $ 87,571,091 $ 89,172,731
=============================================
Undistributed ordinary income ................... $ 221,449 $ 431,170 $ 348,055
Undistributed long term capital gains ........... 8,687,496 20,703,680 25,412,336
---------------------------------------------
Distributable earnings .......................... $ 8,908,945 $ 21,134,850 $ 25,760,391
=============================================
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 short term capital gains distributions
from Underlying Funds and wash sales.
Annual Report | 65
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2007, were as follows:
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
---------------------------------------------
Purchases ...................... $ 97,915,566 $ 157,391,931 $ 154,525,504
Sales .......................... $ 21,831,218 $ 59,915,514 $ 53,524,596
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At December 31, 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 ..................... 8.69%
Franklin Global Real Estate Fund .......................... 5.94%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Global Real Estate Fund .......................... 13.73%
Franklin Strategic Mortgage Portfolio ..................... 13.47%
Franklin Small Cap Growth Fund II ......................... 7.30%
Franklin Growth Opportunities Fund ........................ 7.11%
Franklin Total Return Fund ................................ 5.03%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Global Real Estate Fund .......................... 16.58%
Franklin Small Cap Growth Fund II ......................... 9.14%
Franklin Growth Opportunities Fund ........................ 8.19%
Franklin Strategic Mortgage Portfolio ..................... 5.07%
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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
66 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REGULATORY AND LITIGATION MATTERS (CONTINUED)
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. 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.
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 PRONOUNCEMENT
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" ("SFAS 157"), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The
Trust believes the adoption of SFAS 157 will have no material impact on its
financial statements.
Annual Report | 67
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton Conservative
Target Fund, Franklin Templeton Moderate Target Fund and Franklin Templeton
Growth Target Fund (separate portfolios of Franklin Templeton Fund Allocator
Series, hereafter referred to as the "Funds") at December 31, 2007, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments in the Underlying Funds at
December 31, 2007 by correspondence with the transfer agent of the Underlying
Funds, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2008
68 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2007:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------
$ 11,970,935 $30,307,863 $34,517,020
Under Section 871(k)(2)(C) of the Code, the funds designate the maximum amount
allowable but no less than the following amounts as short term capital gain
dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended December 31, 2007:
---------------------------
FRANKLIN FRANKLIN
TEMPLETON TEMPLETON
CONSERVATIVE MODERATE
TARGET FUND TARGET FUND
---------------------------
$ 180,595 $ 641,469
Under Section 854(b)(2) of the the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2007:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------
6.12% 8.95% 20.08%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2007:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------
$ 1,755,068 $ 4,331,874 $ 5,296,016
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2007.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Annual Report | 69
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 141 Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2005 121 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS);
and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and
Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
SAM GINN (1937) Trustee Since April 2007 121 Chevron Corporation (global
One Franklin Parkway energy company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings)
Limited (satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 141 Hess Corporation (exploration
One Franklin Parkway and refining of oil and gas),
San Mateo, CA 94403-1906 H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
70 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 121 Center for Creative Land
One Franklin Parkway Recycling (brownfield
San Mateo, CA 94403-1906 redevelopment).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Trustee Since April 2007 141 Hess Corporation (exploration
One Franklin Parkway and refining of oil and gas) and
San Mateo, CA 94403-1906 Sentient Jet (private jet
service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Trustee Since April 2007 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Lead Trustee since 121 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
January 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Executive Vice President -
Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting
firm) (1986-1990).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 141 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42
of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 71
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since April 2007 92 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director,
Templeton Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice President
Vice President - AML Compliance
- AML since 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 28 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
72 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) President President and Not Applicable Not Applicable
One Franklin Parkway and Chief Chief Executive
San Mateo, CA 94403-1906 Executive Officer -
Officer - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 73
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.
(1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the U.S. registered
investment companies within the Franklin Templeton Investments fund complex.
These portfolios have a common investment manager or affiliated investment
managers.
**Charles B. Johnson is considered to be an interested person of the Trust under
the federal securities laws due to his position as officer, director and major
shareholder of Franklin Resources, Inc. (Resources), which is the parent company
of the Trust's investment manager and distributor. Gregory E. Johnson is
considered to be an interested person of the Trust under the federal securities
laws due to his position as officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
Note 3: Prior to December 31, 2007, Rupert H. Johnson, Jr. ceased to be a
trustee of the Trust.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
74 | Annual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures (Policies) that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 75
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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 Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Growth Opportunities Fund 2
Franklin Small Cap Growth Fund II 3
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin All Cap Value Fund
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 4
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Focused Core Equity 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 5
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 5
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
Templeton Income Fund
Templeton International Bond 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
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
2. Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
3. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
4. 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.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
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.
12/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN (R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS A2007 02/08
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
DECEMBER 31, 2007
- --------------------------------------------------------------------------------
Franklin Templeton
Corefolio Allocation Fund
Franklin Templeton
Founding Funds Allocation Fund
Franklin Templeton
Perspectives Allocation Fund
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why
our funds can be used to build truly diversified
allocation plans covering every major asset
class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton Corefolio Allocation Fund .............................. 5
Franklin Templeton Founding Funds Allocation Fund ......................... 14
Franklin Templeton Perspectives Allocation Fund ........................... 23
Financial Highlights and Statements of Investments ........................ 32
Financial Statements ...................................................... 49
Notes to Financial Statements ............................................. 55
Report of Independent Registered Public Accounting Firm ................... 65
Tax Designation ........................................................... 66
Board Members and Officers ................................................ 67
Shareholder Information ................................................... 72
Annual Report
Economic and Market Overview
During the 12 months ended December 31, 2007, the U.S. economy advanced at a
moderate but uneven pace. After slow first quarter growth, gross domestic
product (GDP) advanced solidly in the second quarter, supported by federal
defense spending, accelerating exports and declining imports, and greater
business spending. In the third quarter, growth accelerated despite a struggling
housing market and the abrupt unraveling of the subprime mortgage market. The
housing downturn affected the overall economy by fourth quarter 2007 when GDP
growth decelerated as credit conditions worsened and consumer spending slowed.
Consumer confidence declined through period-end largely due to rising mortgage
and fuel costs, falling home prices and a weaker job market. Oil prices were
volatile and established a new record high in November, nearing $99 per barrel.
For the 12 months ended December 31, 2007, the core Consumer Price Index (CPI),
which excludes food and energy costs, rose 2.4%, which was higher than its
10-year average rate. 1
Facing the prospect of slower economic growth, the Federal Reserve Board lowered
the federal funds target rate to 4.25% from 5.25% during the period. As
investors fled riskier, poorer-performing assets, U.S. Treasuries rallied and
the 10-year Treasury note yield fell from 4.71% at the beginning of the period
to 4.04% on December 31, 2007.
The global economy remained resilient despite elevated energy prices and
widespread fears of contagion from the deteriorating U.S. housing situation.
Consumer and corporate demand strength (particularly in China and other
developing economies), generally favorable employment and accommodative monetary
policies continued to underpin the current global expansionary period that began
in 2002.
These factors also contributed to the strength of global equity markets during
2007. However, concerns about slower growth and declining asset quality surfaced
in the first quarter. Initially centered on the U.S. subprime mortgage
1. Source: Bureau of Labor Statistics.
Annual Report | 3
market, they spread in August to global capital markets. Difficulties in
assessing risk and the value of collateral in the structured finance industry
contributed to declining risk appetite among lenders and investors. The private
equity industry, which relies on the availability of cheap credit, played a
pivotal role in several large and high-profile acquisitions, helped boost merger
and acquisition activity in the first half of 2007, and was an important driver
of equity performance. A second-half tightening of liquidity led to slower deal
activity and weighed on market performance. However, in 2007, global merger and
acquisition activity still reached record levels.
To alleviate the credit crunch and restore investor confidence, the world's
major central banks infused capital into the system. However, credit and equity
markets continued to face headwinds as write-downs and losses from subprime
mortgage financing affected many large financial institutions toward the end of
the year, and equity prices remained volatile. For the year, however, global and
non-U.S. equity markets registered the fifth consecutive year of double-digit
total returns. Broad-based stock performance by European and Asian shares at
least doubled that of U.S. stocks, while emerging market equity returns more
than tripled those in developed markets. In addition, U.S. dollar weakness
versus the currencies of many major trading partners enhanced equity returns for
U.S.-based investors holding stocks denominated in these currencies.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Annual Report
Franklin Templeton Corefolio
Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Corefolio Allocation
Fund seeks capital appreciation through investments in an equally weighted
combination of Franklin Capital Growth Fund, Franklin Growth Fund, Mutual Shares
Fund and Templeton Growth Fund.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Corefolio Allocation Fund covers the
fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A posted a +5.20%
cumulative total return for the 12 months under review. The Fund underper-formed
its hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark's total return was
+6.51%. 1 You can find other performance data in the Performance Summary
beginning on page 7.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin
Capital Growth Fund, Franklin Growth Fund, Mutual Shares Fund and Templeton
Growth Fund. These underlying funds, in turn, invest primarily in U.S. and
foreign equity securities and, to a lesser extent, fixed income and money market
securities. As market conditions affect the underlying funds, we rebalance the
Fund's allocations to maintain the predetermined equal weightings of
approximately 25% of total net assets in each underlying fund whenever the
actual allocations exceed plus or minus 3% of the fixed allocation percentages.
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets. The benchmark
index's weightings are as follows: S&P 500 75% and MSCI World Index 25%. The
indexes are unmanaged and include reinvested distributions. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 37.
Annual Report | 5
ASSET ALLOCATION*
Franklin Templeton Corefolio Allocation Fund Based on Total Net
Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Equity 75.3%
Foreign Equity 24.6%
Short-Term Investments & Other Net Assets 0.1%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the fiscal year under review, the Fund's performance benefited most from
Franklin Capital Growth Fund - Advisor Class and Franklin Growth Fund - Advisor
Class. Mutual Shares Fund - Class Z and Templeton Growth Fund - Advisor Class
produced positive results but underperformed the Fund's 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
T. Anthony Coffey, CFA
Vice President of Franklin Advisers Inc.
Franklin Templeton Corefolio Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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 | Annual Report
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FTCOX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.13 $ 14.22 $ 14.09
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1717
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0107
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4084
- --------------------------------------------------------------------------------
TOTAL $ 0.5908
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FBCOX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.13 $ 14.12 $ 13.99
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $ 0.0678
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0107
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4084
- --------------------------------------------------------------------------------
TOTAL $ 0.4869
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FTCLX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.12 $ 14.08 $ 13.96
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $ 0.0777
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0107
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4084
- --------------------------------------------------------------------------------
TOTAL $ 0.4968
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.13 $ 14.20 $ 14.07
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $ 0.1444
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0107
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4084
- --------------------------------------------------------------------------------
TOTAL $ 0.5635
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$ 0.13 $ 14.25 $ 14.12
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $ 0.2194
- --------------------------------------------------------------------------------
Short-Term Capital Gain $ 0.0107
- --------------------------------------------------------------------------------
Long-Term Capital Gain $ 0.4084
- --------------------------------------------------------------------------------
TOTAL $ 0.6385
- --------------------------------------------------------------------------------
Annual 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 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +5.20% +29.29% +60.18%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 -0.85% +6.82% +9.87%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $ 9,915 $12,189 $15,097
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 1.40%
- ------------------------------------------------------------------------------------------------
With Waiver 1.25%
- ------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +4.49% +26.74% +55.48%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +0.49% +7.36% +10.28%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,049 $12,374 $15,348
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 2.05%
- ------------------------------------------------------------------------------------------------
With Waiver 1.90%
- ------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +4.50% +26.83% +55.45%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.50% +8.25% +10.60%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,350 $12,683 $15,545
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 2.04%
- ------------------------------------------------------------------------------------------------
With Waiver 1.89%
- ------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +5.02% +28.64% +59.05%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.02% +8.76% +11.18%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,502 $12,864 $15,905
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 1.55%
- ------------------------------------------------------------------------------------------------
With Waiver 1.40%
- ------------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +5.53% +30.52% +62.26%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.53% +9.28% +11.69%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,553 $13,052 $16,226
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 1.05%
- ------------------------------------------------------------------------------------------------
With Waiver 0.90%
- ------------------------------------------------------------------------------------------------
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.
8 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Corefolio
DATE Allocation Fund S&P 500 6 MSCI World Index 6
8/15/2003 $ 9,425 $ 10,000 $ 10,000
8/31/2003 $ 9,491 $ 10,101 $ 10,113
9/30/2003 $ 9,369 $ 9,993 $ 10,177
10/31/2003 $ 9,783 $ 10,559 $ 10,783
11/30/2003 $ 9,962 $ 10,652 $ 10,950
12/31/2003 $ 10,457 $ 11,210 $ 11,639
1/31/2004 $ 10,600 $ 11,416 $ 11,829
2/29/2004 $ 10,770 $ 11,575 $ 12,031
3/31/2004 $ 10,637 $ 11,400 $ 11,956
4/30/2004 $ 10,533 $ 11,221 $ 11,718
5/31/2004 $ 10,618 $ 11,375 $ 11,832
6/30/2004 $ 10,884 $ 11,596 $ 12,080
7/31/2004 $ 10,448 $ 11,212 $ 11,689
8/31/2004 $ 10,429 $ 11,258 $ 11,745
9/30/2004 $ 10,600 $ 11,380 $ 11,971
10/31/2004 $ 10,770 $ 11,554 $ 12,267
11/30/2004 $ 11,292 $ 12,021 $ 12,917
12/31/2004 $ 11,677 $ 12,430 $ 13,414
1/31/2005 $ 11,333 $ 12,127 $ 13,114
2/28/2005 $ 11,591 $ 12,382 $ 13,536
3/31/2005 $ 11,439 $ 12,163 $ 13,280
4/30/2005 $ 11,237 $ 11,932 $ 12,999
5/31/2005 $ 11,526 $ 12,312 $ 13,239
6/30/2005 $ 11,546 $ 12,330 $ 13,360
7/31/2005 $ 11,951 $ 12,788 $ 13,830
8/31/2005 $ 11,951 $ 12,671 $ 13,940
9/30/2005 $ 12,067 $ 12,774 $ 14,306
10/31/2005 $ 11,845 $ 12,561 $ 13,962
11/30/2005 $ 12,260 $ 13,036 $ 14,435
12/31/2005 $ 12,452 $ 13,041 $ 14,758
1/31/2006 $ 12,756 $ 13,386 $ 15,420
2/28/2006 $ 12,824 $ 13,422 $ 15,404
3/31/2006 $ 13,089 $ 13,589 $ 15,749
4/30/2006 $ 13,268 $ 13,772 $ 16,236
5/31/2006 $ 12,920 $ 13,375 $ 15,696
6/30/2006 $ 12,901 $ 13,394 $ 15,698
7/31/2006 $ 12,851 $ 13,476 $ 15,799
8/31/2006 $ 13,169 $ 13,797 $ 16,217
9/30/2006 $ 13,427 $ 14,152 $ 16,415
10/31/2006 $ 13,875 $ 14,614 $ 17,021
11/30/2006 $ 14,183 $ 14,891 $ 17,447
12/31/2006 $ 14,350 $ 15,100 $ 17,806
1/31/2007 $ 14,625 $ 15,329 $ 18,020
2/28/2007 $ 14,412 $ 15,029 $ 17,934
3/31/2007 $ 14,549 $ 15,197 $ 18,270
4/30/2007 $ 15,130 $ 15,870 $ 19,086
5/31/2007 $ 15,648 $ 16,424 $ 19,640
6/30/2007 $ 15,534 $ 16,151 $ 19,495
7/31/2007 $ 15,078 $ 15,650 $ 19,067
8/31/2007 $ 15,109 $ 15,885 $ 19,061
9/30/2007 $ 15,565 $ 16,479 $ 19,974
10/31/2007 $ 15,969 $ 16,741 $ 20,591
11/30/2007 $ 15,379 $ 16,041 $ 19,759
12/31/2007 $ 15,097 $ 15,930 $ 19,510
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS A 12/31/07
- ----------------------------------------------
1-Year -0.85%
- ----------------------------------------------
3-Year +6.82%
- ----------------------------------------------
Since Inception (8/15/03) +9.87%
- ----------------------------------------------
CLASS B (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Corefolio
DATE Allocation Fund S&P 500 6 MSCI World Index 6
8/15/2003 $ 10,000 $ 10,000 $ 10,000
8/31/2003 $ 10,070 $ 10,101 $ 10,113
9/30/2003 $ 9,930 $ 9,993 $ 10,177
10/31/2003 $ 10,360 $ 10,559 $ 10,783
11/30/2003 $ 10,550 $ 10,652 $ 10,950
12/31/2003 $ 11,062 $ 11,210 $ 11,639
1/31/2004 $ 11,203 $ 11,416 $ 11,829
2/29/2004 $ 11,374 $ 11,575 $ 12,031
3/31/2004 $ 11,223 $ 11,400 $ 11,956
4/30/2004 $ 11,113 $ 11,221 $ 11,718
5/31/2004 $ 11,193 $ 11,375 $ 11,832
6/30/2004 $ 11,474 $ 11,596 $ 12,080
7/31/2004 $ 11,002 $ 11,212 $ 11,689
8/31/2004 $ 10,982 $ 11,258 $ 11,745
9/30/2004 $ 11,143 $ 11,380 $ 11,971
10/31/2004 $ 11,324 $ 11,554 $ 12,267
11/30/2004 $ 11,866 $ 12,021 $ 12,917
12/31/2004 $ 12,268 $ 12,430 $ 13,414
1/31/2005 $ 11,893 $ 12,127 $ 13,114
2/28/2005 $ 12,156 $ 12,382 $ 13,536
3/31/2005 $ 11,996 $ 12,163 $ 13,280
4/30/2005 $ 11,781 $ 11,932 $ 12,999
5/31/2005 $ 12,077 $ 12,312 $ 13,239
6/30/2005 $ 12,087 $ 12,330 $ 13,360
7/31/2005 $ 12,506 $ 12,788 $ 13,830
8/31/2005 $ 12,496 $ 12,671 $ 13,940
9/30/2005 $ 12,608 $ 12,774 $ 14,306
10/31/2005 $ 12,373 $ 12,561 $ 13,962
11/30/2005 $ 12,802 $ 13,036 $ 14,435
12/31/2005 $ 12,990 $ 13,041 $ 14,758
1/31/2006 $ 13,309 $ 13,386 $ 15,420
2/28/2006 $ 13,360 $ 13,422 $ 15,404
3/31/2006 $ 13,639 $ 13,589 $ 15,749
4/30/2006 $ 13,817 $ 13,772 $ 16,236
5/31/2006 $ 13,441 $ 13,375 $ 15,696
6/30/2006 $ 13,420 $ 13,394 $ 15,698
7/31/2006 $ 13,357 $ 13,476 $ 15,799
8/31/2006 $ 13,681 $ 13,797 $ 16,217
9/30/2006 $ 13,942 $ 14,152 $ 16,415
10/31/2006 $ 14,401 $ 14,614 $ 17,021
11/30/2006 $ 14,715 $ 14,891 $ 17,447
12/31/2006 $ 14,879 $ 15,100 $ 17,806
1/31/2007 $ 15,156 $ 15,329 $ 18,020
2/28/2007 $ 14,922 $ 15,029 $ 17,934
3/31/2007 $ 15,055 $ 15,197 $ 18,270
4/30/2007 $ 15,650 $ 15,870 $ 19,086
5/31/2007 $ 16,181 $ 16,424 $ 19,640
6/30/2007 $ 16,051 $ 16,151 $ 19,495
7/31/2007 $ 15,564 $ 15,650 $ 19,067
8/31/2007 $ 15,596 $ 15,885 $ 19,061
9/30/2007 $ 16,062 $ 16,479 $ 19,974
10/31/2007 $ 16,462 $ 16,741 $ 20,591
11/30/2007 $ 15,845 $ 16,041 $ 19,759
12/31/2007 $ 15,348 $ 15,930 $ 19,510
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS B 12/31/07
- ----------------------------------------------
1-Year +0.49%
- ----------------------------------------------
3-Year +7.36%
- ----------------------------------------------
Since Inception (8/15/03) +10.28%
- ----------------------------------------------
Annual Report | 9
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS C 12/31/07
- ----------------------------------------------
1-Year +3.50%
- ----------------------------------------------
3-Year +8.25%
- ----------------------------------------------
Since Inception (8/15/03) +10.60%
- ----------------------------------------------
CLASS C (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Corefolio
DATE Allocation Fund S&P 500 6 MSCI World Index 6
8/15/2003 $ 10,000 $ 10,000 $ 10,000
8/31/2003 $ 10,070 $ 10,101 $ 10,113
9/30/2003 $ 9,930 $ 9,993 $ 10,177
10/31/2003 $ 10,360 $ 10,559 $ 10,783
11/30/2003 $ 10,540 $ 10,652 $ 10,950
12/31/2003 $ 11,054 $ 11,210 $ 11,639
1/31/2004 $ 11,194 $ 11,416 $ 11,829
2/29/2004 $ 11,365 $ 11,575 $ 12,031
3/31/2004 $ 11,215 $ 11,400 $ 11,956
4/30/2004 $ 11,104 $ 11,221 $ 11,718
5/31/2004 $ 11,194 $ 11,375 $ 11,832
6/30/2004 $ 11,466 $ 11,596 $ 12,080
7/31/2004 $ 10,993 $ 11,212 $ 11,689
8/31/2004 $ 10,973 $ 11,258 $ 11,745
9/30/2004 $ 11,144 $ 11,380 $ 11,971
10/31/2004 $ 11,315 $ 11,554 $ 12,267
11/30/2004 $ 11,858 $ 12,021 $ 12,917
12/31/2004 $ 12,256 $ 12,430 $ 13,414
1/31/2005 $ 11,892 $ 12,127 $ 13,114
2/28/2005 $ 12,155 $ 12,382 $ 13,536
3/31/2005 $ 11,995 $ 12,163 $ 13,280
4/30/2005 $ 11,770 $ 11,932 $ 12,999
5/31/2005 $ 12,066 $ 12,312 $ 13,239
6/30/2005 $ 12,087 $ 12,330 $ 13,360
7/31/2005 $ 12,495 $ 12,788 $ 13,830
8/31/2005 $ 12,495 $ 12,671 $ 13,940
9/30/2005 $ 12,597 $ 12,774 $ 14,306
10/31/2005 $ 12,362 $ 12,561 $ 13,962
11/30/2005 $ 12,801 $ 13,036 $ 14,435
12/31/2005 $ 12,994 $ 13,041 $ 14,758
1/31/2006 $ 13,303 $ 13,386 $ 15,420
2/28/2006 $ 13,365 $ 13,422 $ 15,404
3/31/2006 $ 13,634 $ 13,589 $ 15,749
4/30/2006 $ 13,811 $ 13,772 $ 16,236
5/31/2006 $ 13,435 $ 13,375 $ 15,696
6/30/2006 $ 13,414 $ 13,394 $ 15,698
7/31/2006 $ 13,351 $ 13,476 $ 15,799
8/31/2006 $ 13,675 $ 13,797 $ 16,217
9/30/2006 $ 13,937 $ 14,152 $ 16,415
10/31/2006 $ 14,397 $ 14,614 $ 17,021
11/30/2006 $ 14,710 $ 14,891 $ 17,447
12/31/2006 $ 14,875 $ 15,100 $ 17,806
1/31/2007 $ 15,152 $ 15,329 $ 18,020
2/28/2007 $ 14,918 $ 15,029 $ 17,934
3/31/2007 $ 15,051 $ 15,197 $ 18,270
4/30/2007 $ 15,648 $ 15,870 $ 19,086
5/31/2007 $ 16,179 $ 16,424 $ 19,640
6/30/2007 $ 16,038 $ 16,151 $ 19,495
7/31/2007 $ 15,561 $ 15,650 $ 19,067
8/31/2007 $ 15,593 $ 15,885 $ 19,061
9/30/2007 $ 16,060 $ 16,479 $ 19,974
10/31/2007 $ 16,461 $ 16,741 $ 20,591
11/30/2007 $ 15,843 $ 16,041 $ 19,759
12/31/2007 $ 15,545 $ 15,930 $ 19,510
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS R 12/31/07
- ----------------------------------------------
1-Year +5.02%
- ----------------------------------------------
3-Year +8.76%
- ----------------------------------------------
Since Inception (8/15/03) +11.18%
- ----------------------------------------------
CLASS R (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Corefolio
DATE Allocation Fund S&P 500 6 MSCI World Index 6
8/15/2003 $ 10,000 $ 10,000 $ 10,000
8/31/2003 $ 10,070 $ 10,101 $ 10,113
9/30/2003 $ 9,940 $ 9,993 $ 10,177
10/31/2003 $ 10,380 $ 10,559 $ 10,783
11/30/2003 $ 10,570 $ 10,652 $ 10,950
12/31/2003 $ 11,096 $ 11,210 $ 11,639
1/31/2004 $ 11,236 $ 11,416 $ 11,829
2/29/2004 $ 11,417 $ 11,575 $ 12,031
3/31/2004 $ 11,267 $ 11,400 $ 11,956
4/30/2004 $ 11,156 $ 11,221 $ 11,718
5/31/2004 $ 11,246 $ 11,375 $ 11,832
6/30/2004 $ 11,528 $ 11,596 $ 12,080
7/31/2004 $ 11,065 $ 11,212 $ 11,689
8/31/2004 $ 11,045 $ 11,258 $ 11,745
9/30/2004 $ 11,216 $ 11,380 $ 11,971
10/31/2004 $ 11,397 $ 11,554 $ 12,267
11/30/2004 $ 11,951 $ 12,021 $ 12,917
12/31/2004 $ 12,363 $ 12,430 $ 13,414
1/31/2005 $ 11,998 $ 12,127 $ 13,114
2/28/2005 $ 12,262 $ 12,382 $ 13,536
3/31/2005 $ 12,111 $ 12,163 $ 13,280
4/30/2005 $ 11,886 $ 11,932 $ 12,999
5/31/2005 $ 12,193 $ 12,312 $ 13,239
6/30/2005 $ 12,213 $ 12,330 $ 13,360
7/31/2005 $ 12,633 $ 12,788 $ 13,830
8/31/2005 $ 12,633 $ 12,671 $ 13,940
9/30/2005 $ 12,756 $ 12,774 $ 14,306
10/31/2005 $ 12,520 $ 12,561 $ 13,962
11/30/2005 $ 12,971 $ 13,036 $ 14,435
12/31/2005 $ 13,158 $ 13,041 $ 14,758
1/31/2006 $ 13,479 $ 13,386 $ 15,420
2/28/2006 $ 13,552 $ 13,422 $ 15,404
3/31/2006 $ 13,832 $ 13,589 $ 15,749
4/30/2006 $ 14,022 $ 13,772 $ 16,236
5/31/2006 $ 13,643 $ 13,375 $ 15,696
6/30/2006 $ 13,622 $ 13,394 $ 15,698
7/31/2006 $ 13,569 $ 13,476 $ 15,799
8/31/2006 $ 13,906 $ 13,797 $ 16,217
9/30/2006 $ 14,169 $ 14,152 $ 16,415
10/31/2006 $ 14,642 $ 14,614 $ 17,021
11/30/2006 $ 14,969 $ 14,891 $ 17,447
12/31/2006 $ 15,145 $ 15,100 $ 17,806
1/31/2007 $ 15,435 $ 15,329 $ 18,020
2/28/2007 $ 15,199 $ 15,029 $ 17,934
3/31/2007 $ 15,344 $ 15,197 $ 18,270
4/30/2007 $ 15,958 $ 15,870 $ 19,086
5/31/2007 $ 16,505 $ 16,424 $ 19,640
6/30/2007 $ 16,374 $ 16,151 $ 19,495
7/31/2007 $ 15,892 $ 15,650 $ 19,067
8/31/2007 $ 15,925 $ 15,885 $ 19,061
9/30/2007 $ 16,407 $ 16,479 $ 19,974
10/31/2007 $ 16,823 $ 16,741 $ 20,591
11/30/2007 $ 16,199 $ 16,041 $ 19,759
12/31/2007 $ 15,905 $ 15,930 $ 19,510
10 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Corefolio
DATE Allocation Fund S&P 500 6 MSCI World Index 6
8/15/2003 $ 10,000 $ 10,000 $ 10,000
8/31/2003 $ 10,070 $ 10,101 $ 10,113
9/30/2003 $ 9,940 $ 9,993 $ 10,177
10/31/2003 $ 10,380 $ 10,559 $ 10,783
11/30/2003 $ 10,580 $ 10,652 $ 10,950
12/31/2003 $ 11,102 $ 11,210 $ 11,639
1/31/2004 $ 11,253 $ 11,416 $ 11,829
2/29/2004 $ 11,434 $ 11,575 $ 12,031
3/31/2004 $ 11,293 $ 11,400 $ 11,956
4/30/2004 $ 11,193 $ 11,221 $ 11,718
5/31/2004 $ 11,273 $ 11,375 $ 11,832
6/30/2004 $ 11,565 $ 11,596 $ 12,080
7/31/2004 $ 11,092 $ 11,212 $ 11,689
8/31/2004 $ 11,082 $ 11,258 $ 11,745
9/30/2004 $ 11,263 $ 11,380 $ 11,971
10/31/2004 $ 11,444 $ 11,554 $ 12,267
11/30/2004 $ 12,008 $ 12,021 $ 12,917
12/31/2004 $ 12,432 $ 12,430 $ 13,414
1/31/2005 $ 12,066 $ 12,127 $ 13,114
2/28/2005 $ 12,341 $ 12,382 $ 13,536
3/31/2005 $ 12,190 $ 12,163 $ 13,280
4/30/2005 $ 11,974 $ 11,932 $ 12,999
5/31/2005 $ 12,282 $ 12,312 $ 13,239
6/30/2005 $ 12,313 $ 12,330 $ 13,360
7/31/2005 $ 12,734 $ 12,788 $ 13,830
8/31/2005 $ 12,744 $ 12,671 $ 13,940
9/30/2005 $ 12,867 $ 12,774 $ 14,306
10/31/2005 $ 12,631 $ 12,561 $ 13,962
11/30/2005 $ 13,083 $ 13,036 $ 14,435
12/31/2005 $ 13,294 $ 13,041 $ 14,758
1/31/2006 $ 13,618 $ 13,386 $ 15,420
2/28/2006 $ 13,691 $ 13,422 $ 15,404
3/31/2006 $ 13,995 $ 13,589 $ 15,749
4/30/2006 $ 14,186 $ 13,772 $ 16,236
5/31/2006 $ 13,804 $ 13,375 $ 15,696
6/30/2006 $ 13,794 $ 13,394 $ 15,698
7/31/2006 $ 13,741 $ 13,476 $ 15,799
8/31/2006 $ 14,090 $ 13,797 $ 16,217
9/30/2006 $ 14,366 $ 14,152 $ 16,415
10/31/2006 $ 14,853 $ 14,614 $ 17,021
11/30/2006 $ 15,192 $ 14,891 $ 17,447
12/31/2006 $ 15,376 $ 15,100 $ 17,806
1/31/2007 $ 15,680 $ 15,329 $ 18,020
2/28/2007 $ 15,452 $ 15,029 $ 17,934
3/31/2007 $ 15,599 $ 15,197 $ 18,270
4/30/2007 $ 16,220 $ 15,870 $ 19,086
5/31/2007 $ 16,796 $ 16,424 $ 19,640
6/30/2007 $ 16,663 $ 16,151 $ 19,495
7/31/2007 $ 16,186 $ 15,650 $ 19,067
8/31/2007 $ 16,220 $ 15,885 $ 19,061
9/30/2007 $ 16,718 $ 16,479 $ 19,974
10/31/2007 $ 17,150 $ 16,741 $ 20,591
11/30/2007 $ 16,519 $ 16,041 $ 19,759
12/31/2007 $ 16,226 $ 15,930 $ 19,510
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
ADVISOR CLASS 12/31/07
- ----------------------------------------------
1-Year +5.53%
- ----------------------------------------------
3-Year +9.28%
- ----------------------------------------------
Since Inception (8/15/03) +11.69%
- ----------------------------------------------
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. If the administrator had not waived fees, 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.
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. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets.
Annual Report | 11
Your Fund's Expenses
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
12 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $ 971.90 $2.44
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.74 $2.50
- --------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $ 968.70 $5.86
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.26 $6.01
- --------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $ 969.20 $5.81
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.31 $5.96
- --------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $ 971.30 $3.38
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.78 $3.47
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
Actual $1,000 $ 973.80 $0.90
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.30 $0.92
- --------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.49%; B: 1.18%; C: 1.17%; R: 0.68%; and Advisor: 0.18%),
multiplied by the average account value over the period, multiplied by 184/365
to reflect the one-half year period.
Annual Report | 13
Franklin Templeton Founding Funds
Allocation Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton Founding Funds
Allocation Fund's principal investment goal is capital appreciation, with a
secondary goal of income. The Fund invests in an equally weighted combination of
Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Founding Funds Allocation Fund covers
the fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A posted a +3.12%
cumulative total return for the 12 months under review. The Fund underperformed
its hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark's total return was
+6.83%. 1 You can find other performance data in the Performance Summary
beginning on page 16.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin
Income Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities and, to a
lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets. The benchmark
index's weightings are as follows: S&P 500 67% and MSCI World Index 33%. The
indexes are unmanaged and include reinvested distributions. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 43.
14 | Annual Report
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 fiscal year under review, Franklin Income Fund - Advisor Class,
Mutual Shares Fund - Class Z and Templeton Growth Fund -Advisor Class produced
positive results, but underperformed the Fund's 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 Franklin Advisers, Inc.
Franklin Templeton Founding Funds Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Hybrid 33.5%
Foreign Equity 33.2%
Domestic Equity 33.2%
Short-Term Investments & Other Net Assets 0.1%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
Annual Report | 15
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: FFALX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.48 $13.50 $13.98
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.4429
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.4664
- --------------------------------------------------------------------------------
TOTAL $0.9107
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FFABX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.48 $13.45 $13.93
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.3368
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.4664
- --------------------------------------------------------------------------------
TOTAL $0.8046
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FFACX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.49 $13.29 $13.78
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.3581
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.4664
- --------------------------------------------------------------------------------
TOTAL $0.8259
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FFARX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.48 $13.50 $13.98
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.4158
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.4664
- --------------------------------------------------------------------------------
TOTAL $0.8836
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.47 $13.58 $14.05
- --------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.4854
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.0014
- --------------------------------------------------------------------------------
Long-Term Capital Gain $0.4664
- --------------------------------------------------------------------------------
TOTAL $0.9532
- --------------------------------------------------------------------------------
16 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------------------
CLASS A 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.12% +30.83% +65.81%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 3 -2.79% +7.23% +10.74%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $9,721 $12,330 $15,628
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------
Without Waiver 1.27%
- --------------------------------------------------------------------------------------------
With Waiver 1.20%
- --------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------
Cumulative Total Return 2 +2.36% +28.09% +61.08%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 3 -1.51% +7.75% +11.19%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $9,849 $12,509 $15,908
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------
Without Waiver 1.92%
- --------------------------------------------------------------------------------------------
With Waiver 1.85%
- --------------------------------------------------------------------------------------------
CLASS C 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------
Cumulative Total Return 2 +2.47% +28.26% +61.16%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 3 +1.50% +8.65% +11.52%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,150 $12,826 $16,116
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------
Without Waiver 1.92%
- --------------------------------------------------------------------------------------------
With Waiver 1.85%
- --------------------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------
Cumulative Total Return 2 +2.92% +30.13% +64.85%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 3 +2.92% +9.18% +12.10%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,292 $13,013 $16,485
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------
Without Waiver 1.42%
- --------------------------------------------------------------------------------------------
With Waiver 1.35%
- --------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/15/03)
- --------------------------------------------------------------------------------------------
Cumulative Total Return 2 +3.48% +32.11% +68.36%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.48% +9.73% +12.64%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,348 $13,211 $16,836
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- --------------------------------------------------------------------------------------------
Without Waiver 0.92%
- --------------------------------------------------------------------------------------------
With Waiver 0.85%
- --------------------------------------------------------------------------------------------
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.
Annual Report | 17
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS A 12/31/07
- ----------------------------------------------
1-Year -2.79%
- ----------------------------------------------
3-Year +7.23%
- ----------------------------------------------
Since Inception (8/15/03) +10.74%
- ----------------------------------------------
CLASS A (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Founding Funds
DATE Allocation Fund S&P 500 6 MSCI World Index 6
- --------------------------------------------------------------------------------
8/15/2003 $ 9,425 $10,000 $10,000
8/31/2003 $ 9,463 $10,101 $10,113
9/30/2003 $ 9,519 $ 9,993 $10,177
10/31/2003 $ 9,811 $10,559 $10,783
11/30/2003 $10,019 $10,652 $10,950
12/31/2003 $10,517 $11,210 $11,639
1/31/2004 $10,650 $11,416 $11,829
2/29/2004 $10,850 $11,575 $12,031
3/31/2004 $10,774 $11,400 $11,956
4/30/2004 $10,631 $11,221 $11,718
5/31/2004 $10,641 $11,375 $11,832
6/30/2004 $10,802 $11,596 $12,080
7/31/2004 $10,650 $11,212 $11,689
8/31/2004 $10,783 $11,258 $11,745
9/30/2004 $10,954 $11,380 $11,971
10/31/2004 $11,135 $11,554 $12,267
11/30/2004 $11,610 $12,021 $12,917
12/31/2004 $11,945 $12,430 $13,414
1/31/2005 $11,693 $12,127 $13,114
2/28/2005 $12,082 $12,382 $13,536
3/31/2005 $11,903 $12,163 $13,280
4/30/2005 $11,727 $11,932 $12,999
5/31/2005 $11,903 $12,312 $13,239
6/30/2005 $12,119 $12,330 $13,360
7/31/2005 $12,404 $12,788 $13,830
8/31/2005 $12,473 $12,671 $13,940
9/30/2005 $12,601 $12,774 $14,306
10/31/2005 $12,237 $12,561 $13,962
11/30/2005 $12,404 $13,036 $14,435
12/31/2005 $12,700 $13,041 $14,758
1/31/2006 $13,086 $13,386 $15,420
2/28/2006 $13,157 $13,422 $15,404
3/31/2006 $13,379 $13,589 $15,749
4/30/2006 $13,627 $13,772 $16,236
5/31/2006 $13,400 $13,375 $15,696
6/30/2006 $13,431 $13,394 $15,698
7/31/2006 $13,627 $13,476 $15,799
8/31/2006 $13,937 $13,797 $16,217
9/30/2006 $14,103 $14,152 $16,415
10/31/2006 $14,526 $14,614 $17,021
11/30/2006 $14,857 $14,891 $17,447
12/31/2006 $15,156 $15,100 $17,806
1/31/2007 $15,351 $15,329 $18,020
2/28/2007 $15,275 $15,029 $17,934
3/31/2007 $15,502 $15,197 $18,270
4/30/2007 $16,021 $15,870 $19,086
5/31/2007 $16,407 $16,424 $19,640
6/30/2007 $16,241 $16,151 $19,495
7/31/2007 $15,668 $15,650 $19,067
8/31/2007 $15,613 $15,885 $19,061
9/30/2007 $16,021 $16,479 $19,974
10/31/2007 $16,296 $16,741 $20,591
11/30/2007 $15,811 $16,041 $19,759
12/31/2007 $15,628 $15,930 $19,510
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS B 12/31/07
- ----------------------------------------------
1-Year -1.51%
- ----------------------------------------------
3-Year +7.75%
- ----------------------------------------------
Since Inception (8/15/03) +11.19%
- ----------------------------------------------
CLASS B (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Founding Funds
DATE Allocation Fund S&P 500 6 MSCI World Index 6
- --------------------------------------------------------------------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,090 $ 9,993 $10,177
10/31/2003 $10,400 $10,559 $10,783
11/30/2003 $10,610 $10,652 $10,950
12/31/2003 $11,128 $11,210 $11,639
1/31/2004 $11,279 $11,416 $11,829
2/29/2004 $11,470 $11,575 $12,031
3/31/2004 $11,390 $11,400 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,375 $11,832
6/30/2004 $11,400 $11,596 $12,080
7/31/2004 $11,239 $11,212 $11,689
8/31/2004 $11,360 $11,258 $11,745
9/30/2004 $11,541 $11,380 $11,971
10/31/2004 $11,722 $11,554 $12,267
11/30/2004 $12,216 $12,021 $12,917
12/31/2004 $12,576 $12,430 $13,414
1/31/2005 $12,298 $12,127 $13,114
2/28/2005 $12,689 $12,382 $13,536
3/31/2005 $12,501 $12,163 $13,280
4/30/2005 $12,303 $11,932 $12,999
5/31/2005 $12,490 $12,312 $13,239
6/30/2005 $12,708 $12,330 $13,360
7/31/2005 $12,998 $12,788 $13,830
8/31/2005 $13,061 $12,671 $13,940
9/30/2005 $13,185 $12,774 $14,306
10/31/2005 $12,801 $12,561 $13,962
11/30/2005 $12,967 $13,036 $14,435
12/31/2005 $13,277 $13,041 $14,758
1/31/2006 $13,671 $13,386 $15,420
2/28/2006 $13,735 $13,422 $15,404
3/31/2006 $13,968 $13,589 $15,749
4/30/2006 $14,207 $13,772 $16,236
5/31/2006 $13,968 $13,375 $15,696
6/30/2006 $14,001 $13,394 $15,698
7/31/2006 $14,196 $13,476 $15,799
8/31/2006 $14,500 $13,797 $16,217
9/30/2006 $14,662 $14,152 $16,415
10/31/2006 $15,096 $14,614 $17,021
11/30/2006 $15,443 $14,891 $17,447
12/31/2006 $15,737 $15,100 $17,806
1/31/2007 $15,929 $15,329 $18,020
2/28/2007 $15,850 $15,029 $17,934
3/31/2007 $16,065 $15,197 $18,270
4/30/2007 $16,593 $15,870 $19,086
5/31/2007 $16,996 $16,424 $19,640
6/30/2007 $16,800 $16,151 $19,495
7/31/2007 $16,214 $15,650 $19,067
8/31/2007 $16,145 $15,885 $19,061
9/30/2007 $16,547 $16,479 $19,974
10/31/2007 $16,835 $16,741 $20,591
11/30/2007 $16,318 $16,041 $19,759
12/31/2007 $15,908 $15,930 $19,510
18 | Annual Report
Performance Summary (CONTINUED)
CLASS C (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Founding Funds
DATE Allocation Fund S&P 500 6 MSCI World Index 6
- --------------------------------------------------------------------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,090 $ 9,993 $10,177
10/31/2003 $10,390 $10,559 $10,783
11/30/2003 $10,610 $10,652 $10,950
12/31/2003 $11,129 $11,210 $11,639
1/31/2004 $11,270 $11,416 $11,829
2/29/2004 $11,471 $11,575 $12,031
3/31/2004 $11,391 $11,400 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,375 $11,832
6/30/2004 $11,401 $11,596 $12,080
7/31/2004 $11,240 $11,212 $11,689
8/31/2004 $11,360 $11,258 $11,745
9/30/2004 $11,542 $11,380 $11,971
10/31/2004 $11,723 $11,554 $12,267
11/30/2004 $12,216 $12,021 $12,917
12/31/2004 $12,565 $12,430 $13,414
1/31/2005 $12,298 $12,127 $13,114
2/28/2005 $12,688 $12,382 $13,536
3/31/2005 $12,500 $12,163 $13,280
4/30/2005 $12,303 $11,932 $12,999
5/31/2005 $12,490 $12,312 $13,239
6/30/2005 $12,697 $12,330 $13,360
7/31/2005 $12,998 $12,788 $13,830
8/31/2005 $13,060 $12,671 $13,940
9/30/2005 $13,185 $12,774 $14,306
10/31/2005 $12,801 $12,561 $13,962
11/30/2005 $12,967 $13,036 $14,435
12/31/2005 $13,272 $13,041 $14,758
1/31/2006 $13,670 $13,386 $15,420
2/28/2006 $13,734 $13,422 $15,404
3/31/2006 $13,969 $13,589 $15,749
4/30/2006 $14,209 $13,772 $16,236
5/31/2006 $13,969 $13,375 $15,696
6/30/2006 $13,991 $13,394 $15,698
7/31/2006 $14,198 $13,476 $15,799
8/31/2006 $14,504 $13,797 $16,217
9/30/2006 $14,668 $14,152 $16,415
10/31/2006 $15,094 $14,614 $17,021
11/30/2006 $15,444 $14,891 $17,447
12/31/2006 $15,728 $15,100 $17,806
1/31/2007 $15,933 $15,329 $18,020
2/28/2007 $15,853 $15,029 $17,934
3/31/2007 $16,070 $15,197 $18,270
4/30/2007 $16,592 $15,870 $19,086
5/31/2007 $16,999 $16,424 $19,640
6/30/2007 $16,801 $16,151 $19,495
7/31/2007 $16,209 $15,650 $19,067
8/31/2007 $16,151 $15,885 $19,061
9/30/2007 $16,546 $16,479 $19,974
10/31/2007 $16,836 $16,741 $20,591
11/30/2007 $16,314 $16,041 $19,759
12/31/2007 $16,116 $15,930 $19,510
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS C 12/31/07
- ----------------------------------------------
1-Year +1.50%
- ----------------------------------------------
3-Year +8.65%
- ----------------------------------------------
Since Inception (8/15/03) +11.52%
- ----------------------------------------------
CLASS R (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Founding Funds
DATE Allocation Fund S&P 500 6 MSCI World Index 6
- --------------------------------------------------------------------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,100 $ 9,993 $10,177
10/31/2003 $10,410 $10,559 $10,783
11/30/2003 $10,630 $10,652 $10,950
12/31/2003 $11,168 $11,210 $11,639
1/31/2004 $11,319 $11,416 $11,829
2/29/2004 $11,521 $11,575 $12,031
3/31/2004 $11,440 $11,400 $11,956
4/30/2004 $11,279 $11,221 $11,718
5/31/2004 $11,289 $11,375 $11,832
6/30/2004 $11,471 $11,596 $12,080
7/31/2004 $11,309 $11,212 $11,689
8/31/2004 $11,440 $11,258 $11,745
9/30/2004 $11,622 $11,380 $11,971
10/31/2004 $11,803 $11,554 $12,267
11/30/2004 $12,307 $12,021 $12,917
12/31/2004 $12,668 $12,430 $13,414
1/31/2005 $12,400 $12,127 $13,114
2/28/2005 $12,803 $12,382 $13,536
3/31/2005 $12,624 $12,163 $13,280
4/30/2005 $12,426 $11,932 $12,999
5/31/2005 $12,614 $12,312 $13,239
6/30/2005 $12,843 $12,330 $13,360
7/31/2005 $13,145 $12,788 $13,830
8/31/2005 $13,207 $12,671 $13,940
9/30/2005 $13,343 $12,774 $14,306
10/31/2005 $12,957 $12,561 $13,962
11/30/2005 $13,134 $13,036 $14,435
12/31/2005 $13,444 $13,041 $14,758
1/31/2006 $13,852 $13,386 $15,420
2/28/2006 $13,928 $13,422 $15,404
3/31/2006 $14,163 $13,589 $15,749
4/30/2006 $14,414 $13,772 $16,236
5/31/2006 $14,174 $13,375 $15,696
6/30/2006 $14,217 $13,394 $15,698
7/31/2006 $14,414 $13,476 $15,799
8/31/2006 $14,743 $13,797 $16,217
9/30/2006 $14,907 $14,152 $16,415
10/31/2006 $15,356 $14,614 $17,021
11/30/2006 $15,717 $14,891 $17,447
12/31/2006 $16,018 $15,100 $17,806
1/31/2007 $16,224 $15,329 $18,020
2/28/2007 $16,144 $15,029 $17,934
3/31/2007 $16,373 $15,197 $18,270
4/30/2007 $16,932 $15,870 $19,086
5/31/2007 $17,340 $16,424 $19,640
6/30/2007 $17,153 $16,151 $19,495
7/31/2007 $16,547 $15,650 $19,067
8/31/2007 $16,489 $15,885 $19,061
9/30/2007 $16,909 $16,479 $19,974
10/31/2007 $17,212 $16,741 $20,591
11/30/2007 $16,687 $16,041 $19,759
12/31/2007 $16,485 $15,930 $19,510
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS R 12/31/07
- ----------------------------------------------
1-Year +2.92%
- ----------------------------------------------
3-Year +9.18%
- ----------------------------------------------
Since Inception (8/15/03) +12.10%
- ----------------------------------------------
Annual Report | 19
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
ADVISOR CLASS 12/31/07
- ----------------------------------------------
1-Year +3.48%
- ----------------------------------------------
3-Year +9.73%
- ----------------------------------------------
Since Inception (8/15/03) +12.64%
- ----------------------------------------------
ADVISOR CLASS (8/15/03-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT Founding Funds
DATE Allocation Fund S&P 500 6 MSCI World Index 6
- --------------------------------------------------------------------------------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,100 $ 9,993 $10,177
10/31/2003 $10,420 $10,559 $10,783
11/30/2003 $10,640 $10,652 $10,950
12/31/2003 $11,175 $11,210 $11,639
1/31/2004 $11,326 $11,416 $11,829
2/29/2004 $11,538 $11,575 $12,031
3/31/2004 $11,457 $11,400 $11,956
4/30/2004 $11,306 $11,221 $11,718
5/31/2004 $11,326 $11,375 $11,832
6/30/2004 $11,508 $11,596 $12,080
7/31/2004 $11,346 $11,212 $11,689
8/31/2004 $11,477 $11,258 $11,745
9/30/2004 $11,669 $11,380 $11,971
10/31/2004 $11,861 $11,554 $12,267
11/30/2004 $12,375 $12,021 $12,917
12/31/2004 $12,744 $12,430 $13,414
1/31/2005 $12,475 $12,127 $13,114
2/28/2005 $12,889 $12,382 $13,536
3/31/2005 $12,710 $12,163 $13,280
4/30/2005 $12,511 $11,932 $12,999
5/31/2005 $12,710 $12,312 $13,239
6/30/2005 $12,940 $12,330 $13,360
7/31/2005 $13,253 $12,788 $13,830
8/31/2005 $13,326 $12,671 $13,940
9/30/2005 $13,472 $12,774 $14,306
10/31/2005 $13,086 $12,561 $13,962
11/30/2005 $13,263 $13,036 $14,435
12/31/2005 $13,589 $13,041 $14,758
1/31/2006 $14,011 $13,386 $15,420
2/28/2006 $14,087 $13,422 $15,404
3/31/2006 $14,335 $13,589 $15,749
4/30/2006 $14,599 $13,772 $16,236
5/31/2006 $14,357 $13,375 $15,696
6/30/2006 $14,401 $13,394 $15,698
7/31/2006 $14,621 $13,476 $15,799
8/31/2006 $14,952 $13,797 $16,217
9/30/2006 $15,128 $14,152 $16,415
10/31/2006 $15,591 $14,614 $17,021
11/30/2006 $15,955 $14,891 $17,447
12/31/2006 $16,270 $15,100 $17,806
1/31/2007 $16,491 $15,329 $18,020
2/28/2007 $16,421 $15,029 $17,934
3/31/2007 $16,664 $15,197 $18,270
4/30/2007 $17,229 $15,870 $19,086
5/31/2007 $17,653 $16,424 $19,640
6/30/2007 $17,477 $16,151 $19,495
7/31/2007 $16,864 $15,650 $19,067
8/31/2007 $16,817 $15,885 $19,061
9/30/2007 $17,253 $16,479 $19,974
10/31/2007 $17,559 $16,741 $20,591
11/30/2007 $17,029 $16,041 $19,759
12/31/2007 $16,836 $15,930 $19,510
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. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS 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 OR 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. If the administrator had not waived fees, 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.
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. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets.
20 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 21
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ----------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 962.20 $2.42
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.74 $2.50
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 958.80 $5.88
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.21 $6.06
- ----------------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 959.20 $5.88
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.21 $6.06
- ----------------------------------------------------------------------------------------------------------------------
CLASS R
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 961.10 $3.41
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.73 $3.52
- ----------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 963.40 $0.94
- ----------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.25 $0.97
- ----------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.49%; B: 1.19%; C: 1.19%; R: 0.69%; and Advisor: 0.19%),
multiplied by the average account value over the period, multiplied by 184/365
to reflect the one-half year period.
22 | Annual Report
Franklin Templeton Perspectives
Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Perspectives
Allocation Fund seeks capital appreciation through investments in an equally
weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and
Templeton Growth Fund.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton Perspectives Allocation Fund covers
the fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A posted a +6.79%
cumulative total return for the 12 months under review. The Fund performed
comparably to its hybrid benchmark, which comprised a weighted combination of
the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital
International (MSCI) World Index. For the reporting period, the hybrid
benchmark's total return was +6.83%. 1 You can find other performance data in
the Performance Summary beginning on page 25.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin Flex
Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities and, to a
lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets. The benchmark
index's weightings are as follows: S&P 500 67% and MSCI World Index 33%. The
indexes are unmanaged and include reinvested distributions. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 48.
Annual Report | 23
ASSET ALLOCATION*
Franklin Templeton Perspectives
Allocation Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Equity 66.7%
Foreign Equity 33.0%
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 fiscal year under review, the Fund's performance benefited most from
Franklin Flex Cap Growth Fund - Advisor Class and Franklin Growth Fund - Advisor
Class. Templeton Growth Fund - Advisor Class produced positive results but
underperformed the Fund's 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 Franklin Advisers Inc.
Franklin Templeton Perspectives Allocation Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
24 | Annual Report
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------
CLASS A (SYMBOL: FPAAX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.27 $13.17 $12.90
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.1615
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0071
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.4240
- --------------------------------------------------------------------------------------
TOTAL $0.5926
- --------------------------------------------------------------------------------------
CLASS C (SYMBOL: FPCAX) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.26 $13.08 $12.82
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.0804
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0071
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.4240
- --------------------------------------------------------------------------------------
TOTAL $0.5115
- --------------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.27 $13.17 $12.90
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.1351
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0071
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.4240
- --------------------------------------------------------------------------------------
TOTAL $0.5662
- --------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.29 $13.22 $12.93
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.2036
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0071
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.4240
- --------------------------------------------------------------------------------------
TOTAL $0.6347
- --------------------------------------------------------------------------------------
Annual Report | 25
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.79% +32.19% +49.28%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +0.62% +7.61% +10.52%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,062 $12,462 $14,069
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 1.49%
- ------------------------------------------------------------------------------------------------
With Waiver 1.27%
- ------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.11% +29.61% +46.02%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +5.11% +9.03% +11.73%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,511 $12,961 $14,602
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 2.13%
- ------------------------------------------------------------------------------------------------
With Waiver 1.91%
- ------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +6.58% +31.61% +48.48%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +6.58% +9.59% +12.28%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,658 $13,161 $14,848
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 1.64%
- ------------------------------------------------------------------------------------------------
With Waiver 1.42%
- ------------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.26% +33.68% +51.07%
- ------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.26% +10.16% +12.85%
- ------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,726 $13,368 $15,107
- ------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------
Without Waiver 1.14%
- ------------------------------------------------------------------------------------------------
With Waiver 0.92%
- ------------------------------------------------------------------------------------------------
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.
26 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
CLASS A (8/2/04-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Perspectives Allocation Fund S&P 500 6 MSCI World Index 6
8/2/2004 $ 9,425 $10,000 $10,000
8/31/2004 $ 9,510 $10,040 $10,048
9/30/2004 $ 9,670 $10,149 $10,241
10/31/2004 $ 9,840 $10,304 $10,494
11/30/2004 $10,311 $10,721 $11,050
12/31/2004 $10,643 $11,086 $11,475
1/31/2005 $10,367 $10,816 $11,219
2/28/2005 $10,681 $11,043 $11,580
3/31/2005 $10,519 $10,848 $11,361
4/30/2005 $10,328 $10,642 $11,120
5/31/2005 $10,566 $10,981 $11,326
6/30/2005 $10,624 $10,996 $11,429
7/31/2005 $10,958 $11,405 $11,831
8/31/2005 $11,006 $11,301 $11,926
9/30/2005 $11,168 $11,393 $12,239
10/31/2005 $10,910 $11,203 $11,944
11/30/2005 $11,273 $11,626 $12,349
12/31/2005 $11,488 $11,631 $12,626
1/31/2006 $11,916 $11,938 $13,192
2/28/2006 $11,945 $11,971 $13,178
3/31/2006 $12,169 $12,120 $13,473
4/30/2006 $12,318 $12,283 $13,890
5/31/2006 $11,903 $11,929 $13,428
6/30/2006 $11,942 $11,945 $13,429
7/31/2006 $11,922 $12,019 $13,516
8/31/2006 $12,189 $12,305 $13,874
9/30/2006 $12,377 $12,622 $14,043
10/31/2006 $12,753 $13,033 $14,562
11/30/2006 $13,030 $13,281 $14,926
12/31/2006 $13,175 $13,467 $15,233
1/31/2007 $13,461 $13,671 $15,416
2/28/2007 $13,257 $13,404 $15,342
3/31/2007 $13,429 $13,554 $15,629
4/30/2007 $13,948 $14,154 $16,328
5/31/2007 $14,353 $14,648 $16,802
6/30/2007 $14,280 $14,405 $16,678
7/31/2007 $13,865 $13,958 $16,312
8/31/2007 $13,928 $14,167 $16,307
9/30/2007 $14,436 $14,697 $17,088
10/31/2007 $14,789 $14,931 $17,616
11/30/2007 $14,249 $14,307 $16,904
12/31/2007 $14,069 $14,207 $16,690
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS A 12/31/07
- ----------------------------------------------
1-Year +0.62%
- ----------------------------------------------
3-Year +7.61%
- ----------------------------------------------
Since Inception (8/2/04) +10.52%
- ----------------------------------------------
CLASS C (8/2/04-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Perspectives Allocation Fund S&P 500 6 MSCI World Index 6
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,430 $10,304 $10,494
11/30/2004 $10,910 $10,721 $11,050
12/31/2004 $11,266 $11,086 $11,475
1/31/2005 $10,964 $10,816 $11,219
2/28/2005 $11,286 $11,043 $11,580
3/31/2005 $11,115 $10,848 $11,361
4/30/2005 $10,902 $10,642 $11,120
5/31/2005 $11,155 $10,981 $11,326
6/30/2005 $11,206 $10,996 $11,429
7/31/2005 $11,550 $11,405 $11,831
8/31/2005 $11,591 $11,301 $11,926
9/30/2005 $11,763 $11,393 $12,239
10/31/2005 $11,479 $11,203 $11,944
11/30/2005 $11,854 $11,626 $12,349
12/31/2005 $12,080 $11,631 $12,626
1/31/2006 $12,512 $11,938 $13,192
2/28/2006 $12,543 $11,971 $13,178
3/31/2006 $12,769 $12,120 $13,473
4/30/2006 $12,915 $12,283 $13,890
5/31/2006 $12,476 $11,929 $13,428
6/30/2006 $12,518 $11,945 $13,429
7/31/2006 $12,487 $12,019 $13,516
8/31/2006 $12,758 $12,305 $13,874
9/30/2006 $12,946 $12,622 $14,043
10/31/2006 $13,333 $13,033 $14,562
11/30/2006 $13,615 $13,281 $14,926
12/31/2006 $13,761 $13,467 $15,233
1/31/2007 $14,050 $13,671 $15,416
2/28/2007 $13,836 $13,404 $15,342
3/31/2007 $14,006 $13,554 $15,629
4/30/2007 $14,541 $14,154 $16,328
5/31/2007 $14,955 $14,648 $16,802
6/30/2007 $14,868 $14,405 $16,678
7/31/2007 $14,421 $13,958 $16,312
8/31/2007 $14,486 $14,167 $16,307
9/30/2007 $15,010 $14,697 $17,088
10/31/2007 $15,370 $14,931 $17,616
11/30/2007 $14,792 $14,307 $16,904
12/31/2007 $14,602 $14,207 $16,690
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS C 12/31/07
- ----------------------------------------------
1-Year +5.11%
- ----------------------------------------------
3-Year +9.03%
- ----------------------------------------------
Since Inception (8/2/04) +11.73%
- ----------------------------------------------
Annual Report | 27
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
CLASS R 12/31/07
- ----------------------------------------------
1-Year +6.58%
- ----------------------------------------------
3-Year +9.59%
- ----------------------------------------------
Since Inception (8/2/04) +12.28%
- ----------------------------------------------
CLASS R (8/2/04-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Perspectives Allocation Fund S&P 500 6 MSCI World Index 6
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,080 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,440 $10,304 $10,494
11/30/2004 $10,930 $10,721 $11,050
12/31/2004 $11,281 $11,086 $11,475
1/31/2005 $10,989 $10,816 $11,219
2/28/2005 $11,322 $11,043 $11,580
3/31/2005 $11,159 $10,848 $11,361
4/30/2005 $10,946 $10,642 $11,120
5/31/2005 $11,199 $10,981 $11,326
6/30/2005 $11,260 $10,996 $11,429
7/31/2005 $11,605 $11,405 $11,831
8/31/2005 $11,655 $11,301 $11,926
9/30/2005 $11,828 $11,393 $12,239
10/31/2005 $11,554 $11,203 $11,944
11/30/2005 $11,939 $11,626 $12,349
12/31/2005 $12,168 $11,631 $12,626
1/31/2006 $12,612 $11,938 $13,192
2/28/2006 $12,643 $11,971 $13,178
3/31/2006 $12,880 $12,120 $13,473
4/30/2006 $13,037 $12,283 $13,890
5/31/2006 $12,587 $11,929 $13,428
6/30/2006 $12,639 $11,945 $13,429
7/31/2006 $12,608 $12,019 $13,516
8/31/2006 $12,890 $12,305 $13,874
9/30/2006 $13,089 $12,622 $14,043
10/31/2006 $13,487 $13,033 $14,562
11/30/2006 $13,781 $13,281 $14,926
12/31/2006 $13,931 $13,467 $15,233
1/31/2007 $14,223 $13,671 $15,416
2/28/2007 $14,017 $13,404 $15,342
3/31/2007 $14,200 $13,554 $15,629
4/30/2007 $14,738 $14,154 $16,328
5/31/2007 $15,166 $14,648 $16,802
6/30/2007 $15,078 $14,405 $16,678
7/31/2007 $14,639 $13,958 $16,312
8/31/2007 $14,705 $14,167 $16,307
9/30/2007 $15,243 $14,697 $17,088
10/31/2007 $15,616 $14,931 $17,616
11/30/2007 $15,034 $14,307 $16,904
12/31/2007 $14,848 $14,207 $16,690
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------
ADVISOR CLASS 12/31/07
- ----------------------------------------------
1-Year +7.26%
- ----------------------------------------------
3-Year +10.16%
- ----------------------------------------------
Since Inception (8/2/04) +12.85%
- ----------------------------------------------
ADVISOR CLASS (8/2/04-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
DATE FT Perspectives Allocation Fund S&P 500 6 MSCI World Index 6
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,260 $10,149 $10,241
10/31/2004 $10,450 $10,304 $10,494
11/30/2004 $10,950 $10,721 $11,050
12/31/2004 $11,301 $11,086 $11,475
1/31/2005 $11,008 $10,816 $11,219
2/28/2005 $11,341 $11,043 $11,580
3/31/2005 $11,178 $10,848 $11,361
4/30/2005 $10,975 $10,642 $11,120
5/31/2005 $11,239 $10,981 $11,326
6/30/2005 $11,300 $10,996 $11,429
7/31/2005 $11,655 $11,405 $11,831
8/31/2005 $11,705 $11,301 $11,926
9/30/2005 $11,888 $11,393 $12,239
10/31/2005 $11,614 $11,203 $11,944
11/30/2005 $12,010 $11,626 $12,349
12/31/2005 $12,241 $11,631 $12,626
1/31/2006 $12,697 $11,938 $13,192
2/28/2006 $12,728 $11,971 $13,178
3/31/2006 $12,977 $12,120 $13,473
4/30/2006 $13,134 $12,283 $13,890
5/31/2006 $12,693 $11,929 $13,428
6/30/2006 $12,745 $11,945 $13,429
7/31/2006 $12,724 $12,019 $13,516
8/31/2006 $13,019 $12,305 $13,874
9/30/2006 $13,218 $12,622 $14,043
10/31/2006 $13,618 $13,033 $14,562
11/30/2006 $13,923 $13,281 $14,926
12/31/2006 $14,085 $13,467 $15,233
1/31/2007 $14,390 $13,671 $15,416
2/28/2007 $14,183 $13,404 $15,342
3/31/2007 $14,367 $13,554 $15,629
4/30/2007 $14,932 $14,154 $16,328
5/31/2007 $15,363 $14,648 $16,802
6/30/2007 $15,286 $14,405 $16,678
7/31/2007 $14,843 $13,958 $16,312
8/31/2007 $14,921 $14,167 $16,307
9/30/2007 $15,496 $14,697 $17,088
10/31/2007 $15,884 $14,931 $17,616
11/30/2007 $15,297 $14,307 $16,904
12/31/2007 $15,107 $14,207 $16,690
28 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, 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 OR SOCIAL INSTABILITY. THE PORTFOLIO MAY INCLUDE INVESTMENTS IN THE
TECHNOLOGY SECTOR, WHICH HAS BEEN HIGHLY VOLATILE AND INVOLVES SPECIAL RISKS.
FRANKLIN FLEX CAP GROWTH FUND NORMALLY INVESTS A MAJORITY OF ITS ASSETS IN
SECURITIES LINKED TO THE STATE OF CALIFORNIA, WHICH MAY INVOLVE INCREASED
VOLATILITY ASSOCIATED WITH ECONOMIC OR REGULATORY DEVELOPMENTS IN THE STATE.
SMALLER OR RELATIVELY NEW OR UNSEASONED COMPANIES CAN BE PARTICULARLY SENSITIVE
TO CHANGING ECONOMIC CONDITIONS, AND THEIR PROSPECTS FOR GROWTH ARE LESS CERTAIN
THAN THOSE OF LARGER, MORE ESTABLISHED COMPANIES. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. If the administrator had not waived fees, 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.
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. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to
measure equity market performance in global developed markets.
Annual Report | 29
Your Fund's Expenses
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
30 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 985.20 $2.45
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.74 $2.50
- --------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 982.10 $5.90
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.26 $6.01
- --------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 984.70 $3.45
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.73 $3.52
- --------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 988.30 $0.90
- --------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.30 $0.92
- --------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.49%; C: 1.18%; R: 0.69%; and Advisor: 0.18%), multiplied by
the average account value over the period, multiplied by 184/365 to reflect the
one-half year period.
Annual Report | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-----------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS A 2007 2006 2005 2004 h 2004 i
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 14.09 $ 12.71 $ 12.20 $ 11.02 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.15 0.11 0.09 0.09 0.01
Net realized and unrealized gains (losses) .......... 0.57 1.81 0.71 1.21 1.07
-----------------------------------------------------------------
Total from investment operations ....................... 0.72 1.92 0.80 1.30 1.08
-----------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................. (0.17) (0.16) (0.10) (0.07) --
Net realized gains .................................. (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ............................... -- -- -- -- (0.06)
-----------------------------------------------------------------
Total distributions .................................... (0.59) (0.54) (0.29) (0.12) (0.06)
-----------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g
-----------------------------------------------------------------
Net asset value, end of year ........................... $ 14.22 $ 14.09 $ 12.71 $ 12.20 $ 11.02
=================================================================
Total return d ......................................... 5.20% 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 c ................................ 0.99% 0.82% 0.72% 1.86% 0.14%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 497,314 $ 458,460 $ 353,016 $ 238,564 $ 157,792
Portfolio turnover rate ................................ 1.72% 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 0.72% for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-----------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2007 2006 2005 2004 h 2004 i
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 13.99 $ 12.62 $ 12.12 $ 10.95 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................... 0.05 0.01 0.01 0.06 (0.06)
Net realized and unrealized gains (losses) .......... 0.57 1.81 0.70 1.20 1.06
-----------------------------------------------------------------
Total from investment operations ....................... 0.62 1.82 0.71 1.26 1.00
-----------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................. (0.07) (0.07) (0.02) (0.04) --
Net realized gains .................................. (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ............................... -- -- -- -- (0.05)
-----------------------------------------------------------------
Total distributions .................................... (0.49) (0.45) (0.21) (0.09) (0.05)
-----------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g
-----------------------------------------------------------------
Net asset value, end of year ........................... $ 14.12 $ 13.99 $ 12.62 $ 12.12 $ 10.95
=================================================================
Total return d ......................................... 4.49% 14.55% 5.89% 11.50% 10.02%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 1.31% 1.30% 1.31% 1.33% 1.39%
Expenses net of waiver and payments by affiliates f .... 1.16% 1.15% 1.23% 1.33% 1.12%
Net investment income (loss) c ......................... 0.32% 0.17% 0.07% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 72,530 $ 76,408 $ 71,496 $ 66,562 $ 44,297
Portfolio turnover rate ................................ 1.72% 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 0.72% for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-----------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS C 2007 2006 2005 2004 h 2004 i
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 13.96 $ 12.61 $ 12.11 $ 10.94 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................... 0.05 0.02 0.01 0.06 (0.05)
Net realized and unrealized gains (losses) .......... 0.57 1.79 0.71 1.20 1.04
-----------------------------------------------------------------
Total from investment operations ....................... 0.62 1.81 0.72 1.26 0.99
-----------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................. (0.08) (0.08) (0.03) (0.04) --
Net realized gains .................................. (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ............................... -- -- -- -- (0.05)
-----------------------------------------------------------------
Total distributions .................................... (0.50) (0.46) (0.22) (0.09) (0.05)
-----------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g
-----------------------------------------------------------------
Net asset value, end of year ........................... $ 14.08 $ 13.96 $ 12.61 $ 12.11 $ 10.94
=================================================================
Total return d ......................................... 4.50% 14.48% 6.02% 11.49% 9.93%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 1.30% 1.29% 1.29% 1.33% 1.39%
Expenses net of waiver and payments by affiliates f .... 1.16% 1.14% 1.21% 1.33% 1.12%
Net investment income (loss) c ......................... 0.33% 0.18% 0.09% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 181,951 $ 166,688 $ 132,459 $ 96,487 $ 73,272
Portfolio turnover rate ................................ 1.72% 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 0.72% for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-----------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS R 2007 2006 2005 2004 h 2004 i
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 14.07 $ 12.69 $ 12.18 $ 11.00 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b,c .................... 0.12 0.09 0.05 0.08 (0.02)
Net realized and unrealized gains (losses) .......... 0.57 1.81 0.73 1.21 1.08
-----------------------------------------------------------------
Total from investment operations ....................... 0.69 1.90 0.78 1.29 1.06
-----------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................. (0.14) (0.14) (0.08) (0.06) --
Net realized gains .................................. (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ............................... -- -- -- -- (0.06)
-----------------------------------------------------------------
Total distributions .................................... (0.56) (0.52) (0.27) (0.11) (0.06)
-----------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g
-----------------------------------------------------------------
Net asset value, end of year ........................... $ 14.20 $ 14.07 $ 12.69 $ 12.18 $ 11.00
=================================================================
Total return d ......................................... 5.02% 15.10% 6.43% 11.73% 10.65%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 0.81% 0.80% 0.81% 0.83% 0.89%
Expenses net of waiver and payments by affiliates f .... 0.66% 0.65% 0.73% 0.83% 0.62%
Net investment income (loss) c ......................... 0.82% 0.67% 0.57% 1.71% (0.01)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 2,602 $ 2,534 $ 2,190 $ 1,944 $ 1,408
Portfolio turnover rate ................................ 1.72% 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 0.72% for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
-----------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
ADVISOR CLASS 2007 2006 2005 2004 h 2004 i
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 14.12 $ 12.73 $ 12.21 $ 11.02 $ 10.00
-----------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ........................... 0.19 0.15 0.13 0.11 0.04
Net realized and unrealized gains (losses) .......... 0.58 1.83 0.72 1.21 1.05
-----------------------------------------------------------------
Total from investment operations ....................... 0.77 1.98 0.85 1.32 1.09
-----------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ............................. (0.22) (0.21) (0.14) (0.08) --
Net realized gains .................................. (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ............................... -- -- -- -- (0.07)
-----------------------------------------------------------------
Total distributions .................................... (0.64) (0.59) (0.33) (0.13) (0.07)
-----------------------------------------------------------------
Redemption fees ........................................ -- g -- g -- g -- g -- g
-----------------------------------------------------------------
Net asset value, end of year ........................... $ 14.25 $ 14.12 $ 12.73 $ 12.21 $ 11.02
=================================================================
Total return d ......................................... 5.53% 15.65% 6.93% 12.09% 10.92%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f .... 0.31% 0.30% 0.31% 0.33% 0.39%
Expenses net of waiver and payments by affiliates f .... 0.16% 0.15% 0.23% 0.33% 0.12%
Net investment income c ................................ 1.32% 1.17% 1.07% 2.21% 0.49%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 3,243 $ 3,073 $ 2,792 $ 2,097 $ 1,181
Portfolio turnover rate ................................ 1.72% 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 0.72% for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- ----------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.9%
DOMESTIC EQUITY 75.3%
Franklin Capital Growth Fund, Advisor Class .............................. 15,539,485 $ 193,777,383
Franklin Growth Fund, Advisor Class ...................................... 4,293,676 190,982,694
Mutual Shares Fund, Class Z .............................................. 7,319,176 185,467,908
--------------
570,227,985
--------------
FOREIGN EQUITY 24.6%
Templeton Growth Fund Inc., Advisor Class ................................ 7,756,196 186,846,754
--------------
TOTAL LONG TERM INVESTMENTS (COST $642,043,363) .......................... 757,074,739
--------------
SHORT TERM INVESTMENT (COST $2,001) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ..... 2,001 2,001
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $642,045,364) 99.9% .......... 757,076,740
OTHER ASSETS, LESS LIABILITIES 0.1% ...................................... 562,737
--------------
NET ASSETS 100.0% ........................................................ $ 757,639,477
==============
a See Note 6 regarding investments in Underlying Funds.
b Rounds to less than 0.1% of net assets.
c The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
----------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS A 2007 2006 2005 2004 h 2004 i
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................... $ 13.98 $ 12.50 $ 12.28 $ 11.21 $ 10.00
---------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................. 0.43 0.40 0.37 0.22 0.23
Net realized and unrealized gains (losses) ............ -- g 1.99 0.40 1.14 1.07
---------------------------------------------------------------------
Total from investment operations ......................... 0.43 2.39 0.77 1.36 1.30
---------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds .............................. (0.44) (0.44) (0.30) (0.23) (0.09)
Net realized gains .................................... (0.47) (0.47) (0.25) (0.06) --
---------------------------------------------------------------------
Total distributions ...................................... (0.91) (0.91) (0.55) (0.29) (0.09)
---------------------------------------------------------------------
Redemption fees .......................................... -- g -- g -- g -- g -- g
---------------------------------------------------------------------
Net asset value, end of year ............................. $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.21
=====================================================================
Total return d ........................................... 3.12% 19.34% 6.31% 12.16% 13.00%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ...... 0.55% 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 2.99% 3.00% 2.98% 4.48% 2.16%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................... $10,161,473 $7,288,143 $4,051,695 $1,640,876 $ 882,175
Portfolio turnover rate .................................. 0.73% 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 0.66%
for the year ended December 31, 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.
38 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS B 2007 2006 2005 2004 h 2004 i
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................... $ 13.93 $ 12.46 $ 12.23 $ 11.16 $ 10.00
-------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ................................ 0.35 0.28 0.26 0.19 0.16
Net realized and unrealized gains (losses) ............... (0.02) 2.00 0.43 1.13 1.08
-------------------------------------------------------------
Total from investment operations ............................ 0.33 2.28 0.69 1.32 1.24
-------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ................................. (0.34) (0.34) (0.21) (0.19) (0.08)
Net realized gains ....................................... (0.47) (0.47) (0.25) (0.06) --
-------------------------------------------------------------
Total distributions ......................................... (0.81) (0.81) (0.46) (0.25) (0.08)
-------------------------------------------------------------
Redemption fees ............................................. -- g -- g -- g -- g -- g
-------------------------------------------------------------
Net asset value, end of year ................................ $ 13.45 $ 13.93 $ 12.46 $ 12.23 $ 11.16
=============================================================
Total return d .............................................. 2.36% 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 ......... 1.17% 1.15% 1.19% 1.25% 1.14%
Net investment income c ..................................... 2.32% 2.35% 2.33% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................. $722,716 $766,452 $688,590 $612,553 $357,282
Portfolio turnover rate ..................................... 0.73% 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 0.66%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS C 2007 2006 2005 2004 h 2004 i
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................... $ 13.78 $ 12.36 $ 12.23 $ 11.16 $ 10.00
-------------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ................................ 0.29 0.31 0.29 0.19 0.17
Net realized and unrealized gains (losses) ............... 0.05 1.95 0.39 1.13 1.07
-------------------------------------------------------------------
Total from investment operations ............................ 0.34 2.26 0.68 1.32 1.24
-------------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ................................. (0.36) (0.37) (0.30) (0.19) (0.08)
Net realized gains ....................................... (0.47) (0.47) (0.25) (0.06) --
-------------------------------------------------------------------
Total distributions ......................................... (0.83) (0.84) (0.55) (0.25) (0.08)
-------------------------------------------------------------------
Redemption fees ............................................. -- g -- g -- g -- g -- g
-------------------------------------------------------------------
Net asset value, end of year ................................ $ 13.29 $ 13.78 $ 12.36 $ 12.23 $ 11.16
===================================================================
Total return d .............................................. 2.47% 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 ......... 1.17% 1.15% 1.16% 1.25% 1.14%
Net investment income c ..................................... 2.32% 2.35% 2.36% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................. $5,295,157 $3,692,307 $2,075,041 $927,786 $535,778
Portfolio turnover rate ..................................... 0.73% 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 0.66%
for the year ended December 31, 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.
40 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-----------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
CLASS R 2007 2006 2005 2004 h 2004 i
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................... $ 13.98 $ 12.50 $ 12.28 $ 11.22 $ 10.00
------------------------------------------------------------
Income from investment operations a:
Net investment income b,c ................................ 0.42 0.37 0.33 0.22 0.20
Net realized and unrealized gains (losses) ............... (0.01) 1.99 0.42 1.13 1.11
------------------------------------------------------------
Total from investment operations ............................ 0.41 2.36 0.75 1.35 1.31
------------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ................................. (0.42) (0.41) (0.28) (0.23) (0.09)
Net realized gains ....................................... (0.47) (0.47) (0.25) (0.06) --
------------------------------------------------------------
Total distributions ......................................... (0.89) (0.88) (0.53) (0.29) (0.09)
------------------------------------------------------------
Redemption fees ............................................. -- g -- g -- g -- g -- g
------------------------------------------------------------
Net asset value, end of year ................................ $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.22
============================================================
Total return d .............................................. 2.92% 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 ......... 0.67% 0.65% 0.69% 0.75% 0.64%
Net investment income c ..................................... 2.82% 2.85% 2.83% 4.33% 2.01%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................. $29,028 $24,435 $17,247 $12,101 $ 5,225
Portfolio turnover rate ..................................... 0.73% 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 0.66%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
-------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, JULY 31,
ADVISOR CLASS 2007 2006 2005 2004 h 2004 i
-------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................... $ 14.05 $ 12.55 $ 12.32 $11.25 $10.00
-------------------------------------------------------
Income from investment operations a:
Net investment income b,c ................................ 0.48 0.47 0.39 0.24 0.25
Net realized and unrealized gains (losses) ............... 0.01 1.98 0.42 1.14 1.09
-------------------------------------------------------
Total from investment operations ............................ 0.49 2.45 0.81 1.38 1.34
-------------------------------------------------------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds ................................. (0.49) (0.48) (0.33) (0.25) (0.09)
Net realized gains ....................................... (0.47) (0.47) (0.25) (0.06) --
-------------------------------------------------------
Total distributions ......................................... (0.96) (0.95) (0.58) (0.31) (0.09)
-------------------------------------------------------
Redemption fees ............................................. -- g -- g -- g -- g -- g
-------------------------------------------------------
Net asset value, end of year ................................ $ 13.58 $ 14.05 $ 12.55 $12.32 $11.25
=======================================================
Total return d .............................................. 3.48% 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 ......... 0.17% 0.15% 0.19% 0.25% 0.14%
Net investment income c ..................................... 3.32% 3.35% 3.33% 4.83% 2.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................. $46,866 $25,124 $12,535 $7,792 $4,991
Portfolio turnover rate ..................................... 0.73% 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 0.66%
for the year ended December 31, 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.
42 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- -----------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.9%
DOMESTIC EQUITY 33.2%
Mutual Shares Fund, Class Z ............................................. 212,972,694 $ 5,396,728,059
----------------
DOMESTIC HYBRID 33.5%
Franklin Income Fund Inc., Advisor Class ................................ 2,120,165,039 5,448,824,151
----------------
FOREIGN EQUITY 33.2%
Templeton Growth Fund Inc., Advisor Class ............................... 224,197,404 5,400,915,451
----------------
TOTAL LONG TERM INVESTMENTS (COST $15,985,803,870) ...................... 16,246,467,661
----------------
SHORT TERM INVESTMENT (COST $21,205) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% .... 21,205 21,205
----------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $15,985,825,075) 99.9% ...... 16,246,488,866
OTHER ASSETS, LESS LIABILITIES 0.1% ..................................... 8,751,391
----------------
NET ASSETS 100.0% ....................................................... $16,255,240,257
================
a See Note 6 regarding investments in Underlying Funds.
b Rounds to less than 0.1% of net assets.
c The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
------------------------------------------
YEAR ENDED DECEMBER 31,
CLASS A 2007 2006 2005 2004 h
------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................ $ 12.90 $ 11.79 $ 11.19 $ 10.00
------------------------------------------
Income from investment operations a:
Net investment income b,c .................................................. 0.15 0.17 0.16 0.17
Net realized and unrealized gains (losses) ................................. 0.71 1.55 0.73 1.12
------------------------------------------
Total from investment operations .............................................. 0.86 1.72 0.89 1.29
------------------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .. (0.16) (0.19) (0.13) (0.07)
Net realized gains ......................................................... (0.43) (0.42) (0.16) (0.03)
------------------------------------------
Total distributions ........................................................... (0.59) (0.61) (0.29) (0.10)
------------------------------------------
Redemption fees ............................................................... -- g -- g -- g -- g
------------------------------------------
Net asset value, end of year .................................................. $ 13.17 $ 12.90 $ 11.79 $ 11.19
==========================================
Total return d ................................................................ 6.79% 14.69% 7.93% 12.93%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................... 0.68% 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 c ....................................................... 1.09% 1.18% 1.41% 3.78%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................... $228,876 $190,189 $103,348 $16,155
Portfolio turnover rate ....................................................... 2.53% 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 0.74%
for the year ended December 31, 2007.
g Amount rounds to less than $0.01 per share.
h For the period August 2, 2004 to December 31, 2004.
44 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
------------------------------------------
YEAR ENDED DECEMBER 31,
CLASS C 2007 2006 2005 2004 h
------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................ $ 12.82 $ 11.74 $ 11.18 $ 10.00
------------------------------------------
Income from investment operations a:
Net investment income b,c .................................................. 0.06 0.08 0.09 0.15
Net realized and unrealized gains (losses) ................................. 0.71 1.54 0.72 1.12
------------------------------------------
Total from investment operations .............................................. 0.77 1.62 0.81 1.27
------------------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .. (0.08) (0.12) (0.09) (0.06)
Net realized gains ......................................................... (0.43) (0.42) (0.16) (0.03)
------------------------------------------
Total distributions ........................................................... (0.51) (0.54) (0.25) (0.09)
------------------------------------------
Redemption fees ............................................................... -- g -- g -- g -- g
------------------------------------------
Net asset value, end of year .................................................. $ 13.08 $ 12.82 $ 11.74 $ 11.18
==========================================
Total return d ................................................................ 6.11% 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 ........................... 1.16% 1.14% 1.11% 1.04%
Net investment income c ....................................................... 0.43% 0.54% 0.76% 3.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................... $ 84,173 $ 68,482 $ 36,568 $ 4,558
Portfolio turnover rate ....................................................... 2.53% 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 0.74%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
------------------------------------------------
YEAR ENDED DECEMBER 31,
2007 2006 2005 2004 h
------------------------------------------------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................................... $ 12.90 $ 11.79 $ 11.18 $ 10.00
------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................................... 0.11 0.14 0.11 0.15
Net realized and unrealized gains (losses) .............................. 0.73 1.55 0.77 1.13
------------------------------------------------
Total from investment operations ........................................... 0.84 1.69 0.88 1.28
------------------------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying
Funds ................................................................ (0.14) (0.16) (0.11) (0.07)
Net realized gains ...................................................... (0.43) (0.42) (0.16) (0.03)
------------------------------------------------
Total distributions ........................................................ (0.57) (0.58) (0.27) (0.10)
------------------------------------------------
Redemption fees ............................................................ -- g -- g -- g -- g
------------------------------------------------
Net asset value, end of year ............................................... $ 13.17 $ 12.90 $ 11.79 $ 11.18
================================================
Total return d ............................................................. 6.58% 14.49% 7.86% 12.81%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................ 0.85% 0.87% 1.05% 2.46%
Expenses net of waiver and payments by affiliates f ........................ 0.67% 0.65% 0.61% 0.54%
Net investment income c .................................................... 0.92% 1.03% 1.26% 3.63%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................ $ 1,433 $ 1,539 $ 1,287 $ 260
Portfolio turnover rate .................................................... 2.53% 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 0.74%
for the year ended December 31, 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.
46 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
------------------------------------------------
YEAR ENDED DECEMBER 31,
2007 2006 2005 2004 h
------------------------------------------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................................... $ 12.93 $ 11.81 $ 11.19 $ 10.00
------------------------------------------------
Income from investment operations a:
Net investment income b,c ............................................... 0.24 0.22 0.11 0.14
Net realized and unrealized gains (losses) .............................. 0.68 1.54 0.82 1.16
------------------------------------------------
Total from investment operations ........................................... 0.92 1.76 0.93 1.30
------------------------------------------------
Less distributions from:
Net investment income and short term gains received from Underlying
Funds ................................................................ (0.20) (0.22) (0.15) (0.08)
Net realized gains ...................................................... (0.43) (0.42) (0.16) (0.03)
------------------------------------------------
Total distributions ........................................................ (0.63) (0.64) (0.31) (0.11)
------------------------------------------------
Redemption fees ............................................................ -- g -- g -- g -- g
------------------------------------------------
Net asset value, end of year ............................................... $ 13.22 $ 12.93 $ 11.81 $11.19
================================================
Total return d ............................................................. 7.26% 15.07% 8.31% 13.01%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ........................ 0.35% 0.37% 0.55% 1.96%
Expenses net of waiver and payments by affiliates f ........................ 0.17% 0.15% 0.11% 0.04%
Net investment income c .................................................... 1.42% 1.53% 1.76% 4.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................ $ 2,804 $ 1,931 $ 1,104 $ 196
Portfolio turnover rate .................................................... 2.53% 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 0.74%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 99.7%
DOMESTIC EQUITY 66.7%
Franklin Flex Cap Growth Fund, Advisor Class ............................................... 2,166,760 $ 105,824,562
Mutual Shares Fund, Class Z ................................................................ 4,169,739 105,661,195
--------------
211,485,757
--------------
FOREIGN EQUITY 33.0%
Templeton Growth Fund Inc., Advisor Class .................................................. 4,354,551 104,901,123
--------------
TOTAL LONG TERM INVESTMENTS (COST $292,695,870) ............................................ 316,386,880
--------------
SHORT TERM INVESTMENT (COST $101,416) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ....................... 101,416 101,416
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $292,797,286) 99.7% ............................ 316,488,296
OTHER ASSETS, LESS LIABILITIES 0.3% ........................................................ 798,405
--------------
NET ASSETS 100.0% .......................................................................... $ 317,286,701
==============
a See Note 6 regarding investments in Underlying Funds.
b Rounds to less than 0.1% of net assets.
c The rate shown is the annualized seven-day yield at period end.
48 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2007
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ............................................ $642,045,364 $15,985,825,075 $292,797,286
===================================================
Value ........................................... $757,076,740 $16,246,488,866 $316,488,296
Receivables:
Investment securities sold ...................... 200,000 53,310,354 --
Capital shares sold ............................. 2,173,637 66,257,785 1,252,250
Other assets ...................................... -- -- 62,199
---------------------------------------------------
Total assets .................................... 759,450,377 16,366,057,005 317,802,745
---------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ......................... 878,154 40,300,623 188,216
Affiliates ...................................... 689,632 15,702,352 289,905
Unaffiliated transfer agent fees ................ -- -- 37,923
Funds advanced by custodian ....................... 168,938 50,560,181 --
Accrued expenses and other liabilities ............ 74,176 4,253,592 --
---------------------------------------------------
Total liabilities ............................... 1,810,900 110,816,748 516,044
---------------------------------------------------
Net assets, at value .......................... $757,639,477 $16,255,240,257 $317,286,701
===================================================
Net assets consist of:
Paid-in capital ................................... $627,365,467 $15,668,399,523 $287,318,086
Undistributed net investment income (loss) ........ 806,821 9,727,549 131,201
Net unrealized appreciation (depreciation) ........ 115,031,376 260,663,791 23,691,010
Accumulated net realized gain (loss) .............. 14,435,813 316,449,394 6,146,404
---------------------------------------------------
Net assets, at value .......................... $757,639,477 $16,255,240,257 $317,286,701
===================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2007
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
---------------------------------------------------
CLASS A:
Net assets, at value ..................................................... $ 497,313,641 $10,161,472,993 $ 228,876,495
===================================================
Shares outstanding ....................................................... 34,971,941 752,935,770 17,380,634
===================================================
Net asset value per share ................................................ $ 14.22 $ 13.50 $ 13.17
===================================================
Maximum offering price per share (net assets value per share / 94.25%) ... $ 15.09 $ 14.32 $ 13.97
===================================================
CLASS B:
Net assets, at value ..................................................... $ 72,530,042 $ 722,716,433
=================================
Shares outstanding ....................................................... 5,137,358 53,713,964
=================================
Net asset value and maximum offering price per share a ................... $ 14.12 $ 13.45
=================================
CLASS C:
Net assets, at value ..................................................... $ 181,951,036 $ 5,295,157,115 $ 84,172,685
===================================================
Shares outstanding ....................................................... 12,924,676 398,501,247 6,437,328
===================================================
Net asset value and maximum offering price per share a ................... $ 14.08 $ 13.29 $ 13.08
===================================================
CLASS R:
Net assets, at value ..................................................... $ 2,601,727 $ 29,027,502 $ 1,433,392
===================================================
Shares outstanding ....................................................... 183,245 2,150,112 108,842
===================================================
Net asset value and maximum offering price per share a ................... $ 14.20 $ 13.50 $ 13.17
===================================================
ADVISOR CLASS:
Net assets, at value ..................................................... $ 3,243,031 $ 46,866,214 $ 2,804,129
===================================================
Shares outstanding ....................................................... 227,573 3,451,123 212,093
===================================================
Net asset value and maximum offering price per share a ................... $ 14.25 $ 13.58 $ 13.22
===================================================
a Redemption price is equal to the net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
50 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2007
------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------------------------------------------
Investment income:
Dividends from Underlying Funds (Note 6) ............................... $ 11,270,120 $ 524,310,165 $ 4,711,028
------------------------------------------------------
Expenses:
Administrative fees (Note 3a) .......................................... 756,867 14,954,069 297,015
Distribution fees (Note 3b)
Class A .............................................................. 1,626,574 30,537,397 709,152
Class B .............................................................. 766,114 7,682,361 --
Class C .............................................................. 1,793,784 48,679,511 767,350
Class R .............................................................. 13,393 142,467 7,248
Transfer agent fees (Note 3d) .......................................... 1,326,515 15,747,007 618,854
Custodian fees ......................................................... 514 10,148 --
Reports to shareholders ................................................ 83,762 1,215,933 17,098
Registration and filing fees ........................................... 96,238 828,774 60,041
Professional fees ...................................................... 30,702 169,521 25,948
Trustees' fees and expenses ............................................ 3,506 90,018 1,630
Other .................................................................. 19,440 296,895 10,354
------------------------------------------------------
Total expenses ....................................................... 6,517,409 120,354,101 2,514,690
Expenses waived/paid by affiliates (Note 3e) ......................... (1,074,823) (7,850,670) (538,626)
------------------------------------------------------
Net expenses ....................................................... 5,442,586 112,503,431 1,976,064
------------------------------------------------------
Net investment income ............................................ 5,827,534 411,806,734 2,734,964
------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds .............................. 484,595 (11,778,472) 107,078
Realized gain distributions by Underlying Funds ...................... 26,194,063 676,352,654 12,125,385
------------------------------------------------------
Net realized gain (loss) from Underlying Funds ................... 26,678,658 664,574,182 12,232,463
------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds ................................................. 2,933,990 (789,793,282) 2,728,681
------------------------------------------------------
Net realized and unrealized gain (loss) ................................... 29,612,648 (125,219,100) 14,961,144
------------------------------------------------------
Net increase (decrease) in net assets resulting from operations ........... $ 35,440,182 $ 286,587,634 $ 17,696,108
======================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------
FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND
----------------------------------
YEAR ENDED DECEMBER 31,
2007 2006
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ............................................................. $ 5,827,534 $ 3,736,014
Net realized gain (loss) from Underlying Funds ........................................... 26,678,658 24,029,110
Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .. 2,933,990 61,294,086
----------------------------------
Net increase (decrease) in net assets resulting from operations ...................... 35,440,182 89,059,210
----------------------------------
Distributions to shareholders from:
Net investment income and short term gains received from Underlying Funds:
Class A ................................................................................ (5,840,602) (5,156,182)
Class B ................................................................................ (347,605) (395,188)
Class C ................................................................................ (976,333) (951,148)
Class R ................................................................................ (25,991) (25,068)
Advisor Class .......................................................................... (48,599) (44,139)
Net realized gains:
Class A ................................................................................ (14,073,351) (11,448,102)
Class B ................................................................................ (2,191,830) (2,054,806)
Class C ................................................................................ (5,194,889) (4,266,699)
Class R ................................................................................ (75,541) (65,663)
Advisor Class .......................................................................... (92,288) (79,089)
----------------------------------
Total distributions to shareholders ........................................................... (28,867,029) (24,486,084)
----------------------------------
Capital share transactions: (Note 2)
Class A ................................................................................ 34,638,044 63,989,093
Class B ................................................................................ (4,799,240) (2,554,475)
Class C ................................................................................ 13,884,383 19,093,712
Class R ................................................................................ 42,997 112,639
Advisor Class .......................................................................... 135,731 (5,903)
----------------------------------
Total capital share transactions ........................................................... 43,901,915 80,635,066
----------------------------------
Redemption fees ............................................................................ 1,283 2,409
----------------------------------
Net increase (decrease) in net assets ................................................ 50,476,351 145,210,601
Net assets:
Beginning of year .......................................................................... 707,163,126 561,952,525
----------------------------------
End of year ................................................................................ $ 757,639,477 $ 707,163,126
==================================
Undistributed net investment income included in net assets:
End of year ................................................................................ $ 806,821 $ 746,559
==================================
52 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
----------------------------------
FRANKLIN TEMPLETON
FOUNDING FUNDS ALLOCATION FUND
----------------------------------
YEAR ENDED DECEMBER 31,
2007 2006
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................... $ 411,806,734 $ 245,818,909
Net realized gain (loss) from Underlying Funds ........................................... 664,574,182 497,747,137
Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .. (789,793,282) 866,728,549
----------------------------------
Net increase (decrease) in net assets resulting from operations ...................... 286,587,634 1,610,294,595
----------------------------------
Distributions to shareholders from:
Net investment income and short term gains received from Underlying Funds:
Class A ................................................................................ (317,349,633) (215,722,803)
Class B ................................................................................ (17,434,411) (18,066,213)
Class C ................................................................................ (136,416,205) (93,577,572)
Class R ................................................................................ (850,119) (683,952)
Advisor Class .......................................................................... (1,589,342) (799,059)
Net realized gains:
Class A ................................................................................ (304,268,073) (202,445,425)
Class B ................................................................................ (24,803,530) (25,277,173)
Class C ................................................................................ (160,810,003) (104,093,208)
Class R ................................................................................ (913,018) (727,036)
Advisor Class .......................................................................... (1,390,383) (652,974)
----------------------------------
Total distributions to shareholders ........................................................ (965,824,717) (662,045,415)
----------------------------------
Capital share transactions: (Note 2)
Class A ................................................................................ 3,296,660,627 2,657,895,916
Class B ................................................................................ (20,839,227) (1,624,509)
Class C ................................................................................ 1,832,949,853 1,330,975,579
Class R ................................................................................ 5,610,819 4,909,568
Advisor Class .......................................................................... 23,543,435 10,900,983
----------------------------------
Total capital share transactions ........................................................... 5,137,925,507 4,003,057,537
----------------------------------
Redemption fees ............................................................................ 90,601 45,813
----------------------------------
Net increase (decrease) in net assets ................................................ 4,458,779,025 4,951,352,530
Net assets:
Beginning of year .......................................................................... 11,796,461,232 6,845,108,702
----------------------------------
End of year ................................................................................ $16,255,240,257 $11,796,461,232
==================================
Undistributed net investment income included in net assets:
End of year ................................................................................ $ 9,727,549 $ 6,495,779
==================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
----------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
----------------------------------
YEAR ENDED DECEMBER 31,
2007 2006
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................... $ 2,734,964 $ 2,101,962
Net realized gain (loss) from Underlying Funds ........................................... 12,232,463 10,241,921
Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .. 2,728,681 16,328,995
----------------------------------
Net increase (decrease) in net assets resulting from operations ........................ 17,696,108 28,672,878
----------------------------------
Distributions to shareholders from:
Net investment income and short term gains received from Underlying Funds:
Class A ................................................................................ (2,720,323) (2,636,779)
Class C ................................................................................ (498,075) (608,817)
Class R ................................................................................ (14,529) (18,516)
Advisor Class .......................................................................... (41,571) (31,836)
Net realized gains:
Class A ................................................................................ (6,969,461) (5,309,666)
Class C ................................................................................ (2,547,116) (1,947,481)
Class R ................................................................................ (45,646) (48,316)
Advisor Class .......................................................................... (76,998) (51,944)
----------------------------------
Total distributions to shareholders ........................................................ (12,913,719) (10,653,355)
----------------------------------
Capital share transactions: (Note 2)
Class A ................................................................................ 35,125,183 73,695,077
Class C ................................................................................ 14,529,010 27,278,019
Class R ................................................................................ (143,982) 129,556
Advisor Class .......................................................................... 852,484 709,790
----------------------------------
Total capital share transactions ........................................................... 50,362,695 101,812,442
----------------------------------
Redemption fees ............................................................................ 509 1,365
----------------------------------
Net increase (decrease) in net assets .................................................. 55,145,593 119,833,330
Net assets:
Beginning of year .......................................................................... 262,141,108 142,307,778
----------------------------------
End of year ................................................................................ $ 317,286,701 $ 262,141,108
==================================
Undistributed net investment income included in net assets:
End of year ................................................................................ $ 131,201 $ 105,807
==================================
54 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment
company, consisting of ten separate funds. All funds included in this report
(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 (Underlying Funds). The classes of shares offered within each of
the funds are indicated below. Each class of shares differs by its initial sales
load, contingent deferred sales charges, distribution fees, voting rights on
matters affecting a single class and its exchange privilege.
- -------------------------------------------------------------------------------------------------------
CLASS A, CLASS B, CLASS C, CLASS R & ADVISOR CLASS CLASS A, CLASS C, CLASS R & ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
Franklin Templeton Corefolio Allocation Fund Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Net asset value per share is calculated as of the close of trading of the NYSE.
Investments in the Underlying Funds are valued at their closing net asset value
each trading day.
B. INCOME TAXES
No provision has been made for U.S. income taxes because 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.
Annual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
56 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 2007, there were an unlimited number of shares authorized
(without par value). Transactions in the Fund's shares were as follows:
-------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
CLASS A SHARES:
Year ended December 31, 2007
Shares sold ...................... 6,378,170 $ 93,084,616 292,721,549 $ 4,204,831,048
Shares issued in reinvestment
of distributions ............... 1,343,124 18,899,053 43,121,092 585,972,631
Shares redeemed .................. (5,283,476) (77,345,625) (104,395,290) (1,494,143,052)
-------------------------------------------------------------------
Net increase (decrease) .......... 2,437,818 $ 34,638,044 231,447,351 $ 3,296,660,627
===================================================================
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:
Year ended December 31, 2007
Shares sold ...................... 163,283 $ 2,375,521 1,830,543 $ 26,037,839
Shares issued in reinvestment
of distributions ............... 173,408 2,410,075 2,891,384 39,193,366
Shares redeemed .................. (661,660) (9,584,836) (6,046,820) (86,070,432)
-------------------------------------------------------------------
Net increase (decrease) .......... (324,969) $ (4,799,240) (1,324,893) $ (20,839,227)
===================================================================
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:
Year ended December 31, 2007
Shares sold ...................... 2,444,225 $ 35,225,036 157,486,626 $ 2,223,665,616
Shares issued in reinvestment
of distributions ............... 411,520 5,713,280 19,278,071 257,996,100
Shares redeemed .................. (1,872,480) (27,053,933) (46,146,097) (648,711,863)
-------------------------------------------------------------------
Net increase (decrease) .......... 983,265 $ 13,884,383 130,618,600 $ 1,832,949,853
===================================================================
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
===================================================================
Annual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
CLASS R SHARES:
Year ended December 31, 2007
Shares sold ...................... 29,749 $ 432,620 685,879 $ 9,833,344
Shares issued in reinvestment
of distributions ............... 7,237 101,532 129,305 1,757,748
Shares redeemed .................. (33,870) (491,155) (413,096) (5,980,273)
-------------------------------------------------------------------
Net increase (decrease) .......... 3,116 $ 42,997 402,088 $ 5,610,819
===================================================================
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:
Year ended December 31, 2007
Shares sold ...................... 25,060 $ 368,676 2,787,785 $ 40,332,750
Shares issued in reinvestment
of distributions ............... 9,535 134,617 200,669 2,743,050
Shares redeemed .................. (24,639) (367,562) (1,325,204) (19,532,365)
-------------------------------------------------------------------
Net increase (decrease) .......... 9,956 $ 135,731 1,663,250 $ 23,543,435
===================================================================
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:
Year ended December 31, 2007
Shares sold ....................................... 4,365,614 $ 58,774,977
Shares issued in reinvestment of distributions .... 718,932 9,372,129
Shares redeemed ................................... (2,442,712) (33,021,923)
-------------------------------
Net increase (decrease) ........................... 2,641,834 $ 35,125,183
===============================
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
===============================
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
-------------------------------
SHARES AMOUNT
-------------------------------
CLASS C SHARES:
Year ended December 31, 2007
Shares sold ...................................... 1,691,743 $ 22,521,919
Shares issued in reinvestment of distributions ... 218,500 2,821,600
Shares redeemed .................................. (813,348) (10,814,509)
-------------------------------
Net increase (decrease) .......................... 1,096,895 $ 14,529,010
===============================
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:
Year ended December 31, 2007
Shares sold ...................................... 20,847 $ 278,831
Shares issued in reinvestment of distributions ... 4,625 60,158
Shares redeemed .................................. (35,903) (482,971)
-------------------------------
Net increase (decrease) .......................... (10,431) $ (143,982)
===============================
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:
Year ended December 31, 2007
Shares sold ...................................... 121,870 $ 1,673,964
Shares issued in reinvestment of distributions ... 7,764 101,709
Shares redeemed .................................. (66,889) (923,189)
-------------------------------
Net increase (decrease) .......................... 62,745 $ 852,484
===============================
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
===============================
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of certain 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 a certain percentage per year of its
average daily net assets of each class as follows:
-------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------
Class A ...... 0.35% 0.35% 0.35%
Class B ...... 1.00% 1.00% --
Class C ...... 1.00% 1.00% 1.00%
Class R ...... 0.50% 0.50% 0.50%
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 year:
-------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------
Sales charges retained net of
commissions paid to unaffiliated
broker/dealers .................. $501,714 $22,354,082 $299,238
Contingent deferred sales
charges retained ................ $131,928 $ 2,088,536 $ 14,045
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. TRANSFER AGENT FEES
For the year ended December 31, 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 ................ $805,644 $8,005,167 $394,752
E. WAIVER AND EXPENSE REIMBURSEMENTS
FT Services and Investor Services have agreed in advance to waive all or a
portion of their 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 and
Investor Services may discontinue this waiver at any time upon notice to the
Funds' Board of Trustees.
4. INCOME TAXES
The Funds have reviewed the tax positions taken on federal income tax returns,
for each of the three open tax years and as of December 31, 2007 and have
determined that no provision for income tax is required in the Funds' financial
statements.
The tax character of distributions paid during the years ended December 31, 2007
and 2006, was as follows:
--------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND FOUNDING FUNDS ALLOCATION FUND
--------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2007 2006 2007 2006
--------------------------------------------------------------
Distributions paid from:
Ordinary income .......... $ 7,797,367 $ 6,624,465 $475,261,307 $ 329,011,319
Long term capital gain ... 21,069,662 17,861,619 490,563,410 333,034,096
--------------------------------------------------------------
$ 28,867,029 $24,486,084 $965,824,717 $ 662,045,415
==============================================================
--------------------------------
FRANKLIN TEMPLETON
PERSPECTIVES
ALLOCATION FUND
--------------------------------
YEAR ENDED DECEMBER 31,
2007 2006
--------------------------------
Distributions paid from:
Ordinary income .................. $ 3,440,711 $ 3,297,921
Long term capital gain ........... 9,473,008 7,355,434
--------------------------------
$ 12,913,719 $ 10,653,355
================================
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At December 31, 2007, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
-------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------
Cost of investments ......................... $ 642,752,013 $ 16,001,089,841 $ 292,946,030
=============================================================
Unrealized appreciation ..................... $ 114,324,727 $ 245,399,025 $ 23,542,266
Unrealized depreciation ..................... -- -- --
-------------------------------------------------------------
Net unrealized appreciation (depreciation) .. $ 114,324,727 $ 245,399,025 $ 23,542,266
=============================================================
Undistributed ordinary income ............... $ 806,822 $ 9,727,549 $ 135,705
Undistributed long term capital gains ....... 15,142,462 331,714,160 6,290,644
-------------------------------------------------------------
Distributable earnings ...................... $ 15,949,284 $ 341,441,709 $ 6,426,349
=============================================================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of short term capital gain distributions from
Underlying Funds.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of short term capital gains distributions
from Underlying Funds and wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2007, were as follows:
-------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-------------------------------------------------------------
Purchases ................................... $ 59,887,327 $ 5,495,895,827 $ 59,383,308
Sales ....................................... $ 13,003,633 $ 168,175,984 $ 7,504,212
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Franklin
Advisers, Inc., (Advisers), an affiliate of FT Services, or by an affiliate of
Advisers. The Funds do not invest in the Underlying Funds for the purpose of
exercising management or control. At December 31, 2007, the Funds held the
following positions which exceed 5% of the Underlying Funds' shares outstanding:
- --------------------------------------------------------------------------------
NAME OF ISSUER % OF SHARES HELD
- --------------------------------------------------------------------------------
FRANLIN TEMPLETON COREFOLIO ALLOCATION FUND
Franklin Capital Growth Fund ....................... 12.64%
Franklin Growth Fund ............................... 6.41%
FRANLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund, Class Z ........................ 21.25%
Templeton Growth Fund Inc. ......................... 14.59%
Franklin Income Fund Inc. .......................... 8.98%
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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. 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.
Annual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (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 PRONOUNCEMENT
In September 2006, Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The
Trust believes the adoption of SFAS 157 will have no material impact on its
financial statements.
64 | Annual Report
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF THE FRANKLIN TEMPLETON FUND
ALLOCATOR SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton Corefolio
Allocation Fund, Franklin Templeton Founding Funds Allocation Fund, and Franklin
Templeton Perspectives Allocation Fund (separate portfolios of Franklin
Templeton Fund Allocator Series, hereafter referred to as the "Funds") at
December 31, 2007, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2008
Annual Report | 65
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2007:
-----------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------
$24,739,217 $608,713,545 $11,560,489
Under Section 871(k)(2)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as short term capital gain
dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended December 31, 2007:
-----------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------
$521,933 $1,572,412 $170,717
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2007.
-----------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------
94.32% 40.04% 66.54%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2007.
-----------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
-----------------------------------------------------------
$12,101,709 $329,160,862 $4,867,023
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2007.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
66 | Annual Report
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 141 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2005 121 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS);
and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and
Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
SAM GINN (1937) Trustee Since April 2007 121 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 141 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and
allied products), RTI International
Metals, Inc. (manufacture and
distribution of titanium), Canadian
National Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 67
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 121 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Trustee Since April 2007 141 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and Sentient
San Mateo, CA 94403-1906 Jet (private jet service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Trustee Since April 2007 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Lead Trustee since 121 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
January 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Executive Vice President -
Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting
firm) (1986-1990).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 141 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42
of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
68 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since April 2007 92 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton
Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice President
Vice President - AML Compliance
- AML since 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 28 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 69
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) President President and Not Applicable Not Applicable
One Franklin Parkway and Chief Chief Executive
San Mateo, CA 94403-1906 Executive Officer -
Officer - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
70 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.
(1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment manager or affiliated
investment managers.
** Charles B. Johnson is considered to be an interested person of the Trust
under the federal securities laws due to his position as officer, director and
major shareholder of Franklin Resources, Inc. (Resources), which is the parent
company of the Trust's investment manager and distributor. Gregory E. Johnson is
considered to be an interested person of the Trust under the federal securities
laws due to his position as officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
Note 3: Prior to December 31, 2007, Rupert H. Johnson, Jr. ceased to be a
trustee of the Trust.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 71
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures (Policies) that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
72 | Annual Report
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF
SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR
SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR
BEEPING TONE.
FRANKLIN TEMPLETON 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 Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Growth Opportunities Fund 2
Franklin Small Cap Growth Fund II 3
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin All Cap Value Fund
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 4
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Focused Core Equity 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 5
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 5
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
Templeton Income Fund
Templeton International Bond 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
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
2. Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
3. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
4. 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.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
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.
12/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS2 A2007 02/08
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
DECEMBER 31, 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
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o TEMPLETON o MUTUAL SERIES
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why
our funds can be used to build truly diversified
allocation plans covering every major asset
class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton 2015 Retirement Target Fund ............................ 5
Franklin Templeton 2025 Retirement Target Fund ............................ 15
Franklin Templeton 2035 Retirement Target Fund ............................ 25
Franklin Templeton 2045 Retirement Target Fund ............................ 35
Financial Highlights and Statements of Investments ........................ 45
Financial Statements ...................................................... 65
Notes to Financial Statements ............................................. 70
Report of Independent Registered Public Accounting Firm ................... 80
Tax Designation ........................................................... 81
Board Members and Officers ................................................ 82
Shareholder Information ................................................... 87
- --------------------------------------------------------------------------------
Annual Report
Economic and Market Overview
During the 12 months ended December 31, 2007, the U.S. economy advanced at a
moderate but uneven pace. After slow first quarter growth, gross domestic
product (GDP) advanced solidly in the second quarter, supported by federal
defense spending, accelerating exports and declining imports, and greater
business spending. In the third quarter, growth accelerated despite a struggling
housing market and the abrupt unraveling of the subprime mortgage market. The
housing downturn affected the overall economy by fourth quarter 2007 when GDP
growth decelerated as credit conditions worsened and consumer spending slowed.
Consumer confidence declined through period-end largely due to rising mortgage
and fuel costs, falling home prices and a weaker job market. Oil prices were
volatile and established a new record high in November, nearing $99 per barrel.
For the 12 months ended December 31, 2007, the core Consumer Price Index (CPI),
which excludes food and energy costs, rose 2.4%, which was higher than its
10-year average rate. 1
Facing the prospect of slower economic growth, the Federal Reserve Board lowered
the federal funds target rate to 4.25% from 5.25% during the period. As
investors fled riskier, poorer-performing assets, U.S. Treasuries rallied and
the 10-year Treasury note yield fell from 4.71% at the beginning of the period
to 4.04% on December 31, 2007.
The global economy remained resilient despite elevated energy prices and
widespread fears of contagion from the deteriorating U.S. housing situation.
Consumer and corporate demand strength, particularly in China and other
developing economies, generally favorable employment and accommodative monetary
policies continued to underpin the current global expansionary period that began
in 2002.
These factors also contributed to the strength of global equity markets during
2007. However, concerns about slower growth and declining asset quality surfaced
in the first quarter. Initially centered on the U.S. subprime mortgage market,
they spread in August to global capital markets. Difficulties in assessing risk
and the value of collateral in the structured finance industry contributed
1. Source: Bureau of Labor Statistics.
Annual Report | 3
to declining risk appetite among lenders and investors. The private equity
industry, which relies on the availability of cheap credit, played a pivotal
role in several large and high-profile acquisitions, helped boost merger and
acquisition activity in the first half of 2007, and was an important driver of
equity performance. A second-half tightening of liquidity led to slower deal
activity and weighed on market performance. However, in 2007, global merger and
acquisition activity still reached record levels.
To alleviate the credit crunch and restore investor confidence, the world's
major central banks infused capital into the system. However, credit and equity
markets continued to face headwinds as write-downs and losses from subprime
mortgage financing affected many large financial institutions toward the end of
the year, and equity prices remained volatile. For the year, however, global and
non-U.S. equity markets registered the fifth consecutive year of double-digit
total returns. Broad-based stock performance by European and Asian shares at
least doubled that of U.S. stocks, while emerging market equity returns more
than tripled those in developed markets. In addition, U.S. dollar weakness
versus the currencies of many major trading partners enhanced equity returns for
U.S.-based investors holding stocks denominated in these currencies.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Annual Report
Franklin Templeton
2015 Retirement Target Fund
YOUR FUND'S GOAL 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 allocates 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), with an
increasing emphasis on income as the target date of 2015 approaches.
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton 2015 Retirement Target Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ........................................................ 45.7%
Foreign Equity ......................................................... 21.0%
Domestic Fixed Income .................................................. 15.5%
Foreign Fixed Income ................................................... 8.2%
Short-Term Investments & Other Net Assets .............................. 9.6%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton 2015 Retirement Target Fund covers the
fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2015 Retirement Target Fund - Class A posted a +9.84%
cumulative total return for the 12 months ended December 31, 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 49.
Annual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton
2015 Retirement Target Fund
12/31/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Mutual Shares Fund
- - Class Z 13.5%
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 13.1%
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 11.1%
- --------------------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 8.2%
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities
Fund - Advisor Class 7.9%
- --------------------------------------------------------------------------------
Mutual European Fund
- - Class Z 7.7%
- --------------------------------------------------------------------------------
Franklin Total Return Fund
- - Advisor Class 5.4%
- --------------------------------------------------------------------------------
Templeton China World Fund
- - Advisor Class 3.9%
- --------------------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 3.9%
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund
- - Advisor Class 3.4%
- --------------------------------------------------------------------------------
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 +5.49%,
+11.63%, +6.97% and +4.91%, 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 every year, in accordance with the retirement date associated
with the portfolio.
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance in
global developed markets excluding the U.S. and Canada. The LB U.S. Aggregate
Index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond market,
with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The P&R 90 Day U.S.
T-Bill Index is a total return index based on a constant maturity instrument.
Payden & Rygel includes both accrued interest and change in market price in its
monthly total return calculations. The value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The indexes are
unmanaged and include reinvested distributions. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
6 | Annual Report
At period-end, Franklin Templeton 2015 Retirement Target Fund's domestic equity
exposure was 68.5% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, representing 13.5% of the Fund's total net assets,
was our largest equity fund weighting at period-end. On the fixed income side,
domestic exposure was 65.5% 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 8.2% of total net
assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, outperformed the S&P 500, while our largest domestic value fund
holding, Mutual Shares Fund - Class Z, underperformed the S&P 500. Our largest
foreign equity holding, Mutual European Fund - Class Z, outperformed the MSCI
EAFE Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
outperformed the LB U.S. Aggregate Index, while Franklin U.S. Government
Securities Fund - Advisor Class underperformed 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 DECEMBER 31, 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.
Annual Report | 7
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ------------------------------------------------------------------------------------------------------
CLASS A (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.66 $11.35 $10.69
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ------------------------------------------------------------------------------------------------------
Dividend Income $0.2313
- ------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.1569
- ------------------------------------------------------------------------------------------------------
TOTAL $0.3882
- ------------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.61 $11.28 $10.67
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ------------------------------------------------------------------------------------------------------
Dividend Income $0.1933
- ------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.1569
- ------------------------------------------------------------------------------------------------------
TOTAL $0.3502
- ------------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.64 $11.32 $10.68
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ------------------------------------------------------------------------------------------------------
Dividend Income $0.2238
- ------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.1569
- ------------------------------------------------------------------------------------------------------
TOTAL $0.3807
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.67 $11.37 $10.70
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ------------------------------------------------------------------------------------------------------
Dividend Income $0.2612
- ------------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.1569
- ------------------------------------------------------------------------------------------------------
TOTAL $0.4181
- ------------------------------------------------------------------------------------------------------
8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.84% +19.27%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.54% +8.61%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,354 $11,241
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 7.75%
- ------------------------------------------------------------------------------------------------------
With Waiver 1.32%
- ------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.02% +18.07%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.02% +12.44%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,802 $11,807
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 8.40%
- ------------------------------------------------------------------------------------------------------
With Waiver 1.97%
- ------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.59% +18.88%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +9.59% +12.99%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,959 $11,888
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 7.90%
- ------------------------------------------------------------------------------------------------------
With Waiver 1.47%
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.21% +19.86%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +10.21% +13.64%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,021 $11,986
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 7.40%
- ------------------------------------------------------------------------------------------------------
With Waiver 0.97%
- ------------------------------------------------------------------------------------------------------
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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
CLASS A 12/31/07
- -------------------------------------
1-Year +3.54%
- -------------------------------------
Since Inception (8/1/06) +8.61%
- -------------------------------------
CLASS A (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2015 Retirement MSCI EAFE LB U.S. Aggregate P&R 90-Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,576 $10,238 $10,278 $10,153 $10,044
9/30/2006 $ 9,604 $10,502 $10,296 $10,242 $10,088
10/31/2006 $ 9,887 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,160 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,235 $11,205 $11,366 $10,369 $10,214
1/31/2007 $10,378 $11,375 $11,444 $10,365 $10,256
2/28/2007 $10,369 $11,152 $11,538 $10,525 $10,296
3/31/2007 $10,514 $11,277 $11,838 $10,525 $10,343
4/30/2007 $10,801 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,060 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,020 $11,985 $12,627 $10,470 $10,473
7/31/2007 $10,845 $11,613 $12,442 $10,558 $10,513
8/31/2007 $10,893 $11,787 $12,251 $10,687 $10,573
9/30/2007 $11,363 $12,228 $12,909 $10,768 $10,611
10/31/2007 $11,733 $12,423 $13,417 $10,865 $10,644
11/30/2007 $11,295 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,241 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
CLASS C 12/31/07
- -------------------------------------
1-Year +8.02%
- -------------------------------------
Since Inception (8/1/06) +12.44%
- -------------------------------------
CLASS C (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2015 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,150 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,180 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,480 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,760 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,830 $11,205 $11,366 $10,369 $10,214
1/31/2007 $10,972 $11,375 $11,444 $10,365 $10,256
2/28/2007 $10,952 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,096 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,401 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,665 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,613 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,427 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,469 $11,787 $12,251 $10,687 $10,573
9/30/2007 $11,961 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,332 $12,423 $13,417 $10,865 $10,644
11/30/2007 $11,868 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,807 $11,821 $12,688 $11,091 $10,716
10 | Annual Report
Performance Summary (CONTINUED)
CLASS R (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2015 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,160 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,190 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,490 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,770 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,848 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,001 $11,375 $11,444 $10,365 $10,256
2/28/2007 $10,990 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,145 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,449 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,714 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,678 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,493 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,534 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,030 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,413 $12,423 $13,417 $10,865 $10,644
11/30/2007 $11,948 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,888 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------
CLASS R 12/31/07
- ------------------------------------
1-Year +9.59%
- ------------------------------------
Since Inception (8/1/06) +12.99%
- ------------------------------------
ADVISOR CLASS (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2015 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,160 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,200 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,500 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,790 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,875 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,028 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,028 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,182 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,487 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,762 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,731 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,545 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,597 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,105 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,499 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,043 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,986 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------
ADVISOR CLASS 12/31/07
- -------------------------------------
1-Year +10.21%
- -------------------------------------
Since Inception (8/1/06) +13.64%
- -------------------------------------
Annual Report | 11
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. If the manager had not waived fees, 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.
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. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 6 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate Index
and the P&R 90 Day U.S. T-Bill Index.
12 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 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.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,020.10 $2.44
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.79 $2.45
- --------------------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,016.80 $5.95
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.31 $5.96
- --------------------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,018.00 $3.41
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.83 $3.41
- --------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,021.70 $0.87
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.35 $0.87
- --------------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.48%; C: 1.17%; R: 0.67%; and Advisor: 0.17%), multiplied by
the average account value over the period, multiplied by 184/365 to reflect the
one-half year period.
14 | Annual Report
Franklin Templeton
2025 Retirement Target Fund
YOUR FUND'S GOAL 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 allocates 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), with an
increasing emphasis on income as the target date of 2025 approaches.
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton 2025 Retirement Target Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ........................................................ 56.0%
Foreign Equity ......................................................... 25.9%
Domestic Fixed Income .................................................. 9.0%
Foreign Fixed Income ................................................... 4.6%
Short-Term Investments &
Other Net Assets ....................................................... 4.5%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON. COM OR CALL 1-800 /342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton 2025 Retirement Target Fund covers the
fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2025 Retirement Target Fund - Class A posted a +10.19%
cumulative total return for the 12 months ended December 31, 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 54.
Annual Report | 15
TOP 10 FUND HOLDINGS
Franklin Templeton
2025 Retirement Target Fund
12/31/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Mutual Shares Fund
- - Class Z 16.5%
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 15.8%
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 13.8%
- --------------------------------------------------------------------------------
Mutual European Fund
- - Class Z 9.6%
- --------------------------------------------------------------------------------
Templeton China World Fund
- - Advisor Class 4.8%
- --------------------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 4.7%
- --------------------------------------------------------------------------------
Templeton Global Bond Fund
- - Advisor Class 4.6%
- --------------------------------------------------------------------------------
Franklin U.S. Government Securities
Fund - Advisor Class 4.4%
- --------------------------------------------------------------------------------
Franklin Growth Opportunities Fund
- - Advisor Class 4.3%
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund
- - Advisor Class 4.2%
- --------------------------------------------------------------------------------
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 +5.49%,
+11.63%, +6.97% and +4.91%, respectively, during the same time.1 You can find
other performance data in the Performance Summary beginning on page 18.
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 every year, in accordance with the retirement date associated
with the portfolio.
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance in
global developed markets excluding the U.S. and Canada. The LB U.S. Aggregate
Index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond market,
with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The P&R 90 Day U.S.
T-Bill Index is a total return index based on a constant maturity instrument.
Payden & Rygel includes both accrued interest and change in market price in its
monthly total return calculations. The value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The indexes are
unmanaged and include reinvested distributions. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
16 | Annual Report
At period-end, Franklin Templeton 2025 Retirement Target Fund's domestic equity
exposure was 68.3% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, representing 16.5% of the Fund's total net assets,
was our largest equity fund weighting at period-end. On the fixed income side,
domestic exposure was 66.4% 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 4.6% of total net
assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, outperformed the S&P 500, while our largest domestic value fund
holding, Mutual Shares Fund - Class Z, underperformed the S&P 500. Our largest
foreign equity holding, Mutual European Fund - Class Z, outperformed the MSCI
EAFE Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
outperformed the LB U.S. Aggregate Index, while Franklin U.S. Government
Securities Fund - Advisor Class underperformed 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 DECEMBER 31, 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.
Annual Report | 17
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------
CLASS A (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.67 $11.45 $10.78
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.2065
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2194
- --------------------------------------------------------------------------------------
TOTAL $0.4262
- --------------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.63 $11.40 $10.77
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.1650
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2194
- --------------------------------------------------------------------------------------
TOTAL $0.3847
- --------------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.67 $11.44 $10.77
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.1971
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2194
- --------------------------------------------------------------------------------------
TOTAL $0.4168
- --------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- --------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.67 $11.46 $10.79
- --------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- --------------------------------------------------------------------------------------
Dividend Income $0.2360
- --------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0003
- --------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2194
- --------------------------------------------------------------------------------------
TOTAL $0.4557
- --------------------------------------------------------------------------------------
18 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -------------------------------------------------------------------------------------------
CLASS A 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.19% +20.56%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.83% +9.44%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,383 $11,363
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 4.98%
- -------------------------------------------------------------------------------------------
With Waiver 1.35%
- -------------------------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +9.43% +19.50%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.43% +13.40%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,843 $11,950
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 5.63%
- -------------------------------------------------------------------------------------------
With Waiver 2.00%
- -------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.11% +20.36%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +10.11% +13.98%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,011 $12,036
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 5.13%
- -------------------------------------------------------------------------------------------
With Waiver 1.50%
- -------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.46% +21.04%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +10.46% +14.43%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,046 $12,104
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 4.63%
- -------------------------------------------------------------------------------------------
With Waiver 1.00%
- -------------------------------------------------------------------------------------------
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.
Annual Report | 19
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 12/31/07
- --------------------------------------
1-Year +3.83%
- --------------------------------------
Since Inception (8/1/06) +9.44%
- --------------------------------------
CLASS A (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2025 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,595 $10,238 $10,278 $10,153 $10,044
9/30/2006 $ 9,614 $10,502 $10,296 $10,242 $10,088
10/31/2006 $ 9,934 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,226 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,312 $11,205 $11,366 $10,369 $10,214
1/31/2007 $10,494 $11,375 $11,444 $10,365 $10,256
2/28/2007 $10,475 $11,152 $11,538 $10,525 $10,296
3/31/2007 $10,572 $11,277 $11,838 $10,525 $10,343
4/30/2007 $10,898 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,204 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,170 $11,985 $12,627 $10,470 $10,473
7/31/2007 $10,956 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,024 $11,787 $12,251 $10,687 $10,573
9/30/2007 $11,555 $12,228 $12,909 $10,768 $10,611
10/31/2007 $11,964 $12,423 $13,417 $10,865 $10,644
11/30/2007 $11,428 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,363 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
CLASS C 12/31/07
- ---------------------------------------
1-Year +8.43%
- ---------------------------------------
Since Inception (8/1/06) +13.40%
- ---------------------------------------
CLASS C (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2025 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,170 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,190 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,530 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,830 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,920 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,102 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,082 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,175 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,510 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,834 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,790 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,553 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,625 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,174 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,607 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,019 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,950 $11,821 $12,688 $11,091 $10,716
20 | Annual Report
Performance Summary (CONTINUED)
CLASS R (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2025 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,200 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,540 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,840 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,931 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,124 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,103 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,207 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,552 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,877 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,838 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,601 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,683 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,241 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,675 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,097 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,036 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
CLASS R 12/31/07
- ---------------------------------------
1-Year +10.11%
- ---------------------------------------
Since Inception (8/1/06) +13.98%
- ---------------------------------------
ADVISOR CLASS (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2025 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,550 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,860 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,957 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,140 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,130 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,234 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,579 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,914 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,880 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,652 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,725 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,297 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,743 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,163 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,104 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
ADVISOR CLASS 12/31/07
- ---------------------------------------
1-Year +10.46%
- ---------------------------------------
Since Inception (8/1/06) +14.43%
- ---------------------------------------
Annual Report | 21
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. If the manager had not waived fees, 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.
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. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 16 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate Index
and the P&R 90 Day U.S. T-Bill Index.
22 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 23
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,017.30 $2.34
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.89 $2.35
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,013.50 $5.89
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.36 $5.90
- ---------------------------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,016.70 $3.35
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.88 $3.36
- ---------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,018.90 $0.81
- ---------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.40 $0.82
- ---------------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.46%; C: 1.16%; R: 0.66%; and Advisor: 0.16%), multiplied by
the average account value over the period, multiplied by 184/365 to reflect the
one-half year period.
24 | Annual Report
Franklin Templeton
2035 Retirement Target Fund
YOUR FUND'S GOAL 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 allocates 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), with 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.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton 2035 Retirement Target Fund covers the
fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2035 Retirement Target Fund - Class A posted a cumulative
total return of +11.05% for the 12 months ended December 31, 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 +5.49%, +11.63%, +6.97% and
+4.91%, respectively, during the same time.1 You can find other performance data
in the Performance Summary beginning on page 28.
ASSET ALLOCATION*
Franklin Templeton
2035 Retirement Target Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Domestic Equity 64.2%
Foreign Equity 29.9%
Domestic Fixed Income 1.5%
Foreign Fixed Income 0.8%
Short-Term Investments & Other Net Assets 3.6%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance in
global developed markets excluding the U.S. and Canada. The LB U.S. Aggregate
Index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond market,
with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The P&R 90 Day U.S.
T-Bill Index is a total return index based on a constant maturity instrument.
Payden & Rygel includes both accrued interest and change in market price in its
monthly total return calculations. The value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The indexes are
unmanaged and include reinvested 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 59.
Annual Report | 25
TOP 10 FUND HOLDINGS
Franklin Templeton
2035 Retirement Target Fund 12/31/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Mutual Shares Fund
- - Class Z 18.6%
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 18.5%
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 15.8%
- --------------------------------------------------------------------------------
Mutual European Fund
- - Class Z 11.0%
- --------------------------------------------------------------------------------
Templeton China World Fund
- - Advisor Class 5.5%
- --------------------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 5.4%
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund
- - Advisor Class 4.8%
- --------------------------------------------------------------------------------
Franklin Growth Opportunities Fund
- -Advisor Class 4.8%
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund
- - Advisor Class 4.2%
- --------------------------------------------------------------------------------
Franklin Global Real Estate Fund
- - Advisor Class 3.8%
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, fixed income securities, and short-term investments and other net
assets, and by the actual performance of the selected underlying funds. This
allocation shifts every year, in accordance with the retirement date associated
with the portfolio.
At period-end, Franklin Templeton 2035 Retirement Target Fund's domestic equity
exposure was 68.2% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, representing 18.6% of the Fund's total net assets,
was our largest equity fund weighting at period-end. On the fixed income side,
domestic exposure was 67.1% of the Fund's total fixed income weighting, with the
balance represented by foreign fixed income. Templeton Global Bond Fund -
Advisor Class and Franklin U.S. Government Securities Fund - Advisor Class were
our largest fixed income fund weightings at 0.8% of total net assets each.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, outperformed the S&P 500, while our largest domestic value fund
holding, Mutual Shares Fund - Class Z, underperformed the S&P 500. Our largest
foreign equity holding, Mutual European Fund - Class Z, outperformed the MSCI
EAFE Index. On the fixed income side, Templeton Global Bond Fund - Advisor Class
outperformed the LB U.S. Aggregate Index, while Franklin U.S. Government
Securities Fund - Advisor Class underperformed the LB U.S. Aggregate Index.
26 | Annual 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 DECEMBER 31, 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.
Annual Report | 27
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------
CLASS A (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.73 $11.61 $10.88
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1634
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2959
- ---------------------------------------------------------------------------------------
TOTAL $0.4603
- ---------------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.66 $11.52 $10.86
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1420
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2959
- ---------------------------------------------------------------------------------------
TOTAL $0.4389
- ---------------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.71 $11.59 $10.88
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1617
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2959
- ---------------------------------------------------------------------------------------
TOTAL $0.4586
- ---------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.75 $11.64 $10.89
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1855
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.2959
- ---------------------------------------------------------------------------------------
TOTAL $0.4824
- ---------------------------------------------------------------------------------------
28 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.05% +22.64%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +4.70% +10.77%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,470 $11,559
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 9.90%
- ------------------------------------------------------------------------------------------------------
With Waiver 1.39%
- ------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.12% +21.29%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +9.12% +14.60%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,912 $12,129
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 10.55%
- ------------------------------------------------------------------------------------------------------
With Waiver 2.04%
- ------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.76% +22.27%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +10.76% +15.25%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,076 $12,227
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 10.05%
- ------------------------------------------------------------------------------------------------------
With Waiver 1.54%
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.34% +23.14%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +11.34% +15.83%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,134 $12,314
- ------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- ------------------------------------------------------------------------------------------------------
Without Waiver 9.55%
- ------------------------------------------------------------------------------------------------------
With Waiver 1.04%
- ------------------------------------------------------------------------------------------------------
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.
Annual Report | 29
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 12/31/07
- -----------------------------------
1-Year +4.70%
- -----------------------------------
Since Inception (8/1/06) +10.77%
- -----------------------------------
CLASS A (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2035 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 INDEX 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044
9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088
10/31/2006 $ 9,981 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,409 $11,205 $11,366 $10,369 $10,214
1/31/2007 $10,610 $11,375 $11,444 $10,365 $10,256
2/28/2007 $10,552 $11,152 $11,538 $10,525 $10,296
3/31/2007 $10,708 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,062 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,416 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,387 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,094 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,182 $11,787 $12,251 $10,687 $10,573
9/30/2007 $11,769 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,268 $12,423 $13,417 $10,865 $10,644
11/30/2007 $11,622 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,559 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 12/31/07
- -----------------------------------
1-Year +9.12%
- -----------------------------------
Since Inception (8/1/06) +14.60%
- -----------------------------------
CLASS C (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2035 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,580 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,910 $11,050 $11,020 $10,430 $10,170
12/31/2006 $11,014 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,217 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,146 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,311 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,676 $11,776 $12,374 $10,582 $10,387
5/31/2007 $12,051 $12,187 $12,608 $10,502 $10,434
6/30/2007 $12,000 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,689 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,782 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,394 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,903 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,208 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,129 $11,821 $12,688 $11,091 $10,716
30 | Annual Report
Performance Summary (CONTINUED)
CLASS R (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2035 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,930 $11,050 $11,020 $10,430 $10,170
12/31/2006 $11,040 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,253 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,182 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,337 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,712 $11,776 $12,374 $10,582 $10,387
5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434
6/30/2007 $12,057 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,746 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,839 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,462 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,981 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,296 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,227 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 12/31/07
- -----------------------------------
1-Year +10.76%
- -----------------------------------
Since Inception (8/1/06) +15.25%
- -----------------------------------
ADVISOR CLASS (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2035 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- ------------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,950 $11,050 $11,020 $10,430 $10,170
12/31/2006 $11,060 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,284 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,213 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,388 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,764 $11,776 $12,374 $10,582 $10,387
5/31/2007 $12,150 $12,187 $12,608 $10,502 $10,434
6/30/2007 $12,120 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,808 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,912 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,535 $12,228 $12,909 $10,768 $10,611
10/31/2007 $13,065 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,390 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,314 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
ADVISOR CLASS 12/31/07
- -----------------------------------
1-Year +11.34%
- -----------------------------------
Since Inception (8/1/06) +15.83%
- -----------------------------------
Annual Report | 31
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. If the manager had not waived fees, 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.
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. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 25 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate Index
and the P&R 90 Day U.S. T-Bill Index.
32 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 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.
Annual Report | 33
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,015.10 $2.39
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.84 $2.40
- --------------------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,010.70 $5.88
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.36 $5.90
- --------------------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,014.10 $3.35
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.88 $3.36
- --------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,016.10 $0.81
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.40 $0.82
- --------------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.47%; C: 1.16%; R: 0.66%; and Advisor: 0.16%), multiplied by
the average account value over the period, multiplied by 184/365 to reflect the
one-half year period.
34 | Annual Report
Franklin Templeton
2045 Retirement Target Fund
YOUR FUND'S GOAL 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 allocates 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), with an
increasing emphasis on income as the target date of 2045 approaches.
- --------------------------------------------------------------------------------
ASSET ALLOCATION*
Franklin Templeton 2045 Retirement Target Fund
Based on Total Net Assets as of 12/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Domestic Equity ........................................................ 65.7%
Foreign Equity ......................................................... 30.9%
Short-Term Investments &
Other Net Assets ....................................................... 3.4%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Templeton 2045 Retirement Target Fund covers the
fiscal year ended December 31, 2007.
PERFORMANCE OVERVIEW
Franklin Templeton 2045 Retirement Target Fund - Class A posted a cumulative
total return of +11.32% for the 12 months ended December 31, 2007. By comparison
the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan
Stanley Capital International (MSCI) Europe,
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 64.
Annual Report | 35
TOP 10 FUND HOLDINGS
Franklin Templeton
2045 Retirement Target Fund
12/31/07
- --------------------------------------------------------------------------------
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Mutual Shares Fund
- - Class Z 18.9%
- --------------------------------------------------------------------------------
Franklin Flex Cap Growth Fund
- - Advisor Class 18.4%
- --------------------------------------------------------------------------------
Franklin Small Cap Growth Fund II
- - Advisor Class 16.4%
- --------------------------------------------------------------------------------
Mutual European Fund
- - Class Z 11.4%
- --------------------------------------------------------------------------------
Templeton China World Fund
- - Advisor Class 5.8%
- --------------------------------------------------------------------------------
Templeton Foreign Fund
- - Advisor Class 5.5%
- --------------------------------------------------------------------------------
Franklin Growth Opportunities Fund
- - Advisor Class 5.1%
- --------------------------------------------------------------------------------
Franklin Natural Resources Fund
- - Advisor Class 5.0%
- --------------------------------------------------------------------------------
Franklin Gold and Precious Metals Fund
- - Advisor Class 4.3%
- --------------------------------------------------------------------------------
Franklin Global Real Estate Fund
- - Advisor Class 3.9%
- --------------------------------------------------------------------------------
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 +5.49%, +11.63%, +6.97% and +4.91%, respectively, during the same
time.1 You can find other performance data in the Performance Summary beginning
on page 38.
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities and short-term investments and other net assets, and by the actual
performance of the selected underlying funds. This allocation shifts every year,
in accordance with the retirement date associated with the portfolio.
1. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. The S&P 500
consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The MSCI EAFE Index is a free float-adjusted, market
capitalization-weighted index designed to measure equity market performance in
global developed markets excluding the U.S. and Canada. The LB U.S. Aggregate
Index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond market,
with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The P&R 90 Day U.S.
T-Bill Index is a total return index based on a constant maturity instrument.
Payden & Rygel includes both accrued interest and change in market price in its
monthly total return calculations. The value of Treasuries, if held to maturity,
is fixed; principal is guaranteed and interest is fixed. The indexes are
unmanaged and include reinvested distributions. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
36 | Annual Report
At period-end, Franklin Templeton 2045 Retirement Target Fund's domestic equity
exposure was 68.0% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2007, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, representing 18.9% of the Fund's total net assets,
was our largest equity fund weighting at period-end.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, outperformed the S&P 500, while our largest domestic value fund
holding, Mutual Shares Fund - Class Z, underperformed the S&P 500. Our largest
foreign equity holding, Mutual European Fund - Class Z, outperformed the MSCI
EAFE Index, while Franklin Global Real Estate Fund - Advisor Class
underperformed the MSCI EAFE Index.
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 DECEMBER 31, 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.
Annual Report | 37
Performance Summary as of 12/31/07
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------
CLASS A (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.68 $11.57 $10.89
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1614
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3883
- ---------------------------------------------------------------------------------------
TOTAL $0.5507
- ---------------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.61 $11.48 $10.87
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1417
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3883
- ---------------------------------------------------------------------------------------
TOTAL $0.5310
- ---------------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.66 $11.54 $10.88
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1598
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3883
- ---------------------------------------------------------------------------------------
TOTAL $0.5491
- ---------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.69 $11.59 $10.90
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS (1/1/07-12/31/07)
- ---------------------------------------------------------------------------------------
Dividend Income $0.1881
- ---------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0010
- ---------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3883
- ---------------------------------------------------------------------------------------
TOTAL $0.5774
- ---------------------------------------------------------------------------------------
38 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- -------------------------------------------------------------------------------------------
CLASS A 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.32% +23.07%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +4.96% +11.05%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,496 $11,600
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 10.11%
- -------------------------------------------------------------------------------------------
With Waiver 1.39%
- -------------------------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +10.50% +21.88%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +9.50% +14.99%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,950 $12,188
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 10.76%
- -------------------------------------------------------------------------------------------
With Waiver 2.04%
- -------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.13% +22.74%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +11.13% +15.56%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,113 $12,274
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 10.26%
- -------------------------------------------------------------------------------------------
With Waiver 1.54%
- -------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------------------------------------------------------
Cumulative Total Return 2 +11.65% +23.62%
- -------------------------------------------------------------------------------------------
Average Annual Total Return 3 +11.65% +16.15%
- -------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,165 $12,362
- -------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5
- -------------------------------------------------------------------------------------------
Without Waiver 9.76%
- -------------------------------------------------------------------------------------------
With Waiver 1.04%
- -------------------------------------------------------------------------------------------
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.
Annual Report | 39
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 12/31/07
- -----------------------------------
1-Year +4.96%
- -----------------------------------
Since Inception (8/1/06) +11.05%
- -----------------------------------
CLASS A (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2045 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- -----------------------------------------------------------------------------------------------
8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044
9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088
10/31/2006 $ 9,991 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170
12/31/2006 $10,420 $11,205 $11,366 $10,369 $10,214
1/31/2007 $10,621 $11,375 $11,444 $10,365 $10,256
2/28/2007 $10,563 $11,152 $11,538 $10,525 $10,296
3/31/2007 $10,738 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,093 $11,776 $12,374 $10,582 $10,387
5/31/2007 $11,456 $12,187 $12,608 $10,502 $10,434
6/30/2007 $11,432 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,137 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,245 $11,787 $12,251 $10,687 $10,573
9/30/2007 $11,846 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,338 $12,423 $13,417 $10,865 $10,644
11/30/2007 $11,668 $11,903 $12,980 $11,060 $10,692
12/31/2007 $11,600 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 12/31/07
- -----------------------------------
1-Year +9.50%
- -----------------------------------
Since Inception (8/1/06) +14.99%
- -----------------------------------
CLASS C (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2045 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- -----------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,920 $11,050 $11,020 $10,430 $10,170
12/31/2006 $11,030 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,243 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,172 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,347 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,723 $11,776 $12,374 $10,582 $10,387
5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434
6/30/2007 $12,062 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,749 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,843 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,470 $12,228 $12,909 $10,768 $10,611
10/31/2007 $12,992 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,271 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,188 $11,821 $12,688 $11,091 $10,716
40 | Annual Report
Performance Summary (CONTINUED)
CLASS R (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2045 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- -----------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,600 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,940 $11,050 $11,020 $10,430 $10,170
12/31/2006 $11,044 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,268 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,207 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,382 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,758 $11,776 $12,374 $10,582 $10,387
5/31/2007 $12,144 $12,187 $12,608 $10,502 $10,434
6/30/2007 $12,108 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,805 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,909 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,536 $12,228 $12,909 $10,768 $10,611
10/31/2007 $13,059 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,359 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,274 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 12/31/07
- -----------------------------------
1-Year +11.13%
- -----------------------------------
Since Inception (8/1/06) +15.56%
- -----------------------------------
ADVISOR CLASS (8/1/06-12/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
FT 2045 Retirement MSCI EAFE LB U.S. Aggregate P&R 90 Day U.S.
DATE Target Fund S&P 500 6 Index 6 Index 6 T-Bill Index 6
- -----------------------------------------------------------------------------------------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044
9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088
10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127
11/30/2006 $10,960 $11,050 $11,020 $10,430 $10,170
12/31/2006 $11,072 $11,205 $11,366 $10,369 $10,214
1/31/2007 $11,285 $11,375 $11,444 $10,365 $10,256
2/28/2007 $11,235 $11,152 $11,538 $10,525 $10,296
3/31/2007 $11,420 $11,277 $11,838 $10,525 $10,343
4/30/2007 $11,796 $11,776 $12,374 $10,582 $10,387
5/31/2007 $12,193 $12,187 $12,608 $10,502 $10,434
6/30/2007 $12,167 $11,985 $12,627 $10,470 $10,473
7/31/2007 $11,864 $11,613 $12,442 $10,558 $10,513
8/31/2007 $11,968 $11,787 $12,251 $10,687 $10,573
9/30/2007 $12,606 $12,228 $12,909 $10,768 $10,611
10/31/2007 $13,139 $12,423 $13,417 $10,865 $10,644
11/30/2007 $12,439 $11,903 $12,980 $11,060 $10,692
12/31/2007 $12,362 $11,821 $12,688 $11,091 $10,716
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
ADVISOR CLASS 12/31/07
- -----------------------------------
1-Year +11.65%
- -----------------------------------
Since Inception (8/1/06) +16.15%
- -----------------------------------
Annual Report | 41
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. If the manager had not waived fees, 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.
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. Sources: Standard & Poor's Micropal; Lehman Brothers Inc. See page 36 for
descriptions of the S&P 500, the MSCI EAFE Index, the LB U.S. Aggregate Index
and the P&R 90 Day U.S. T-Bill Index.
42 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 43
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 7/1/07 VALUE 12/31/07 PERIOD* 7/1/07-12/31/07
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,014.70 $2.34
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.89 $2.35
- --------------------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,010.40 $5.83
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85
- --------------------------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,013.70 $3.30
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.93 $3.31
- --------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,016.10 $0.76
- --------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,024.45 $0.77
- --------------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers, annualized
for each class (A: 0.46%; C: 1.15%; R: 0.65%; and Advisor: 0.15%), multiplied by
the average account value over the period, multiplied by 184/365 to reflect the
one-half year period.
44 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS A 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.69 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.33 0.13
Net realized and unrealized gains (losses) .................................. 0.72 0.73
--------------------
Total from investment operations ............................................... 1.05 0.86
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.23) (0.15)
Net realized gains .......................................................... (0.16) (0.02)
--------------------
Total distributions ............................................................ (0.39) (0.17)
--------------------
Redemption fees ................................................................ -- g --
--------------------
Net asset value, end of year ................................................... $ 11.35 $ 10.69
====================
Total return d ................................................................. 9.84% 8.59%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 3.60% 12.13%
Expenses net of waiver and payments by affiliates f ............................ 0.48% 0.50%
Net investment income c ........................................................ 3.11% 2.92%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 5,269 $ 1,364
Portfolio turnover rate ........................................................ 8.19% 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 repurchases 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 0.80%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS C 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.67 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.36 0.14
Net realized and unrealized gains (losses) .................................. 0.60 0.69
--------------------
Total from investment operations ............................................... 0.96 0.83
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.19) (0.14)
Net realized gains .......................................................... (0.16) (0.02)
--------------------
Total distributions ............................................................ (0.35) (0.16)
--------------------
Redemption fees ................................................................ -- g --
--------------------
Net asset value, end of year ................................................... $ 11.28 $ 10.67
====================
Total return d ................................................................. 9.02% 8.30%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 4.28% 12.78%
Expenses net of waiver and payments by affiliates f ............................ 1.16% 1.15%
Net investment income c ........................................................ 2.43% 2.27%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 2,213 $ 63
Portfolio turnover rate ........................................................ 8.19% 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 repurchases 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 0.80%
for the year ended December 31, 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.
46 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS R 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.68 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.34 0.11
Net realized and unrealized gains (losses) .................................. 0.68 0.74
--------------------
Total from investment operations ............................................... 1.02 0.85
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.22) (0.15)
Net realized gains .......................................................... (0.16) (0.02)
--------------------
Total distributions ............................................................ (0.38) (0.17)
--------------------
Redemption fees ................................................................ -- g --
--------------------
Net asset value, end of year ................................................... $ 11.32 $ 10.68
====================
Total return d ................................................................. 9.59% 8.48%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 3.78% 12.28%
Expenses net of waiver and payments by affiliates f ............................ 0.66% 0.65%
Net investment income c ........................................................ 2.93% 2.77%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 1,071 $ 11
Portfolio turnover rate ........................................................ 8.19% 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 repurchases 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 investmentincome 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 0.80%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
ADVISOR CLASS 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.70 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.30 0.17
Net realized and unrealized gains (losses) .................................. 0.79 0.71
--------------------
Total from investment operations ............................................... 1.09 0.88
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.26) (0.16)
Net realized gains .......................................................... (0.16) (0.02)
--------------------
Total distributions ............................................................ (0.42) (0.18)
--------------------
Redemption fees ................................................................ -- g --
--------------------
Net asset value, end of year ................................................... $ 11.37 $ 10.70
====================
Total return d ................................................................. 10.21% 8.75%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 3.28% 11.78%
Expenses net of waiver and payments by affiliates f ............................ 0.16% 0.15%
Net investment income c ........................................................ 3.43% 3.27%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 32 $ 20
Portfolio turnover rate ........................................................ 8.19% 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 repurchases 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 0.80%
for the year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- ------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 90.4%
DOMESTIC EQUITY 45.7%
Franklin Flex Cap Growth Fund, Advisor Class ........................................... 23,067 $1,126,589
b Franklin Growth Opportunities Fund, Advisor Class ...................................... 12,848 281,886
Franklin MicroCap Value Fund, Advisor Class ............................................ 3,029 103,252
Franklin Natural Resources Fund, Advisor Class ......................................... 6,539 295,359
b Franklin Small Cap Growth Fund II, Advisor Class ....................................... 89,766 953,316
Mutual Shares Fund, Class Z ............................................................ 45,864 1,162,203
-----------
3,922,605
-----------
DOMESTIC FIXED INCOME 15.5%
Franklin Strategic Mortgage Portfolio .................................................. 19,671 186,287
Franklin Total Return Fund, Advisor Class .............................................. 47,109 467,793
Franklin U.S. Government Securities Fund, Advisor Class ................................ 104,823 682,398
-----------
1,336,478
-----------
FOREIGN EQUITY 21.0%
Franklin Global Real Estate Fund, Advisor Class ........................................ 22,057 219,245
Franklin Gold and Precious Metals Fund, Advisor Class .................................. 6,769 253,643
Mutual European Fund, Class Z .......................................................... 25,203 663,334
Templeton China World Fund, Advisor Class .............................................. 7,662 337,815
Templeton Foreign Fund, Advisor Class .................................................. 26,594 331,357
-----------
1,805,394
-----------
FOREIGN FIXED INCOME 8.2%
Templeton Global Bond Fund, Advisor Class .............................................. 61,757 704,027
-----------
TOTAL LONG TERM INVESTMENTS (COST $7,867,881) .......................................... 7,768,504
-----------
SHORT TERM INVESTMENT (COST $477,896) 5.6%
MONEY MARKET FUND 5.6%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ................... 477,896 477,896
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $8,345,777) 96.0% .......................... 8,246,400
OTHER ASSETS, LESS LIABILITIES 4.0% .................................................... 339,592
-----------
NET ASSETS 100.0% ...................................................................... $8,585,992
===========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2007.
c The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS A 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.78 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.28 0.12
Net realized and unrealized gains (losses) .................................. 0.82 0.82
--------------------
Total from investment operations ............................................... 1.10 0.94
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.21) (0.14)
Net realized gains .......................................................... (0.22) (0.02)
--------------------
Total distributions ............................................................ (0.43) (0.16)
--------------------
Redemption fees ................................................................ -- g -- g
--------------------
Net asset value, end of year ................................................... $ 11.45 $ 10.78
====================
Total return d ................................................................. 10.19% 9.41%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 3.31% 10.76%
Expenses net of waiver and payments by affiliates f ............................ 0.47% 0.50%
Net investment income c ........................................................ 2.55% 2.78%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 6,952 $ 1,699
Portfolio turnover rate ........................................................ 16.28% 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 repurchases 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 year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS C 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.77 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.28 0.10
Net realized and unrealized gains (losses) .................................. 0.74 0.82
--------------------
Total from investment operations ............................................... 1.02 0.92
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.17) (0.13)
Net realized gains .......................................................... (0.22) (0.02)
--------------------
Total distributions ............................................................ (0.39) (0.15)
--------------------
Redemption fees ................................................................ -- g -- g
--------------------
Net asset value, end of year ................................................... $ 11.40 $ 10.77
====================
Total return d ................................................................. 9.43% 9.20%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 3.99% 11.41%
Expenses net of waiver and payments by affiliates f ............................ 1.15% 1.15%
Net investment income c ........................................................ 1.87% 2.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 1,104 $ 54
Portfolio turnover rate ........................................................ 16.28% 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 repurchases 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 year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS R 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.77 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.27 0.11
Net realized and unrealized gains (losses) .................................. 0.82 0.82
--------------------
Total from investment operations ............................................... 1.09 0.93
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.20) (0.14)
Net realized gains .......................................................... (0.22) (0.02)
--------------------
Total distributions ............................................................ (0.42) (0.16)
--------------------
Redemption fees ................................................................ -- g -- g
--------------------
Net asset value, end of year ................................................... $ 11.44 $ 10.77
====================
Total return d ................................................................. 10.11% 9.31%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 3.49% 10.91%
Expenses net of waiver and payments by affiliates f ............................ 0.65% 0.65%
Net investment income c ........................................................ 2.37% 2.63%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 188 $ 19
Portfolio turnover rate ........................................................ 16.28% 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 repurchases 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 year ended December 31, 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.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
ADVISOR CLASS 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.79 $ 10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.46 0.20
Net realized and unrealized gains (losses) .................................. 0.67 0.76
--------------------
Total from investment operations ............................................... 1.13 0.96
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.24) (0.15)
Net realized gains .......................................................... (0.22) (0.02)
--------------------
Total distributions ............................................................ (0.46) (0.17)
--------------------
Redemption fees ................................................................ -- g -- g
--------------------
Net asset value, end of year ................................................... $ 11.46 $ 10.79
====================
Total return d ................................................................. 10.46% 9.57%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 2.99% 10.41%
Expenses net of waiver and payments by affiliates f ............................ 0.15% 0.15%
Net investment income c ........................................................ 2.87% 3.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 417 $ 51
Portfolio turnover rate ........................................................ 16.28% 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 repurchases 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 year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- ------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 95.5%
DOMESTIC EQUITY 56.0%
Franklin Flex Cap Growth Fund, Advisor Class .............................................. 27,938 $1,364,505
b Franklin Growth Opportunities Fund, Advisor Class ......................................... 16,855 369,795
Franklin MicroCap Value Fund, Advisor Class ............................................... 3,612 123,122
Franklin Natural Resources Fund, Advisor Class ............................................ 8,091 365,452
b Franklin Small Cap Growth Fund II, Advisor Class .......................................... 112,581 1,195,605
Mutual Shares Fund, Class Z ............................................................... 56,424 1,429,776
-----------
4,848,255
-----------
DOMESTIC FIXED INCOME 9.0%
Franklin Strategic Mortgage Portfolio ..................................................... 14,684 139,059
Franklin Total Return Fund, Advisor Class ................................................. 26,791 266,034
Franklin U.S. Government Securities Fund, Advisor Class ................................... 58,193 378,835
-----------
783,928
-----------
FOREIGN EQUITY 25.9%
Franklin Global Real Estate Fund, Advisor Class ........................................... 28,891 287,173
Franklin Gold and Precious Metals Fund, Advisor Class ..................................... 8,279 310,204
Mutual European Fund, Class Z ............................................................. 31,673 833,643
Templeton China World Fund, Advisor Class ................................................. 9,441 416,291
Templeton Foreign Fund, Advisor Class ..................................................... 32,378 403,446
-----------
2,250,757
-----------
FOREIGN FIXED INCOME 4.6%
Templeton Global Bond Fund, Advisor Class ................................................. 34,861 397,411
-----------
TOTAL LONG TERM INVESTMENTS (COST $8,442,277) ............................................. 8,280,351
-----------
SHORT TERM INVESTMENT (COST $255,870) 3.0%
MONEY MARKET FUND 3.0%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ...................... 255,870 255,870
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $8,698,147) 98.5% ............................. 8,536,221
OTHER ASSETS, LESS LIABILITIES 1.5% ....................................................... 125,814
-----------
NET ASSETS 100.0% ......................................................................... $8,662,035
===========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2007.
c The rate shown is the annualized seven-day yield at period end.
54 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
-------------------------
YEAR ENDED
DECEMBER 31,
CLASS A 2007 2006 h
-------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................................................... $ 10.88 $ 10.00
-------------------------
Income from investment operations a:
Net investment income b, c ............................................................... 0.22 0.09
Net realized and unrealized gains (losses) ............................................... 0.97 0.95
-------------------------
Total from investment operations . .......................................................... 1.19 1.04
-------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ................ (0.16) (0.13)
Net realized gains ....................................................................... (0.30) (0.03)
-------------------------
Total distributions ......................................................................... (0.46) (0.16)
-------------------------
Redemption fees ............................................................................. -- g --
-------------------------
Net asset value, end of year ................................................................ $ 11.61 $ 10.88
=========================
Total return d .............................................................................. 11.05% 10.44%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ......................................... 5.16% 13.47%
Expenses net of waiver and payments by affiliates f ......................................... 0.48% 0.50%
Net investment income c . ................................................................... 2.07% 2.04%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................................. $ 3,760 $ 1,171
Portfolio turnover rate . ................................................................... 14.95% 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 repurchases 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 0.88%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 55
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
-------------------------
YEAR ENDED
DECEMBER 31,
CLASS C 2007 2006 h
-------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................................................... $ 10.86 $ 10.00
-------------------------
Income from investment operations a:
Net investment income b, c ............................................................... 0.26 0.12
Net realized and unrealized gains (losses) ............................................... 0.84 0.89
-------------------------
Total from investment operations ............................................................ 1.10 1.01
-------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ................ (0.14) (0.12)
Net realized gains ....................................................................... (0.30) (0.03)
-------------------------
Total distributions ......................................................................... (0.44) (0.15)
-------------------------
Redemption fees ............................................................................. -- g --
-------------------------
Net asset value, end of year ................................................................ $ 11.52 $ 10.86
=========================
Total return d .............................................................................. 10.12% 10.14%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ......................................... 5.84% 14.12%
Expenses net of waiver and payments by affiliates f ......................................... 1.16% 1.15%
Net investment income c ..................................................................... 1.39% 1.39%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................................. $ 1,103 $ 57
Portfolio turnover rate ..................................................................... 14.95% 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 repurchases 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 0.88%
for the year ended December 31, 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.
56 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
-------------------------
YEAR ENDED
DECEMBER 31,
CLASS R 2007 2006 h
-------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................................................... $ 10.88 $ 10.00
-------------------------
Income from investment operations a:
Net investment income b, c ............................................................... 0.28 0.11
Net realized and unrealized gains (losses) ............................................... 0.89 0.93
-------------------------
Total from investment operations ............................................................ 1.17 1.04
-------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ................ (0.16) (0.13)
Net realized gains ....................................................................... (0.30) (0.03)
-------------------------
Total distributions ......................................................................... (0.46) (0.16)
-------------------------
Redemption fees ............................................................................. -- g --
-------------------------
Net asset value, end of year ................................................................ $ 11.59 $ 10.88
=========================
Total return d .............................................................................. 10.76% 10.40%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ......................................... 5.34% 13.62%
Expenses net of waiver and payments by affiliates f ......................................... 0.66% 0.65%
Net investment income c ..................................................................... 1.89% 1.89%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................................. $ 314 $ 23
Portfolio turnover rate ..................................................................... 14.95% 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 repurchases 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 0.88%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 57
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
-------------------------
YEAR ENDED
DECEMBER 31,
ADVISOR CLASS 2007 2006 h
-------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................................................... $ 10.89 $ 10.00
-------------------------
Income from investment operations a:
Net investment income b, c ............................................................... 0.20 0.18
Net realized and unrealized gains (losses) ............................................... 1.04 0.88
-------------------------
Total from investment operations ............................................................ 1.24 1.06
-------------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ................ (0.19) (0.14)
Net realized gains ....................................................................... (0.30) (0.03)
-------------------------
Total distributions ......................................................................... (0.49) (0.17)
-------------------------
Redemption fees ............................................................................. -- g --
-------------------------
Net asset value, end of year ................................................................ $ 11.64 $ 10.89
=========================
Total return d .............................................................................. 11.34% 10.60%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ......................................... 4.84% 13.12%
Expenses net of waiver and payments by affiliates f ......................................... 0.16% 0.15%
Net investment income c ..................................................................... 2.39% 2.39%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................................. $ 119 $ 59
Portfolio turnover rate ..................................................................... 14.95% 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 repurchases 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 0.88%
for the year ended December 31, 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.
58 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- ------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 96.4%
DOMESTIC EQUITY 64.2%
Franklin Flex Cap Growth Fund, Advisor Class .............................................. 20,090 $ 981,194
b Franklin Growth Opportunities Fund, Advisor Class ......................................... 11,549 253,396
Franklin MicroCap Value Fund, Advisor Class ............................................... 2,670 91,013
Franklin Natural Resources Fund, Advisor Class ............................................ 5,660 255,659
b Franklin Small Cap Growth Fund II, Advisor Class .......................................... 78,647 835,230
Mutual Shares Fund, Class Z ............................................................... 38,816 983,600
-----------
3,400,092
-----------
DOMESTIC FIXED INCOME 1.5%
Franklin Strategic Mortgage Portfolio ..................................................... 1,568 14,853
Franklin Total Return Fund, Advisor Class ................................................. 2,795 27,752
Franklin U.S. Government Securities Fund, Advisor Class ................................... 6,166 40,140
-----------
82,745
-----------
FOREIGN EQUITY 29.9%
Franklin Global Real Estate Fund, Advisor Class ........................................... 20,300 201,780
Franklin Gold and Precious Metals Fund, Advisor Class ..................................... 5,955 223,149
Mutual European Fund, Class Z ............................................................. 22,145 582,842
Templeton China World Fund, Advisor Class ................................................. 6,597 290,876
Templeton Foreign Fund, Advisor Class ..................................................... 22,919 285,565
-----------
1,584,212
-----------
FOREIGN FIXED INCOME 0.8%
Templeton Global Bond Fund, Advisor Class ................................................. 3,555 40,522
-----------
TOTAL LONG TERM INVESTMENTS (COST $5,183,090) ............................................. 5,107,571
-----------
SHORT TERM INVESTMENT (COST $74,072) 1.4%
MONEY MARKET FUND 1.4%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ...................... 74,072 74,072
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $5,257,162) 97.8% ............................. 5,181,643
OTHER ASSETS, LESS LIABILITIES 2.2% ....................................................... 114,408
-----------
NET ASSETS 100.0% ......................................................................... $5,296,051
===========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2007.
c The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 59
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS A 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $10.89 $10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.17 0.08
Net realized and unrealized gains (losses) .................................. 1.06 0.97
--------------------
Total from investment operations ............................................... 1.23 1.05
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.16) (0.13)
Net realized gains .......................................................... (0.39) (0.03)
--------------------
Total distributions ............................................................ (0.55) (0.16)
--------------------
Redemption fees ................................................................ -- g --
--------------------
Net asset value, end of year ................................................... $11.57 $10.89
====================
Total return d ................................................................. 11.32% 10.55%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 6.86% 13.15%
Expenses net of waiver and payments by affiliates f ............................ 0.47% 0.50%
Net investment income c ........................................................ 1.70% 1.97%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $2,439 $1,169
Portfolio turnover rate ........................................................ 24.40% 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 repurchases 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 0.89%
for the year ended December 31, 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.
60 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
--------------------
YEAR ENDED
DECEMBER 31,
CLASS C 2007 2006 h
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $10.87 $10.00
--------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.23 0.16
Net realized and unrealized gains (losses) .................................. 0.91 0.87
--------------------
Total from investment operations ............................................... 1.14 1.03
--------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.14) (0.13)
Net realized gains .......................................................... (0.39) (0.03)
--------------------
Total distributions ............................................................ (0.53) (0.16)
--------------------
Redemption fees ................................................................ -- g --
--------------------
Net asset value, end of year ................................................... $11.48 $10.87
====================
Total return d ................................................................. 10.50% 10.30%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 7.55% 13.74%
Expenses net of waiver and payments by affiliates f ............................ 1.16% 1.09%
Net investment income c ........................................................ 1.01% 1.38%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 487 $ 67
Portfolio turnover rate ........................................................ 24.40% 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 repurchases 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 0.89%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 61
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
-------------------
YEAR ENDED
DECEMBER 31,
CLASS R 2007 2006 h
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.88 $ 10.00
-------------------
Income from investment operations a:
Net investment income b, c................................................... 0.24 0.08
Net realized and unrealized gains (losses) .................................. 0.97 0.96
-------------------
Total from investment operations ............................................... 1.21 1.04
-------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.16) (0.13)
Net realized gains .......................................................... (0.39) (0.03)
-------------------
Total distributions ............................................................ (0.55) (0.16)
-------------------
Redemption fees ................................................................ --g --
-------------------
Net asset value, end of year ................................................... $ 11.54 $ 10.88
===================
Total return d ................................................................. 11.13% 10.44%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 7.04% 13.30%
Expenses net of waiver and payments by affiliates f ............................ 0.65% 0.65%
Net investment income c......................................................... 1.52% 1.82%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 160 $ 12
Portfolio turnover rate ........................................................ 24.40% 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 repurchases 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 0.89%
for the year ended December 31, 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.
62 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
-------------------
YEAR ENDED
DECEMBER 31,
ADVISOR CLASS 2007 2006 h
-------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 10.90 $ 10.00
-------------------
Income from investment operations a:
Net investment income b, c .................................................. 0.49 0.12
Net realized and unrealized gains (losses) .................................. 0.78 0.95
-------------------
Total from investment operations ............................................... 1.27 1.07
-------------------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.19) (0.14)
Net realized gains .......................................................... (0.39) (0.03)
-------------------
Total distributions ............................................................ (0.58) (0.17)
-------------------
Redemption fees ................................................................ --g --
-------------------
Net asset value, end of year ................................................... $ 11.59 $ 10.90
===================
Total return d ................................................................. 11.65% 10.72%
RATIOS TO AVERAGE NET ASSETS e
Expenses before waiver and payments by affiliates f ............................ 6.54% 12.80%
Expenses net of waiver and payments by affiliates f ............................ 0.15% 0.15%
Net investment income c ........................................................ 2.02% 2.32%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 164 $ 17
Portfolio turnover rate ........................................................ 24.40% 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 repurchases 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 0.89%
for the year ended December 31, 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.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 63
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2007
- ---------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNDERLYING FUNDS a
LONG TERM INVESTMENTS 96.6%
DOMESTIC EQUITY 65.7%
Franklin Flex Cap Growth Fund, Advisor Class ................................. 12,210 $ 596,323
b Franklin Growth Opportunities Fund, Advisor Class ............................ 7,611 166,994
Franklin MicroCap Value Fund, Advisor Class .................................. 1,708 58,216
Franklin Natural Resources Fund, Advisor Class ............................... 3,621 163,579
b Franklin Small Cap Growth Fund II, Advisor Class ............................. 50,246 533,602
Mutual Shares Fund, Class Z .................................................. 24,299 615,742
-----------
2,134,456
-----------
FOREIGN EQUITY 30.9%
Franklin Global Real Estate Fund, Advisor Class .............................. 12,803 127,264
Franklin Gold and Precious Metals Fund, Advisor Class ........................ 3,737 140,020
Mutual European Fund, Class Z ................................................ 14,099 371,097
Templeton China World Fund, Advisor Class .................................... 4,245 187,158
Templeton Foreign Fund, Advisor Class ........................................ 14,396 179,373
-----------
1,004,912
-----------
TOTAL LONG TERM INVESTMENTS (COST $3,140,066) ................................ 3,139,368
-----------
SHORT TERM INVESTMENT (COST $133) 0.0% c
MONEY MARKET FUND 0.0% c
d Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.58% ......... 133 133
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $3,140,199) 96.6% ................ 3,139,501
OTHER ASSETS, LESS LIABILITIES 3.4% .......................................... 109,991
-----------
NET ASSETS 100.0% ............................................................ $3,249,492
===========
a See Note 6 regarding investments in Underlying Funds.
b Non-income producing for the twelve months ended December 31, 2007.
c Rounds to less than 0.1% of net assets.
d The rate shown is the annualized seven-day yield at period end.
64 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2007
-------------------------------------------------------------------------------
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 ....................................... $ 8,345,777 $ 8,698,147 $ 5,257,162 $ 3,140,199
===============================================================================
Value ...................................... $ 8,246,400 $ 8,536,221 $ 5,181,643 $ 3,139,501
Receivables:
Investment securities sold ................. -- -- -- 21,000
Capital shares sold ........................ 251,717 34,332 21,182 13,304
Affiliates ................................. 112,548 117,609 118,558 122,199
-------------------------------------------------------------------------------
Total assets ............................ 8,610,665 8,688,162 5,321,383 3,296,004
-------------------------------------------------------------------------------
Liabilities:
Payables:
Reports to shareholders .................... 4,335 5,371 4,100 4,304
Professional fees .......................... 19,987 20,049 20,337 20,537
Funds advanced by custodian ................... -- -- -- 20,733
Accrued expenses and other liabilities ........ 351 707 895 938
-------------------------------------------------------------------------------
Total liabilities ....................... 24,673 26,127 25,332 46,512
-------------------------------------------------------------------------------
Net assets, at value ................. $ 8,585,992 $ 8,662,035 $ 5,296,051 $ 3,249,492
===============================================================================
Net assets consist of:
Paid-in capital ............................... $ 8,412,464 $ 8,481,624 $ 5,132,136 $ 3,097,549
Undistributed net investment income ........... 2,414 2,524 1,418 1,101
Net unrealized appreciation (depreciation) .... (99,377) (161,926) (75,519) (698)
Accumulated net realized gain (loss) .......... 270,491 339,813 238,016 151,540
-------------------------------------------------------------------------------
Net assets, at value ................. $ 8,585,992 $ 8,662,035 $ 5,296,051 $ 3,249,492
===============================================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 65
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2007
-------------------------------------------------------------------------------
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 .......................... $ 5,269,300 $ 6,952,466 $ 3,760,187 $ 2,438,556
===============================================================================
Shares outstanding ............................ 464,236 607,215 323,744 210,774
===============================================================================
Net asset value per share a ................... $ 11.35 $ 11.45 $ 11.61 $ 11.57
===============================================================================
Maximum offering price per share
(net asset value per share / 94.25%) ....... $ 12.04 $ 12.15 $ 12.32 $ 12.28
===============================================================================
CLASS C:
Net assets, at value .......................... $ 2,213,463 $ 1,104,364 $ 1,102,628 $ 487,050
===============================================================================
Shares outstanding ............................ 196,211 96,860 95,696 42,417
===============================================================================
Net asset value and maximum offering
price per share a .......................... $ 11.28 $ 11.40 $ 11.52 $ 11.48
===============================================================================
CLASS R:
Net assets, at value .......................... $ 1,070,738 $ 188,354 $ 314,010 $ 159,788
===============================================================================
Shares outstanding ............................ 94,550 16,471 27,094 13,843
===============================================================================
Net asset value and maximum offering
price per share a .......................... $ 11.32 $ 11.44 $ 11.59 $ 11.54
===============================================================================
ADVISOR CLASS:
Net assets, at value .......................... $ 32,491 $ 416,851 $ 119,226 $ 164,098
===============================================================================
Shares outstanding ............................ 2,858 36,384 10,242 14,162
===============================================================================
Net asset value and maximum offering
price per share a .......................... $ 11.37 $ 11.46 $ 11.64 $ 11.59
===============================================================================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
66 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2007
-------------------------------------------------------------------------------
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) ................................... $ 147,939 $ 143,472 $ 70,514 $ 44,232
Interest ...................................... 265 49 -- --
-------------------------------------------------------------------------------
Total investment income ................. 148,204 143,521 70,514 44,232
-------------------------------------------------------------------------------
Expenses:
Asset allocation fees (Note 3a) ............... 9,697 11,402 6,777 5,020
Distribution fees: (Note 3c)
Class A .................................... 9,267 13,013 6,903 5,563
Class C .................................... 7,793 4,696 4,119 1,938
Class R .................................... 2,246 398 629 384
Transfer agent fees (Note 3e) ................. 5,039 8,431 8,593 8,992
Reports to shareholders ....................... 11,365 14,793 11,368 9,980
Registration and filing fees .................. 40,692 40,559 39,932 40,144
Professional fees ............................. 24,646 24,707 24,567 25,247
Trustees' fees and expenses ................... 16 18 11 8
Amortization of offering costs ................ 42,919 40,867 41,490 42,697
Other ......................................... 949 1,014 1,135 975
-------------------------------------------------------------------------------
Total expenses .......................... 154,629 159,898 145,524 140,948
Expenses waived/paid by affiliates
(Note 3f) ............................ (128,628) (134,463) (129,554) (129,991)
-------------------------------------------------------------------------------
Net expenses ...................... 26,001 25,435 15,970 10,957
-------------------------------------------------------------------------------
Net investment income .......... 122,203 118,086 54,544 33,275
-------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds .... (24,735) (54,535) (27,424) (23,536)
Realized gain distributions by
Underlying Funds ........................ 328,232 446,005 297,404 201,211
-------------------------------------------------------------------------------
Net realized gain (loss) ....... 303,497 391,470 269,980 177,675
-------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ........................... (132,654) (195,462) (116,810) (42,627)
-------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .......... 170,843 196,008 153,170 135,048
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ..................... $ 293,046 $ 314,094 $ 207,714 $ 168,323
===============================================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 67
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
-----------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 a 2007 2006 a
-----------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ......................... $ 122,203 $ 14,810 $ 118,086 $ 15,985
Net realized gain (loss) from
Underlying Funds ........................... 303,497 52,764 391,470 76,897
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ........................... (132,654) 33,277 (195,462) 33,536
-----------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............ 293,046 100,851 314,094 126,418
-----------------------------------------------------------
Distributions to shareholders from:
Net investment income and short term gains
received from Underlying Funds:
Class A ....................................... (89,066) (19,061) (116,293) (22,186)
Class C ....................................... (31,491) (827) (15,006) (641)
Class R ....................................... (17,779) (149) (2,899) (247)
Advisor Class ................................. (736) (289) (7,148) (691)
Net realized gains:
Class A ....................................... (42,032) (2,441) (81,106) (3,104)
Class C ....................................... (12,628) (112) (9,526) (97)
Class R ....................................... (7,035) (19) (1,831) (34)
Advisor Class ................................. (438) (36) (3,157) (92)
-----------------------------------------------------------
Total distributions to shareholders .............. (201,205) (22,934) (236,966) (27,092)
-----------------------------------------------------------
Capital share transactions: (Note 2)
Class A ....................................... 3,834,014 1,289,499 5,156,687 1,604,063
Class C ....................................... 2,150,974 61,466 1,061,155 50,514
Class R ....................................... 1,040,251 10,000 166,698 18,158
Advisor Class ................................. 10,740 19,249 377,760 50,386
-----------------------------------------------------------
Total capital share transactions ................. 7,035,979 1,380,214 6,762,300 1,723,121
-----------------------------------------------------------
Redemption fees .................................. 41 -- 157 3
-----------------------------------------------------------
Net increase (decrease) in net assets ... 7,127,861 1,458,131 6,839,585 1,822,450
Net assets:
Beginning of year ................................ 1,458,131 -- 1,822,450 --
-----------------------------------------------------------
End of year ...................................... $ 8,585,992 $1,458,131 $8,662,035 $1,822,450
===========================================================
Undistributed net investment income included
in net assets:
End of year ................................... $ 2,414 $ 467 $ 2,524 $ 533
===========================================================
a For the period August 1, 2006 (commencement of operations) to December 31,
2006.
68 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------
FRANKLIN TEMPLETON 2035 FRANKLIN TEMPLETON 2045
RETIREMENT TARGET FUND RETIREMENT TARGET FUND
-----------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 a 2007 2006 a
-----------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ......................... $ 54,544 $ 9,489 $ 33,275 $ 9,142
Net realized gain (loss) from
Underlying Funds ........................... 269,980 60,838 177,675 60,512
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ........................... (116,810) 41,291 (42,627) 41,929
-----------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............ 207,714 111,618 168,323 111,583
-----------------------------------------------------------
Distributions to shareholders from:
Net investment income and short term gains
received from Underlying Funds:
Class A .................................... (50,435) (14,155) (33,285) (14,304)
Class C .................................... (13,163) (627) (5,813) (776)
Class R .................................... (4,205) (271) (2,128) (145)
Advisor Class .............................. (1,855) (736) (2,578) (213)
Net realized gains:
Class A .................................... (52,659) (3,461) (57,461) (3,421)
Class C .................................... (10,159) (166) (5,731) (194)
Class R .................................... (3,259) (68) (2,945) (35)
Advisor Class .............................. (2,845) (171) (1,299) (48)
-----------------------------------------------------------
Total distributions to shareholders .............. (138,580) (19,655) (111,240) (19,136)
-----------------------------------------------------------
Capital share transactions: (Note 2)
Class A .................................... 2,512,921 1,084,636 1,203,127 1,079,556
Class C .................................... 1,061,051 54,747 421,465 65,871
Class R .................................... 286,076 21,604 148,108 11,306
Advisor Class .............................. 56,592 57,003 154,787 15,738
-----------------------------------------------------------
Total capital share transactions ................. 3,916,640 1,217,990 1,927,487 1,172,471
-----------------------------------------------------------
Redemption fees .................................. 324 -- 4 --
-----------------------------------------------------------
Net increase (decrease) in net assets ... 3,986,098 1,309,953 1,984,574 1,264,918
Net assets:
Beginning of year ................................ 1,309,953 -- 1,264,918 --
-----------------------------------------------------------
End of year ...................................... $ 5,296,051 $1,309,953 $3,249,492 $1,264,918
===========================================================
Undistributed net investment income included
in net assets:
End of year ................................... $ 1,418 $ 389 $ 1,101 $ 366
===========================================================
a For the period August 1, 2006 (commencement of operations) to December 31,
2006.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 69
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment
company, consisting of ten separate funds. All funds included in this report
(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 (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.
70 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME,EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in 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, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
Annual Report | 71
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 2007, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
CLASS A SHARES:
Year ended December 31, 2007
Shares sold ...................................... 349,875 $ 3,984,778 488,498 $ 5,580,914
Shares issued in reinvestment of distributions ... 8,114 92,217 13,553 155,750
Shares redeemed .................................. (21,395) (242,981) (52,414) (579,977)
------------------------------------------------
Net increase (decrease) .......................... 336,594 $ 3,834,014 449,637 $ 5,156,687
================================================
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:
Year ended December 31, 2007
Shares sold ...................................... 213,584 $ 2,410,848 95,440 $ 1,102,577
Shares issued in reinvestment of distributions ... 3,651 41,268 2,077 23,770
Shares redeemed .................................. (26,962) (301,142) (5,644) (65,192)
------------------------------------------------
Net increase (decrease) .......................... 190,273 $ 2,150,974 91,873 $ 1,061,155
================================================
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:
Year ended December 31, 2007
Shares sold ...................................... 95,945 $ 1,067,714 14,340 $ 162,416
Shares issued in reinvestment of distributions ... 2,189 24,812 376 4,314
Shares redeemed .................................. (4,584) (52,275) (3) (32)
------------------------------------------------
Net increase (decrease) .......................... 93,550 $ 1,040,251 14,713 $ 166,698
================================================
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
================================================
72 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (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:
Year ended December 31, 2007
Shares sold ...................................... 949 $ 10,200 40,489 $ 477,407
Shares issued in reinvestment of distributions ... 66 755 857 9,849
Shares redeemed .................................. (19) (215) (9,694) (109,496)
----------------------------------------------
Net increase (decrease) .......................... 996 $ 10,740 31,652 $ 377,760
==============================================
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:
Year ended December 31, 2007
Shares sold ...................................... 225,018 $ 2,619,493 106,830 $ 1,245,860
Shares issued in reinvestment of distributions ... 5,002 58,354 3,171 36,890
Shares redeemed .................................. (13,914) (164,926) (6,631) (79,623)
-----------------------------------------------
Net increase (decrease) .......................... 216,106 $ 2,512,921 103,370 $ 1,203,127
===============================================
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:
Year ended December 31, 2007
Shares sold ...................................... 89,429 $ 1,049,217 37,380 $ 434,652
Shares issued in reinvestment of distributions ... 1,859 21,536 848 9,798
Shares redeemed .................................. (822) (9,702) (1,957) (22,985)
-----------------------------------------------
Net increase (decrease) .......................... 90,466 $ 1,061,051 36,271 $ 421,465
===============================================
Period ended December 31, 2006 a
Shares sold ...................................... 5,178 $ 54,184 6,073 $ 65,075
Shares issued in reinvestment of distributions ... 59 638 74 811
Shares redeemed .................................. (7) (75) (1) (15)
-----------------------------------------------
Net increase (decrease) .......................... 5,230 $ 54,747 6,146 $ 65,871
===============================================
Annual Report | 73
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
-------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------
CLASS R SHARES:
Year ended December 31, 2007
Shares sold ...................................... 24,371 $ 279,217 12,508 $ 145,703
Shares issued in reinvestment of distributions ... 602 7,005 389 4,524
Shares redeemed .................................. (12) (146) (175) (2,119)
-------------------------------------------
Net increase (decrease) .......................... 24,961 $ 286,076 12,722 $ 148,108
===========================================
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:
Year ended December 31, 2007
Shares sold ...................................... 5,961 $ 68,751 12,616 $ 154,574
Shares issued in reinvestment of distributions ... 360 4,217 284 3,300
Shares redeemed .................................. (1,463) (16,376) (261) (3,087)
-------------------------------------------
Net increase (decrease) .......................... 4,858 $ 56,592 12,639 $ 154,787
===========================================
Period ended December 31, 2006 a
Shares sold ...................................... 5,318 $ 56,281 1,515 $ 15,649
Shares issued in reinvestment of distributions ... 67 737 8 89
Shares redeemed .................................. (1) (15) -- --
-------------------------------------------
Net increase (decrease) .......................... 5,384 $ 57,003 1,523 $ 15,738
===========================================
a For 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 certain 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
74 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. ASSET ALLOCATION FEES
The Funds pay an asset allocation fee to Advisers of 0.25% per year of the
average daily net assets of each of the Funds for investment advisory services,
consisting principally of determining the allocation of assets of the Funds
among the designated Underlying Funds.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
C. DISTRIBUTION FEES
The Trust's Board of Directors has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A .................................................. 0.35%
Class C .................................................. 1.00%
Class R .................................................. 0.50%
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 year:
------------------------------------------------------
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 ....................... $ 15,365 $ 16,395 $ 9,609 $ 6,048
Contingent deferred sales charges retained ........... $ 12 $ 76 $ 85 $ 48
Annual Report | 75
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
For the year ended December 31, 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 .................................. $ 3,494 $ 5,821 $ 5,855 $ 6,143
F. WAIVER AND EXPENSE REIMBURSEMENTS
Advisers and Investor Services have agreed in advance to waive all or a portion
of their respective 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.
G. OTHER AFFILIATED TRANSACTIONS
At December 31, 2007, Advisers owned a percentage of the Funds' outstanding
shares as listed below:
------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------------------------------------
12.93% 12.95% 21.45% 35.21%
4. INCOME TAXES
The Funds have reviewed the tax positions taken on the federal income tax
return, for the one open tax year and as of December 31, 2007 and have
determined that no provision for income tax is required in the Funds' financial
statements.
The tax character of distributions paid during the years ended December 31, 2007
and 2006, was as follows:
----------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
----------------------------------------
2007 2006 2007 2006
----------------------------------------
Distributions paid from:
Ordinary income .................. $139,072 $20,516 $141,458 $23,883
Long term capital gain ........... 62,133 2,418 95,508 3,209
----------------------------------------
$201,205 $22,934 $236,966 $27,092
========================================
76 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
------------------------------------------------------
2007 2006 2007 2006
------------------------------------------------------
Distributions paid from:
Ordinary income ................................... $ 69,862 $ 16,605 $ 43,962 $ 16,084
Long term capital gain ............................ 68,718 3,050 67,278 3,052
------------------------------------------------------
$ 138,580 $ 19,655 $ 111,240 $ 19,136
======================================================
At December 31, 2007, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------------------------------------------
Cost of investments .................................. $ 8,348,603 $ 8,722,494 $ 5,266,509 $ 3,152,705
======================================================
Unrealized appreciation .............................. $ 184,343 $ 228,818 $ 172,504 $ 151,732
Unrealized depreciation .............................. (286,546) (415,091) (257,370) (164,936)
------------------------------------------------------
Net unrealized appreciation (depreciation) ........... $ (102,203) $ (186,273) $ (84,866) $ (13,204)
======================================================
Undistributed ordinary income ........................ $ 2,414 $ 2,524 $ 1,418 $ 1,101
Undistributed long term capital gains ................ 273,317 364,160 247,364 164,046
------------------------------------------------------
Distributable earnings ............................... $ 275,731 $ 366,684 $ 248,782 $ 165,147
======================================================
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.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 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 ............................................ $ 6,881,729 $ 7,546,384 $ 4,441,864 $ 2,516,899
Sales ................................................ $ 318,937 $ 741,017 $ 402,540 $ 478,467
Annual Report | 77
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At December 31, 2007, the Funds
held no positions which exceed 5% of the Underlying Funds' shares outstanding.
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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, 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. 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.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Trust, it is
committed to making the Trust or their shareholders whole, as appropriate.
78 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. NEW ACCOUNTING PRONOUNCEMENT
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The
Trust believes the adoption of SFAS 157 will have no material impact on its
financial statements.
Annual Report | 79
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton 2015 Retirement
Target Fund, Franklin Templeton 2025 Retirement Target Fund, Franklin Templeton
2035 Retirement Target Fund and Franklin Templeton 2045 Retirement Target Fund
(separate portfolios of Franklin Templeton Allocator Series, hereafter referred
to as the "Funds") at December 31, 2007, the results of each of their operations
for the year then ended and the changes in each of their net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Funds' management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investment in the Underlying Funds at
December 31, 2007 by correspondence with the transfer agent of the Underlying
Funds, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2008
80 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2007:
- ------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
- ------------------------------------------------------------------------------
$289,447 $391,211 $262,945 $178,534
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2007:
- ------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
- ------------------------------------------------------------------------------
16.17% 20.47% 28.33% 29.92%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2007.
- ------------------------------------------------------------------------------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
- ------------------------------------------------------------------------------
$54,691 $72,208 $49,106 $32,830
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2007.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Annual Report | 81
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 141 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank
holding company) (until 2002); and President, Chief Executive Officer and
Chairman of the Board, General Host Corporation (nursery and craft centers)
(until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2005 121 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration,
California Public Employees Retirement Systems (CALPERS); and FORMERLY, member
and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board,
Blue Shield of California; and Chief Counsel, California Department of
Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
SAM GINN (1937) Trustee Since April 2007 121 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC
(wireless company); Chairman of the Board and Chief Executive Officer, AirTouch
Communications (cellular communications) (1993-1998) and Pacific Telesis Groups
(telephone holding company) (1988-1994).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 141 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution
of titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to
the President of the United States and Secretary of the Cabinet (1990-1993);
General Counsel to the United States Treasury Department (1989-1990); and
Counselor to the Secretary and Assistant Secretary for Public Affairs and Public
Liaison-United States Treasury Department (1988-1989).
- --------------------------------------------------------------------------------
82 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 121 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman,
Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Trustee Since April 2007 141 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and
San Mateo, CA 94403-1906 Sentient Jet (private jet service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of
the Board (1980-2000) and Chief Executive Officer (1977-1999)); and FORMERLY,
Chairman of the Board, President and Chief Executive Officer, UAL Corporation
(airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Trustee Since April 2007 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary,
PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines
(aviation) (2003-2005) and Providian Financial Corp. (credit card provider)
(1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting
Professor, University of Georgia School of Law (2004); and Deputy Attorney
General, U.S. Department of Justice (2001-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Lead Trustee since 121 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
January 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private
equity investing); serves on private and non-profit boards; and FORMERLY, Chief
Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000);
Chief Financial Officer and Executive Vice President - Finance and Strategy,
Staples, Inc. (office supplies) (1992-1996); Executive Vice President -
Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice
President and Partner, Bain & Company (consulting firm) (1986-1990).
- --------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 141 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 42 of the investment companies in Franklin
Templeton Investments.
- --------------------------------------------------------------------------------
Annual Report | 83
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since April 2007 92 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.;
President, Templeton Worldwide, Inc.; Director, Templeton Asset Management Ltd.;
and officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies
in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice President
Vice President - AML Compliance
- AML since 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 46 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Director of
Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 28 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Director
and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004);
Assistant Treasurer of most of the investment companies in Franklin Templeton
Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, Executive
FL 33394-3091 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton
Worldwide, Inc.; and officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton
Investments.
- --------------------------------------------------------------------------------
84 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and
director of one of the subsidiaries of Franklin Resources, Inc.; and officer of
46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) President President and Not Applicable Not Applicable
One Franklin Parkway and Chief Chief Executive
San Mateo, CA 94403-1906 Executive Officer -
Officer - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior
Vice President, Franklin Advisory Services, LLC; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 44 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of
30 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer
of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Partner,
Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- --------------------------------------------------------------------------------
Annual Report | 85
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the
other subsidiaries of Franklin Resources, Inc. and of 46 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Managing Director,
RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987
and 1991-2004).
- --------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment manager or affiliated
investment managers.
** Charles B. Johnson is considered to be an interested person of the Trust
under the federal securities laws due to his position as officer, director and
major shareholder of Franklin Resources, Inc. (Resources), which is the parent
company of the Trust's investment manager and distributor. Gregory E. Johnson is
considered to be an interested person of the Trust under the federal securities
laws due to his position as officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
Note 3: Prior to December 31, 2007, Rupert H. Johnson, Jr. ceased to be a
trustee of the Trust.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
86 | Annual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
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 Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 87
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 Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Growth Opportunities Fund 2
Franklin Small Cap Growth Fund II 3
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin All Cap Value Fund
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 4
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Focused Core Equity 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 5
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund 5
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
Templeton Income Fund
Templeton International Bond 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
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
2. Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
3. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
4. 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.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
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.
12/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
RTF A2007 02/08
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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $207,774 for the fiscal year ended December 31, 2007 and $200,837 for the
fiscal year ended December 31, 2006.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $46,000 for the fiscal year ended
December 31, 2007 and $0 for the fiscal year ended December 31, 2006. The
services for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2007
and $5,267 for the fiscal year ended December 31, 2006. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year
ended December 31, 2007 and $170,594 for the fiscal year ended December 31,
2006. The services for which these fees were paid included review of materials
provided to the fund Board in connect with the investment management contract
renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $46,000 for the fiscal year ended December 31, 2007 and $175,861
for the fiscal year ended December 31, 2006.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND
PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END
MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES. (A) EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES. The Registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in the
Registrant's filings under the Securities Exchange Act of 1934 and the
Investment Company Act of 1940 is recorded, processed, summarized and reported
within the periods specified in the rules and forms of the Securities and
Exchange Commission. Such information is accumulated and communicated to the
Registrant's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. The Registrant's management, including the principal executive
officer and the principal financial officer, recognizes that any set of controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Galen G. Vetter, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Galen G. Vetter, Chief Executive Officer - Finance and Administration, and Laura
F. Fergerson, Chief Financial Officer and Chief Accounting 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/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date February 27, 2008
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/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Executive Officer - Finance and Administration
Date February 27, 2008
By /S/LAURA F. FERGERSON
---------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date February 27, 2008