UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07851
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
------------------------------------------
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
----------------------------------------------
(Address of principal executive offices)(Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
--------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code:(650) 312-2000
Date of fiscal year end: 12/31
Date of reporting period:_6/30/08
ITEM 1. REPORTS TO STOCKHOLDERS.
JUNE 30, 2008
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
ASSET ALLOCATION
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - TEMPLETON - MUTUAL SERIES
Semiannual Report
Economic and Market Overview
During the first half of 2008, the U.S. economy grew marginally as energy prices
rose, housing prices declined, the labor situation and consumer demand softened,
and a credit crisis originally related to U.S. subprime loan losses spread
globally. A weaker U.S. dollar compared with most foreign currencies contributed
to increased export demand, which helped the fragile economy. Also supporting
the economy were inventory buildup, expanding government spending and a boost to
household finances from a $168 billion government stimulus package. Many
economists agreed, however, that the slowing U.S. economy -- which is the
world's largest and accounts for roughly 25% of global gross domestic product --
could have a meaningfully negative impact on growth prospects around the
world.(1) Nevertheless, growth remained relatively strong in developing
economies, particularly in Asia ex-Japan where China-led demand continued to
impact commodities prices and related equities.
In the six months under review, prices increased significantly for oil, natural
gas, and most agricultural and industrial commodities, as well as precious
metals, adding to global inflationary pressures. For the 12 months ended June
30, 2008, the core U.S. Consumer Price Index (CPI), which excludes food and
energy costs, rose 2.4%, which was higher than its 10-year average rate.(2) Many
of the world's monetary authorities faced the choice between lowering short-term
interest rates to stimulate growth and raising them to fight inflation, which
Merrill Lynch estimated at 5.5% globally, up from 3.5% at the beginning of 2008.
The U.S. focused on reigniting its economy through fiscal and monetary policies,
but the eurozone made controlling inflation its main goal. Accordingly, while
the U.S. Federal Reserve Board (Fed) eased rates aggressively down to 2.00% from
4.25%, the European Central Bank maintained rates at 4.00%. Interest rate
differentials pressured the U.S. dollar, particularly in the first quarter, but
the greenback regained ground as the Fed paused and implied that its next move
could be a rate hike. Indicators also signaled growth was slowing outside the
U.S. For the period, however, the U.S. dollar declined versus many of the
world's currencies, and the dollar's weakness contributed to higher commodities
prices, as most of these prices are set in U.S. dollars.
(1.) Source: Global Insight.
(2.) Source: Bureau of Labor Statistics.
Semiannual Report | 3
Against this challenging economic backdrop, investors remained cautious and
continued risk reassessments in the stock, bond and credit markets. Many global
and U.S. equity markets were volatile, and a majority of them declined over the
reporting period. In this uncertain environment, U.S. Treasury prices
fluctuated, and the 10-year Treasury note yield fell from 4.04% at the beginning
of the period to 3.99% on June 30, 2008. Despite negative economic data and an
outlook for decelerating corporate earnings and profit margins globally, many
companies' balance sheets remained relatively strong.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30,
2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
4 | Semiannual Report
Franklin Templeton
Conservative Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target
Fund seeks the highest level of long-term total return consistent with a lower
level of risk.(1)
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
ASSET ALLOCATION*
Franklin Templeton Conservative Target Fund
Based on Total Net Assets as of 6/30/08
(PIE CHART)
Domestic Fixed Income... 27.8%
Domestic Equity......... 27.7%
Foreign Fixed Income.... 13.4%
Foreign Equity.......... 12.0%
Short-Term Investments &
Other Net Assets..... 19.1%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This semiannual report for Franklin Templeton Conservative Target Fund covers
the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A had a -3.65% cumulative
total return for the six months under review. In 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. Treasury Bill Index for short-term investments and other
net assets, had total returns of -11.91%, -10.58%,
(1.) The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 34.
Semiannual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund 6/30/08
% OF TOTAL
NET ASSETS
----------
Franklin U.S. Government Securities
Fund - Advisor Class 14.0%
Templeton Global Bond Fund
- Advisor Class 13.4%
Franklin Total Return Fund
- Advisor Class 9.9%
Mutual Shares Fund - Class Z 8.1%
Franklin Flex Cap Growth Fund
- Advisor Class 7.5%
Franklin Small Cap Growth Fund
- Advisor Class 6.0%
Mutual European Fund - Class Z 4.1%
Franklin Strategic Mortgage Portfolio 3.9%
Templeton Foreign Fund
- Advisor Class 2.6%
Franklin Natural Resources Fund
- Advisor Class 2.5%
+1.13% and +1.23%, respectively, during the same time.(2) You can find the
Fund's long-term performance data in the Performance Summary beginning on
page 8.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series is intended to increase
the consistency of the Target Funds' results relative to one another. For your
reference, Franklin Templeton Conservative Target Fund seeks to maintain the
following asset class allocations: 40% equity funds, 40% fixed income funds, and
20% short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Conservative Target Fund's domestic equity
exposure was 69.8% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, at 8.1% of the Fund's total net assets, was our
largest equity fund weighting at period-end. On the fixed income side, domestic
(2.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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.
Source: Payden & Rygel. The P&R 90 Day U.S. Treasury 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 | Semiannual Report
exposure was 67.5% of the Fund's total income weighting, with the balance in
foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class
was our largest fixed income fund weighting at 14.0% of total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, performed better than the S&P 500 during the six-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, underperformed the MSCI EAFE Index. On the fixed
income side, Franklin U.S. Government Securities Fund - Advisor Class and
Templeton Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate
Index, while Franklin Total Return Fund - Advisor Class lagged.
Thank you for your continued participation in Franklin Templeton Conservative
Target Fund. We look forward to serving your future investment needs.
(PHOTO OF T. ANTHONY COFFEY)
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Conservative
Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 7
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCIX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$0.87 $12.72 $13.59
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.1337
Long-Term Capital Gain $0.2407
TOTAL $0.3744
CLASS B (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------- ------ ------- --------
Net Asset Value (NAV) -$0.87 $12.68 $13.55
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0849
Long-Term Capital Gain $0.2407
TOTAL $0.3256
CLASS C (SYMBOL: FTCCX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$0.87 $12.55 $13.42
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0912
Long-Term Capital Gain $0.2407
TOTAL $0.3319
CLASS R (SYMBOL: FTCRX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$0.86 $12.69 $13.55
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.1189
Long-Term Capital Gain $0.2407
TOTAL $0.3596
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------- ------ ------- --------
Net Asset Value (NAV) -$0.86 $12.71 $13.57
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.1492
Long-Term Capital Gain $0.2407
TOTAL $0.3899
8 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST
31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF
PURCHASE.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -3.65% -0.92% +41.73% +77.13%
Average Annual Total Return(3) -9.19% -6.60% +5.97% +5.26%
Value of $10,000 Investment(4) $9,081 $9,340 $13,364 $16,694
Total Annual Operating Expenses(5)
Without Waiver 1.41%
With Waiver 1.18%
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (12/1/03)
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -3.95% -1.66% +17.19% +27.48%
Average Annual Total Return(3) -7.69% -5.39% +4.52% +5.08%
Value of $10,000 Investment(4) $9,231 $9,461 $11,419 $12,548
Total Annual Operating Expenses(5)
Without Waiver 2.16%
With Waiver 1.93%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -4.01% -1.65% +36.46% +64.30%
Average Annual Total Return(3) -4.95% -2.59% +6.41% +5.09%
Value of $10,000 Investment(4) $9,505 $9,741 $13,646 $16,430
Total Annual Operating Expenses(5)
Without Waiver 2.16%
With Waiver 1.93%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -3.69% -1.14% +40.01% +43.99%
Average Annual Total Return(3) -3.69% -1.14% +6.96% +5.78%
Value of $10,000 Investment(4) $9,631 $9,886 $14,001 $14,399
Total Annual Operating Expenses(5)
Without Waiver 1.66%
With Waiver 1.43%
ADVISOR CLASS(6) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------ ------- -------------------
Cumulative Total Return(2) -3.47% -0.66% +42.61% +78.23%
Average Annual Total Return(3) -3.47% -0.66% +7.36% +5.95%
Value of $10,000 Investment(4) $9,653 $9,934 $14,261 $17,823
Total Annual Operating Expenses(5)
Without Waiver 1.16%
With Waiver 0.93%
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 INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND
TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO
THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES
AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT
EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.93% FOR EACH
CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE
RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL
4/30/09.
Semiannual Report | 9
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE
IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN A
FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE.
BECAUSE THIS 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. 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. Six-month return has not been
annualized.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were +16.26% and +6.02%.
10 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 11
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 963.50 $2.49
Hypothetical (5% return before expenses) $1,000 $1,022.33 $2.56
CLASS B
Actual $1,000 $ 960.50 $6.14
Hypothetical (5% return before expenses) $1,000 $1,018.60 $6.32
CLASS C
Actual $1,000 $ 959.90 $6.09
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.27
CLASS R
Actual $1,000 $ 963.10 $3.71
Hypothetical (5% return before expenses) $1,000 $1,021.08 $3.82
ADVISOR CLASS
Actual $1,000 $ 965.30 $1.27
Hypothetical (5% return before expenses) $1,000 $1,023.57 $1.31
* 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: 0.51%; B: 1.26%; C: 1.25%; R: 0.76%; and
Advisor: 0.26%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
12 | Semiannual Report
Franklin Templeton
Moderate Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund
seeks the highest level of long-term total return consistent with a moderate
level of risk.(1)
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
ASSET ALLOCATION*
Franklin Templeton Moderate Target Fund
Based on Total Net Assets as of 6/30/08
(PIE CHART)
Domestic Equity ............................... 37.4%
Domestic Fixed Income ......................... 24.9%
Foreign Equity ................................ 16.5%
Foreign Fixed Income .......................... 12.1%
Short-Term Investments & Other Net Assets ..... 9.1%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This semiannual report for Franklin Templeton Moderate Target Fund covers the
period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A had a -5.19% cumulative total
return for the six months under review. In 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. Treasury Bill Index for short-term investments and other
net assets, had total returns of -11.91%, -10.58%,
(1.) The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 40.
Semiannual Report | 13
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund 6/30/08
% OF TOTAL
NET ASSETS
----------
Franklin U.S. Government Securities
Fund - Advisor Class 12.4%
Templeton Global Bond Fund
- Advisor Class 12.1%
Mutual Shares Fund - Class Z 10.7%
Franklin Flex Cap Growth Fund
- Advisor Class 10.1%
Franklin Total Return Fund
- Advisor Class 8.9%
Franklin Small Cap Growth Fund
- Advisor Class 8.1%
Mutual European Fund - Class Z 5.7%
Franklin Strategic Mortgage Portfolio 3.5%
Templeton Foreign Fund
- Advisor Class 3.3%
Franklin Natural Resources Fund
- Advisor Class 3.3%
+1.13% and +1.23%, respectively, during the same time.(2) You can find the
Fund's long-term performance data in the Performance Summary beginning on page
16.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series is intended to increase
the consistency of the Target Funds' results relative to one another. For your
reference, Franklin Templeton Moderate Target Fund seeks to maintain the
following asset class allocations: 55% equity funds, 35% fixed income funds, and
10% short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Moderate Target Fund's domestic equity
exposure was 69.4% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, at 10.7% of the Fund's total net assets, was
(2.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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.
Source: Payden & Rygel. The P&R 90 Day U.S. Treasury 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.
14 | Semiannual Report
our largest equity fund weighting at period-end. On the fixed income side,
domestic exposure was 67.3% of the Fund's total income weighting, with the
balance in foreign fixed income. Franklin U.S. Government Securities Fund -
Advisor Class was our largest fixed income fund weighting at 12.4% of total net
assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, performed better than the S&P 500 during the six-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, underperformed the MSCI EAFE Index. On the fixed
income side, Franklin U.S. Government Securities Fund - Advisor Class and
Templeton Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate
Index, while Franklin Total Return Fund - Advisor Class lagged.
Thank you for your continued participation in Franklin Templeton Moderate Target
Fund. We look forward to serving your future investment needs.
(PHOTO OF T. ANTHONY COFFEY)
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Moderate
Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 15
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON MODERATE TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FMTIX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.23 $13.12 $14.35
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.1137
Long-Term Capital Gain $0.3712
TOTAL $0.4849
CLASS B (SYMBOL: FBMTX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.23 $13.08 $14.31
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0634
Long-Term Capital Gain $0.3712
TOTAL $0.4346
CLASS C (SYMBOL: FTMTX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.23 $12.88 $14.11
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0666
Long-Term Capital Gain $0.3712
TOTAL $0.4378
CLASS R (SYMBOL: FTMRX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.23 $13.09 $14.32
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0985
Long-Term Capital Gain $0.3712
TOTAL $0.4697
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------- ------ ------- --------
Net Asset Value (NAV) -$1.23 $13.12 $14.35
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.1302
Long-Term Capital Gain $0.3712
TOTAL $0.5014
16 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST
31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF
PURCHASE.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------- -------
Cumulative Total Return(2) -5.19% -2.74% +51.12% +74.84%
Average Annual Total Return(3) -10.67% -8.37% +7.34% +5.12%
Value of $10,000 Investment(4) $ 8,933 $9,163 $14,249 $16,483
Total Annual Operating Expenses(5)
Without Waiver 1.46%
With Waiver 1.25%
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (12/1/03)
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -5.63% -3.53% +19.54% +32.45%
Average Annual Total Return(3) -9.28% -7.15% +5.24% +5.97%
Value of $10,000 Investment(4) $9,072 $9,285 $11,654 $13,045
Total Annual Operating Expenses(5)
Without Waiver 2.21%
With Waiver 2.00%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------- -------
Cumulative Total Return(2) -5.62% -3.55% + 45.56% +62.11%
Average Annual Total Return(3) -6.53% -4.45% +7.80% +4.95%
Value of $10,000 Investment(4) $9,347 $9,555 $14,556 $16,211
Total Annual Operating Expenses(5)
Without Waiver 2.21%
With Waiver 2.00%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------- ------- ------- ------- ------------------
Cumulative Total Return(2) -5.38% -3.07% +49.17% +49.49%
Average Annual Total Return(3) -5.38% -3.07% +8.33% +6.39%
Value of $10,000 Investment(4) $9,462 $9,693 $14,917 $14,949
Total Annual Operating Expenses(5)
Without Waiver 1.71%
With Waiver 1.50%
ADVISOR CLASS(6) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------ ------- --------
Cumulative Total Return(2) -5.08% -2.56% +52.16% +76.05%
Average Annual Total Return(3) -5.08% -2.56% +8.76% +5.82%
Value of $10,000 Investment(4) $9,492 $9,744 $15,216 $17,605
Total Annual Operating Expenses(5)
Without Waiver 1.21%
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 INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND
TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO
THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES
AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT
EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 1.00% FOR EACH
CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE
RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL
4/30/09.
Semiannual Report | 17
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE
IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN A
FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE.
BECAUSE THIS 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. 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. Six-month return has not been
annualized.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were +17.24% and +6.36%.
18 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON MODERATE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 19
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 948.10 $2.52
Hypothetical (5% return before expenses) $1,000 $1,022.28 $2.61
CLASS B
Actual $1,000 $ 943.70 $6.14
Hypothetical (5% return before expenses) $1,000 $1,018.55 $6.37
CLASS C
Actual $1,000 $ 943.80 $6.14
Hypothetical (5% return before expenses) $1,000 $1,018.55 $6.37
CLASS R
Actual $1,000 $ 946.20 $3.73
Hypothetical (5% return before expenses) $1,000 $1,021.03 $3.87
ADVISOR CLASS
Actual $1,000 $ 949.20 $1.31
Hypothetical (5% return before expenses) $1,000 $1,023.52 $1.36
* 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: 0.52%; B: 1.27%; C: 1.27%; R: 0.77%; and
Advisor: 0.27%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
20 | Semiannual 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)
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
ASSET ALLOCATION*
Franklin Templeton Growth Target Fund
Based on Total Net Assets as of 6/30/08
(PIE CHART)
Domestic Equity ............................... 55.4%
Foreign Equity ................................ 23.5%
Domestic Fixed Income ......................... 10.9%
Foreign Fixed Income .......................... 5.4%
Short-Term Investments & Other Net Assets ..... 4.8%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This semiannual report for Franklin Templeton Growth Target Fund covers the
period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A had a cumulative total return of
- -8.12% for the six months under review. In 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. Treasury Bill Index for short-term investments and other
net assets, had total returns of -11.91%, -10.58%,
(1.) The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 46.
Semiannual Report | 21
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund 6/30/08
% OF TOTAL
NET ASSETS
----------
Mutual Shares Fund - Class Z 15.9%
Franklin Flex Cap Growth Fund
- Advisor Class 14.8%
Franklin Small Cap Growth Fund
- Advisor Class 12.2%
Mutual European Fund - Class Z 8.1%
Franklin U.S. Government Securities
Fund - Advisor Class 5.4%
Templeton Global Bond Fund
- Advisor Class 5.4%
Franklin Natural Resources Fund
- Advisor Class 5.1%
Templeton Foreign Fund
- Advisor Class 4.5%
Franklin Growth Opportunities
Fund - Advisor Class 4.4%
Franklin Gold and Precious Metals
Fund - Advisor Class 4.1%
+1.13% and +1.23%, respectively, during the same time.(2) You can find the
Fund's long-term performance data in the Performance Summary beginning on page
24.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series is intended to increase
the consistency of the Target Funds' results relative to one another. For your
reference, Franklin Templeton Growth Target Fund seeks to maintain the following
asset class allocations: 80% equity funds, 15% fixed income funds, and 5%
short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Growth Target Fund's domestic equity exposure
was 70.2% of its total equity weighting, and foreign equity made up the balance.
The portfolio was diversified across capitalization sizes and investment styles,
and on June 30, 2008, we held shares in large-, mid- and small-capitalization
equity funds, representing both growth and value styles. Mutual Shares Fund -
Class Z, at 15.9% of the Fund's total net assets, was our largest equity fund
weighting at period-end. On the fixed income side,
(2.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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.
Source: Payden & Rygel. The P&R 90 Day U.S. Treasury 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.
22 | Semiannual Report
domestic exposure was 66.9% of the Fund's total income weighting, with the
balance in foreign fixed income. Franklin U.S. Government Securities Fund -
Advisor Class and Templeton Global Bond Fund - Advisor Class were our largest
fixed income fund weightings at 5.4% of total net assets each.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, performed better than the S&P 500 during the six-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, underperformed the MSCI EAFE Index. On the fixed
income side, Franklin U.S. Government Securities Fund -Advisor Class and
Templeton Global Bond Fund - Advisor Class outperformed the LB U.S. Aggregate
Index, while Franklin Total Return Fund - Advisor Class lagged.
Thank you for your continued participation in Franklin Templeton Growth Target
Fund. We look forward to serving your future investment needs.
(PHOTO OF T. ANTHONY COFFEY)
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Growth Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 23
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON GROWTH TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FGTIX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.98 $14.19 $16.17
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0092
Long-Term Capital Gain $0.6580
TOTAL $0.6672
CLASS B (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------- ------ ------- --------
Net Asset Value (NAV) -$2.01 $13.90 $15.91
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0092
Long-Term Capital Gain $0.6580
TOTAL $0.6672
CLASS C (SYMBOL: FTGTX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$2.01 $13.89 $15.90
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0092
Long-Term Capital Gain $0.6580
TOTAL $0.6672
CLASS R (SYMBOL: FGTRX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.97 $14.05 $16.02
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0092
Long-Term Capital Gain $0.6580
TOTAL $0.6672
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------- ------ ------- --------
Net Asset Value (NAV) -$1.96 $14.23 $16.19
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0092
Long-Term Capital Gain $0.6580
TOTAL $0.6672
24 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST
31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF
PURCHASE.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -8.12% -6.37% +63.83% +74.06%
Average Annual Total Return(3) -13.42% -11.74% +9.09% +5.07%
Value of $10,000 Investment(4) $8,658 $8,826 $15,448 $16,405
Total Annual Operating Expenses(5)
Without Waiver 1.58%
With Waiver 1.33%
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (12/1/03)
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -8.44% -7.09% -22.52% +37.44%
Average Annual Total Return(3) -11.93% -10.53% +6.12% +6.85%
Value of $10,000 Investment(4) $8,807 $8,947 $11,952 $13,544
Total Annual Operating Expenses(5)
Without Waiver 2.33%
With Waiver 2.08%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -8.45% -7.07% +57.74% +61.53%
Average Annual Total Return(3) -9.32% -7.93% +9.54% +4.91%
Value of $10,000 Investment(4) $9,068 $9,207 $15,774 $16,153
Total Annual Operating Expenses(5)
Without Waiver 2.33%
With Waiver 2.08%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------- ------- ------ ------- -------------------
Cumulative Total Return(2) -8.19% -6.55% +61.97% +52.49%
Average Annual Total Return(3) -8.19% -6.55% +10.12% +6.72%
Value of $10,000 Investment(4) $9,181 $9,345 $16,197 $15,249
Total Annual Operating Expenses(5)
Without Waiver 1.83%
With Waiver 1.58%
ADVISOR CLASS(6) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------ ------- -------------------
Cumulative Total Return(2) -7.98% -6.16% +64.92% +75.22%
Average Annual Total Return(3) -7.98% -6.16% +10.52% +5.77%
Value of $10,000 Investment(4) $9,202 $9,384 $16,492 $17,522
Total Annual Operating Expenses(5)
Without Waiver 1.33%
With Waiver 1.08%
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 INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND
TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO
THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES
AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT
EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 1.07% FOR EACH
CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE
RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL
4/30/09.
Semiannual Report | 25
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE
IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN A
FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE.
BECAUSE THIS 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. 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. Six-month return has not been
annualized.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were +17.12% and +6.32%.
26 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON GROWTH TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 27
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 918.80 $2.48
Hypothetical (5% return before expenses) $1,000 $1,022.28 $2.61
CLASS B
Actual $1,000 $ 915.60 $6.05
Hypothetical (5% return before expenses) $1,000 $1,018.55 $6.37
CLASS C
Actual $1,000 $ 915.50 $6.05
Hypothetical (5% return before expenses) $1,000 $1,018.55 $6.37
CLASS R
Actual $1,000 $ 918.10 $3.67
Hypothetical (5% return before expenses) $1,000 $1,021.03 $3.87
ADVISOR CLASS
Actual $1,000 $ 920.20 $1.29
Hypothetical (5% return before expenses) $1,000 $1,023.52 $1.36
* 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: 0.52%; B: 1.27%; C: 1.27%; R: 0.77%; and
Advisor: 0.27%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
28 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 -------------------------------------------- -------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- -------- -------- -------- -------- -------- -------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................. $ 13.59 $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91 $ 10.23
-------- -------- -------- -------- -------- -------- -------
Income from investment operations(b):
Net investment income(c, d) ........ 0.14 0.48 0.41 0.29 0.12 0.23 0.23
Net realized and unrealized gains
(losses) ........................ (0.64) 0.60 0.84 0.29 0.84 0.74 0.69
-------- -------- -------- -------- -------- -------- -------
Total from investment operations ...... (0.50) 1.08 1.25 0.58 0.96 0.97 0.92
-------- -------- -------- -------- -------- -------- -------
Less distributions from:
Net investment income .............. (0.13) (0.47) (0.42) (0.32) (0.14) (0.22) (0.24)
Net realized gains ................. (0.24) (0.35) (0.24) -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Total distributions ................... (0.37) (0.82) (0.66) (0.32) (0.14) (0.22) (0.24)
-------- -------- -------- -------- -------- -------- -------
Redemption fees ....................... --(e) --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- -------- -------
Net asset value, end of period ........ $ 12.72 $ 13.59 $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91
======== ======== ======== ======== ======== ======== =======
Total return(f) ....................... (3.65)% 8.29% 9.92% 4.70% 8.30% 8.89% 8.99%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ................... 0.63% 0.68% 0.69% 0.73% 0.82% 0.85% 0.91%
Expenses net of waiver and payments
by affiliates(h) ................... 0.51% 0.49% 0.50% 0.69% 0.82% 0.85% 0.91%
Net investment income(d) .............. 2.08% 3.52% 3.09% 2.31% 2.40% 2.00% 2.21%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $282,864 $251,570 $194,477 $162,079 $139,153 $117,013 $64,409
Portfolio turnover rate ............... 0.16% 8.11% 11.08% 8.16% 2.63% 3.71% 18.03%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 29
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ------------------------------------- JULY 31,
(UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
---------------- ------ ------ ------ ------- ------------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $13.55 $13.29 $12.71 $12.46 $11.63 $11.67
------ ------ ------ ------ ------ ------
Income from investment operations(c):
Net investment income(d, e) ........ 0.09 0.36 0.30 0.19 0.09 0.07
Net realized and unrealized gains
(losses) ........................ (0.64) 0.61 0.84 0.29 0.84 0.04
------ ------ ------ ------ ------ ------
Total from investment operations ...... (0.55) 0.97 1.14 0.48 0.93 0.11
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income .............. (0.08) (0.36) (0.32) (0.23) (0.10) (0.15)
Net realized gains ................. (0.24) (0.35) (0.24) -- -- --
------ ------ ------ ------ ------ ------
Total distributions ................... (0.32) (0.71) (0.56) (0.23) (0.10) (0.15)
------ ------ ------ ------ ------ ------
Redemption fees ....................... --(f) --(f) --(f) --(f) --(f) --(f)
------ ------ ------ ------ ------ ------
Net asset value, end of period ........ $12.68 $13.55 $13.29 $12.71 $12.46 $11.63
------ ------ ------ ------ ------ ------
Total return(g) ....................... (3.95)% 7.42% 9.05% 3.87% 8.02% 0.98%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments
by affiliates(i) ................... 1.38% 1.43% 1.44% 1.48% 1.57% 1.60%
Expenses net of waiver and payments
by affiliates(i) ................... 1.26% 1.24% 1.25% 1.44% 1.57% 1.60%
Net investment income(e) .............. 1.33% 2.77% 2.34% 1.56% 1.65% 1.25%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $6,562 $6,497 $6,422 $6,202 $5,223 $3,567
Portfolio turnover rate ............... 0.16% 8.11% 11.08% 8.16% 2.63% 3.71%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period December 1, 2003 (effective date) to July 31, 2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
30 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 ------------------------------------------ ------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- -------- ------- -------- ------- ------- -------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 13.42 $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80 $ 10.14
-------- -------- ------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c, d) ........ 0.09 0.38 0.30 0.19 0.08 0.14 0.15
Net realized and unrealized gains
(losses) ........................ (0.63) 0.58 0.85 0.28 0.84 0.73 0.67
-------- -------- ------- ------- ------- ------- -------
Total from investment operations ...... (0.54) 0.96 1.15 0.47 0.92 0.87 0.82
-------- -------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income .............. (0.09) (0.37) (0.33) (0.23) (0.09) (0.14) (0.16)
Net realized gains ................. (0.24) (0.35) (0.24) -- -- -- --
-------- -------- ------- ------- ------- ------- -------
Total distributions ................... (0.33) (0.72) (0.57) (0.23) (0.09) (0.14) (0.16)
-------- -------- ------- ------- ------- ------- -------
Redemption fees ....................... --(e) --(e) --(e) --(e) --(e) --(e) --
-------- -------- ------- ------- ------- ------- -------
Net asset value, end of period ........ $ 12.55 $ 13.42 $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80
======== ======== ======= ======= ======= ======= =======
Total return(f) ....................... (4.01)% 7.48% 9.16% 3.83% 8.03% 8.04% 8.20%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ................... 1.37% 1.43% 1.43% 1.47% 1.57% 1.60% 1.66%
Expenses net of waiver and payments
by affiliates(h) ................... 1.25% 1.24% 1.24% 1.43% 1.57% 1.60% 1.66%
Net investment income(d) .............. 1.34% 2.77% 2.35% 1.57% 1.65% 1.25% 1.46%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $146,277 $110,914 $76,018 $63,298 $59,803 $52,881 $32,344
Portfolio turnover rate ............... 0.16% 8.11% 11.08% 8.16% 2.63% 3.71% 18.03%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 ------------------------------------------- ------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- ------- ------- ------- ------- ------ ------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 13.55 $ 13.30 $ 12.71 $ 12.46 $ 11.63 $10.89 $10.23
------- ------- ------- ------- ------- ------ ------
Income from investment operations(b):
Net investment income(c, d) ........ 0.12 0.47 0.37 0.26 0.11 0.21 0.19
Net realized and unrealized gains
(losses) ........................ (0.62) 0.57 0.85 0.28 0.85 0.72 0.69
------- ------- ------- ------- ------- ------ ------
Total from investment operations ...... (0.50) 1.04 1.22 0.54 0.96 0.93 0.88
------- ------- ------- ------- ------- ------ ------
Less distributions from:
Net investment income .............. (0.12) (0.44) (0.39) (0.29) (0.13) (0.19) (0.22)
Net realized gains ................. (0.24) (0.35) (0.24) -- -- -- --
------- ------- ------- ------- ------- ------ ------
Total distributions ................... (0.36) (0.79) (0.63) (0.29) (0.13) (0.19) (0.22)
------- ------- ------- ------- ------- ------ ------
Redemption fees ....................... --(e) --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- ------ ------
Net asset value, end of period ........ $ 12.69 $ 13.55 $ 13.30 $ 12.71 $ 12.46 $11.63 $10.89
======= ======= ======= ======= ======= ====== ======
Total return(f) ....................... (3.69)% 7.91% 9.73% 4.37% 8.27% 8.56% 8.79%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ................... 0.88% 0.93% 0.94% 0.98% 1.07% 1.10% 1.16%
Expenses net of waiver and payments
by affiliates(h) ................... 0.76% 0.74% 0.75% 0.94% 1.07% 1.10% 1.16%
Net investment income(d) .............. 1.83% 3.27% 2.84% 2.06% 2.15% 1.75% 1.96%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $29,277 $25,476 $14,490 $14,112 $12,199 $8,370 $5,718
Portfolio turnover rate ............... 0.16% 8.11% 11.08% 8.16% 2.63% 3.71% 18.03%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
32 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ----------------- DECEMBER 31,
(UNAUDITED) 2007 2006 2005(a)
---------------- ------ ------ -------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................... $13.57 $13.31 $12.72 $12.81
------ ------ ------ ------
Income from investment operations(b):
Net investment income(c, d) ......................... 0.15 0.53 0.45 0.07
Net realized and unrealized gains (losses) .......... (0.62) 0.58 0.83 0.02
------ ------ ------ ------
Total from investment operations ....................... (0.47) 1.11 1.28 0.09
------ ------ ------ ------
Less distributions from:
Net investment income ............................... (0.15) (0.50) (0.45) (0.18)
Net realized gains .................................. (0.24) (0.35) (0.24) --
------ ------ ------ ------
Total distributions .................................... (0.39) (0.85) (0.69) (0.18)
------ ------ ------ ------
Redemption fees ........................................ --(e) --(e) --(e) --(e)
------ ------ ------ ------
Net asset value, end of period ......................... $12.71 $13.57 $13.31 $12.72
====== ====== ====== ======
Total return(f) ........................................ (3.47)% 8.48% 10.28% 0.68%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates(h) ... 0.38% 0.43% 0.44% 0.48%
Expenses net of waiver and payments by affiliates(h) ... 0.26% 0.24% 0.25% 0.44%
Net investment income(d) ............................... 2.33% 3.77% 3.34% 2.56%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ...................... $3,663 $3,536 $1,726 $ 753
Portfolio turnover rate ................................ 0.16% 8.11% 11.08% 8.16%
(a) For the period December 1, 2005 (effective date) to December 31, 2005.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 33
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
------------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS 80.9%(a)
DOMESTIC EQUITY 27.7%
(b) Franklin Flex Cap Growth Fund, Advisor Class .............................. 789,300 $ 35,289,595
(b) Franklin Growth Opportunities Fund, Advisor Class ......................... 479,432 9,751,640
Franklin MicroCap Value Fund, Advisor Class ............................... 224,432 6,975,353
Franklin Natural Resources Fund, Advisor Class ............................ 214,111 11,532,019
(b) Franklin Small Cap Growth Fund, Advisor Class ............................. 3,097,159 28,184,144
Mutual Shares Fund, Class Z ............................................... 1,748,443 37,923,730
------------
129,656,481
------------
DOMESTIC FIXED INCOME 27.8%
Franklin Strategic Mortgage Portfolio ..................................... 2,028,035 18,475,396
Franklin Total Return Fund, Advisor Class ................................. 4,790,489 46,180,315
Franklin U.S. Government Securities Fund, Advisor Class ................... 10,128,175 65,428,008
------------
130,083,719
------------
FOREIGN EQUITY 12.0%
Franklin Global Real Estate Fund, Advisor Class ........................... 687,010 5,839,584
Franklin Gold and Precious Metals Fund, Advisor Class ..................... 243,176 10,050,464
Mutual European Fund, Class Z ............................................. 840,677 19,100,180
Templeton China World Fund, Advisor Class ................................. 258,874 9,402,321
Templeton Foreign Fund, Advisor Class ..................................... 1,131,533 12,005,568
------------
56,398,117
------------
FOREIGN FIXED INCOME 13.4%
Templeton Global Bond Fund, Advisor Class ................................. 5,582,994 63,032,004
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENT
(COST $364,533,896) .................................................... 379,170,321
------------
SHORT TERM INVESTMENT (COST $89,930,104) 19.2%
MONEY MARKET FUND 19.2%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.17% ...... 89,930,104 89,930,104
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $454,464,000) 100.1% .......... 469,100,425
OTHER ASSETS, LESS LIABILITIES (0.1)% ..................................... (456,514)
------------
NET ASSETS 100.0% ......................................................... $468,643,911
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
The accompanying notes are an integral part of these financial statements.
34 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 ----------------------------------------------- --------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- -------- -------- -------- -------- -------- --------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................ $ 14.35 $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64 $ 9.83
-------- -------- -------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c, d) ....... 0.11 0.43 0.35 0.25 0.12 0.20 0.19
Net realized and unrealized gains
(losses) ....................... (0.86) 0.87 1.15 0.50 1.05 1.00 0.81
-------- -------- -------- -------- -------- -------- --------
Total from investment operations ..... (0.75) 1.30 1.50 0.75 1.17 1.20 1.00
-------- -------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ............. (0.11) (0.43) (0.38) (0.30) (0.13) (0.19) (0.19)
Net realized gains ................ (0.37) (0.55) (0.23) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions .................. (0.48) (0.98) (0.61) (0.30) (0.13) (0.19) (0.19)
-------- -------- -------- -------- -------- -------- --------
Redemption fees ...................... --(e) --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period ....... $ 13.12 $ 14.35 $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64
======== ======== ======== ======== ======== ======== ========
Total return(f) ...................... (5.19)% 9.40% 11.57% 5.94% 0.14% 1.18% 10.47%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) .................. 0.66% 0.68% 0.70% 0.74% 0.81% 0.89% 0.98%
Expenses net of waiver and payments
by affiliates(h) .................. 0.52% 0.50% 0.50% 0.69% 0.81% 0.89% 0.98%
Net investment income(d) ............. 1.61% 2.92% 2.56% 1.93% 2.32% 1.75% 1.89%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .... $512,612 $491,451 $401,392 $316,754 $281,033 $219,273 $121,617
Portfolio turnover rate .............. 0.64% 10.29% 9.40% 10.59% 2.78% 4.13% 15.90%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.73% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
PERIOD
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, 2008 ------------------------------------------- JULY 31,
(UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
---------------- ------- ------- ------- ------- --------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................ $ 14.31 $ 13.99 $ 13.10 $ 12.66 $11.62 $11.62
------- ------- ------- ------- ------- ------
Income from investment operations(c):
Net investment income(d, e) ....... 0.06 0.31 0.24 0.15 0.09 0.05
Net realized and unrealized gains
(losses) ....................... (0.86) 0.88 1.15 0.50 1.03 0.09
------- ------- ------- ------- ------- ------
Total from investment operations ..... (0.80) 1.19 1.39 0.65 1.12 0.14
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income ............. (0.06) (0.32) (0.27) (0.21) (0.08) (0.14)
Net realized gains ................ (0.37) (0.55) (0.23) -- -- --
------- ------- ------- ------- ------- ------
Total distributions .................. (0.43) (0.87) (0.50) (0.21) (0.08) (0.14)
------- ------- ------- ------- ------- ------
Redemption fees ...................... --(f) --(f) --(f) --(f) --(f) --(f)
------- ------- ------- ------- ------- ------
Net asset value, end of period ....... $ 13.08 $ 14.31 $ 13.99 $ 13.10 $12.66 $11.62
======= ======= ======= ======= ====== ======
Total return(g) ...................... (5.63)% 8.61% 10.70% 5.18% 9.77% 1.18%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments
by affiliates(i) .................. 1.41% 1.43% 1.45% 1.49% 1.56% 1.64%
Expenses net of waiver and payments
by affiliates(i) .................. 1.27% 1.25% 1.25% 1.44% 1.56% 1.64%
Net investment income(e) ............. 0.86% 2.17% 1.81% 1.18% 1.57% 1.00%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .... $11,883 $12,445 $11,533 $10,170 $8,700 $5,417
Portfolio turnover rate .............. 0.64% 10.29% 9.40% 10.59% 2.78% 4.13%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period December 1, 2003 (effective date) to July 31, 2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.73% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
36 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 ----------------------------------------------- --------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- -------- -------- -------- -------- ------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ............................ $ 14.11 $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48 $ 9.69
-------- -------- -------- -------- -------- ------- -------
Income from investment operations(b):
Net investment income(c, d) ....... 0.06 0.31 0.24 0.15 0.08 0.12 0.11
Net realized and unrealized gains
(losses) ....................... (0.85) 0.87 1.13 0.50 1.03 0.98 0.80
-------- -------- -------- -------- -------- ------- -------
Total from investment operations ..... (0.79) 1.18 1.37 0.65 1.11 1.10 0.91
-------- -------- -------- -------- -------- ------- -------
Less distributions from:
Net investment income ............. (0.07) (0.33) (0.27) (0.21) (0.08) (0.11) (0.12)
Net realized gains ................ (0.37) (0.55) (0.23) -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Total distributions .................. (0.44) (0.88) (0.50) (0.21) (0.08) (0.11) (0.12)
-------- -------- -------- -------- -------- ------- -------
Redemption fees ...................... --(e) --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- ------- -------
Net asset value, end of period ....... $ 12.88 $ 14.11 $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48
======== ======== ======== ======== ======== ======= =======
Total return(f) ...................... (5.62)% 8.61% 10.72% 5.25% 9.75% 10.39% 9.50%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) .................. 1.41% 1.43% 1.45% 1.48% 1.56% 1.64% 1.73%
Expenses net of waiver and payments
by affiliates(h) .................. 1.27% 1.25% 1.25% 1.43% 1.56% 1.64% 1.73%
Net investment income(d) ............. 0.86% 2.17% 1.81% 1.19% 1.57% 1.00% 1.14%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .... $173,245 $160,563 $134,465 $112,294 $105,966 $90,988 $56,341
Portfolio turnover rate .............. 0.64% 10.29% 9.40% 10.59% 2.78% 4.13% 15.90%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.73% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 ---------------------------------------- ------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- ------- ------- ------- ------- ------- -------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .. $ 14.32 $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62 $ 9.82
------- ------- ------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c, d) ........ 0.09 0.39 0.31 0.21 0.11 0.18 0.13
Net realized and unrealized gains
(losses) ........................ (0.85) 0.88 1.15 0.51 1.04 0.98 0.85
------- ------- ------- ------- ------- ------- -------
Total from investment operations ...... (0.76) 1.27 1.46 0.72 1.15 1.16 0.98
------- ------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income .............. (0.10) (0.40) (0.34) (0.27) (0.11) (0.16) (0.18)
Net realized gains ................. (0.37) (0.55) (0.23) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total distributions ................... (0.47) (0.95) (0.57) (0.27) (0.11) (0.16) (0.18)
------- ------- ------- ------- ------- ------- -------
Redemption fees ....................... --(e) --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period ........ $ 13.09 $ 14.32 $ 14.00 $ 13.11 $ 12.66 $ 11.62 $10.62
======= ======= ======= ======= ======= ======= =======
Total return(f) ....................... (5.38)% 9.16% 11.27% 5.73% 9.92% 10.95% 10.10%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and
payments by affiliates(h) .......... 0.91% 0.93% 0.95% 0.99% 1.06% 1.14% 1.23%
Expenses net of waiver and
payments by affiliates(h) .......... 0.77% 0.75% 0.75% 0.94% 1.06% 1.14% 1.23%
Net investment income(d) .............. 1.36% 2.67% 2.31% 1.68% 2.07% 1.50% 1.64%
SUPPLEMENTAL DATA
Net assets, end of
period (000's) .. .................. $46,050 $40,102 $31,719 $30,403 $25,162 $17,161 $10,989
Portfolio turnover rate ............... 0.64% 10.29% 9.40% 10.59% 2.78% 4.13% 15.90%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.73% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
38 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
SIX YEAR ENDED PERIOD
MONTHS ENDED DECEMBER 31, ENDED
JUNE 30, 2008 ---------------- DECEMBER 31,
(UNAUDITED) 2007 2006 2005(a)
---------------- ------ ------ ------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period .. $ 14.35 $14.03 $13.15 $13.23
------- ------ ------ ------
Income from investment operations(b):
Net investment income(c, d) ........ 0.13 0.46 0.40 0.08
Net realized and unrealized gains
(losses) ........................ (0.86) 0.88 1.13 0.02
------- ------ ------ ------
Total from investment operations ...... (0.73) 1.34 1.53 0.10
------- ------ ------ ------
Less distributions from:
Net investment income .............. (0.13) (0.47) (0.42) (0.18)
Net realized gains ................. (0.37) (0.55) (0.23) --
------- ------ ------ ------
Total distributions ................... (0.50) (1.02) (0.65) (0.18)
------- ------ ------ ------
Redemption fees ....................... --(e) --(e) --(e) --(e)
------- ------ ------ ------
Net asset value, end of period ........ $ 13.12 $14.35 $14.03 $13.15
======= ====== ====== ======
Total return(f) ....................... (5.08)% 9.66% 11.87% 0.68%
RATIOS TO AVERAGE
NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ................... 0.41% 0.43% 0.45% 0.49%
Expenses net of waiver and payments by
affiliates(h) ..................... 0.27% 0.25% 0.25% 0.44%
Net investment income(d) .............. 1.86% 3.17% 2.81% 2.18%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $10,297 $9,699 $7,071 $3,890
Portfolio turnover rate ............... 0.64% 10.29% 9.40% 10.59%
(a) For the period December 1, 2005 (effective date) to December 31, 2005.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.73% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 39
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
--------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS 90.9%(a)
DOMESTIC EQUITY 37.4%
(b) Franklin Flex Cap Growth Fund, Advisor Class ... 1,699,038 $ 75,963,971
(b) Franklin Growth Opportunities Fund, Advisor
Class ....................................... 1,184,548 24,093,697
Franklin MicroCap Value Fund, Advisor Class .... 492,133 15,295,484
Franklin Natural Resources Fund, Advisor
Class ....................................... 456,983 24,613,122
(b) Franklin Small Cap Growth Fund, Advisor Class .. 6,722,499 61,174,742
Mutual Shares Fund, Class Z .................... 3,722,135 80,733,109
------------
281,874,125
------------
DOMESTIC FIXED INCOME 24.9%
Franklin Strategic Mortgage Portfolio .......... 2,934,431 26,732,664
Franklin Total Return Fund, Advisor Class ...... 6,999,347 67,473,702
Franklin U.S. Government Securities Fund,
Advisor Class ............................... 14,427,530 93,201,844
------------
187,408,210
------------
FOREIGN EQUITY 16.5%
Franklin Global Real Estate Fund, Advisor
Class ....................................... 1,586,822 13,487,986
Franklin Gold and Precious Metals Fund, Advisor
Class ....................................... 545,678 22,552,883
Mutual European Fund, Class Z .................. 1,886,767 42,867,354
Templeton China World Fund, Advisor Class ...... 562,994 20,447,934
Templeton Foreign Fund, Advisor Class .......... 2,354,866 24,985,123
------------
124,341,280
------------
FOREIGN FIXED INCOME 12.1%
Templeton Global Bond
Fund, Advisor Class ......................... 8,106,802 91,525,799
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE
SHORT TERM INVESTMENT
(COST $641,642,915) ......................... 685,149,414
------------
SHORT TERM INVESTMENT (COST $68,682,249) 9.1%
MONEY MARKET FUND 9.1%
(c) Franklin Institutional Fiduciary Trust Money
Market Portfolio, 2.17% ..................... 68,682,249 68,682,249
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS
(COST $710,325,164) 100.0% .................. 753,831,663
OTHER ASSETS, LESS LIABILITIES 0.0%(d) ......... 254,988
------------
NET ASSETS 100.0% .............................. $754,086,651
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
(d) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
40 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 -------------------------------------------- -------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- -------- -------- -------- -------- -------- -------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period ..................... $ 16.17 $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46 $ 9.47
-------- -------- -------- -------- -------- -------- -------
Income from investment
operations(b):
Net investment
income (c, d) ........... 0.04 0.32 0.24 0.14 0.09 0.11 0.08
Net realized and unrealized
gains (losses) .......... (1.35) 1.31 1.73 0.96 1.33 1.36 1.01
-------- -------- -------- -------- -------- -------- -------
Total from investment
operations ................. (1.31) 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 ... (0.01) (0.32) (0.32) (0.17) (0.08) (0.10) (0.10)
Net realized gains ......... (0.66) (0.77) (0.12) -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Total distributions ........... (0.67) (1.09) (0.44) (0.17) (0.08) (0.10) (0.10)
-------- -------- -------- -------- -------- -------- -------
Redemption fees ............... --(e) --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- -------- -------- -------- -------
Net asset value, end of
period ..................... $ 14.19 $ 16.17 $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46
======== ======== ======== ======== ======== ======== =======
Total return(f) ............... (8.12)% 10.58% 13.90% 8.47% 12.04% 14.04% 11.64%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and
payments by affiliates(h) .. 0.72% 0.74% 0.75% 0.79% 0.85% 0.83% 0.92%
Expenses net of waiver and
payments by affiliates(h) .. 0.52% 0.50% 0.50% 0.72% 0.85% 0.83% 0.92%
Net investment income(d) ...... 0.49% 1.93% 1.59% 1.07% 1.72% 0.91% 0.84%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .................... $372,985 $394,689 $319,521 $230,686 $202,560 $165,500 $99,432
Portfolio turnover rate ....... 0.63% 10.36% 9.31% 10.50% 3.98% 3.46% 21.87%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ------------------------------------- JULY 31,
(UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
---------------- ------ ------ ------ ------- ------------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period .................. $15.91 $15.45 $13.97 $13.09 $11.75 $11.80
------ ------ ------ ------ ------ ------
Income from investment
operations(c):
Net investment income
(loss)(d, e) ............ (0.02) 0.17 0.12 0.04 0.06 (0.02)
Net realized and unrealized
gains (losses) .......... (1.32) 1.31 1.72 0.96 1.32 0.09
------ ------ ------ ------ ------ ------
Total from investment
operations ................. (1.34) 1.48 1.84 1.00 1.38 0.07
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income and
short term gains received
from Underlying Funds ... (0.01) (0.25) (0.24) (0.12) (0.04) (0.12)
Net realized gains ......... (0.66) (0.77) (0.12) -- -- --
------ ------ ------ ------ ------ ------
Total distributions ........... (0.67) (1.02) (0.36) (0.12) (0.04) (0.12)
------ ------ ------ ------ ------ ------
Redemption fees ............... --(f) --(f) --(f) --(f) --(f) --(f)
------ ------ ------ ------ ------ ------
Net asset value, end of
period ..................... $13.90 $15.91 $15.45 $13.97 $13.09 $11.75
====== ====== ====== ====== ====== ======
Total return(g) ............... (8.44)% 9.76% 13.06% 7.63% 11.76% 0.56%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and
payments by affiliates(i) .. 1.47% 1.49% 1.50% 1.54% 1.60% 1.58%
Expenses net of waiver and
payments by affiliates(i) .. 1.27% 1.25% 1.25% 1.47% 1.60% 1.58%
Net investment income
(loss)(e) .................. (0.26)% 1.18% 0.84% 0.32% 0.97% 0.16%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .................... $8,135 $8,292 $8,195 $6,468 $5,343 $3,178
Portfolio turnover rate ....... 0.63% 10.36% 9.31% 10.50% 3.98% 3.46%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period December 1, 2003 (effective date) to July 31, 2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
42 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 ------------------------------------------- ------------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- -------- -------- ------- ------- ------- -------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period ..................... $ 15.90 $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38 $ 9.40
-------- -------- -------- ------- ------- ------- -------
Income from investment
operations(b):
Net investment income
(loss)(c, d) ............ (0.02) 0.19 0.13 0.04 0.05 0.02 0.01
Net realized and unrealized
gains (losses) .......... (1.32) 1.29 1.70 0.96 1.32 1.35 1.00
-------- -------- -------- ------- ------- ------- -------
Total from investment
operations ................. (1.34) 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 ... (0.01) (0.25) (0.24) (0.12) -- (0.03) (0.03)
Net realized gains ......... (0.66) (0.77) (0.12) -- -- -- --
-------- -------- -------- ------- ------- ------- -------
Total distributions ........... (0.67) (1.02) (0.36) (0.12) -- (0.03) (0.03)
-------- -------- -------- ------- ------- ------- -------
Redemption fees ............... --(e) --(e) --(e) --(e) --(e) --(e) --
-------- -------- -------- ------- ------- ------- -------
Net asset value, end of
period ..................... $ 13.89 $ 15.90 $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38
======== ======== ======== ======= ======= ======= =======
Total return(f) ............... (8.45)% 9.72% 13.08% 7.63% 11.69% 13.18% 10.74%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and
payments by affiliates(h) .. 1.47% 1.49% 1.50% 1.54% 1.60% 1.58% 1.67%
Expenses net of waiver and
payments by affiliates(h) .. 1.27% 1.25% 1.25% 0.47% 1.60% 1.58% 1.67%
Net investment income
(loss)(d) .................. (0.26)% 1.18% 0.84% 0.32% 0.97% 0.16% 0.09%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .................... $140,015 $145,218 $122,156 $88,986 $73,816 $61,179 $40,829
Portfolio turnover rate ....... 0.63% 10.36% 9.31% 10.50% 3.98% 3.46% 21.87%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JULY 31,
JUNE 30, 2008 ---------------------------------------- -----------------
(UNAUDITED) 2007 2006 2005 2004(a) 2004 2003
---------------- ------- ------- ------- ------- ------- ------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period ..................... $ 16.02 $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40 $ 9.46
------- ------- ------- ------- ------- ------- ------
Income from investment
operations(b):
Net investment
income(c, d) ............ 0.02 0.29 0.20 0.11 0.08 0.08 0.05
Net realized and unrealized
gains (losses) .......... (1.32) 1.28 1.71 0.95 1.33 1.36 1.00
------- ------- ------- ------- ------- ------- ------
Total from investment
operations ................. (1.30) 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 ... (0.01) (0.30) (0.29) (0.15) (0.06) (0.08) (0.11)
Net realized gains ......... (0.66) (0.77) (0.12) -- -- -- --
------- ------- ------- ------- ------- ------- ------
Total distributions ........... (0.67) (1.07) (0.41) (0.15) (0.06) (0.08) (0.11)
------- ------- ------- ------- ------- ------- ------
Redemption fees ............... --(e) --(e) --(e) --(e) --(e) --(e) --
------- ------- ------- ------- ------- ------- ------
Net asset value, end of
period ..................... $ 14.05 $ 16.02 $ 15.52 $ 14.02 $ 13.11 $ 11.76 $10.40
======= ======= ======= ======= ======= ======= ======
Total return(f) ............... (8.19)% 10.31% 13.65% 8.10% 12.00% 13.89% 11.11%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and
payments by affiliates(h) .. 0.97% 0.99% 1.00% 1.04% 1.10% 1.08% 1.17%
Expenses net of waiver and
payments by affiliates(h) .. 0.77% 0.75% 0.75% 0.97% 1.10% 1.08% 1.17%
Net investment income(d) ...... 0.24% 1.68% 1.34% 0.82% 1.47% 0.66% 0.59%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .................... $39,592 $36,757 $26,215 $19,461 $15,206 $11,714 $5,567
Portfolio turnover rate ....... 0.63% 10.36% 9.31% 10.50% 3.98% 3.46% 21.87%
(a) For the period August 1, 2004 to December 31, 2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
44 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ---------------- DECEMBER 31,
(UNAUDITED) 2007 2006 2005(a)
---------------- ------ ------ ------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period ..................... $16.19 $15.64 $14.10 $14.18
------ ------ ------ ------
Income from investment
operations(b):
Net investment
income(c, d) ............ 0.06 0.38 0.29 0.11
Net realized and unrealized
gains (losses) .......... (1.35) 1.29 1.72 (0.03)
------ ------ ------ ------
Total from investment
operations ................. (1.29) 1.67 2.01 0.08
------ ------ ------ ------
Less distributions from:
Net investment income and
short term gains received
from Underlying Funds ... (0.01) (0.35) (0.35) (0.16)
Net realized gains ......... (0.66) (0.77) (0.12) --
------ ------ ------ ------
Total distributions ........... (0.67) (1.12) (0.47) (0.16)
------ ------ ------ ------
Redemption fees ............... --(e) --(e) --(e) --(e)
------ ------ ------ ------
Net asset value, end of
period ...................... $14.23 $16.19 $15.64 $14.10
====== ====== ====== ======
Total return(f) ............... (7.98)% 10.80% 14.26% 0.54%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and
payments by affiliates(h) .. 0.47% 0.49% 0.50% 0.54%
Expenses net of waiver and
payments by affiliates(h) .. 0.27% 0.25% 0.25% 0.47%
Net investment income(d) ...... 0.74% 2.18% 1.84% 1.32%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .................... $9,833 $9,917 $5,593 $3,320
Portfolio turnover rate ....... 0.63% 10.36% 9.31% 10.50%
(a) For the period December 1, 2005 (effective date) to December 31, 2005.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING
FUNDS 95.2%(a)
DOMESTIC EQUITY 55.4%
(b) Franklin Flex Cap Growth
Fund, Advisor Class .............. 1,891,708 $ 84,578,283
(b) Franklin Growth
Opportunities Fund, Advisor
Class ............................ 1,241,796 25,258,130
Franklin MicroCap Value
Fund, Advisor Class .............. 547,356 17,011,821
Franklin Natural Resources
Fund, Advisor Class .............. 536,846 28,914,519
(b) Franklin Small Cap Growth
Fund, Advisor Class ................. 7,660,703 69,712,397
Mutual Shares Fund,
Class Z .......................... 4,172,841 90,508,916
------------
315,984,066
------------
DOMESTIC FIXED INCOME 10.9%
Franklin Strategic Mortgage
Portfolio ........................ 1,012,269 9,221,770
Franklin Total Return Fund,
Advisor Class .................... 2,321,232 22,376,678
Franklin U.S. Government
Securities Fund, Advisor
Class ............................ 4,775,047 30,846,801
------------
62,445,249
------------
FOREIGN EQUITY 23.5%
Franklin Global Real Estate
Fund, Advisor Class .............. 1,916,351 16,288,981
Franklin Gold and Precious
Metals Fund, Advisor
Class ............................ 572,865 23,676,502
Mutual European Fund, Class Z ....... 2,034,130 46,215,440
Templeton China World Fund,
Advisor Class .................... 612,420 22,243,103
Templeton Foreign Fund,
Advisor Class .................... 2,436,098 25,847,004
------------
134,271,030
------------
FOREIGN FIXED INCOME 5.4%
Templeton Global Bond Fund,
Advisor Class .................... 2,713,591 30,636,448
------------
TOTAL INVESTMENTS IN
UNDERLYING FUNDS BEFORE
SHORT TERM INVESTMENT
(COST $503,584,816) .............. 543,336,793
------------
SHORT TERM INVESTMENT (COST
$28,381,089) 5.0%
MONEY MARKET FUND 5.0%
(c) Franklin Institutional
Fiduciary Trust Money
Market Portfolio,
2.17% ............................ 28,381,089 28,381,089
------------
TOTAL INVESTMENTS IN
UNDERLYING FUNDS (COST
$531,965,905) 100.2% ............. 571,717,882
OTHER ASSETS, LESS
LIABILITIES (0.2)% ............... (1,158,535)
------------
NET ASSETS 100.0% ................... $570,559,347
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
The accompanying notes are an integral part of these financial statements.
46 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2008 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------ ------------
Assets:
Investments in Underlying
Funds (Note 6):
Cost .................... $454,464,000 $710,325,164 $531,965,905
------------ ------------ ------------
Value ................... $469,100,425 $753,831,663 $571,717,882
Receivables on capital
shares sold ............. 2,303,223 4,052,344 2,244,069
------------ ------------ ------------
Total assets ......... 471,403,648 757,884,007 573,961,951
------------ ------------ ------------
Liabilities:
Payables:
Capital shares
redeemed ............. 1,156,446 1,963,267 1,624,844
Affiliates .............. 468,880 728,429 559,746
Distributions to
shareholders ......... 1,029,506 922,136 1,058,529
Accrued expenses and other
liabilities ............. 104,905 183,524 159,485
------------ ------------ ------------
Total liabilities .... 2,759,737 3,797,356 3,402,604
------------ ------------ ------------
Net assets, at
value .......... $468,643,911 $754,086,651 $570,559,347
------------ ------------ ------------
Net assets consist of:
Paid-in capital ............ $454,337,080 $711,502,218 $530,892,041
Undistributed net investment
income .................. 34,347 26,917 812,433
Net unrealized appreciation
(depreciation) .......... 14,636,425 43,506,499 39,751,977
Accumulated net realized
gain (loss) ............. (363,941) (948,983) (897,104)
------------ ------------ ------------
Net assets, at
value .......... $468,643,911 $754,086,651 $570,559,347
============ ============ ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 47
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2008 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------ ------------
CLASS A:
Net assets, at value ....... $282,864,353 $512,612,054 $372,985,195
------------ ------------ ------------
Shares outstanding ......... 22,236,294 39,076,513 26,276,927
------------ ------------ ------------
Net asset value per
share(a) ................ $ 12.72 $ 13.12 $ 14.19
------------ ------------ ------------
Maximum offering price per
share (net asset value
per share / 94.25%) ..... $ 13.50 $ 13.92 $ 15.06
------------ ------------ ------------
CLASS B:
Net assets, at value ....... $ 6,562,154 $ 11,883,064 $ 8,135,086
------------ ------------ ------------
Shares outstanding ......... 517,455 908,812 585,188
------------ ------------ ------------
Net asset value and maximum
offering price per
share(a) ................ $ 12.68 $ 13.08 $ 13.90
------------ ------------ ------------
CLASS C:
Net assets, at value ....... $146,277,448 $173,244,915 $140,014,551
------------ ------------ ------------
Shares outstanding ......... 11,652,542 13,450,108 10,076,853
------------ ------------ ------------
Net asset value and maximum
offering price per
share(a) ................ $ 12.55 $ 12.88 $ 13.89
------------ ------------ ------------
CLASS R:
Net assets, at value ....... $ 29,277,388 $ 46,050,090 $ 39,591,661
------------ ------------ ------------
Shares outstanding ......... 2,307,405 3,519,120 2,818,489
------------ ------------ ------------
Net asset value and maximum
offering price per
share(a) ................ $ 12.69 $ 13.09 $ 14.05
------------ ------------ ------------
ADVISOR CLASS:
Net assets, at value ....... $ 3,662,568 $ 10,296,528 $ 9,832,854
------------ ------------ ------------
Shares outstanding ......... 288,207 784,884 690,857
------------ ------------ ------------
Net asset value and maximum
offering price per
share(a) ................ $ 12.71 $ 13.12 $ 14.23
------------ ------------ ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
The accompanying notes are an integral part of these financial statements.
48 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2008 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------ ------------
Investment income:
Dividends from Underlying
Funds (Note 6) .......... $ 5,624,187 $ 7,693,447 $ 2,883,282
------------ ------------ ------------
Expenses:
Asset allocation fees
(Note 3a) ............... 436,103 818,510 681,041
Distribution fees: (Note 3c)
Class A ................. 334,762 622,831 470,703
Class B ................. 33,186 59,257 39,761
Class C ................. 645,692 810,315 695,039
Class R ................. 66,955 106,214 97,171
Transfer agent fees
(Note 3e) ............... 293,223 540,498 550,488
Reports to shareholders .... 15,464 28,537 30,882
Registration and filing
fees .................... 55,928 59,265 62,122
Professional fees .......... 13,420 13,664 13,879
Trustees' fees and
expenses ................ 806 1,668 1,366
Other ...................... 3,971 7,831 6,753
------------ ------------ ------------
Total expenses ....... 1,899,510 3,068,590 2,649,205
Expenses waived/paid
by affiliates
(Note 3f) ......... (255,902) (498,824) (579,750)
------------ ------------ ------------
Net expenses ...... 1,643,608 2,569,766 2,069,455
------------ ------------ ------------
Net investment
income ...... 3,980,579 5,123,681 813,827
------------ ------------ ------------
Realized and unrealized gains
(losses):
Net realized gain (loss)
from sale of investments
in Underlying Funds ..... (97,078) (502,855) (437,051)
Net change in unrealized
appreciation
(depreciation) on
investments in Underlying
Funds ................... (20,028,409) (44,508,356) (49,877,020)
------------ ------------ ------------
Net realized and unrealized
gain (loss) ................ (20,125,487) (45,011,211) (50,314,071)
------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations ................. $(16,144,908) $(39,887,530) $(49,500,244)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 49
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
----------------------------- -----------------------------
SIX MONTHS SIX MONTHS
ENDED JUNE 30, YEAR ENDED ENDED JUNE 30, YEAR ENDED
2008 DECEMBER 31, 2008 DECEMBER 31,
(UNAUDITED) 2007 (UNAUDITED) 2007
-------------- ------------- -------------- -------------
Increase (decrease) in net
assets:
Operations:
Net investment income ... $ 3,980,579 $ 11,066,674 $ 5,123,681 $ 17,560,996
Net realized gain
(loss) from
Underlying Funds ..... (97,078) 12,679,747 (502,855) 32,240,957
Net change in unrealized
appreciation
(depreciation) on
investments in
Underlying Funds ..... (20,028,409) 1,298,295 (44,508,356) 5,441,929
------------- ------------ ------------ ------------
Net increase
(decrease) in
net assets
resulting from
operations ..... (16,144,908) 25,044,716 (39,887,530) 55,243,882
------------- ------------ ------------ ------------
Distributions to
shareholders from:
Net investment income:
Class A .............. (2,837,572) (7,827,189) (4,225,871) (13,678,690)
Class B .............. (43,270) (169,537) (55,250) (266,922)
Class C .............. (988,182) (2,738,556) (827,440) (3,504,431)
Class R .............. (257,506) (691,739) (322,662) (1,047,371)
Advisor Class ........ (41,151) (114,381) (96,711) (289,700)
Net realized gains:
Class A .............. (5,215,311) (5,708,542) (14,041,104) (16,900,630)
Class B .............. (122,096) (165,679) (327,683) (444,317)
Class C .............. (2,743,312) (2,453,393) (4,780,622) (5,720,106)
Class R .............. (541,689) (501,465) (1,274,713) (1,395,923)
Advisor Class ........ (67,963) (82,400) (281,923) (335,235)
------------- ------------ ------------ ------------
Total distributions to
shareholders ............ (12,858,052) (20,452,881) (26,233,979) (43,583,325)
------------- ------------ ------------ ------------
Capital share transactions:
(Note 2)
Class A .............. 48,970,628 53,837,470 66,123,498 81,959,202
Class B .............. 488,318 (45,467) 528,933 661,569
Class C .............. 44,152,532 33,874,823 27,798,415 23,513,166
Class R .............. 5,666,385 10,789,707 9,981,708 7,788,466
Advisor Class ........ 364,806 1,808,846 1,512,214 2,488,553
------------- ------------ ------------ ------------
Total capital share
transactions ............ 99,642,669 100,265,379 105,944,768 116,410,956
------------- ------------ ------------ ------------
Redemption fees ............ 11,349 2,308 4,341 7,689
------------- ------------ ------------ ------------
Net increase
(decrease)
in net
assets ... 70,651,058 104,859,522 39,827,600 128,079,202
Net assets:
Beginning of period ........ 397,992,853 293,133,331 714,259,051 586,179,849
------------- ------------ ------------ ------------
End of period .............. $ 468,643,911 $397,992,853 $754,086,651 $714,259,051
============= ============ ============ ============
Undistributed net investment
income included in net
assets:
End of period .............. $ 34,347 $ 221,449 $ 26,917 $ 431,170
============= ============ ============ ============
The accompanying notes are an integral part of these financial statements.
50 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON
GROWTH TARGET FUND
------------------------------
SIX MONTHS
ENDED JUNE 30, YEAR ENDED
2008 DECEMBER 31,
(UNAUDITED) 2007
-------------- -------------
Increase (decrease) in net
assets:
Operations:
Net investment income ..... $ 813,827 $ 9,342,685
Net realized gain (loss)
from Underlying Funds .. (437,051) 35,997,986
Net change in unrealized
appreciation
(depreciation) on
investments in
Underlying Funds ....... (49,877,020) 5,370,351
------------ ------------
Net increase
(decrease) in
net assets
resulting from
operations ....... (49,500,244) 50,711,022
------------ ------------
Distributions to
shareholders from:
Net investment income:
Class A ................ (228,293) (7,570,294)
Class B ................ (4,863) (126,683)
Class C ................ (85,363) (2,228,923)
Class R ................ (25,062) (666,373)
Advisor Class .......... (5,868) (199,883)
Net realized gains:
Class A ................ (16,501,988) (17,221,275)
Class B ................ (368,168) (393,145)
Class C ................ (6,340,533) (6,480,615)
Class R ................ (1,770,767) (1,546,719)
Advisor Class .......... (434,667) (383,485)
------------ ------------
Total distributions to
shareholders .............. (25,765,572) (36,817,395)
------------ ------------
Capital share transactions:
(Note 2)
Class A ................ 27,274,796 65,581,672
Class B ................ 931,226 (137,062)
Class C ................ 13,757,625 19,702,856
Class R ................ 7,833,346 9,979,926
Advisor Class .......... 1,152,431 4,168,665
------------ ------------
Total capital share
transactions .............. 50,949,424 99,296,057
------------ ------------
Redemption fees .............. 2,137 3,636
------------ ------------
Net increase
(decrease) in
net assets ....... (24,314,255) 113,193,320
Net assets:
Beginning of period .......... 594,873,602 481,680,282
------------ ------------
End of period ................ $570,559,347 $594,873,602
============ ============
Undistributed net investment
income included in net
assets:
End of period ................ $ 812,433 $ 348,055
============ ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 51
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of June 30, 2008, and have
determined that no provision for income tax is required in the Funds' financial
statements.
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.
52 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in 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.
Semiannual Report | 53
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2008, there were an unlimited number of shares authorized (without
par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A SHARES:
Six Months ended June 30, 2008
Shares sold ................. 5,984,901 $ 79,335,666 7,919,467 $109,670,097
Shares issued in reinvestment
of distributions ......... 574,561 7,336,933 1,350,768 17,778,560
Shares redeemed ............. (2,839,600) (37,701,971) (4,430,185) (61,325,159)
---------- ------------ ---------- ------------
Net increase (decrease) ..... 3,719,862 $ 48,970,628 4,840,050 $ 66,123,498
========== ============ ========== ============
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
========== ============ ========== ============
CLASS B SHARES:
Six Months ended June 30, 2008
Shares sold ................. 99,997 $ 1,314,997 140,766 $ 1,938,960
Shares issued in reinvestment
of distributions ......... 11,182 142,236 27,318 357,859
Shares redeemed ............. (73,355) (968,915) (128,923) (1,767,886)
---------- ------------ ---------- ------------
Net increase (decrease) ..... 37,824 $ 488,318 39,161 $ 528,933
========== ============ ========== ============
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
========== ============ ========== ============
CLASS C SHARES:
Six Months ended June 30, 2008
Shares sold ................. 4,228,741 $ 55,264,852 2,908,569 $ 39,452,622
Shares issued in reinvestment
of distributions ......... 263,350 3,314,526 396,688 5,119,934
Shares redeemed ............. (1,105,865) (14,426,846) (1,237,149) (16,774,141)
---------- ------------ ---------- ------------
Net increase (decrease) ..... 3,386,226 $ 44,152,532 2,068,108 $ 27,798,415
========== ============ ========== ============
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
========== ============ ========== ============
54 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS R SHARES:
Six Months ended June 30, 2008
Shares sold ................. 696,421 $ 9,258,967 1,166,907 $ 16,250,764
Shares issued in reinvestment
of distributions ......... 60,701 772,927 120,601 1,581,761
Shares redeemed ............. (329,347) (4,365,509) (568,360) (7,850,817)
--------- ------------ --------- ------------
Net increase (decrease) ..... 427,775 $ 5,666,385 719,148 $ 9,981,708
========= ============ ========= ============
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
========= ============ ========= ============
ADVISOR CLASS SHARES:
Six Months ended June 30, 2008
Shares sold ................. 41,398 $ 550,015 147,322 $ 2,054,590
Shares issued in reinvestment
of distributions ......... 8,468 108,068 28,757 378,578
Shares redeemed ............. (22,214) (293,277) (66,842) (920,954)
--------- ------------ --------- ------------
Net increase (decrease) ..... 27,652 $ 364,806 109,237 $ 1,512,214
========= ============ ========= ============
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
========= ============ ========= ============
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS A SHARES:
Six Months ended June 30, 2008
Shares sold ..................................... 3,979,316 $ 60,749,628
Shares issued in reinvestment of distributions .. 1,147,051 16,286,123
Shares redeemed ................................. (3,265,055) (49,760,955)
---------- ------------
Net increase (decrease) ......................... 1,861,312 $ 27,274,796
========== ============
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
========== ============
Semiannual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS B SHARES:
Six Months ended June 30, 2008
Shares sold ................ 86,748 $ 1,304,751
Shares issued in
reinvestment of
distributions ........... 25,597 356,004
Shares redeemed ............ (48,449) (729,529)
---------- ------------
Net increase (decrease) .... 63,896 $ 931,226
========== ============
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)
========== ============
CLASS C SHARES:
Six Months ended June 30, 2008
Shares sold ................ 1,610,221 $ 24,096,758
Shares issued in
reinvestment of
distributions ........... 421,033 5,851,606
Shares redeemed ............ (1,088,186) (16,190,739)
---------- ------------
Net increase (decrease) .... 943,068 $ 13,757,625
========== ============
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
========== ============
CLASS R SHARES:
Six Months ended June 30, 2008
Shares sold ................ 1,097,205 $ 16,627,041
Shares issued in
reinvestment of
distributions ........... 124,856 1,755,282
Shares redeemed ............ (697,357) (10,548,977)
---------- ------------
Net increase (decrease) .... 524,704 $ 7,833,346
========== ============
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
========== ============
ADVISOR CLASS SHARES:
Six Months ended June 30, 2008
Shares sold ................ 109,154 $ 1,654,916
Shares issued in
reinvestment of
distributions ........... 30,938 440,487
Shares redeemed ............ (61,924) (942,972)
---------- ------------
Net increase (decrease) .... 78,168 $ 1,152,431
========== ============
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
========== ============
56 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors/trustees 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%
Semiannual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ----------- -----------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers .................. $147,086 $257,572 $139,187
Contingent deferred sales charges retained ...... $ 17,410 $ 37,441 $ 9,550
E. TRANSFER AGENT FEES
For the period ended June 30, 2008, 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 ............................. $154,838 $277,394 $305,898
F. WAIVER AND EXPENSE REIMBURSEMENTS
Advisers has agreed in advance to waive all or a portion of its fees and to
assume payment of other expenses through April 30, 2009. Total expenses waived
or paid are not subject to reimbursement by the Funds subsequent to the Funds'
fiscal year end. After April 30, 2009, Advisers may discontinue this waiver at
any time upon notice to the Funds' Board of Trustees.
4. INCOME TAXES
At June 30, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------ ------------
Cost of investments ............................. $454,825,067 $711,013,100 $532,697,012
============ ============ ============
Unrealizd appreciation .......................... $ 24,477,759 $ 61,542,841 $ 64,002,655
Unrealizd depreciation .......................... (10,202,401) (18,724,278) (24,981,785)
------------ ------------ ------------
Net unrealized appreciation (depreciation) ...... $ 14,275,358 $ 42,818,563 $ 39,020,870
============ ============ ============
58 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. INCOME TAXES (CONTINUED)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of short term capital gains distributions from
Underlying Funds.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and short term capital gains
distributions from Underlying Funds.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended June 30, 2008, were as follows:
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------ -----------
Purchases..... $83,498,116 $93,824,484 $30,206,688
Sales......... $ 560,000 $ 4,242,000 $ 3,454,000
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At June 30, 2008, the Funds
held the following positions which exceed 5% of the Underlying Funds' shares
outstanding:
% OF
SHARES
NAME OF ISSUER HELD
- -------------- ------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Franklin Strategic Mortgage Portfolio.............. 9.62%
Franklin Global Real Estate Fund................... 5.81%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Strategic Mortgage Portfolio.............. 13.92%
Franklin Global Real Estate Fund................... 13.43%
Franklin Small Cap Growth Fund..................... 10.22%
Franklin Growth Opportunities Fund................. 7.58%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Global Real Estate Fund................... 16.21%
Franklin Small Cap Growth Fund..................... 11.64%
Franklin Growth Opportunities Fund................. 7.94%
Semiannual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS (CONTINUED)
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. FAIR VALUE MEASUREMENTS
The Funds adopted Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The Funds have determined
that the implementation of SFAS 157 did not have a material impact on the Funds'
financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Trust's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Funds' investments and are summarized in the following fair
value hierarchy:
- - Level 1 - quoted prices in active markets for identical securities
- - Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speed, credit risk, etc.)
- - Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
As of June 30, 2008, all of the Funds' investments in securities carried at fair
value were in Level 1 inputs.
60 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 25, 2008, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series (Fund(s)). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
Semiannual Report | 61
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the right to combine holdings in other funds
to obtain a reduced sales charge. Favorable consideration was given to
management's continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted that such systems and procedures had functioned smoothly during the
Florida hurricanes and blackouts experienced in recent years. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of each
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, the high industry ranking given to the
Franklin Templeton website, and the firsthand experience of individual Board
members who deal with the shareholder services department in their capacities as
shareholders in one or more of the various Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
the investment performance of Class A shares in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
the one-year period ended December 31, 2007, and for additional periods ended
that date depending on when a particular Fund commenced operations. The
following summarizes the performance results for each of the Funds and the
Board's view of such performance.
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND - The performance universe for this
Fund consisted of the Fund and all retail and institutional mixed-asset target
allocation conservative funds as selected by Lipper. The Lipper report showed
that the Fund's income return for the one-year period was in the middle quintile
of its performance universe and on an annualized basis was in the second-highest
quintile of such universe for the previous three-year period, the middle
quintile of such universe for
62 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
the previous five-year period, and in the second-lowest quintile of such
universe for the previous 10-year period. The Lipper report showed the Fund's
total return for the one-year period as well as the previous three-, five- and
10-year periods on an annualized basis to be in the highest quintile of such
performance universe. The Board was satisfied with such performance.
FRANKLIN TEMPLETON MODERATE TARGET FUND - The performance universe for this Fund
consisted of the Fund and all retail and institutional mixed-asset target
allocation moderate funds as selected by Lipper. The Lipper report showed the
Fund's income return for the one-year period to be in the middle quintile of
this universe and on an annualized basis for each of the previous three- and
10-year periods to be in the second-highest quintile of such universe, and in
the middle quintile for the previous five-year period of such performance
universe. The Lipper report showed the Fund's total return for the one-year
period, as well as the previous three-, five- and 10-year periods on an
annualized basis to be in the highest quintile of such performance universe. The
Board was satisfied with this performance.
FRANKLIN TEMPLETON GROWTH TARGET FUND - The performance universe for this Fund
consisted of the Fund and all retail and institutional mixed-asset target
allocation growth funds as selected by Lipper. The Lipper report showed the
Fund's income return for the one-year period, as well as the previous three- and
10-year periods on an annualized basis to be in the middle quintile of such
universe, and in the second-lowest quintile of this performance universe for the
previous five-year period on an annualized basis. The Lipper report showed the
Fund's total return for the one-year period, as well as the previous three- and
five-year periods on an annualized basis to be in the highest quintile of such
performance universe, and in the second-highest quintile of such universe for
the previous 10-year period on an annualized basis. The Board was satisfied with
this performance.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund compared with those of a group of retail front-end
load fund of funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparisons, the Board relied upon a survey showing that
the scope of management services covered under a Fund's investment management
agreement was similar to those provided by fund managers to other mutual fund
groups. In reviewing comparative costs, emphasis was given to each Fund's
contractual investment management fee in comparison with the contractual
investment management fee that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expenses of the Fund including expenses of the underlying funds
they invest in. The Board noted that the Funds pay an asset allocation advisory
fee. The Lipper contractual investment management fee analysis includes the
advisory and administrative fees directly charged to each Fund as being part of
the contractual investment management fee, with the investment management fees
charged underlying funds being included within actual total expenses.
Contractual investment management fees and total expenses for comparative
consistency are shown by Lipper for Fund Class A shares. The Lipper expense
reports noted in the case of each Fund that expenses had been subsidized by
management fee waivers and reimbursements. The Lipper report
Semiannual Report | 63
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
for Franklin Templeton Moderate Target Fund showed its contractual management
fee rate was above the median of its Lipper expense group, with its actual total
expense ratio being within 8 basis points of such expense group median. The
Lipper report for Franklin Templeton Conservative Target Fund showed its
contractual management fee rate was at the median of its Lipper expense group
with its actual total expense ratio being the highest in such group, but within
15 basis points of the group median. The Lipper report for Franklin Templeton
Growth Target Fund showed its contractual management fee rate was the highest in
its expense group with its actual total expense ratio being within 10 basis
points of its expense group median. The Board believed the expenses of each Fund
were acceptable taking into account the fee waivers and expense reimbursements
applicable to each of them.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each Fund. Specific attention was given to the methodology followed in
allocating costs to each Fund, it being recognized that allocation methodologies
are inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the allocation methodology was consistent with that
followed in profitability report presentations for the Funds made in prior years
and that the Funds' independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Funds' Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to each Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Funds, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers
64 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
who sold fund Class B shares prior to February 2005 when the offering of such
shares was discontinued, as well as potential benefits resulting from allocation
of fund brokerage and the use of "soft" commission dollars to pay for research.
Based upon its consideration of all these factors, the Board determined that the
level of profits realized by the Manager and its affiliates from providing
services to each Fund was not excessive in view of the nature, quality and
extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Managers as the Funds grow larger and the extent to which this
is reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Managers realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. With the exception of Templeton Global Long Short
Fund, which has a performance adjusted base fee, the fees charged all the
underlying funds in which the Funds may invest provide for management fee
breakpoints. Consequently, to the extent economies of scale may be realized by
the investment managers of these funds, the schedule of fees under their
investment management agreements provides a sharing of benefits with a Fund and
its shareholders.
PROXY VOTING POLICIES AND PROCEDURES
The Trust's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Trust uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Trust's complete
Policies online at franklintempleton.com. Alternatively, shareholders may
request copies of the Policies free of charge by calling the Proxy Group collect
at 1-954/527-7678 or by sending a written request to: Franklin Templeton
Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
Securities and Exchange Commission's website at sec.gov and reflect the most
recent 12-month period ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Semiannual Report | 65
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(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS S2008 08/08
(GRAPHIC)
JUNE 30, 2008
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templetonr Perspectives Allocation Fund
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
ASSET ALLOCATION
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - TEMPLETON - MUTUAL SERIES
Semiannual Report
Economic and Market Overview
During the first half of 2008, the U.S. economy grew marginally as energy prices
rose, housing prices declined, the labor situation and consumer demand softened,
and a credit crisis originally related to U.S. subprime loan losses spread
globally. A weaker U.S. dollar compared with most foreign currencies contributed
to increased export demand, which helped the fragile economy. Also supporting
the economy were inventory buildup, expanding government spending and a boost to
household finances from a $168 billion government stimulus package. Many
economists agreed, however, that the slowing U.S. economy -- which is the
world's largest and accounts for roughly 25% of global gross domestic product --
could have a meaningfully negative impact on growth prospects around the
world.(1) Nevertheless, growth remained relatively strong in developing
economies, particularly in Asia ex-Japan where China-led demand continued to
impact commodities' prices and related equities.
In the six months under review, prices increased significantly for oil, natural
gas, and most agricultural and industrial commodities, as well as precious
metals, adding to global inflationary pressures. For the 12 months ended June
30, 2008, the core U.S. Consumer Price Index (CPI), which excludes food and
energy costs, rose 2.4%, which was higher than its 10-year average rate.(2) Many
of the world's monetary authorities faced the choice between lowering short-term
interest rates to stimulate growth and raising them to fight inflation, which
Merrill Lynch estimated at 5.5% globally, up from 3.5% at the beginning of 2008.
The U.S. focused on reigniting its economy through fiscal and monetary policies,
but the eurozone made controlling inflation its main goal. Accordingly, while
the U.S. Federal Reserve Board (Fed) eased rates aggressively down to 2.00% from
4.25%, the European Central Bank maintained rates at 4.00%. Interest rate
differentials pressured the U.S. dollar, particularly in the first quarter, but
the greenback regained ground as the Fed paused and implied that its next move
could be a rate hike. Indicators also signaled growth was slowing outside the
U.S. For the period, however, the U.S. dollar declined versus many of the
world's currencies, and the dollar's weakness contributed to higher commodities'
prices, as most of these prices are set in U.S. dollars.
(1). Source: Global Insight.
(2). Source: Bureau of Labor Statistics.
Semiannual Report | 3
Against this challenging economic backdrop, investors remained cautious and
continued risk reassessments in the stock, bond and credit markets. Many global
and U.S. equity markets were volatile, and a majority of them declined over the
reporting period. In this uncertain environment, U.S. Treasury prices
fluctuated, and the 10-year Treasury note yield fell from 4.04% at the beginning
of the period to 3.99% on June 30, 2008. Despite negative economic data and an
outlook for decelerating corporate earnings and profit margins globally, many
companies' balance sheets remained relatively strong.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30,
2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
4 | Semiannual Report
Franklin Templeton Corefolio Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Corefolio Allocation
Fund seeks capital appreciation through investments in an equally weighted
combination of Franklin Capital Growth Fund, Franklin Growth Fund, Mutual Shares
Fund and Templeton Growth Fund.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin Templeton Corefolio Allocation Fund covers
the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A had a -12.39% cumulative
total return for the six months under review. The Fund underperformed its hybrid
benchmark, which comprised a weighted combination of the Standard & Poor's 500
Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index.
For the reporting period, the hybrid benchmark had a -11.50% total return.(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: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The S&P 500 consists of 500 stocks chosen for market
size, liquidity and industry group representation. Each stock's weight in
the index is proportionate to its market value. The S&P 500 is one of the
most widely used benchmarks of U.S. equity performance. The MSCI World
Index is a free float-adjusted, market capitalization-weighted index
designed to measure equity market performance in global developed markets.
The benchmark index's weightings are as follows: S&P 500 75% and MSCI World
Index 25%. The indexes are unmanaged and include reinvested distributions.
One cannot invest directly in an index, nor is an index representative of
the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 31.
Semiannual Report | 5
ASSET ALLOCATION*
Franklin Templeton Corefolio Allocation Fund Based on Total Net Assets as of
6/30/08**
(BAR CHART)
Domestic Equity 75.3%
Foreign Equity 24.9%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
** Short-term investments and other net assets = -0.2%.
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the period under review, Fund performance was hindered most by Templeton
Growth Fund - Advisor Class and Mutual Shares Fund - Class Z, which
underperformed the Fund's hybrid benchmark. Although Franklin Growth Fund -
Advisor Class and Franklin Capital Growth Fund - Advisor Class also had negative
total returns during the reporting period, both funds performed better than the
benchmark.
Thank you for your continued participation in Franklin Templeton Corefolio
Allocation Fund. We look forward to serving your future investment needs.
(PHOTO OF T. ANTHONY COFFEY)
/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 JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
6 | Semiannual Report
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCOX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$2.07 $12.15 $14.22
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0155
Long-Term Capital Gain $0.2896
TOTAL $0.3051
CLASS B (SYMBOL: FBCOX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$2.10 $12.02 $14.12
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0155
Long-Term Capital Gain $0.2896
TOTAL $0.3051
CLASS C (SYMBOL: FTCLX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$2.09 $11.99 $14.08
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0155
Long-Term Capital Gain $0.2896
TOTAL $0.3051
CLASS R (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------- ------ ------- --------
Net Asset Value (NAV) -$2.08 $12.12 $14.20
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0155
Long-Term Capital Gain $0.2896
TOTAL $0.3051
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------- ------ ------- --------
Net Asset Value (NAV) -$2.05 $12.20 $14.25
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0155
Long-Term Capital Gain $0.2896
TOTAL $0.3051
Semiannual Report | 7
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST
31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF
PURCHASE.
INCEPTION
CLASS A 6-MONTH 1-YEAR 3-YEAR (8/15/03)
- ------- ------- ------- ------- ---------
Cumulative Total Return(2) -12.39% -14.85% +14.56% +40.33%
Average Annual Total Return(3) -17.44% -19.73% +2.59% +5.90%
Value of $10,000 Investment(4) $ 8,256 $ 8,027 $10,797 $13,227
Total Annual Operating
Expenses(5)
Without Waiver 1.33%
With Waiver 1.18%
INCEPTION
CLASS B 6-MONTH 1-YEAR 3-YEAR (8/15/03)
- ------- ------- ------- ------- ---------
Cumulative Total Return(2) -12.70% -15.43% +12.30% +35.74%
Average Annual Total Return(3) -16.10% -18.67% +3.01% +6.14%
Value of $10,000 Investment(4) $ 8,390 $ 8,133 $10,930 $13,374
Total Annual Operating
Expenses(5)
Without Waiver 2.03%
With Waiver 1.88%
INCEPTION
CLASS C 6-MONTH 1-YEAR 3-YEAR (8/15/03)
- ------- ------- ------- ------- ---------
Cumulative Total Return(2) -12.66% -15.35% +12.33% +35.77%
Average Annual Total Return(3) -13.51% -16.16% +3.95% +6.47%
Value of $10,000 Investment(4) $ 8,649 $ 8,384 $11,233 $13,577
Total Annual Operating
Expenses(5)
Without Waiver 2.02%
With Waiver 1.87%
INCEPTION
CLASS R 6-MONTH 1-YEAR 3-YEAR (8/15/03)
- ------- ------- ------- ------- ---------
Cumulative Total Return(2) -12.48% -14.99% +13.97% +39.19%
Average Annual Total Return(3) -12.48% -14.99% +4.46% +7.02%
Value of $10,000 Investment(4) $ 8,752 $ 8,501 $11,397 $13,919
Total Annual Operating
Expenses(5)
Without Waiver 1.53%
With Waiver 1.38%
INCEPTION
ADVISOR CLASS 6-MONTH 1-YEAR 3-YEAR (8/15/03)
- ------------- ------- ------- ------- ---------
Cumulative Total Return(2) -12.22% -14.52% +15.67% +42.43%
Average Annual Total Return(3) -12.22% -14.52% +4.97% +7.52%
Value of $10,000 Investment(4) $ 8,778 $ 8,548 $11,567 $14,243
Total Annual Operating
Expenses(5)
Without Waiver 1.03%
With Waiver 0.88%
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 WAIVE OR LIMIT ITS FEES AND TO
ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT
THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ADMINISTRATION FEES AND OTHER
EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING
DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.90% FOR EACH CLASS (OTHER
THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO
LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09.
8 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO
THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER
THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM.
FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY
AND POLITICAL AND SOCIAL INSTABILITY. INVESTING IN SPECIALIZED INDUSTRY SECTORS,
SUCH AS THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE
SECTORS, INVOLVES SPECIAL CONSIDERATIONS. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1). 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. Six-month return has not been
annualized.
(4). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5). Figures are as stated in the Fund's prospectus current as of the date of
this report.
Semiannual Report | 9
Your Fund's Expenses
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
10 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 876.10 $2.24
Hypothetical (5% return before expenses) $1,000 $1,022.48 $2.41
CLASS B
Actual $1,000 $ 873.00 $5.50
Hypothetical (5% return before expenses) $1,000 $1,019.00 $5.92
CLASS C
Actual $1,000 $ 873.40 $5.45
Hypothetical (5% return before expenses) $1,000 $1,019.05 $5.87
CLASS R
Actual $1,000 $ 875.20 $3.17
Hypothetical (5% return before expenses) $1,000 $1,021.48 $3.42
ADVISOR CLASS
Actual $1,000 $ 877.80 $0.84
Hypothetical (5% return before expenses) $1,000 $1,023.97 $0.91
* 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%; B: 1.18%; C: 1.17%; R: 0.68%; and
Advisor: 0.18%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
Semiannual Report | 11
Franklin Templeton Founding Funds Allocation Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton Founding Funds
Allocation Fund's principal investment goal is capital appreciation, with a
secondary goal of income. The Fund invests in an equally weighted combination of
Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin Templeton Founding Funds Allocation Fund
covers the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A had a -11.84%
cumulative total return for the six months under review. The Fund performed
comparably to its hybrid benchmark, which comprised a weighted combination of
the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital
International (MSCI) World Index. For the reporting period, the hybrid benchmark
had a -11.36% total return.(1) You can find other performance data in the
Performance Summary beginning on page 14.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin
Income Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities and, to a
lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
(1). Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The S&P 500 consists of 500 stocks chosen for market
size, liquidity and industry group representation. Each stock's weight in
the index is proportionate to its market value. The S&P 500 is one of the
most widely used benchmarks of U.S. equity performance. The MSCI World
Index is a free float-adjusted, market capitalization-weighted index
designed to measure equity market performance in global developed markets.
The benchmark index's weightings are as follows: S&P 500 67% and MSCI World
Index 33%. The indexes are unmanaged and include reinvested distributions.
One cannot invest directly in an index, nor is an index representative of
the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 37.
12 | Semiannual Report
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the period under review, Fund performance was hindered most by Templeton
Growth Fund - Advisor Class, followed by Mutual Shares Fund - Class Z, both of
which underperformed the Fund's hybrid benchmark. Although Franklin Income Fund
- - Advisor Class also had a negative total return during the reporting period, it
performed better than the benchmark.
Thank you for your continued participation in Franklin Templeton Founding Funds
Allocation Fund. We look forward to serving your future investment needs.
(PHOTO OF T. ANTHONY COFFEY)
/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 JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
ASSET ALLOCATION*
Franklin Templeton Founding Funds Allocation Fund
Based on Total Net Assets as of 6/30/08**
(BAR CHART)
Domestic Hybrid 33.8%
Foreign Equity 33.5%
Domestic Equity 33.0%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
** Short-term investments and other net assets = -0.3%.
Semiannual Report | 13
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FFALX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.89 $11.61 $13.50
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0083
Long-Term Capital Gain $0.2835
TOTAL $0.2918
CLASS B (SYMBOL: FFABX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.91 $11.54 $13.45
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0083
Long-Term Capital Gain $0.2835
TOTAL $0.2918
CLASS C (SYMBOL: FFACX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.90 $11.39 $13.29
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0083
Long-Term Capital Gain $0.2835
TOTAL $0.2918
CLASS R (SYMBOL: FFARX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.90 $11.60 $13.50
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0083
Long-Term Capital Gain $0.2835
TOTAL $0.2918
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 6/30/08 12/31/07
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) -$1.88 $11.70 $13.58
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0083
Long-Term Capital Gain $0.2835
TOTAL $0.2918
14 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST
31, 2008, THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF
PURCHASE.
CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------- ------- ------- ------- -------------------
Cumulative Total Return(2) -11.84% -15.17% +13.68% +46.18%
Average Annual Total Return(3) -16.89% -20.06% +2.33% +6.79%
Value of $10,000 Investment(4) $ 8,311 $ 7,994 $10,717 $13,777
Total Annual Operating Expenses(5)
Without Waiver 1.18%
With Waiver 1.13%
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------- ------- ------- ------- -------------------
Cumulative Total Return(2) -12.04% -15.66% +11.50% +41.69%
Average Annual Total Return(3) -15.47% -18.82% +2.81% +7.09%
Value of $10,000 Investment(4) $ 8,453 $ 8,118 $10,867 $13,969
Total Annual Operating Expenses(5)
Without Waiver 1.88%
With Waiver 1.83%
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------- ------- ------- ------- -------------------
Cumulative Total Return(2) -12.11% -15.69% +11.56% +41.65%
Average Annual Total Return(3) -12.96% -16.48% +3.71% +7.40%
Value of $10,000 Investment(4) $ 8,704 $ 8,352 $11,156 $14,165
Total Annual Operating Expenses(5)
Without Waiver 1.88%
With Waiver 1.83%
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------- ------- ------- ------- -------------------
Cumulative Total Return(2) -11.92% -15.35% +13.07% +45.21%
Average Annual Total Return(3) -11.92% -15.35% +4.18% +7.95%
Value of $10,000 Investment(4) $ 8,808 $ 8,465 $11,307 $14,521
Total Annual Operating Expenses(5)
Without Waiver 1.38%
With Waiver 1.33%
ADVISOR CLASS 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/15/03)
- ------------- ------- ------- ------- -------------------
Cumulative Total Return(2) -11.70% -14.93% +14.90% +48.67%
Average Annual Total Return(3) -11.70% -14.93% +4.74% +8.47%
Value of $10,000 Investment(4) $ 8,830 $ 8,507 $11,490 $14,867
Total Annual Operating Expenses(5)
Without Waiver 0.88%
With Waiver 0.83%
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 WAIVE OR LIMIT ITS FEES AND TO
ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT
THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ADMINISTRATION FEES AND OTHER
EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING
DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.85% FOR EACH CLASS (OTHER
THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO
LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09.
Semiannual Report | 15
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO
THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER
THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. 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 AND SOCIAL
INSTABILITY. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1). 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. Six-month return has not been
annualized.
(4). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5). Figures are as stated in the Fund's prospectus current as of the date of
this report.
16 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 17
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 881.60 $2.25
Hypothetical (5% return before expenses) $1,000 $1,022.48 $2.41
CLASS B
Actual $1,000 $ 879.60 $5.51
Hypothetical (5% return before expenses) $1,000 $1,019.00 $5.92
CLASS C
Actual $1,000 $ 878.90 $5.42
Hypothetical (5% return before expenses) $1,000 $1,019.10 $5.82
CLASS R
Actual $1,000 $ 880.80 $3.18
Hypothetical (5% return before expenses) $1,000 $1,021.48 $3.42
ADVISOR CLASS
Actual $1,000 $ 883.00 $0.84
Hypothetical (5% return before expenses) $1,000 $1,023.97 $0.91
* 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%; B: 1.18%; C: 1.16%; R: 0.68%; and
Advisor: 0.18%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
18 | Semiannual Report
Franklin Templeton Perspectives Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Perspectives
Allocation Fund seeks capital appreciation through investments in an equally
weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and
Templeton Growth Fund.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin Templeton Perspectives Allocation Fund
covers the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A had a -12.82%
cumulative total return for the six months under review. The Fund underperformed
its hybrid benchmark, which comprised a weighted combination of the Standard &
Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI)
World Index. For the reporting period, the hybrid benchmark had a -11.36% total
return.(1) You can find other performance data in the Performance Summary
beginning on page 21.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin Flex
Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities and, to a
lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
(1). Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. The S&P 500 consists of 500 stocks chosen for market
size, liquidity and industry group representation. Each stock's weight in
the index is proportionate to its market value. The S&P 500 is one of the
most widely used benchmarks of U.S. equity performance. The MSCI World
Index is a free float-adjusted, market capitalization-weighted index
designed to measure equity market performance in global developed markets.
The benchmark index's weightings are as follows: S&P 500 67% and MSCI World
Index 33%. The indexes are unmanaged and include reinvested distributions.
One cannot invest directly in an index, nor is an index representative of
the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 42.
Semiannual Report | 19
ASSET ALLOCATION*
Franklin Templeton Perspectives Allocation Fund
Based on Total Net Assets as of 6/30/08
(BAR CHART)
Domestic Equity 66.4%
Foreign Equity 33.5%
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 period under review, Fund performance was hindered most by Templeton
Growth Fund - Advisor Class, which underperformed the Fund's hybrid benchmark.
Although Franklin Flex Cap Growth Fund - Advisor Class and Franklin Growth Fund
- - Advisor Class also had negative total returns during the reporting period,
both funds performed better than the benchmark.
Thank you for your continued participation in Franklin Templeton Perspectives
Allocation Fund. We look forward to serving your future investment needs.
(PHOTO OF T. ANTHONY COFFEY)
/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 JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
20 | Semiannual Report
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FPAAX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.96 $11.21 $13.17
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0055
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.2657
CLASS C (SYMBOL: FPCAX) CHANGE 6/30/08 12/31/07
- ----------------------- ------ ------- --------
Net Asset Value (NAV) -$1.99 $11.09 $13.08
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0055
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.2657
CLASS R (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------- ------ ------- --------
Net Asset Value (NAV) -$1.97 $11.20 $13.17
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0055
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.2657
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------- ------ ------- --------
Net Asset Value (NAV) -$1.95 $11.27 $13.22
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $0.0055
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.2657
Semiannual Report | 21
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008,
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------- ------- ------- ------- ------------------
Cumulative Total Return(2) -12.82% -14.10% +15.46% +30.15%
Average Annual Total Return(3) -17.81% -19.05% +2.85% +5.36%
Value of $10,000 Investment(4) $ 8,219 $ 8,095 $10,881 $12,266
Total Annual Operating Expenses(5)
Without Waiver 1.39%
With Waiver 1.21%
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------- ------- ------- ------- ------------------
Cumulative Total Return(2) -13.14% -14.69% +13.19% +26.84%
Average Annual Total Return(3) -13.98% -15.51% +4.22% +6.27%
Value of $10,000 Investment(4) $ 8,602 $ 8,449 $11,319 $12,684
Total Annual Operating Expenses(5)
Without Waiver 2.08%
With Waiver 1.90%
CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------- ------- ------- ------- ------------------
Cumulative Total Return(2) -12.89% -14.22% +14.86% +29.34%
Average Annual Total Return(3) -12.89% -14.22% +4.73% +6.80%
Value of $10,000 Investment(4) $ 8,711 $ 8,578 $11,486 $12,934
Total Annual Operating Expenses(5)
Without Waiver 1.59%
With Waiver 1.41%
ADVISOR CLASS 6-MONTH 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------------- ------- ------- ------- ------------------
Cumulative Total Return(2) -12.69% -13.71% +16.73% +31.90%
Average Annual Total Return(3) -12.69% -13.71% +5.29% +7.34%
Value of $10,000 Investment(4) $ 8,731 $ 8,629 $11,673 $13,190
Total Annual Operating Expenses(5)
Without Waiver 1.09%
With Waiver 0.91%
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 WAIVE OR LIMIT ITS FEES AND TO
ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT
THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ADMINISTRATION FEES AND OTHER
EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING
DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.92% FOR EACH CLASS (OTHER
THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO
LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09.
22 | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND IS SUBJECT TO THESE SAME
RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG
TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN
INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY, AND
POLITICAL OR SOCIAL INSTABILITY. THE PORTFOLIO MAY INCLUDE INVESTMENTS IN THE
TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MOST VOLATILE IN THE MARKET. 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. Six-month return has not been
annualized.
(4). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5). Figures are as stated in the Fund's prospectus current as of the date of
this report.
Semiannual Report | 23
Your Fund's Expenses
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
24 | Semiannual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $ 871.80 $2.23
Hypothetical (5% return before expenses) $1,000 $1,022.48 $2.41
CLASS C
Actual $1,000 $ 868.60 $5.44
Hypothetical (5% return before expenses) $1,000 $1,019.05 $5.87
CLASS R
Actual $1,000 $ 871.10 $3.16
Hypothetical (5% return before expenses) $1,000 $1,021.48 $3.42
ADVISOR CLASS
Actual $1,000 $ 873.10 $1.02
Hypothetical (5% return before expenses) $1,000 $1,023.77 $1.11
* 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: 0.68%; and Advisor:
0.18%), multiplied by the average account value over the period, multiplied
by 182/366 to reflect the one-half year period.
Semiannual Report | 25
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 -------------------------------------- JULY 31,
CLASS A (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- -------- -------- -------- -------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 14.22 $ 14.09 $ 12.71 $ 12.20 $ 11.02 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment operations(c):
Net investment income (loss)(d, e) ........... (0.03) 0.15 0.11 0.09 0.09 0.01
Net realized and unrealized gains (losses) ... (1.73) 0.57 1.81 0.71 1.21 1.07
-------- -------- -------- -------- -------- --------
Total from investment operations ................ (1.76) 0.72 1.92 0.80 1.30 1.08
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............ (0.02) (0.17) (0.16) (0.10) (0.07) --
Net realized gains ........................... (0.29) (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ........................ -- -- -- -- -- (0.06)
-------- -------- -------- -------- -------- --------
Total distributions ............................. (0.31) (0.59) (0.54) (0.29) (0.12) (0.06)
-------- -------- -------- -------- -------- --------
Redemption fees(f) .............................. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period .................. $ 12.15 $ 14.22 $ 14.09 $ 12.71 $ 12.20 $ 11.02
======== ======== ======== ======== ======== ========
Total return(g) ................................. (12.39)% 5.20% 15.25% 6.63% 11.77% 10.85%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ................................ 0.60% 0.64% 0.65% 0.66% 0.68% 0.74%
Expenses net of waiver and payments by
affiliates(i) ................................ 0.48% 0.50% 0.50% 0.58% 0.68% 0.47%
Net investment income (loss)(e) ................. (0.48)% 0.99% 0.82% 0.72% 1.86% 0.14%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $416,931 $497,314 $458,460 $353,016 $238,564 $157,792
Portfolio turnover rate ......................... 0.91% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 (effective date) to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
26 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ---------------------------------- JULY 31,
CLASS B (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- ------- ------- ------- -------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 14.12 $ 13.99 $ 12.62 $ 12.12 $ 10.95 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations(c):
Net investment income (loss)(d, e) ........... (0.08) 0.05 0.01 0.01 0.06 (0.06)
Net realized and unrealized gains (losses) ... (1.71) 0.57 1.81 0.70 1.20 1.06
------- ------- ------- ------- ------- -------
Total from investment operations ................ (1.79) 0.62 1.82 0.71 1.26 1.00
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............ (0.02) (0.07) (0.07) (0.02) (0.04) --
Net realized gains ........................... (0.29) (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ........................ -- -- -- -- -- (0.05)
------- ------- ------- ------- ------- -------
Total distributions ............................. (0.31) (0.49) (0.45) (0.21) (0.09) (0.05)
------- ------- ------- ------- ------- -------
Redemption fees(f) .............................. -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Net asset value, end of period .................. $ 12.02 $ 14.12 $ 13.99 $ 12.62 $ 12.12 $ 10.95
======= ======= ======= ======= ======= =======
Total return(g) ................................. (12.70)% 4.49% 14.55% 5.89% 11.50% 10.02%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ................................ 1.30% 1.31% 1.30% 1.31% 1.33% 1.39%
Expenses net of waiver and payments by
affiliates(i) ................................ 1.18% 1.16% 1.15% 1.23% 1.33% 1.12%
Net investment income (loss)(e).................. (1.18)% 0.32% 0.17% 0.07% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $57,937 $72,530 $76,408 $71,496 $66,562 $44,297
Portfolio turnover rate ......................... 0.91% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 (effective date) to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 27
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ------------------------------------- JULY 31,
CLASS C (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- -------- -------- -------- -------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 14.08 $ 13.96 $ 12.61 $ 12.11 $ 10.94 $ 10.00
-------- -------- -------- -------- ------- -------
Income from investment operations(c):
Net investment income (loss)(d, e) ........... (0.07) 0.05 0.02 0.01 0.06 (0.05)
Net realized and unrealized gains (losses) ... (1.71) 0.57 1.79 0.71 1.20 1.04
-------- -------- -------- -------- ------- -------
Total from investment operations ................ (1.78) 0.62 1.81 0.72 1.26 0.99
-------- -------- -------- -------- ------- -------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............ (0.02) (0.08) (0.08) (0.03) (0.04) --
Net realized gains ........................... (0.29) (0.42) (0.38) (0.19) (0.05) --
Tax return of capital ........................ -- -- -- -- -- (0.05)
-------- -------- -------- -------- ------- -------
Total distributions ............................. (0.31) (0.50) (0.46) (0.22) (0.09) (0.05)
-------- -------- -------- -------- ------- -------
Redemption fees(f) .............................. -- -- -- -- -- --
-------- -------- -------- -------- ------- -------
Net asset value, end of period .................. $ 11.99 $ 14.08 $ 13.96 $ 12.61 $ 12.11 $ 10.94
======== ======== ======== ======== ======= =======
Total return(g) ................................. (12.66)% 4.50% 14.48% 6.02% 11.49% 9.93%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ................................ 1.29% 1.30% 1.29% 1.29% 1.33% 1.39%
Expenses net of waiver and payments by
affiliates(i) ................................ 1.17% 1.16% 1.14% 1.21% 1.33% 1.12%
Net investment income (loss)(d) ................. (1.17)% 0.33% 0.18% 0.09% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $153,956 $181,951 $166,688 $132,459 $96,487 $73,272
Portfolio turnover rate ......................... 0.91% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 (effective date) to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) 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.
(e) Based on average daily shares outstanding.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
28 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ----------------------------------- JULY 31,
CLASS R (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- ------ ------ ------ ------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 14.20 $14.07 $12.69 $12.18 $11.00 $10.00
------- ------ ------ ------ ------ ------
Income from investment
operations(c):
Net investment income
(loss)(d, e) ................... (0.04) 0.12 0.09 0.05 0.08 (0.02)
Net realized and unrealized
gains (losses) ................. (1.73) 0.57 1.81 0.73 1.21 1.08
------- ------ ------ ------ ------ ------
Total from investment operations .. (1.77) 0.69 1.90 0.78 1.29 1.06
------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............... (0.02) (0.14) (0.14) (0.08) (0.06) --
Net realized gains ............. (0.29) (0.42) (0.38) (0.19) (0.05) --
Tax return of capital .......... -- -- -- -- -- (0.06)
------- ------ ------ ------ ------ ------
Total distributions ............... (0.31) (0.56) (0.52) (0.27) (0.11) (0.06)
------- ------ ------ ------ ------ ------
Redemption fees(f) ................ -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Net asset value, end of period .... $ 12.12 $14.20 $14.07 $12.69 $12.18 $11.00
======= ====== ====== ====== ====== ======
Total return(g) ................... (12.48)% 5.02% 15.10% 6.43% 11.73% 10.65%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments
by affiliates(i) ............... 0.80% 0.81% 0.80% 0.81% 0.83% 0.89%
Expenses net of waiver and payments
by affiliates(i) ............... 0.68% 0.66% 0.65% (0.73)% 0.83% 0.62%
Net investment income (loss)(d) ... (0.68)% 0.82% 0.67% 0.57% 1.71% (0.01)%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ........................ $ 2,003 $2,602 $2,534 $2,190 $1,944 $1,408
Portfolio turnover rate ........... 0.91% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 (effective date) to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) 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.
(e) Based on average daily shares outstanding.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 29
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ----------------------------------- JULY 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------------- ---------------- ------ ------ ------ -------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 14.25 $14.12 $12.73 $12.21 $11.02 $10.00
------- ------ ------ ------ ------ ------
Income from investment
operations(c):
Net investment income
(loss)(d, e) ................ (0.01) 0.19 0.15 0.13 0.11 0.04
Net realized and unrealized
gains (losses) .............. (1.73) 0.58 1.83 0.72 1.21 1.05
------- ------ ------ ------ ------ ------
Total from investment operations .. (1.74) 0.77 1.98 0.85 1.32 1.09
------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.02) (0.22) (0.21) (0.14) (0.08) --
Net realized gains ............. (0.29) (0.42) (0.38) (0.19) (0.05) --
Tax return of capital .......... -- -- -- -- -- (0.07)
------- ------ ------ ------ ------ ------
Total distributions ............... (0.31) (0.64) (0.59) (0.33) (0.13) (0.07)
------- ------ ------ ------ ------ ------
Redemption fees(f) ................ -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Net asset value, end of period .... $ 12.20 $14.25 $14.12 $12.73 $12.21 $11.02
------- ------ ------ ------ ------ ------
Total return(g) ................... (12.22)% 5.53% 15.65% 6.93% 12.09% 10.92%
======= ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments
by affiliates(i) ............... 0.30% 0.31% 0.30% 0.31% 0.33% 0.39%
Expenses net of waiver and payments
by affiliates(i) ............... 0.18% 0.16% 0.15% 0.23% 0.33% 0.12%
Net investment income (loss)(d) ... (0.18)% 1.32% 1.17% 1.07% 2.21% 0.49%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ........................ $ 2,390 $3,243 $3,073 $2,792 $2,097 $1,181
Portfolio turnover rate ........... 0.91% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 (effective date) to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) 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.
(e) Based on average daily shares outstanding.
(f) Amount rounds to less than $0.01 per share.
(g) Total return is not annualized for periods less than one year.
(h) Ratios are annualized for periods less than one year.
(i) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
30 | Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
-------------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS(a)
DOMESTIC EQUITY 75.2%
Franklin Capital Growth Fund, Advisor Class ........................... 13,979,830 $160,208,854
Franklin Growth Fund, Advisor Class ................................... 4,044,550 160,245,087
Mutual Shares Fund, Class Z ........................................... 7,189,220 155,934,185
------------
476,388,126
------------
FOREIGN EQUITY 25.0%
Templeton Growth Fund Inc., Advisor Class ............................. 7,728,068 157,884,420
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENT
(COST $607,646,090) ................................................ 634,272,546
------------
SHORT TERM INVESTMENT (COST $659,108) 0.1%
MONEY MARKET FUND 0.1%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.17% .. 659,108 659,108
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $608,305,198) 100.3% ...... 634,931,654
OTHER ASSETS, LESS LIABILITIES (0.3)% ................................. (1,714,729)
------------
NET ASSETS 100.0% ..................................................... $633,216,925
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) The rate shown is the annualized seven-day yield at period end.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
PERIOD
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, 2008 --------------------------------------------------- JULY 31,
CLASS A (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- ----------- ---------- ---------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period.......................... $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.21 $ 10.00
---------- ----------- ---------- ---------- ---------- --------
Income from investment
operations(c):
Net investment income(d, e)..... 0.10 0.43 0.40 0.37 0.22 0.23
Net realized and unrealized
gains (losses)............... (1.70) --(f) 1.99 0.40 1.14 1.07
---------- ----------- ---------- ---------- ---------- --------
Total from investment operations... (1.60) 0.43 2.39 0.77 1.36 1.30
---------- ----------- ---------- ---------- ---------- --------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds............. (0.01) (0.44) (0.44) (0.30) (0.23) (0.09)
Net realized gains.............. (0.28) (0.47) (0.47) (0.25) (0.06) --
---------- ----------- ---------- ---------- ---------- --------
Total distributions................ (0.29) (0.91) (0.91) (0.55) (0.29) (0.09)
---------- ----------- ---------- ---------- ---------- --------
Redemption fees(f)................. -- -- -- -- -- --
---------- ----------- ---------- ---------- ---------- --------
Net asset value, end of period..... $ 11.61 $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.21
========== =========== ========== ========== ========== ========
Total return(g).................... (11.84)% 3.12% 19.34% 6.31% 12.16% 13.00%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments
by affiliates(i)................ 0.52% 0.55% 0.57% 0.58% 0.60% 0.61%
Expenses net of waiver and payments
by affiliates(i)................ 0.48% 0.50% 0.50% 0.54% 0.60% 0.49%
Net investment income(e)........... 1.62% 2.99% 3.00% 2.98% 4.48% 2.16%
SUPPLEMENTAL DATA
Net assets, end of period (000's).. $8,420,723 $10,161,473 $7,288,143 $4,051,695 $1,640,876 $882,175
Portfolio turnover rate............ 1.15% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
32 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
PERIOD
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, 2008 ----------------------------------------- JULY 31,
CLASS B (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.45 $ 13.93 $ 12.46 $ 12.23 $ 11.16 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment
operations(c):
Net investment income(d, e) .... 0.06 0.35 0.28 0.26 0.19 0.16
Net realized and unrealized
gains (losses) .............. (1.68) (0.02) 2.00 0.43 1.13 1.08
-------- -------- -------- -------- -------- --------
Total from investment operations .. (1.62) 0.33 2.28 0.69 1.32 1.24
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.01) (0.34) (0.34) (0.21) (0.19) (0.08)
Net realized gains ............. (0.28) (0.47) (0.47) (0.25) (0.06) --
-------- -------- -------- -------- -------- --------
Total distributions ............... (0.29) (0.81) (0.81) (0.46) (0.25) (0.08)
-------- -------- -------- -------- -------- --------
Redemption fees(f) ................ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period .... $ 11.54 $ 13.45 $ 13.93 $ 12.46 $ 12.23 $ 11.16
======== ======== ======== ======== ======== ========
Total return(g) ................... (12.04)% 2.36% 18.53% 5.58% 11.90% 12.39%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and
payments by affiliates(i) ...... 1.22% 1.22% 1.22% 1.23% 1.25% 1.26%
Expenses net of waiver and payments
by affiliates(i) ............... 1.18% 1.17% 1.15% 1.19% 1.25% 1.14%
Net investment income(e) .......... 0.92% 2.32% 2.35% 2.33% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of period (000's).. $577,157 $722,716 $766,452 $688,590 $612,553 $357,282
Portfolio turnover rate ........... 1.15% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67%for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
PERIOD
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED
JUNE 30, 2008 ------------------------------------------------ JULY 31,
CLASS C (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- ---------- ----------- ---------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.29 $ 13.78 $ 12.36 $ 12.23 $ 11.16 $ 10.00
---------- ---------- ---------- ---------- -------- --------
Income from investment
operations(c):
Net investment income(d, e) .... 0.06 0.29 0.31 0.29 0.19 0.17
Net realized and unrealized
gains (losses) .............. (1.67) 0.05 1.95 0.39 1.13 1.07
---------- ---------- ---------- ---------- -------- --------
Total from investment operations .. (1.61) 0.34 2.26 0.68 1.32 1.24
---------- ---------- ---------- ---------- -------- --------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.01) (0.36) (0.37) (0.30) (0.19) (0.08)
Net realized gains ............. (0.28) (0.47) (0.47) (0.25) (0.06) --
---------- ---------- ---------- ---------- -------- --------
Total distributions ............... (0.29) (0.83) (0.83) (0.55) (0.25) (0.08)
---------- ---------- ---------- ---------- -------- --------
Redemption fees(f) ................ -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of period .... $ 11.39 $ 13.29 $ 13.78 $ 12.36 $ 12.23 $ 11.16
========== ========== ========== ========== ======== ========
Total return(g) ................... (12.11)% 2.47% 18.50% 5.63% 11.79% 12.40%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments
by affiliates(i) ............... 1.20% 1.22% 1.22% 1.20% 1.25% 1.26%
Expenses net of waiver and payments
by affiliates(i) ............... 1.16% 1.17% 1.15% 1.16% 1.25% 1.14%
Net investment income(e) .......... 0.94% 2.32% 2.35% 2.36% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of period (000's).. $4,290,011 $5,295,157 $3,692,307 $2,075,041 $927,786 $535,778
Portfolio turnover rate ........... 1.15% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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 values of the investments of the Fund.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2007.
The accompanying notes are an integral part of these financial statements.
34 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ------------------------------------- JULY 31,
CLASS R (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------- ---------------- ------- ------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.22 $10.00
------- ------- ------- ------- ------- ------
Income from investment
operations(c):
Net investment income(d, e) .... 0.09 0.42 0.37 0.33 0.22 0.20
Net realized and unrealized
gains (losses) .............. (1.70) (0.01) 1.99 0.42 1.13 1.11
------- ------- ------- ------- ------- ------
Total from investment operations .. (1.61) 0.41 2.36 0.75 1.35 1.31
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.01) (0.42) (0.41) (0.28) (0.23) (0.09)
Net realized gains ............. (0.28) (0.47) (0.47) (0.25) (0.06) --
------- ------- ------- ------- ------- ------
Total distributions ............... (0.29) (0.89) (0.88) (0.53) (0.29) (0.09)
------- ------- ------- ------- ------- ------
Redemption fees(f) ................ -- -- -- -- -- --
------- ------- ------- ------- ------- ------
Net asset value, end of period .... $ 11.60 $ 13.50 $ 13.98 $ 12.50 $ 12.28 $11.22
======= ======= ======= ======= ======= ======
Total return(g) ................... (11.92)% 2.92% 19.15% 6.12% 12.02% 13.09%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and
payments by affiliates(i) ...... 0.72% 0.72% 0.72% 0.73% 0.75% 0.76%
Expenses net of waiver and payments
by affiliates (i) .............. 0.68% 0.67% 0.65% 0.69% 0.75% 0.64%
Net investment income(e) .......... 1.42% 2.82% 2.85% 2.83% 4.33% 2.01%
SUPPLEMENTAL DATA
Net assets, end of period (000's).. $22,449 $29,028 $24,435 $17,247 $12,101 $5,225
Portfolio turnover rate ........... 1.15% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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 values of the investments of the Fund.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2007.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 2008 ------------------------------------- JULY 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 2005 2004(a) 2004(b)
- ------------- ---------------- ------- ------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.58 $ 14.05 $ 12.55 $ 12.32 $11.25 $ 10.00
------- ------- ------- ------- ------ ------
Income from investment
operations(c):
Net investment income(d, e) .... 0.12 0.48 0.47 0.39 0.24 0.25
Net realized and unrealized
gains (losses) .............. (1.71) 0.01 1.98 0.42 1.14 1.09
------- ------- ------- ------- ------ ------
Total from investment operations .. (1.59) 0.49 2.45 0.81 1.38 1.34
------- ------- ------- ------- ------ ------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.01) (0.49) (0.48) (0.33) (0.25) (0.09)
Net realized gains ............. (0.28) (0.47) (0.47) (0.25) (0.06) --
------- ------- ------- ------- ------ ------
Total distributions ............... (0.29) (0.96) (0.95) (0.58) (0.31) (0.09)
------- ------- ------- ------- ------ ------
Redemption fees(f) ................ -- -- -- -- -- --
------- ------- ------- ------- ------ ------
Net asset value, end of period .... $ 11.70 $ 13.58 $ 14.05 $ 12.55 $12.32 $ 11.25
======= ======= ======= ======= ====== ======
Total returng ..................... (11.70)% 3.48% 19.73% 6.63% 12.32% 13.46%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments
by affiliates(i) ............... 0.22% 0.22% 0.22% 0.23% 0.25% 0.26%
Expenses net of waiver and payments
by affiliates(i) ............... 0.18% 0.17% 0.15% 0.19% 0.25% 0.14%
Net investment income(e) .......... 1.92% 3.32% 3.35% 3.33% 4.83% 2.51%
SUPPLEMENTAL DATA
Net assets, end of period (000's).. $40,083 $46,866 $25,124 $12,535 $7,792 $4,991
Portfolio turnover rate ........... 1.15% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004.
(b) For the period August 15, 2003 (commencement of operations) to July 31,
2004.
(c) 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.
(d) Based on average daily shares outstanding.
(e) 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.
(f) Amount rounds to less than $0.01 per share.
(g) Total return is not annualized for periods less than one year.
(h) Ratios are annualized for periods less than one year.
(i) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.67% for the period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
36 | Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
------------------------------------------------- ------------- ---------------
INVESTMENTS IN UNDERLYING FUNDS(a)
DOMESTIC EQUITY 33.0%
Mutual Shares Fund, Class Z...................... 203,139,976 $ 4,406,106,079
---------------
DOMESTIC HYBRID 33.8%
Franklin Custodian Franklin Income Fund Inc.,
Advisor Class................................. 1,901,818,957 4,507,310,928
---------------
FOREIGN EQUITY 33.5%
Templeton Growth Fund Inc., Advisor Class........ 218,862,652 4,471,363,983
---------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE
SHORT TERM INVESTMENT (COST $14,937,247,924).. 13,384,780,990
---------------
SHORT TERM INVESTMENT (COST $5,269) 0.0% (b)
MONEY MARKET FUND 0.0%(b)
(c) Franklin Institutional Fiduciary Trust Money
Market Portfolio 2.17%........................ 5,269 5,269
TOTAL INVESTMENTS IN UNDERLYING FUNDS
(COST $14,937,253,193) 100.3%................. 13,384,786,259
OTHER ASSETS, LESS LIABILITIES (0.3)%............ (34,364,239)
---------------
NET ASSETS 100.0%................................ $13,350,422,020
===============
(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.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2008 ----------------------------------------
CLASS A (UNAUDITED) 2007 2006 2005 2004(a)
- ------- ----------------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.17 $ 12.90 $ 11.79 $ 11.19 $ 10.00
-------- -------- -------- -------- -------
Income from investment
operations(b):
Net investment income (c, d) ... (0.03) 0.15 0.17 0.16 0.17
Net realized and unrealized gains
(losses) .................... (1.66) 0.71 1.55 0.73 1.12
-------- -------- -------- -------- -------
Total from investment operations .. (1.69) 0.86 1.72 0.89 1.29
-------- -------- -------- -------- -------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............. (0.01) (0.16) (0.19) (0.13) (0.07)
Net realized gains ............. (0.26) (0.43) (0.42) (0.16) (0.03)
-------- -------- -------- -------- -------
Total distributions ............... (0.27) (0.59) (0.61) (0.29) (0.10)
-------- -------- -------- -------- -------
Redemption fees(e) ................ -- -- -- -- --
-------- -------- -------- -------- -------
Net asset value, end of period .... $ 11.21 $ 13.17 $ 12.90 $ 11.79 $ 11.19
======== ======== ======== ======== =======
Total return(f) ................... (12.82)% 6.79% 14.69% 7.93% 12.93%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ............... 0.63% 0.68% 0.72% 0.90% 2.31%
Expenses net of waiver and payments
by affiliates(h) ............... 0.48% 0.50% 0.50% 0.46% 0.39%
Net investment income (loss)(d) ... (0.48)% 1.09% 1.18% 1.41% 3.78%
SUPPLEMENTAL DATA
Net assets, end of period (000's).. $200,438 $228,876 $190,189 $103,348 $16,155
Portfolio turnover rate ........... 5.27% 2.53% 0.98% 0.68% 0.51%
(a) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
38 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2008 ------------------------------------
CLASS C (UNAUDITED) 2007 2006 2005 2004(a)
- ------- ------------- ------- ------- ------- ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.08 $ 12.82 $ 11.74 $ 11.18 $10.00
------- ------- ------- ------- ------
Income from investment
operations(b):
Net investment income(c, d)..... (0.07) 0.06 0.08 0.09 0.15
Net realized and unrealized
gains (losses) .............. (1.65) 0.71 1.54 0.72 1.12
------- ------- ------- ------- ------
Total from investment operations .. (1.72) 0.77 1.62 0.81 1.27
------- ------- ------- ------- ------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.01) (0.08) (0.12) (0.09) (0.06)
Net realized gains ............. (0.26) (0.43) (0.42) (0.16) (0.03)
------- ------- ------- ------- ------
Total distributions ............... (0.27) (0.51) (0.54) (0.25) (0.09)
------- ------- ------- ------- ------
Redemption fees(e)................. -- -- -- -- --
------- ------- ------- ------- ------
Net asset value, end of period .... $ 11.09 $ 13.08 $ 12.82 $ 11.74 $11.18
======= ======= ======= ======= ======
Total return(f) ................... (13.14)% 6.11% 13.92% 7.22% 12.66%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ............... 1.32% 1.34% 1.36% 1.55% 2.96%
Expenses net of waiver and payments
by affiliates(h) ............... 1.17% 1.16% 1.14% 1.11% 1.04%
Net investment income (loss)(c) ... (1.17)% 0.43% 0.54% 0.76% 3.13%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ........................ $72,534 $84,173 $68,482 $36,558 $4,558
Portfolio turnover rate ........... 5.27% 2.53% 0.98% 0.68% 0.51%
(a) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(b) 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.
(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) Based on average daily shares outstanding.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2008 ------------------------------------
CLASS R (UNAUDITED) 2007 2006 2005 2004(a)
- ------- ------------- ------- ------- ------- ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.17 $12.90 $11.79 $11.18 $10.00
------- ------ ------ ------ ------
Income from investment
operations(b):
Net investment income(c, d)..... (0.04) 0.11 0.14 0.11 0.15
Net realized and unrealized
gains (losses) .............. (1.66) 0.73 1.55 0.77 1.13
------- ------ ------ ------ ------
Total from investment operations .. (1.70) 0.84 1.69 0.88 1.28
------- ------ ------ ------ ------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.01) (0.14) 0.16 0.11 0.07
Net realized gains ............. (0.26) (0.43) (0.42) (0.16) (0.03)
------- ------ ------ ------ ------
Total distributions ............... (0.27) (0.57) (0.58) (0.27) (0.10)
------- ------ ------ ------ ------
Redemption fees(e) ................ -- -- -- -- --
------- ------ ------ ------ ------
Net asset value, end of period .... $ 11.20 $13.17 $12.90 $11.79 $11.18
======= ====== ====== ====== ======
Total return(f) ................... (12.89)% 6.58% 14.49% 7.86% 12.81%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ............... 0.83% 0.85% 0.87% 1.05% 2.46%
Expenses net of waiver and payments
by affiliates(h) ............... 0.68% 0.67% 0.65% 0.61% 0.54%
Net investment income (loss)(c) ... (0.68)% 0.92% 1.03% 1.26% 3.63%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ........................ $ 1,328 $1,433 $1,539 $1,287 $ 260
Portfolio turnover rate ........... 5.27% 2.53% 0.98% 0.68% 0.51%
(a) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(b) 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.
(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) Based on average daily shares outstanding.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
40 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2008 ------------------------------------
ADVISOR CLASS (UNAUDITED) 2007 2006 2005 2004(a)
- ------------- ------------- ------- ------- ------- ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of
period ......................... $ 13.22 $12.93 $11.81 $11.19 $10.00
------- ------ ------ ------ ------
Income from investment
operations(b):
Net investment income
(loss)(c, d) ................ (0.01) 0.24 0.22 0.11 0.14
Net realized and unrealized
gains (losses) .............. (1.67) 0.68 1.54 0.82 1.16
------- ------ ------ ------ ------
Total from investment operations .. (1.68) 0.92 1.76 0.93 1.30
------- ------ ------ ------ ------
Less distributions from:
Net investment income and short
term gains received from
Underlying Funds ............ (0.01) (0.20) (0.22) (0.15) (0.08)
Net realized gains ............. (0.26) (0.43) (0.42) (0.16) (0.03)
------- ------ ------ ------ ------
Total distributions ............... (0.27) (0.63) (0.64) (0.31) (0.11)
------- ------ ------ ------ ------
Redemption fees(e) ................ -- -- -- -- --
------- ------ ------ ------ ------
Net asset value, end of period .... $ 11.27 $13.22 $12.93 $11.81 $11.19
======= ====== ====== ====== ======
Total return(f) ................... (12.69)% 7.26% 15.07% 8.31% 13.01%
======= ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments
by affiliates(h) ............... 0.33% 0.35% 0.37% 0.55% 1.96%
Expenses net of waiver and payments
by affiliates(h) ............... 0.18% 0.17% 0.15% 0.11% 0.04%
Net investment income (loss)(c) ... (0.18)% 1.42% 1.53% 1.76% 4.13%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ........................ $ 2,400 $2,804 $1,931 $1,104 $ 196
Portfolio turnover rate ........... 5.27% 2.53% 0.98% 0.68% 0.51%
(A) For the period August 2, 2004 (commencement of operations) to December 31,
2004.
(B) 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.
(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) Based on average daily shares outstanding.
(E) Amount rounds to less than $0.01 per share.
(F) Total return is not annualized for periods less than one year.
(G) Ratios are annualized for periods less than one year.
(H) 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 period ended June 30, 2008.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 41
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
----------------------------------------------- --------- ------------
INVESTMENTS IN UNDERLYING FUNDS(a)
DOMESTIC EQUITY 66.4%
(b) Franklin Flex Cap Growth Fund, Advisor Class .... 2,045,409 $ 91,450,245
Mutual Shares Fund, Class Z ..................... 4,257,441 92,343,905
------------
183,794,150
------------
FOREIGN EQUITY 33.5
Templeton Growth Fund Inc., Advisor Class ....... 4,536,594 92,682,610
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE
SHORT TERM INVESTMENT (COST $291,614,367) .... 276,476,760
------------
SHORT TERM INVESTMENT (COST $711,188) 0.3%
MONEY MARKET FUND 0.3%
(c) Franklin Institutional Fiduciary Trust Money
Market Portfolio, 2.17% ...................... 711,188 711,188
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS
(COST $292,325,555) 100.2% ................... 277,187,948
------------
OTHER ASSETS, LESS LIABILITIES (0.2)% ........... (488,062)
------------
NET ASSETS 100.0% ............................... $276,699,886
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
The accompanying notes are an integral part of these financial statements.
42 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2008 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------- --------------- ---------------
Assets:
Investments in Underlying Funds:
(Note 6)
Cost ........................ $608,305,198 $14,937,253,193 $292,325,555
============ =============== ============
Value ....................... $634,931,654 $13,384,786,259 $277,187,948
Receivables:
Investment securities sold .. -- 15,000,000 --
Capital shares sold ......... 325,868 18,881,448 518,928
Affiliates .................. -- -- 121,912
------------ --------------- ------------
Total assets ............. 635,257,522 13,418,667,707 277,828,788
============ =============== ============
Liabilities:
Payables:
Capital shares redeemed ..... 1,388,377 48,440,918 849,148
Affiliates .................. 623,729 14,465,666 279,754
Funds advanced by
custodian ................ -- 4,169,347 --
Accrued expenses and other
liabilities ................. 28,491 1,169,756 --
------------ --------------- ------------
Total liabilities ........ 2,040,597 68,245,687 1,128,902
------------ --------------- ------------
Net assets, at value .. $633,216,925 $13,350,422,020 $276,699,886
============ =============== ============
Net assets consist of:
Paid-in capital ................ $611,907,432 $14,986,630,832 $294,347,632
Undistributed net investment
income (loss) ............... (2,417,969) 99,829,741 (960,451)
Net unrealized appreciation
(depreciation) .............. 26,626,456 (1,552,466,934) (15,137,607)
Accumulated net realized gain
(loss) ...................... (2,898,994) (183,571,619) (1,549,688)
------------ --------------- ------------
Net assets, at value .. $633,216,925 $13,350,422,020 $276,699,886
============ =============== ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 43
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2008 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------- --------------- ---------------
CLASS A:
Net assets, at value ........... $416,930,639 $8,420,722,884 $200,437,730
------------ -------------- ------------
Shares outstanding ............. 34,306,668 725,056,206 17,880,441
------------ -------------- ------------
Net asset value per share(a) ... $ 12.15 $ 11.61 $ 11.21
------------ -------------- ------------
Maximum offering price per share
(net asset value per share /
94.25%) ..................... $ 12.89 $ 12.32 $ 11.89
------------ -------------- ------------
CLASS B:
Net assets, at value ........... $ 57,936,945 $ 577,156,759
------------ --------------
Shares outstanding ............. 4,819,497 50,025,657
------------ --------------
Net asset value and maximum
offering price per
share(a) .................... $ 12.02 $ 11.54
------------ --------------
CLASS C:
Net assets, at value ........... $153,955,839 $4,290,010,847 $ 72,534,210
------------ -------------- ------------
Shares outstanding ............. 12,844,424 376,597,179 6,540,210
------------ -------------- ------------
Net asset value and maximum
offering price per
share(a) .................... $ 11.99 $ 11.39 $ 11.09
------------ -------------- ------------
CLASS R:
Net assets, at value ........... $ 2,003,369 $ 22,448,814 $ 1,328,147
------------ -------------- ------------
Shares outstanding ............. 165,274 1,934,731 118,590
------------ -------------- ------------
Net asset value and maximum
offering price per
share(a) .................... $ 12.12 $ 11.60 $ 11.20
------------ -------------- ------------
ADVISOR CLASS:
Net assets, at value ........... $ 2,390,133 $ 40,082,716 $ 2,399,799
------------ -------------- ------------
Shares outstanding ............. 195,960 3,424,562 212,889
------------ -------------- ------------
Net asset value and maximum
offering price per
share(a) .................... $ 12.20 $ 11.70 $ 11.27
------------ -------------- ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
The accompanying notes are an integral part of these financial statements.
44 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2008 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------- --------------- ---------------
Investment income:
Dividends from Underlying Funds
(Note 6) .................... $ 11,969 $ 153,236,949 $ 13,466
------------ --------------- ------------
Expenses:
Administrative fees (Note 3a) .. 340,365 7,293,950 145,146
Distribution fees: (Note 3b)
Class A ..................... 671,202 13,724,133 314,576
Class B ..................... 316,686 3,185,046 --
Class C ..................... 817,171 23,026,731 384,387
Class R ..................... 5,596 64,021 3,372
Transfer agent fees (Note 3d) .. 549,581 7,487,050 281,964
Reports to shareholders ........ 43,985 553,186 14,215
Registration and filing fees ... 48,168 460,907 30,653
Professional fees .............. 14,580 77,648 11,907
Trustees' fees and expenses .... 2,065 39,760 579
Other .......................... 7,010 137,698 2,901
------------ --------------- ------------
Total expenses ........... 2,816,409 56,050,130 1,189,700
Expenses waived/paid by
affiliates (Note 3e) .. (390,635) (2,630,049) (218,144)
------------ --------------- ------------
Net expenses .......... 2,425,774 53,420,081 971,556
------------ --------------- ------------
Net investment
income (loss) ... (2,413,805) 99,816,868 (958,090)
------------ --------------- ------------
Realized and unrealized gains
(losses):
Net realized gain (loss) from
sale of investments in
Underlying Funds ............ (2,187,832) (168,200,448) (1,399,971)
Net change in unrealized
appreciation (depreciation)
on investments in Underlying
Funds ....................... (88,404,920) (1,813,130,725) (38,828,617)
------------ --------------- ------------
Net realized and unrealized gain
(loss) ......................... (90,592,752) (1,981,331,173) (40,228,588)
------------ --------------- ------------
Net increase (decrease) in net
assets resulting from
operations ..................... $(93,006,557) $(1,881,514,305) $(41,186,678)
============ =============== ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 45
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND FOUNDING FUNDS ALLOCATION FUND
---------------------------- ---------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31, JUNE 30, 2008 DECEMBER 31,
(UNAUDITED) 2007 (UNAUDITED) 2007
------------- ------------ --------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income
(loss) ................... $ (2,413,805) $ 5,827,534 $ 99,816,868 $ 411,806,734
Net realized gain (loss) from
Underlying Funds ......... (2,187,832) 26,678,658 (168,200,448) 664,574,182
Net change in unrealized
appreciation
(depreciation) on
investments in Underlying
Funds .................... (88,404,920) 2,933,990 (1,813,130,725) (789,793,282)
------------- ------------ --------------- ---------------
Net increase (decrease) in
net assets resulting
from operations ....... (93,006,557) 35,440,182 (1,881,514,305) 286,587,634
------------- ------------ --------------- ---------------
Distributions to shareholders
from:
Net investment income and
short term gains received
from Underlying Funds:
Class A .................. (530,913) (5,840,602) (6,059,252) (317,349,633)
Class B .................. (76,033) (347,605) (425,355) (17,434,411)
Class C .................. (197,837) (976,333) (3,186,094) (136,416,205)
Class R .................. (2,761) (25,991) (17,031) (850,119)
Advisor Class ............ (3,441) (48,599) (26,944) (1,589,342)
Net realized gains:
Class A .................. (9,912,713) (14,073,351) (206,963,606) (304,268,073)
Class B .................. (1,420,594) (2,191,830) (14,528,675) (24,803,530)
Class C .................. (3,696,593) (5,194,889) (108,826,242) (160,810,003)
Class R .................. (51,581) (75,541) (581,731) (913,018)
Advisor Class ............ (65,494) (92,288) (920,311) (1,390,383)
------------- ------------ --------------- ---------------
Total distributions to shareholders (15,957,960) (28,867,029) (341,535,241) (965,824,717)
------------- ------------ --------------- ---------------
Capital share transactions:
(Note 2)
Class A .................. (9,371,520) 34,638,044 (358,344,641) 3,296,660,627
Class B .................. (4,189,612) (4,799,240) (46,645,510) (20,839,227)
Class C .................. (1,248,836) 13,884,383 (273,703,772) 1,832,949,853
Class R .................. (231,598) 42,997 (2,671,822) 5,610,819
Advisor Class ............ (417,689) 135,731 (441,657) 23,543,435
------------- ------------ --------------- ---------------
Total capital share transactions .. (15,459,255) 43,901,915 (681,807,402) 5,137,925,507
------------- ------------ --------------- ---------------
Redemption fees ................... 1,220 1,283 38,711 90,601
------------- ------------ --------------- ---------------
Net increase (decrease) in
net assets ............... (124,422,552) 50,476,351 (2,904,818,237) 4,458,779,025
Net assets:
Beginning of period ............ 757,639,477 707,163,126 16,255,240,257 11,796,461,232
------------- ------------ --------------- ---------------
End of period .................. $ 633,216,925 $757,639,477 $13,350,422,020 $16,255,240,257
============= ============ =============== ===============
Undistributed net investment income
(loss)
included in net assets:
End of period .................. $ (2,417,969) $ 806,821 $ 99,829,741 $ 9,727,549
============= ============ =============== ===============
The accompanying notes are an integral part of these financial statements.
46 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
----------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
(UNAUDITED) 2007
------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income
(loss) ................... $ (958,090) $ 2,734,964
Net realized gain (loss) from
Underlying Funds ......... (1,399,971) 12,232,463
Net change in unrealized
appreciation
(depreciation) on
investments in Underlying
Funds .................... (38,828,617) 2,728,681
------------ ------------
Net increase (decrease) in
net assets resulting
from operations ....... (41,186,678) 17,696,108
------------ ------------
Distributions to shareholders
from:
Net investment income and
short term gains received
from Underlying Funds:
Class A .................. (95,905) (2,720,323)
Class C .................. (35,954) (498,075)
Class R .................. (626) (14,529)
Advisor Class ............ (1,077) (41,571)
Net realized gains:
Class A .................. (4,521,662) (6,969,461)
Class C .................. (1,693,920) (2,547,116)
Class R .................. (29,595) (45,646)
Advisor Class ............ (50,944) (76,998)
------------ ------------
Total distributions to
shareholders ................ (6,429,683) (12,913,719)
------------ ------------
Capital share transactions:
(Note 2)
Class A .................. 5,660,395 35,125,183
Class C .................. 1,254,576 14,529,010
Class R .................. 111,761 (143,982)
Advisor Class ............ 2,701 852,484
------------ ------------
Total capital share
transactions................. 7,029,433 50,362,695
------------ ------------
Redemption fees ................ 113 509
------------ ------------
Net increase (decrease) in
net assets ............ (40,586,815) 55,145,593
Net assets:
Beginning of period ............ 317,286,701 262,141,108
------------ ------------
End of period .................. $276,699,886 $317,286,701
============ ============
Undistributed net investment income
(loss) included in net assets:
End of period .................. $ (960,451) $ 131,201
============ ============
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 47
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 (the Underlying Funds). The classes of shares offered within each
of the funds are indicated below. Each class of shares differs by its initial
sales load, contingent deferred sales charges, distribution fees, voting rights
on matters affecting a single class and its exchange privilege.
CLASS A, CLASS B, CLASS C, CLASS R & ADVISOR CLASS CLASS A, CLASS C, CLASS R & ADVISOR CLASS
- -------------------------------------------------- -----------------------------------------
Franklin Templeton Corefolio Allocation Fund Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Net asset value per share is calculated as of the close of trading of the NYSE.
Investments in the Underlying Funds are valued at their closing net asset value
each trading day.
B. INCOME TAXES
No provision has been made for U.S. income taxes because 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.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of June 30, 2008, and have
determined that no provision for income tax is required in the Funds' financial
statements.
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.
48 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in 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.
Semiannual Report | 49
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2008, 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:
Six months ended June 30, 2008 Shares sold ........ 2,483,381 $ 32,365,466 63,977,786 $ 799,382,044
Shares issued in reinvestment of distributions .... 825,551 9,939,521 17,389,511 202,230,966
Shares redeemed ................................... (3,974,205) (51,676,507) (109,246,861) (1,359,957,651)
---------- ------------ ------------ ---------------
Net increase (decrease) ........................... (665,273) $ (9,371,520) (27,879,564) $ (358,344,641)
========== ============ ============ ===============
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
========== ============ ============ ===============
CLASS B SHARES:
Six months ended June 30, 2008 Shares sold ........ 49,960 $ 642,425 447,046 $ 5,543,872
Shares issued in reinvestment of distributions .... 118,614 1,416,255 1,203,698 13,926,882
Shares redeemed ................................... (486,435) (6,248,292) (5,339,051) (66,116,264)
---------- ------------ ------------ ---------------
Net increase (decrease) ........................... (317,861) $ (4,189,612) (3,688,307) $ (46,645,510)
========== ============ ============ ===============
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)
========== ============ ============ ===============
CLASS C SHARES:
Six months ended June 30, 2008 Shares sold ........ 884,110 $ 11,359,310 27,980,854 $ 343,243,782
Shares issued in reinvestment of distributions .... 304,378 3,622,089 8,578,178 97,962,852
Shares redeemed ................................... (1,268,740) (16,230,235) (58,463,100) (714,910,406)
---------- ------------ ------------ ---------------
Net increase (decrease) ........................... (80,252) $ (1,248,836) (21,904,068) $ (273,703,772)
========== ============ ============ ===============
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
========== ============ ============ ===============
50 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ------------ ---------------
CLASS R SHARES:
Six months ended June 30, 2008
Shares sold ....................................... 12,443 $ 161,915 204,536 $ 2,566,005
Shares issued in reinvestment of distributions ... 4,521 54,341 51,041 592,467
Shares redeemed ................................... (34,935) (447,854) (470,958) (5,830,294)
---------- ------------ ------------ ---------------
Net increase (decrease) ........................... (17,971) $ (231,598) (215,381) $ (2,671,822)
========== ============ ============ ===============
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
========== ============ ============ ===============
ADVISOR CLASS SHARES:
Six months ended June 30, 2008
Shares sold ....................................... 3,730 $ 48,303 598,738 $ 7,537,443
Shares issued in reinvestment of distributions ... 4,660 56,279 71,667 839,210
Shares redeemed ................................... (40,003) (522,271) (696,966) (8,818,310)
---------- ------------ ------------ ---------------
Net increase (decrease) ........................... (31,613) $ (417,689) (26,561) $ (441,657)
========== ============ ============ ===============
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
========== ============ ============ ===============
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
----------------------------
SHARES AMOUNT
----------- --------------
CLASS A SHARES:
Six months ended June 30, 2008
Shares sold ...................................... 1,953,434 $ 23,308,536
Shares issued in reinvestment of distributions ... 410,697 4,492,919
Shares redeemed .................................. (1,864,323) (22,141,060)
---------- -----------
Net increase (decrease) .......................... 499,808 $ 5,660,395
========== ============
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
========== ============
Semiannual Report | 51
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
----------------------------
SHARES AMOUNT
----------- --------------
CLASS C SHARES:
Six months ended June 30, 2008
Shares sold ...................................... 779,925 $ 9,357,968
Shares issued in reinvestment of distributions ... 148,786 1,612,866
Shares redeemed .................................. (825,829) (9,716,258)
---------- ------------
Net increase (decrease) .......................... 102,882 $ 1,254,576
========== ============
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
========== ============
CLASS R SHARES:
Six months ended June 30, 2008
Shares sold ...................................... 11,329 $ 134,289
Shares issued in reinvestment of distributions ... 2,765 30,220
Shares redeemed .................................. (4,346) (52,748)
---------- ------------
Net increase (decrease) .......................... 9,748 $ 111,761
========== ============
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)
========== ============
ADVISOR CLASS SHARES:
Six months ended June 30, 2008
Shares sold ...................................... 17,352 $ 209,393
Shares issued in reinvestment of distributions ... 4,098 45,035
Shares redeemed .................................. (20,654) (251,727)
---------- ------------
Net increase (decrease) .......................... 796 $ 2,701
========== ============
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
========== ============
52 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of 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 Transfer agent
Services)
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 period:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------ ------------------ ------------------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers................... $181,707 $4,241,161 $ 5,727
Contingent deferred sales charges retained....... $ 72,504 $1,299,002 $115,622
Semiannual Report | 53
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. TRANSFER AGENT FEES
For the period ended June 30, 2008, 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.............................. $409,731 $4,593,957 $213,386
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
At June 30, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------ ------------------ ------------------
Cost of investments.............................. $609,773,742 $14,976,148,366 $292,474,299
============ =============== ============
Unrealized appreciation.......................... $ 44,462,943 $ -- $ 11,493,286
Unrealized depreciation.......................... (19,305,031) (1,591,362,107) (26,779,637)
------------ --------------- ------------
Net unrealized appreciation (depreciation)....... $ 25,157,912 $(1,591,362,107) $(15,286,351)
============ =============== ============
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 wash sales and short term capital gain
distributions from Underlying Funds.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended June 30, 2008, were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------ ------------------ ------------------
Purchases........................................ $ 6,253,144 $ 170,179,608 $15,797,772
Sales............................................ $38,462,585 $1,050,535,106 $15,479,302
54 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Franklin
Advisers, Inc., (Advisers), an affiliate of FT Services, or by an affiliate of
Advisers. The Funds do not invest in the Underlying Funds for the purpose of
exercising management or control. At June 30, 2008, the Funds held the following
positions which exceed 5% of the Underlying Funds' shares outstanding:
NAME OF ISSUER % OF SHARES HELD
- -------------- ----------------
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
Franklin Capital Growth Fund..................... 11.85%
Franklin Growth Fund............................. 6.16%
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund, Class Z...................... 20.97%
Templeton Growth Fund Inc........................ 15.41%
Franklin Income Fund Inc......................... 7.96%
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. FAIR VALUE MEASUREMENTS
The Funds adopted Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The Funds have determined
that the implementation of SFAS 157 did not have a material impact on the Funds'
financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Trust's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Funds' investments and are summarized in the following fair
value hierarchy:
- - Level 1 - quoted prices in active markets for identical securities
- - Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speed, credit risk, etc.)
- - Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
Semiannual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. FAIR VALUE MEASUREMENTS (CONTINUED)
As of June 30, 2008, all of the Funds' investments in securities carried at fair
value were in Level 1 inputs.
56 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 25, 2008, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series (Fund(s)). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of
Semiannual Report | 57
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
net asset value calculations. The Board also noted the extent of benefits
provided Fund shareholders from being part of the Franklin Templeton family of
funds, including the right to exchange investments between the same class of
funds without a sales charge, the ability to reinvest Fund dividends into other
funds and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted that such systems and
procedures had functioned smoothly during the Florida hurricanes and blackouts
experienced in recent years. Among other factors taken into account by the Board
were the Manager's best execution trading policies, including a favorable report
by an independent portfolio trading analytical firm. Consideration was also
given to the experience of each Fund's portfolio management team, the number of
accounts managed and general method of compensation. In this latter respect, the
Board noted that a primary factor in management's determination of a portfolio
manager's bonus compensation was the relative investment performance of the
funds he or she managed and that a portion of such bonus was required to be
invested in a predesignated list of funds within such person's fund management
area so as to be aligned with the interests of Fund shareholders. The Board also
took into account the quality of transfer agent and shareholder services
provided Fund shareholders by an affiliate of the Manager, noting continuing
expenditures by management to increase and improve the scope of such services,
periodic favorable reports on such service conducted by third parties, the high
industry ranking given to the Franklin Templeton website, and the firsthand
experience of individual Board members who deal with the shareholder services
department in their capacities as shareholders in one or more of the various
Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
the investment performance of Class A shares, in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
the one-year period ended December 31, 2007, and for additional periods ended
that date depending on when a particular Fund commenced operations. The
following summarizes the performance results for each of the Funds and the
Board's view of such performance.
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND - The performance universe for this
Fund consisted of the Fund and all retail and institutional multi-cap core funds
as selected by Lipper. The Fund had been in operation for four full years at the
date of the Lipper report, which showed its income return for the one-year
period as well as for the previous two-, three- and four-year periods on an
annualized basis to be in each case in the second-highest quintile of such
universe. The Lipper report showed the Fund's total return for the one-year
period to be in the second-lowest quintile of such performance universe, and on
an annualized basis for the previous two-, three- and four-year periods to be in
the middle quintile of such universe. The Board believed such performance to be
acceptable.
58 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional multi-cap core
funds as selected by Lipper. This Fund had been in operation for four full years
at the date of the Lipper report, which showed its income return for the
one-year period as well as the previous two-, three- and four-year periods on an
annualized basis to be in the highest quintile of such universe. The Lipper
report showed the Fund's total return for the one-year period to be in the
second-lowest quintile of such performance universe, and on an annualized basis
for the previous two-, three- and four-year periods to be in the middle quintile
of such universe. The Board believed such performance to be acceptable.
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional multi-cap core
funds as selected by Lipper. The Fund had been in operation for only three full
years at the date of the Lipper report, which showed its income return to be in
the second-highest quintile of such universe for the one-year period as well as
the previous two years on an annualized basis. The Lipper report showed its
total return to be in the middle quintile for the one-year period and the
second-highest quintile of such universe for the previous two- and three-year
periods on an annualized basis. The Board was satisfied with such performance.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund compared with those of a group of retail front-end
load fund of funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparisons, the Board relied upon a survey showing that
the scope of management services covered under a Fund's investment management
agreement was similar to those provided by fund managers to other mutual fund
groups. In reviewing comparative costs, emphasis was given to each Fund's
contractual investment management fee in comparison with the contractual
investment management fee that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expenses of the Fund including expenses of the underlying funds
they invest in. The Board noted that for Franklin Templeton Corefolio Allocation
Fund, Franklin Templeton Founding Funds Allocation Fund, and Franklin Templeton
Perspectives Allocation Fund there is no investment advisory contract or
investment advisory fee, but only an administration agreement with FT Services,
LLC. The Lipper contractual investment management fee analysis includes the
advisory and administrative fees directly charged to each Fund as being part of
the contractual investment management fee, with the investment management fees
charged underlying funds being included within actual total expenses.
Contractual investment management fees and total expenses for comparative
consistency are shown by Lipper for Fund Class A shares. The Lipper expense
reports noted in the case of each Fund that expenses had been subsidized by
management fee waivers and reimbursements. In the case of each of Franklin
Templeton Corefolio Allocation Fund and Franklin Templeton Perspectives
Allocation Fund, the Lipper report showed their respective contractual
management fee rate and actual total expense ratios to be below the median of
their expense groups. The Lipper report for Franklin Templeton Founding Funds
Allocation Fund showed
Semiannual Report | 59
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
its contractual management fee rate to be above the median of its Lipper expense
group, but its actual total expense ratio to be below the median of such expense
group. The Board believed the expenses of each Fund were acceptable taking into
account the fee waivers and expense reimbursements applicable to each of them.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each Fund. Specific attention was given to the methodology followed in
allocating costs to each Fund, it being recognized that allocation methodologies
are inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the allocation methodology was consistent with that
followed in profitability report presentations for the Funds made in prior years
and that the Funds' independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Funds' Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to each Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Funds, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005 when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of "soft" commission
dollars to pay for research. Based upon its consideration of all these factors,
the Board determined that the level of profits realized by the Manager and its
affiliates from providing services to each Fund was not excessive in view of the
nature, quality and extent of services provided.
60 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Managers as the Funds grow larger and the extent to which this
is reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Managers realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. The fees charged all the underlying funds in which
the Funds may invest provide for management fee breakpoints. Consequently, to
the extent economies of scale may be realized by the investment managers of
these funds, the schedule of fees under their investment management agreements
provides a sharing of benefits with a Fund and its shareholders.
PROXY VOTING POLICIES AND PROCEDURES
The Trust's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Trust uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Trust's complete
Policies online at franklintempleton.com. Alternatively, shareholders may
request copies of the Policies free of charge by calling the Proxy Group collect
at 1-954/527-7678 or by sending a written request to: Franklin Templeton
Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
Securities and Exchange Commission's website at sec.gov and reflect the most
recent 12-month period ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Semiannual Report | 61
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(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway
San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. See
inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FAS2 S2008 08/08
[PICTURE] JUNE 30, 2008
Franklin Templeton
2015 Retirement Target Fund
Franklin Templeton
2025 Retirement Target Fund
Franklin Templeton
2035 Retirement Target Fund
Franklin Templeton
2045 Retirement Target Fund
SEMIANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
FRANKLIN TEMPLETON Want to receive
FUND ALLOCATOR SERIES this document
FASTER via email?
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
[FRANKLIN TEMPLETON INVESTMENTS LOGO]
Franklin - Templeton - Mutual Series
Semiannual Report
Economic and Market Overview
During the first half of 2008, the U.S. economy grew marginally as energy
prices rose, housing prices declined, the labor situation and consumer
demand softened, and a credit crisis originally related to U.S. subprime
loan losses spread globally. A weaker U.S. dollar compared with most
foreign currencies contributed to increased export demand, which helped the
fragile economy. Also supporting the economy were inventory buildup,
expanding government spending and a boost to household finances from a $168
billion government stimulus package. Many economists agreed, however, that
the slowing U.S. economy -- which is the world's largest and accounts for
roughly 25% of global gross domestic product -- could have a meaningfully
negative impact on growth prospects around the world. (1) Nevertheless,
growth remained relatively strong in developing economies, particularly in
Asia ex-Japan where China-led demand continued to impact commodities'
prices and related equities.
In the six months under review, prices increased significantly for oil,
natural gas, and most agricultural and industrial commodities, as well as
precious metals, adding to global inflationary pressures. For the 12 months
ended June 30, 2008, the core U.S. Consumer Price Index (CPI), which
excludes food and energy costs, rose 2.4%, which was higher than its
10-year average rate. (2) Many of the world's monetary authorities faced
the choice between lowering short-term interest rates to stimulate growth
and raising them to fight inflation, which Merrill Lynch estimated at 5.5%
globally, up from 3.5% at the beginning of 2008. The U.S. focused on
reigniting its economy through fiscal and monetary policies, but the
eurozone made controlling inflation its main goal. Accordingly, while the
U.S. Federal Reserve Board (Fed) eased rates aggressively down to 2.00%
from 4.25%, the European Central Bank maintained rates at 4.00%. Interest
rate differentials pressured the U.S. dollar, particularly in the first
quarter, but the greenback regained ground as the Fed paused and implied
that its next move could be a rate hike. Indicators also signaled growth
was slowing outside the U.S. For the period, however, the U.S. dollar
declined versus many of the world's currencies, and the dollar's weakness
contributed to higher commodities' prices, as most of these prices are set
in U.S. dollars.
1. Source: Global Insight.
2. Source: Bureau of Labor Statistics.
Semiannual Report | 3
Against this challenging economic backdrop, investors remained cautious and
continued risk reassessments in the stock, bond and credit markets. Many
global and U.S. equity markets were volatile, and a majority of them
declined over the reporting period. In this uncertain environment, U.S.
Treasury prices fluctuated, and the 10-year Treasury note yield fell from
4.04% at the beginning of the period to 3.99% on June 30, 2008. Despite
negative economic data and an outlook for decelerating corporate earnings
and profit margins globally, many companies' balance sheets remained
relatively strong.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF JUNE 30,
2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY
MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM
SOURCES CONSIDERED RELIABLE.
4 | Semiannual Report
Franklin Templeton
2015 Retirement Target Fund
YOUR FUND'S 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), within 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 6/30/08
[PIE CHART]
Domestic Equity 44.2%
Foreign Equity 19.3%
Domestic Fixed Income 19.3%
Foreign Fixed Income 9.4%
Short-Term Investments & Other Net Assets 7.8%
* 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 semiannual report for Franklin Templeton 2015 Retirement Target Fund covers
the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2015 Retirement Target Fund - Class A had a -6.62% cumulative
total return for the six months ended June 30, 2008. By comparison the Fund's
benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital
International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities,
the Lehman Brothers (LB) U.S. Aggregate Index for
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 41.
Semiannual Report | 5
fixed income, and the Payden & Rygel (P&R) 90 Day U.S. Treasury Bill Index for
short-term investments and other net assets, had total returns of -11.91%,
- -10.58%, +1.13% and +1.23%, respectively, during the same time. (1) You can find
other performance data in the Performance Summary beginning on page 8.
TOP 10 FUND HOLDINGS
Franklin Templeton
2015 Retirement Target Fund
6/30/08
% OF TOTAL
NET ASSETS
----------
Mutual Shares Fund
- - Class Z 12.7%
Franklin Flex Cap Growth Fund
- - A dvisor Class 12.2%
Franklin U.S. Government Securities Fund
- - Advisor Class 10.0%
Franklin Small Cap Growth Fund
- - Advisor Class 9.8%
Templeton Global Bond Fund
- - Advisor Class 9.4%
Mutual European Fund
- - Class Z 6.8%
Franklin Total Return Fund
- - Advisor Class 6.6%
Templeton Foreign Fund
- - Advisor Class 4.2%
Franklin Natural Resources Fund
- - Advisor Class 4.1%
Templeton China World Fund
- - Advisor Class 3.3%
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. Source: (C) 2008 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. 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.
Source: Payden & Rygel. The P&R 90 Day U.S. Treasury 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 reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
6 | Semiannual Report
At period-end, Franklin Templeton 2015 Retirement Target Fund's domestic equity
exposure was 69.6% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z, at 12.7% of the Fund's total net assets, was our
largest equity fund weighting at period-end. On the fixed income side, domestic
exposure was 67.1% of the Fund's total fixed income weighting, with the balance
in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor
Class was our largest fixed income fund weighting at 10.0% of total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, performed better than the S&P 500. However, 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,
underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S.
Government Securities Fund - Advisor Class and Templeton Global Bond Fund -
Advisor Class outperformed the LB U.S. Aggregate Index. Conversely, Franklin
Total Return Fund - Advisor Class trailed the LB U.S. Aggregate Index.
Thank you for your continued participation in Franklin Templeton 2015 Retirement
Target Fund. We look forward to serving your future investment needs.
[PHOTO OF T. ANTHONY COFFEY]
/s/ T. Anthony Coffey, CFA
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2015 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 7
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- -------------------------------- -------- ---------- -----------
Net Asset Value (NAV) -$ 0.97 $ 10.38 $ 11.35
DISTRIBUTIONS (1/1/08 - 6/30/08)
Dividend Income $ 0.0494
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.2183
CLASS C (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- -------------------------------- -------- ---------- -----------
Net Asset Value (NAV) -$ 0.97 $ 10.31 $ 11.28
DISTRIBUTIONS (1/1/08 - 6/30/08)
Dividend Income $ 0.0226
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.1915
CLASS R (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- -------------------------------- -------- ---------- -----------
Net Asset Value (NAV) -$ 0.96 $ 10.36 $ 11.32
DISTRIBUTIONS (1/1/08 - 6/30/08)
Dividend Income $ 0.0381
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.2070
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- -------------------------------- -------- ---------- -----------
Net Asset Value (NAV) -$ 0.97 $ 10.40 $ 11.37
DISTRIBUTIONS (1/1/08 - 6/30/08)
Dividend Income $ 0.0634
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.2323
8 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008,
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
CLASS A 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- ----------- ---------- ------------------
Cumulative Total Return (2) -6.62% -4.74% +11.38%
Average Annual Total Return (3) -11.97% -10.20% +2.57%
Value of $10,000 Investment (4) $ 8,803 $ 8,980 $ 10,497
Total Annual Operating Expenses (5)
Without Waiver 4.39%
With Waiver 1.26%
CLASS C 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- ----------- ---------- ------------------
Cumulative Total Return (2) -6.90% -5.34% +9.93%
Average Annual Total Return (3) -7.81% -6.25% +5.07%
Value of $10,000 Investment (4) $ 9,219 $ 9,375 $ 10,993
Total Annual Operating Expenses (5)
Without Waiver 5.09%
With Waiver 1.96%
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- ----------- ---------- ------------------
Cumulative Total Return (2) -6.65% -4.97% +10.98%
Average Annual Total Return (3) -6.65% -4.97% +5.60%
Value of $10,000 Investment (4) $ 9,335 $ 9,503 $ 11,098
Total Annual Operating Expenses (5)
Without Waiver 4.59%
With Waiver 1.46%
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- ----------- ---------- ------------------
Cumulative Total Return (2) -6.48% -4.46% +12.09%
Average Annual Total Return (3) -6.48% -4.46% +6.15%
Value of $10,000 Investment (4) $ 9,352 $ 9,554 $ 11,209
Total Annual Operating Expenses (5)
Without Waiver 4.09%
With Waiver 0.96%
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 INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND
TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO
THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES
AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT
EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.97% FOR EACH
CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE
RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL
4/30/09.
Semiannual Report | 9
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE
IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN THE
FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE.
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. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report.
10 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 11
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- ---------------- --------------------------
CLASS A
Actual $ 1,000 $ 933.80 $ 2.45
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.33 $ 2.56
CLASS C
Actual $ 1,000 $ 931.00 $ 5.71
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.95 $ 5.97
CLASS R
Actual $ 1,000 $ 933.50 $ 3.41
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.33 $ 3.57
ADVISOR CLASS
Actual $ 1,000 $ 935.20 $ 1.01
Hypothetical (5% return before expenses) $ 1,000 $ 1,023.82 $ 1.06
* 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: 0.51%; C: 1.19%; R: 0.71%; and Advisor:
0.21%), multiplied by the average account value over the period, multiplied
by 182/366 to reflect the one-half year period.
12 | Semiannual 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), within 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
6/30/08
[PIE CHART]
Domestic Equity 56.4%
Foreign Equity 24.1%
Domestic Fixed Income 9.8%
Foreign Fixed Income 4.8%
Short-Term Investments & Other Net Assets 4.9%
* 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 semiannual report for Franklin Templeton 2025 Retirement Target Fund covers
the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2025 Retirement Target Fund - Class A had a -8.46% cumulative
total return for the six months ended June 30, 2008. By comparison the Fund's
benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital
International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities,
the Lehman Brothers (LB) U.S. Aggregate Index for
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 46.
Semiannual Report | 13
fixed income, and the Payden & Rygel (P&R) 90 Day U.S. Treasury Bill Index for
short-term investments and other net assets, had total returns of -11.91%,
- -10.58%, +1.13% and +1.23%, respectively, during the same time.1 You can find
other performance data in the Performance Summary beginning on page 16.
TOP 10 FUND HOLDINGS
Franklin Templeton
2025 Retirement Target Fund
6/30/08
% OF TOTAL
NET ASSETS
------------
Mutual Shares Fund
- - Class Z 16.4%
Franklin Flex Cap Growth Fund
- - Advisor Class 15.2%
Franklin Small Cap Growth Fund
- - Advisor Class 12.6%
Mutual European Fund
- - Class Z 8.7%
Franklin Natural Resources Fund
- - Advisor Class 5.2%
Templeton Foreign Fund
- - Advisor Class 5.0%
Franklin U.S. Government Securities Fund
- - Advisor Class 4.9%
Templeton Global Bond Fund
- - Advisor Class 4.8%
Franklin Growth Opportunities Fund
- - Advisor Class 4.2%
Templeton China World Fund
- - Advisor Class 4.1%
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. Source: (C) 2008 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. 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.
Source: Payden & Rygel. The P&R 90 Day U.S. Treasury 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 reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
14 | Semiannual Report
At period-end, Franklin Templeton 2025 Retirement Target Fund's domestic equity
exposure was 70.0% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z at 16.4% of the Fund's total net assets was our
largest equity fund weighting at period-end. On the fixed income side, domestic
exposure was 66.8% of the Fund's total fixed income weighting, with the balance
in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor
Class was our largest fixed income fund weighting at 4.9% of total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, performed better than the S&P 500. However, 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,
underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S.
Government Securities Fund - Advisor Class and Templeton Global Bond Fund -
Advisor Class outperformed 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 OF T. ANTHONY COFFEY]
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2025 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 15
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.25 $ 10.20 $ 11.45
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0105
Long-Term Capital Gain $ 0.2704
TOTAL $ 0.2809
CLASS C (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.27 $ 10.13 $ 11.40
DISTRIBUTIONS (1/1/08-6/30/08)
Long-Term Capital Gain $ 0.2704
CLASS R (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.26 $ 10.18 $ 11.44
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0074
Long-Term Capital Gain $ 0.2704
TOTAL $ 0.2778
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.24 $ 10.22 $ 11.46
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0152
Long-Term Capital Gain $ 0.2704
TOTAL $ 0.2856
16 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008,
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
CLASS A 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- -----------------
Cumulative Total Return (2) -8.46% -6.88% +10.36%
Average Annual Total Return (3) -13.73% -12.23% +2.08%
Value of $10,000 Investment (4) $ 8,627 $ 8,777 $ 10,402
Total Annual Operating Expenses (5)
Without Waiver 4.14%
With Waiver 1.29%
CLASS C 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- -----------------
Cumulative Total Return (2) -8.77% -7.53% +9.02%
Average Annual Total Return (3) -9.66% -8.42% +4.62%
Value of $10,000 Investment (4) $ 9,034 $ 9,158 $ 10,902
Total Annual Operating Expenses (5)
Without Waiver 4.84%
With Waiver 1.99%
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- -----------------
Cumulative Total Return (2) -8.58% -7.05% +10.03%
Average Annual Total Return (3) -8.58% -7.05% +5.13%
Value of $10,000 Investment (4) $ 9,142 $ 9,295 $ 11,003
Total Annual Operating Expenses (5)
Without Waiver 4.34%
With Waiver 1.49%
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- -----------------
Cumulative Total Return (2) -8.32% -6.59% +10.96%
Average Annual Total Return (3) -8.32% -6.59% +5.59%
Value of $10,000 Investment (4) $ 9,168 $ 9,341 $ 11,096
Total Annual Operating Expenses (5)
Without Waiver 3.84%
With Waiver 0.99%
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 INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND
TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO
THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES
AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT
EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 1.00% FOR EACH
CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE
RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL
4/30/09.
Semiannual Report | 17
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE
IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN THE
FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE.
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. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report.
18 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 19
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
Beginning Account Ending Account Expenses Paid During
Value 1/1/08 Value 6/30/08 Period* 1/1/08-6/30/08
----------------- --------------- ------------------------
CLASS A
Actual $ 1,000 $ 915.40 $ 2.33
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.43 $ 2.46
CLASS C
Actual $ 1,000 $ 912.30 $ 5.66
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.95 $ 5.97
CLASS R
Actual $ 1,000 $ 914.20 $ 3.28
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.43 $ 3.47
ADVISOR CLASS
Actual $ 1,000 $ 916.80 $ 0.91
Hypothetical (5% return before expenses) $ 1,000 $ 1,023.92 $ 0.96
* 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: 1.19%; R: 0.69%; and Advisor:
0.19%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
20 | Semiannual 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), within an
increasing emphasis on income as the target date of 2035 approaches.
ASSET ALLOCATION*
Franklin Templeton 2035 Retirement Target Fund
Based on Total Net Assets as of
6/30/08
[PIE CHART]
Domestic Equity 65.3%
Foreign Equity 27.5%
Domestic Fixed Income 3.7%
Foreign Fixed Income 1.8%
Short-Term Investments &
Other Net Assets 1.7%
* 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.
This semiannual report for Franklin Templeton 2035 Retirement Target Fund covers
the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2035 Retirement Target Fund - Class A had a -9.84% cumulative
total return for the six months ended June 30, 2008. By comparison the Fund's
benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital
International (MSCI) Europe, Australasia, Far East
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 51.
Semiannual Report | 21
(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. Treasury Bill Index for
short-term investments and other net assets, had total returns of -11.91%,
- -10.58%, +1.13% and +1.23%, respectively, during the same time. (1) You can find
other performance data in the Performance Summary beginning on page 24.
TOP 10 FUND HOLDINGS
Franklin Templeton
2035 Retirement Target Fund
6/30/08
% OF TOTAL
NET ASSETS
----------
Mutual Shares Fund
- Class Z 19.4%
Franklin Flex Cap Growth Fund
- Advisor Class 17.7%
Franklin Small Cap Growth Fund
- Advisor Class 14.2%
Mutual European Fund
- Class Z 9.9%
Franklin Natural Resources Fund
- Advisor Class 5.9%
Templeton Foreign Fund
- Advisor Class 5.8%
Templeton China World Fund
- Advisor Class 4.7%
Franklin Gold and Precious Metals Fund
- Advisor Class 4.7%
Franklin Growth Opportunities Fund
- Advisor Class 4.6%
Franklin MicroCap Value Fund
- Advisor Class 3.3%
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, fixed income securities, and short-term investments and other net
assets, and by the actual performance of the selected underlying funds. This
allocation shifts every year, in accordance with the retirement date associated
with the portfolio.
1. Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use
of this information. 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.
Source: Payden & Rygel. The P&R 90 Day U.S. Treasury 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 reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
22 | Semiannual Report
At period-end, Franklin Templeton 2035 Retirement Target Fund's domestic equity
exposure was 70.4% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z at 19.4% of the Fund's total net assets, was our
largest equity Fund weighting at period-end. On the fixed income side, domestic
exposure was 68.0% of the Fund's total fixed income weighting, with the balance
in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor
Class was our largest fixed income holding at 1.9% of total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, performed better than the S&P 500. However, 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,
underperformed the MSCI EAFE Index; however, Franklin Gold and Precious Metals
Fund - Advisor Class outperformed the index. On the fixed income side, Franklin
U.S. Government Securities Fund - Advisor Class outperformed the LB U.S.
Aggregate Index.
Thank you for your continued participation in Franklin Templeton 2035 Retirement
Target Fund. We look forward to serving your future investment needs.
[PHOTO OF T. ANTHONY COFFEY]
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2035 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 23
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.46 $ 10.15 $ 11.61
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0023
Long-Term Capital Gain $ 0.3237
TOTAL $ 0.3260
CLASS C (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.49 $ 10.03 $ 11.52
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0023
Long-Term Capital Gain $ 0.3237
TOTAL $ 0.3260
CLASS R (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.48 $ 10.11 $ 11.59
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0023
Long-Term Capital Gain $ 0.3237
TOTAL $ 0.3260
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- --------------------------------- -------- --------- ----------
Net Asset Value (NAV) -$ 1.45 $ 10.19 $ 11.64
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0023
Long-Term Capital Gain $ 0.3237
TOTAL $ 0.3260
24 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008,
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
CLASS A 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- ------------------
Cumulative Total Return (2) -9.84% -8.48% +10.57%
Average Annual Total Return (3) -15.04% -13.75% +2.18%
Value of $10,000 Investment (4) $ 8,496 $ 8,625 $ 10,421
Total Annual Operating Expenses (5)
Without Waiver 6.02%
With Waiver 1.34%
CLASS C 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- ------------------
Cumulative Total Return (2) -10.10% -9.14% +9.03%
Average Annual Total Return (3) -10.97% -10.01% +4.63%
Value of $10,000 Investment (4) $ 8,903 $ 8,999 $ 10,903
Total Annual Operating Expenses (5)
Without Waiver 6.72%
With Waiver 2.04%
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- ------------------
Cumulative Total Return (2) -9.96% -8.69% +10.10%
Average Annual Total Return (3) -9.96% -8.69% +5.16%
Value of $10,000 Investment (4) $ 9,004 $ 9,131 $ 11,010
Total Annual Operating Expenses (5)
Without Waiver 6.22%
With Waiver 1.54%
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/1/06)
- --------------------------------------- --------- --------- ------------------
Cumulative Total Return (2) -9.66% -8.21% +11.25%
Average Annual Total Return (3) -9.66% -8.21% +5.73%
Value of $10,000 Investment (4) $ 9,034 $ 9,179 $ 11,125
Total Annual Operating Expenses (5)
Without Waiver 5.72%
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 INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND
TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO
THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES
AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT
EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 1.04% FOR EACH
CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE
RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL
4/30/09.
Semiannual Report | 25
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE
IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN THE
FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE.
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. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report.
26 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 27
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- --------------- ------------------------
CLASS A
Actual $ 1,000 $ 901.60 $ 2.32
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.43 $ 2.46
CLASS C
Actual $ 1,000 $ 899.00 $ 5.62
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.95 $ 5.97
CLASS R
Actual $ 1,000 $ 900.40 $ 3.26
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.43 $ 3.47
ADVISOR CLASS
Actual $ 1,000 $ 903.40 $ 0.90
Hypothetical (5% return before expenses) $ 1,000 $ 1,023.92 $ 0.96
* 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: 1.19%; R: 0.69%; and Advisor:
0.19%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
28 | Semiannual 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), within an
increasing emphasis on income as the target date of 2045 approaches.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin Templeton 2045 Retirement Target Fund covers
the period ended June 30, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2045 Retirement Target Fund - Class A had a -9.90% cumulative
total return for the six months ended June 30, 2008. 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. Treasury Bill Index for short-term investments and other
net assets, had total returns of -11.91%, -10.58%, +1.13% and +1.23%,
respectively, during the same time. (1) You can find other performance data in
the Performance Summary beginning on page 32.
ASSET ALLOCATION*
Franklin Templeton
2045 Retirement Target Fund
Based on Total Net Assets as of 6/30/08
[BAR CHART]
DOMESTIC EQUITY 69.2%
FOREIGN EQUITY 30.0%
SHORT-TERM INVESTMENTS
& OTHER NET ASSETS 0.8%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
1. Source: (C) 2008 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. 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.
Source: Payden & Rygel. The P&R 90 Day U.S. Treasury 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 reinvestment of any income or
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 56.
Semiannual Report | 29
TOP 10 FUND HOLDINGS
Franklin Templeton
2045 Retirement Target Fund
6/30/08
% OF TOTAL
NET ASSETS
----------
Mutual Shares Fund
- - Class Z 20.1%
Franklin Flex Cap Growth Fund
- - Advisor Class 18.4%
Franklin Small Cap Growth Fund
- - Advisor Class 15.5%
Mutual European Fund
- - Class Z 10.8%
Franklin Natural Resources Fund
- - Advisor Class 6.5%
Templeton Foreign Fund
- - Advisor Class 6.0%
Franklin Growth Opportunities Fund
- - Advisor Class 5.2%
Templeton China World Fund
- - Advisor Class 5.2%
Franklin Gold and Precious Metals Fund
- - Advisor Class 5.1%
Franklin MicroCap Value Fund
- - Advisor Class 3.6%
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, 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 2045 Retirement Target Fund's domestic equity
exposure was 69.8% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on June 30, 2008, we held shares in large-, mid-and
small-capitalization equity funds, representing both growth and value styles.
Mutual Shares Fund - Class Z at 20.1% 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, performed better than the S&P 500. However, 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, underperformed
the MSCI EAFE Index, while Franklin Gold and Precious Metals Fund - Advisor
Class outperformed.
30 | Semiannual Report
Thank you for your continued participation in Franklin Templeton 2045 Retirement
Target Fund. We look forward to serving your future investment needs.
[PHOTO OF T. ANTHONY COFFEY]
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2045 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 31
Performance Summary as of 6/30/08
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- ----------------------------------- -------- ------- --------
Net Asset Value (NAV) -$ 1.51 $ 10.06 $ 11.57
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0031
Long-Term Capital Gain $ 0.3612
TOTAL $ 0.3643
CLASS C (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- ----------------------------------- -------- ------- --------
Net Asset Value (NAV) -$ 1.53 $ 9.95 $ 11.48
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0031
Long-Term Capital Gain $ 0.3612
TOTAL $ 0.3643
CLASS R (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- ----------------------------------- -------- ------- --------
Net Asset Value (NAV) -$ 1.51 $ 10.03 $ 11.54
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0031
Long-Term Capital Gain $ 0.3612
TOTAL $ 0.3643
ADVISOR CLASS (SYMBOL: N/A) CHANGE 6/30/08 12/31/07
- ----------------------------------- -------- ------- --------
Net Asset Value (NAV) -$ 1.49 $ 10.10 $ 11.59
DISTRIBUTIONS (1/1/08-6/30/08)
Dividend Income $ 0.0031
Long-Term Capital Gain $ 0.3612
TOTAL $ 0.3643
32 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. UNTIL AUGUST 31, 2008,
THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
CLASS A 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- --------- -------- ------------------
Cumulative Total Return (2) -9.90% -8.58% +10.89%
Average Annual Total Return (3) -15.11% -13.85% +2.33%
Value of $10,000 Investment (4) $ 8,489 $ 8,615 $ 10,451
Total Annual Operating Expenses (5)
Without Waiver 7.73%
With Waiver 1.34%
CLASS C 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- --------- -------- ------------------
Cumulative Total Return (2) -10.15% -9.22% +9.51%
Average Annual Total Return (3) -11.02% -10.08% +4.86%
Value of $10,000 Investment (4) $ 8,898 $ 8,992 $ 10,951
Total Annual Operating Expenses (5)
Without Waiver 8.43%
With Waiver 2.04%
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- --------- -------- ------------------
Cumulative Total Return (2) -9.93% -8.70% +10.55%
Average Annual Total Return (3) -9.93% -8.70% +5.39%
Value of $10,000 Investment (4) $ 9,007 $ 9,130 $ 11,055
Total Annual Operating Expenses (5)
Without Waiver 7.93%
With Waiver 1.54%
ADVISOR CLASS 6-MONTH 1-YEAR INCEPTION (8/1/06)
- -------------------------------------- --------- -------- ------------------
Cumulative Total Return (2) -9.71% -8.26% +11.62%
Average Annual Total Return (3) -9.71% -8.26% +5.92%
Value of $10,000 Investment (4) $ 9,029 $ 9,174 $ 11,162
Total Annual Operating Expenses (5)
Without Waiver 7.43%
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 INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND
TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO
THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES
AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT
EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 1.04% FOR EACH
CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE
RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS)
UNTIL 4/30/09.
Semiannual Report | 33
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE
AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK
INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN
THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE
HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND
TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE
IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN THE
FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE.
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. Six-month return has not been
annualized.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report.
34 | Semiannual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 35
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/08 VALUE 6/30/08 PERIOD* 1/1/08-6/30/08
----------------- -------------- ------------------------
CLASS A
Actual $ 1,000 $ 901.00 $ 2.22
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.53 $ 2.36
CLASS C
Actual $ 1,000 $ 898.50 $ 5.57
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.00 $ 5.92
CLASS R
Actual $ 1,000 $ 900.70 $ 3.17
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.53 $ 3.37
ADVISOR CLASS
Actual $ 1,000 $ 902.90 $ 0.80
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.02 $ 0.86
* 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: 1.18%; R: 0.67%; and Advisor:
0.17%), multiplied by the average account value over the period,
multiplied by 182/366 to reflect the one-half year period.
36 | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS A (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................................... $ 11.35 $ 10.69 $ 10.00
-------- -------- -------
Income from investment operations (b):
Net investment income (c,d) ................................................ 0.06 0.33 0.13
Net realized and unrealized gains (losses) ................................. (0.81) 0.72 0.73
-------- -------- -------
Total from investment operations ............................................. (0.75) 1.05 0.86
-------- -------- -------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .. (0.05) (0.23) (0.15)
Net realized gains ......................................................... (0.17) (0.16) (0.02)
-------- -------- -------
Total distributions .......................................................... (0.22) (0.39) (0.17)
-------- -------- -------
Redemption fees .............................................................. -- (e) -- (e) --
-------- -------- -------
Net asset value, end of period ............................................... $ 10.38 $ 11.35 $ 10.69
-------- -------- -------
Total return (f) ............................................................. (6.62)% 9.84% 8.59%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ........................ 1.46% 3.60% 12.13%
Expenses net of waiver and payments by affiliates (h) ........................ 0.51% 0.48% 0.50%
Net investment income (d) .................................................... 1.06% 3.11% 2.92%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................ $ 9,123 $ 5,269 $ 1,364
Portfolio turnover rate ...................................................... 0.52% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying Funds
was 0.76% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS C (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................................... $ 11.28 $ 10.67 $ 10.00
-------- -------- -------
Income from investment operations (b):
Net investment income (c,d) ................................................ 0.02 0.36 0.14
Net realized and unrealized gains (losses) ................................. (0.80) 0.60 0.69
-------- -------- -------
Total from investment operations ............................................. (0.78) 0.96 0.83
-------- -------- -------
Less distributions from:
Net investment income and short term gains received from Underlying Funds .. (0.02) (0.19) (0.14)
Net realized gains ......................................................... (0.17) (0.16) (0.02)
-------- -------- -------
Total distributions .......................................................... (0.19) (0.35) (0.16)
-------- -------- -------
Redemption fees .............................................................. -- (e) -- (e) --
-------- -------- -------
Net asset value, end of period ............................................... $ 10.31 $ 11.28 $ 10.67
-------- -------- -------
Total return (f) ............................................................. (6.90)% 9.02% 8.30%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ........................ 2.14% 4.28% 12.78%
Expenses net of waiver and payments by affiliates (h) ........................ 1.19% 1.16% 1.15%
Net investment income (d) .................................................... 0.38% 2.43% 2.27%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................ $ 6,660 $ 2,213 $ 63
Portfolio turnover rate ...................................................... 0.52% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying Funds
was 0.76% for the period ended June 30, 2008.
38 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS R (UNAUDITED) 2007 2006 (a)
---------------- ------------ ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.32 $ 10.68 $ 10.00
---------------- ------------ ---------
Income from investment operations (b):
Net investment income (c,d) ............................ 0.05 0.34 0.11
Net realized and unrealized gains (losses) ............. (0.80) 0.68 0.74
---------------- ------------ ---------
Total from investment operations .......................... (0.75) 1.02 0.85
---------------- ------------ ---------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ....................................... (0.04) (0.22) (0.15)
Net realized gains ..................................... (0.17) (0.16) (0.02)
---------------- ------------ ---------
Total distributions ....................................... (0.21) (0.38) (0.17)
---------------- ------------ ---------
Redemption fees ........................................... -- (e) -- (e) --
---------------- ------------ ---------
Net asset value, end of period ............................ $ 10.36 $ 11.32 $ 10.68
---------------- ------------ ---------
Total return (f) .......................................... (6.65)% 9.59% 8.48%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 1.66% 3.78% 12.28%
Expenses net of waiver and payments by affiliates (h) ..... 0.71% 0.66% 0.65%
Net investment income (d) ................................. 0.86% 2.93% 2.77%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 1,171 $ 1,071 $ 11
Portfolio turnover rate ................................... 0.52% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.76% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 (A)
---------------- ---------- -----------
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.37 $ 10.70 $ 10.00
---------------- ---------- -----------
Income from investment operations (b):
Net investment income (c,d) ............................ 0.07 0.30 0.17
Net realized and unrealized gains (losses) ............. (0.81) 0.79 0.71
---------------- ---------- -----------
Total from investment operations .......................... (0.74) 1.09 0.88
---------------- ---------- -----------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ....................................... (0.06) (0.26) (0.16)
Net realized gains ..................................... (0.17) (0.16) (0.02)
---------------- ---------- -----------
Total distributions ....................................... (0.23) (0.42) (0.18)
---------------- ---------- -----------
Redemption fees ........................................... -- (e) -- (e) --
---------------- ---------- -----------
Net asset value, end of period ............................ $ 10.40 $ 11.37 $ 10.70
---------------- ---------- -----------
Total return (f) .......................................... (6.48)% 10.21% 8.75%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 1.16% 3.28% 11.78%
Expenses net of waiver and payments by affiliates (h) ..... 0.21% 0.16% 0.15%
Net investment income (d) ................................. 1.36% 3.43% 3.27%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 221 $ 32 $ 20
Portfolio turnover rate ................................... 0.52% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year. gRatios are
annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.76% for the period ended June 30, 2008.
40 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------ --------- -----------
INVESTMENTS IN UNDERLYING FUNDS 92.2% (a)
DOMESTIC EQUITY 44.2%
(b) Franklin Flex Cap Growth Fund, Advisor Class ............................. 46,931 $ 2,098,294
(b) Franklin Growth Opportunities Fund, Advisor Class ........................ 26,288 534,692
Franklin MicroCap Value Fund, Advisor Class .............................. 12,442 386,695
Franklin Natural Resources Fund, Advisor Class ........................... 13,134 707,392
(b) Franklin Small Cap Growth Fund, Advisor Class ............................ 184,035 1,674,720
Mutual Shares Fund, Class Z .............................................. 100,709 2,184,380
-----------
7,586,173
-----------
DOMESTIC FIXED INCOME 19.3%
Franklin Strategic Mortgage Portfolio .................................... 50,760 462,420
Franklin Total Return Fund, Advisor Class ................................ 117,813 1,135,718
Franklin U.S. Government Securities Fund, Advisor Class .................. 265,333 1,714,050
-----------
3,312,188
-----------
FOREIGN EQUITY 19.3%
Franklin Global Real Estate Fund, Advisor Class .......................... 35,270 299,797
Franklin Gold and Precious Metals Fund, Advisor Class .................... 13,426 554,913
Mutual European Fund, Class Z ............................................ 51,284 1,165,183
Templeton China World Fund, Advisor Class ................................ 15,739 571,625
Templeton Foreign Fund, Advisor Class .................................... 68,145 723,017
-----------
3,314,535
-----------
FOREIGN FIXED INCOME 9.4%
Templeton Global Bond Fund, Advisor Class ................................ 143,797 1,623,472
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENT
(COST $16,690,768) ...................................................... 15,836,368
-----------
SHORT TERM INVESTMENT (COST $1,220,394) 7.1%
MONEY MARKET FUND 7.1%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.17% ..... 1,220,394 1,220,394
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $17,911,162) 99.3% ........... 17,056,762
OTHER ASSETS, LESS LIABILITIES 0.7% ...................................... 117,633
-----------
NET ASSETS 100.0% ........................................................ $17,174,395
-----------
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS A (UNAUDITED) 2007 2006 (a)
---------------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.45 $ 10.78 $ 10.00
---------------- ---------- ----------
Income from investment operations (b):
Net investment income (c,d) ............................ 0.02 0.28 0.12
Net realized and unrealized gains (losses) ............. (0.99) 0.82 0.82
---------------- ---------- ----------
Total from investment operations .......................... (0.97) 1.10 0.94
---------------- ---------- ----------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ....................................... (0.01) (0.21) (0.14)
Net realized gains ..................................... (0.27) (0.22) (0.02)
---------------- ---------- ----------
Total distributions ....................................... (0.28) (0.43) (0.16)
---------------- ---------- ----------
Redemption fees ........................................... -- (e) -- (e) -- (e)
---------------- ---------- ----------
Net asset value, end of period ............................ $ 10.20 $ 11.45 $ 10.78
---------------- ---------- ----------
Total return (f) .......................................... (8.46)% 10.19% 9.41%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 1.60% 3.31% 10.76%
Expenses net of waiver and payments by affiliates (h) ..... 0.49% 0.47% 0.50%
Net investment income (d) ................................. 0.40% 2.55% 2.78%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 11,393 $ 6,952 $ 1,699
Portfolio turnover rate ................................... 0.25% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying Funds
was 0.81% for the period ended June 30, 2008.
42 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS C (UNAUDITED) 2007 2006 (a)
---------------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.40 $ 10.77 $ 10.00
---------------- ---------- ----------
Income from investment operations (b):
Net investment income (loss) (c, d) .................... (0.02) 0.28 0.10
Net realized and unrealized gains (losses) ............. (0.98) 0.74 0.82
---------------- ---------- ----------
Total from investment operations .......................... (1.00) 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 ..................................... (0.27) (0.22) (0.02)
---------------- ---------- ----------
Total distributions ....................................... (0.27) (0.39) (0.15)
---------------- ---------- ----------
Redemption fees ........................................... -- (e) -- (e) -- (e)
---------------- ---------- ----------
Net asset value, end of period ............................ $ 10.13 $ 11.40 $ 10.77
---------------- ---------- ----------
Total return (f) .......................................... (8.77)% 9.43% 9.20%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 2.30% 3.99% 11.41%
Expenses net of waiver and payments by affiliates (h) ..... 1.19% 1.15% 1.15%
Net investment income (loss) (d) .......................... (0.30)% 1.87% 2.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 1,968 $ 1,104 $ 54
Portfolio turnover rate ................................... 0.25% 16.28% 5.36%
- ----------
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying Funds
was 0.81% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS R (UNAUDITED) 2007 2006 (a)
---------------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.44 $ 10.77 $ 10.00
---------------- ---------- ----------
Income from investment operations (b):
Net investment income (c,d) ............................ 0.01 0.27 0.11
Net realized and unrealized gains (losses) ............. (0.99) 0.82 0.82
---------------- ---------- ----------
Total from investment operations .......................... (0.98) 1.09 0.93
---------------- ---------- ----------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ....................................... (0.01) (0.20) (0.14)
Net realized gains ..................................... (0.27) (0.22) (0.02)
---------------- ---------- ----------
Total distributions ....................................... (0.28) (0.42) (0.16)
---------------- ---------- ----------
Redemption fees ........................................... -- (e) -- (e) -- (e)
---------------- ---------- ----------
Net asset value, end of period ............................ $ 10.18 $ 11.44 $ 10.77
---------------- ---------- ----------
Total return (f) .......................................... (8.58)% 10.11% 9.31%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 1.80% 3.49% 10.91%
Expenses net of waiver and payments by affiliates (h) ..... 0.69% 0.65% 0.65%
Net investment income (d) ................................. 0.20% 2.37% 2.63%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 240 $ 188 $ 19
Portfolio turnover rate ................................... 0.25% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.81% for the period ended June 30, 2008.
44| The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 (a)
---------------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.46 $ 10.79 $ 10.00
---------------- ---------- ----------
Income from investment operations (b) :
Net investment income (c, d) ........................... 0.04 0.46 0.20
Net realized and unrealized gains (losses) ............. (0.99) 0.67 0.76
---------------- ---------- ----------
Total from investment operations .......................... (0.95) 1.13 0.96
---------------- ---------- ----------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ....................................... (0.02) (0.24) (0.15)
Net realized gains ..................................... (0.27) (0.22) (0.02)
---------------- ---------- ----------
Total distributions ....................................... (0.29) (0.46) (0.17)
---------------- ---------- ----------
Redemption fees ........................................... -- (e) -- (e) -- (e)
---------------- ---------- ----------
Net asset value, end of period ............................ $ 10.22 $ 11.46 $ 10.79
---------------- ---------- ----------
Total return (f) .......................................... (8.32)% 10.46% 9.57%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 1.30% 2.99% 10.41%
Expenses net of waiver and payments by affiliates (h) ..... 0.19% 0.15% 0.15%
Net investment income (d) ................................. 0.70% 2.87% 3.13%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 483 $ 417 $ 51
Portfolio turnover rate ................................... 0.25% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.81% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------ ------- -----------
INVESTMENTS IN UNDERLYING FUNDS 95.1% (a)
DOMESTIC EQUITY 56.4%
(b) Franklin Flex Cap Growth Fund, Advisor Class ............................. 47,951 $ 2,143,872
(b) Franklin Growth Opportunities Fund, Advisor Class ........................ 28,985 589,548
Franklin MicroCap Value Fund, Advisor Class .............................. 12,841 399,090
Franklin Natural Resources Fund, Advisor Class 13,618 733,444
(b) Franklin Small Cap Growth Fund, Advisor Class ............................ 194,795 1,772,634
Mutual Shares Fund, Class Z .............................................. 106,256 2,304,682
-----------
7,943,270
-----------
DOMESTIC FIXED INCOME 9.8%
Franklin Strategic Mortgage Portfolio .................................... 22,756 207,311
Franklin Total Return Fund, Advisor Class ................................ 49,895 480,986
Franklin U.S. Government Securities Fund, Advisor Class .................. 106,681 689,159
-----------
1,377,456
-----------
FOREIGN EQUITY 24.1%
Franklin Global Real Estate Fund, Advisor Class .......................... 36,938 313,970
Franklin Gold and Precious Metals Fund, Advisor Class .................... 13,782 569,629
Mutual European Fund, Class Z ............................................ 54,217 1,231,810
Templeton China World Fund, Advisor Class ................................ 16,070 583,657
Templeton Foreign Fund, Advisor Class .................................... 65,883 699,019
-----------
3,398,085
-----------
FOREIGN FIXED INCOME 4.8%
Templeton Global Bond Fund, Advisor Class ................................ 60,632 684,532
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENT
(COST $14,526,276) ...................................................... 13,403,343
-----------
SHORT TERM INVESTMENT (COST $641,185) 4.6%
MONEY MARKET FUND 4.6%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.17% ..... 641,185 641,185
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $15,167,461) 99.7% ........... 14,044,528
OTHER ASSETS, LESS LIABILITIES 0.3% ...................................... 39,552
-----------
NET ASSETS 100.0% ........................................................ $14,084,080
-----------
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
46 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS A (UNAUDITED) 2007 2006 (a)
---------------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.61 $ 10.88 $ 10.00
---------------- ---------- ----------
Income from investment operations (b):
Net investment income (loss) (c,d) ..................... (0.01) 0.22 0.09
Net realized and unrealized gains (losses) ............. (1.13) 0.97 0.95
---------------- ---------- ----------
Total from investment operations .......................... (1.14) 1.19 1.04
---------------- ---------- ----------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ....................................... -- (e) (0.16) (0.13)
Net realized gains ..................................... (0.32) (0.30) (0.03)
---------------- ---------- ----------
Total distributions ....................................... (0.32) (0.46) (0.16)
---------------- ---------- ----------
Redemption fees ........................................... -- (e) -- (e) --
---------------- ---------- ----------
Net asset value, end of period ............................ $ 10.15 $ 11.61 $ 10.88
---------------- ---------- ----------
Total return (f) .......................................... (9.84)% 11.05% 10.44%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 2.32% 5.16% 13.47%
Expenses net of waiver and payments by affiliates (h) ..... 0.49% 0.48% 0.50%
Net investment income (loss) (d) .......................... (0.20)% 2.07% 2.04%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 5,909 $ 3,760 $ 1,171
Portfolio turnover rate ................................... 2.24% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.85% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS C (UNAUDITED) 2007 2006 (a)
---------------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $ 11.52 $ 10.86 $ 10.00
---------------- ---------- ----------
Income from investment operations (b):
Net investment income (loss) (c, d) .................... (0.05) 0.26 0.12
Net realized and unrealized gains (losses) ............. (1.12) 0.84 0.89
---------------- ---------- ----------
Total from investment operations .......................... (1.17) 1.10 1.01
---------------- ---------- ----------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ....................................... -- (e) (0.14) (0.12)
Net realized gains ..................................... (0.32) (0.30) (0.03)
---------------- ---------- ----------
Total distributions ....................................... (0.32) (0.44) (0.15)
---------------- ---------- ----------
Redemption fees ........................................... -- (e) -- (e) --
---------------- ---------- ----------
Net asset value, end of period ............................ $ 10.03 $ 11.52 $ 10.86
---------------- ---------- ----------
Total return (f) .......................................... (10.10)% 10.12% 10.14%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) ..... 3.02% 5.84% 14.12%
Expenses net of waiver and payments by affiliates (h) ..... 1.19% 1.16% 1.15%
Net investment income (loss) (d) .......................... (0.90)% 1.39% 1.39%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $ 1,452 $ 1,103 $ 57
Portfolio turnover rate ................................... 2.24% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.85% for the period ended June 30, 2008.
48 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS R (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $ 11.59 $ 10.88 $ 10.00
---------------- -------- ----
Income from investment operationsb:
Net investment income (loss) (c,d) .......................................... (0.02) 0.28 0.11
Net realized and unrealized gains (losses) ................................. (1.14) 0.89 0.93
---------------- -------- --------
Total from investment operations ............................................... (1.16) 1.17 1.04
---------------- -------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... -- (e) (0.16) (0.13)
Net realized gains .......................................................... (0.32) (0.30) (0.03)
---------------- -------- --------
Total distributions ............................................................ (0.32) (0.46) (0.16)
---------------- -------- --------
Redemption fees ................................................................ -- (e) -- (e) --
---------------- -------- --------
Net asset value, end of period ................................................. $ 10.11 $ 11.59 $ 10.88
---------------- -------- --------
Total return (f) .............................................................. (9.96)% 10.76% 10.40%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) .......................... 2.52% 5.34% 13.62%
Expenses net of waiver and payments by affiliates (h) .......................... 0.69% 0.66% 0.65%
Net investment income (loss) (d) ............................................... (0.40)% 1.89% 1.89%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $ 355 $ 314 $ 23
Portfolio turnover rate ........................................................ 2.24% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.85% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $ 11.64 $ 10.89 $ 10.00
---------------- -------- --------
Income from investment operations (b):
Net investment income (c,d) ................................................. 0.01 0.20 0.18
Net realized and unrealized gains (losses) ................................. (1.14) 1.04 0.88
---------------- -------- --------
Total from investment operations ............................................... (1.13) 1.24 1.06
---------------- -------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... -- (e) (0.19) (0.14)
Net realized gains .......................................................... (0.32) (0.30) (0.03)
---------------- -------- --------
Total distributions ............................................................ (0.32) (0.49) (0.17)
---------------- -------- --------
Redemption fees ................................................................ -- (e) -- (e) --
---------------- -------- --------
Net asset value, end of period ................................................. $ 10.19 $ 11.64 $ 10.89
---------------- -------- --------
Total return (f) .............................................................. (9.66)% 11.34% 10.60%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) .......................... 2.02% 4.84% 13.12%
Expenses net of waiver and payments by affiliates (h) .......................... 0.19% 0.16% 0.15%
Net investment income (d) ...................................................... 0.10% 2.39% 2.39%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $ 274 $ 119 $ 59
Portfolio turnover rate ........................................................ 2.24% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.85% for the period ended June 30, 2008.
50 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND SHARES VALUE
---------------------------------------------- -------- -----------
INVESTMENTS IN UNDERLYING FUNDS 98.3% (a)
DOMESTIC EQUITY 65.3%
(b) Franklin Flex Cap Growth Fund, Advisor Class ............................ 31,692 $ 1,416,964
(b) Franklin Growth Opportunities Fund, Advisor Class ....................... 18,203 370,240
Franklin MicroCap Value Fund, Advisor Class ............................. 8,529 265,079
Franklin Natural Resources Fund, Advisor Class .......................... 8,771 472,421
(b) Franklin Small Cap Growth Fund, Advisor Class ........................... 125,120 1,138,593
Mutual Shares Fund, Class Z ............................................. 71,617 1,553,368
-----------
5,216,665
-----------
DOMESTIC FIXED INCOME 3.7%
Franklin Strategic Mortgage Portfolio ................................... 5,107 46,526
Franklin Total Return Fund, Advisor Class ............................... 10,451 100,745
Franklin U.S. Government Securities Fund, Advisor Class ................. 23,166 149,650
-----------
296,921
-----------
FOREIGN EQUITY 27.5%
Franklin Global Real Estate Fund, Advisor Class ......................... 22,726 193,172
Franklin Gold and Precious Metals Fund, Advisor Class ................... 9,101 376,158
Mutual European Fund, Class Z ........................................... 34,801 790,682
Templeton China World Fund, Advisor Class ............................... 10,357 376,167
Templeton Foreign Fund, Advisor Class ................................... 43,572 462,296
-----------
2,198,475
-----------
FOREIGN FIXED INCOME 1.8%
Templeton Global Bond Fund, Advisor Class ............................... 12,367 139,629
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENT
(COST $8,531,613) .................................................... 7,851,690
-----------
SHORT TERM INVESTMENT (COST $64,068) 0.8%
MONEY MARKET FUND 0.8%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.17% .... 64,068 64,068
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $8,595,681) 99.1% ........... 7,915,758
OTHER ASSETS, LESS LIABILITIES 0.9% .................................... 74,386
-----------
NET ASSETS 100.0% ....................................................... $ 7,990,144
-----------
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS A (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $ 11.57 $ 10.89 $ 10.00
---------------- -------- --------
Income from investment operations (b):
Net investment income (loss) (c,d) .......................................... (0.02) 0.17 0.08
Net realized and unrealized gains (losses) ................................. (1.13) 1.06 0.97
---------------- -------- --------
Total from investment operations ............................................... (1.15) 1.23 1.05
---------------- -------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... -- (e) (0.16) (0.13)
Net realized gains .......................................................... (0.36) (0.39) (0.03)
---------------- -------- --------
Total distributions ............................................................ (0.36) (0.55) (0.16)
---------------- -------- --------
Redemption fees ................................................................ -- (e) -- (e) --
---------------- -------- --------
Net asset value, end of period ................................................. $ 10.06 $ 11.57 $ 10.89
---------------- -------- --------
Total return (f) ............................................................... (9.90)% 11.32% 10.55%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) .......................... 3.31% 6.86% 13.15%
Expenses net of waiver and payments by affiliates (h) .......................... 0.47% 0.47% 0.50%
Net investment income (loss) (d) ............................................... (0.38)% 1.70% 1.97%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $ 3,448 $ 2,439 $ 1,169
Portfolio turnover rate ........................................................ 1.04% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year. gRatios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.87% for the period ended June 30, 2008.
52 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS C (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $ 11.48 $ 10.87 $ 10.00
---------------- -------- --------
Income from investment operations (b):
Net investment income (loss) (c,d) .......................................... (0.06) 0.23 0.16
Net realized and unrealized gains (losses) ................................. (1.11) 0.91 0.87
---------------- -------- --------
Total from investment operations ............................................... (1.17) 1.14 1.03
---------------- -------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... -- (e) (0.14) (0.13)
Net realized gains .......................................................... (0.36) (0.39) (0.03)
---------------- -------- --------
Total distributions ............................................................ (0.36) (0.53) (0.16)
---------------- -------- --------
Redemption fees ................................................................ -- (e) -- (e) --
---------------- -------- --------
Net asset value, end of period ................................................. $ 9.95 $ 11.48 $ 10.87
---------------- -------- --------
Total return (f)................................................................ (10.15)% 10.50% 10.30%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) .......................... 4.02% 7.55% 13.74%
Expenses net of waiver and payments by affiliates (h) .......................... 1.18% 1.16% 1.09%
Net investment income (loss) (d) ............................................... (1.09)% 1.01% 1.38%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $ 764 $ 487 $ 67
Portfolio turnover rate ........................................................ 1.04% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.87% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 53
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
CLASS R (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $ 11.54 $ 10.88 $ 10.00
---------------- -------- --------
Income from investment operations (b):
Net investment income (loss) (c,d) .......................................... (0.03) 0.24 0.08
Net realized and unrealized gains (losses) .................................. (1.12) 0.97 0.96
---------------- -------- --------
Total from investment operations ............................................... (1.15) 1.21 1.04
---------------- -------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... -- (e) (0.16) (0.13)
Net realized gains .......................................................... (0.36) (0.39) (0.03)
---------------- -------- --------
Total distributions ............................................................ (0.36) (0.55) (0.16)
---------------- -------- --------
Redemption fees ................................................................ -- (e) -- (e)
---------------- -------- --------
Net asset value, end of period ................................................. $ 10.03 $ 11.54 $ 10.88
---------------- -------- --------
Total return (f) ............................................................... (9.93)% 11.13% 10.44%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) .......................... 3.51% 7.04% 13.30%
Expenses net of waiver and payments by affiliates (h) .......................... 0.67% 0.65% 0.65%
Net investment income (loss) (d) ............................................... (0.58)% 1.52% 1.82%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $ 303 $ 160 $ 12
Portfolio turnover rate ........................................................ 1.04% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.87% for the period ended June 30, 2008.
54 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008 DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2007 2006 (a)
---------------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $ 11.59 $ 10.90 $ 10.00
---------------- -------- --------
Income from investment operations (b):
Net investment income (loss) (c,d) .......................................... -- (e) 0.49 0.12
Net realized and unrealized gains (losses) .................................. (1.13) 0.78 0.95
---------------- -------- --------
Total from investment operations ............................................... (1.13) 1.27 1.07
---------------- -------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... -- (e) (0.19) (0.14)
Net realized gains .......................................................... (0.36) (0.39) (0.03)
---------------- -------- --------
Total distributions ............................................................ (0.36) (0.58) (0.17)
---------------- -------- --------
Redemption fees ................................................................ -- (e) -- (e) --
---------------- -------- --------
Net asset value, end of period ................................................. $ 10.10 $ 11.59 $ 10.90
---------------- -------- --------
Total return (f) ............................................................... (9.71)% 11.65% 10.72%
RATIOS TO AVERAGE NET ASSETS (g)
Expenses before waiver and payments by affiliates (h) .......................... 3.01% 6.54% 12.80%
Expenses net of waiver and payments by affiliates (h) .......................... 0.17% 0.15% 0.15%
Net investment income (loss) (d) ............................................... (0.08)% 2.02% 2.32%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $ 189 $ 164 $ 17
Portfolio turnover rate ........................................................ 1.04% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31,
2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying Funds
was 0.87% for the period ended June 30, 2008.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 55
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, JUNE 30, 2008 (UNAUDITED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND SHARES VALUE
- -------------------------------------------------- -------- -----------
INVESTMENTS IN UNDERLYING FUNDS 99.2% (a)
DOMESTIC EQUITY 69.2%
(b) Franklin Flex Cap Growth Fund, Advisor Class ............................ 19,329 $ 864,191
(b) Franklin Growth Opportunities Fund, Advisor Class ....................... 12,071 245,520
Franklin MicroCap Value Fund, Advisor Class ............................. 5,453 169,464
Franklin Natural Resources Fund, Advisor Class .......................... 5,676 305,733
(b) Franklin Small Cap Growth Fund, Advisor Class ........................... 80,100 728,909
Mutual Shares Fund, Class Z ............................................. 43,517 943,886
-----------
3,257,703
-----------
FOREIGN EQUITY 30.0%
Franklin Global Real Estate Fund, Advisor Class ......................... 15,917 135,290
Franklin Gold and Precious Metals Fund, Advisor Class ................... 5,853 241,887
Mutual European Fund, Class Z ........................................... 22,332 507,382
Templeton China World Fund, Advisor Class ............................... 6,732 244,523
Templeton Foreign Fund, Advisor Class ................................... 26,453 280,668
-----------
1,409,750
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENT
(COST $5,044,311) ..................................................... 4,667,453
-----------
SHORT TERM INVESTMENT (COST $22,697) 0.5%
MONEY MARKET FUND 0.5%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 2.17% .... 22,697 22,697
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $5,067,008) 99.7% .......... 4,690,150
OTHER ASSETS, LESS LIABILITIES 0.3% ..................................... 14,317
-----------
NET ASSETS 100.0% ...................................................... $ 4,704,467
-----------
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended June 30, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
56 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2008 (unaudited)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------ ------------------ ------------------ ------------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ...................................... $ 17,911,162 $ 15,167,461 $ 8,595,681 $ 5,067,008
------------------ ------------------ ------------------ ------------------
Value ..................................... $ 17,056,762 $ 14,044,528 $ 7,915,758 $ 4,690,150
Receivables:
Capital shares sold ....................... 152,198 55,963 91,185 32,323
Affiliates ................................ 32,639 41,799 47,488 47,249
------------------ ------------------ ------------------ ------------------
Total assets ........................... 17,241,599 14,142,290 8,054,431 4,769,722
------------------ ------------------ ------------------ ------------------
Liabilities:
Payables:
Capital shares redeemed ................... 6,191 3,532 3,471 3,501
Distributions to shareholders ............. 38,630 29,365 37,061 41,592
Reports to shareholders ................... 4,230 4,849 4,119 4,094
Professional fees ......................... 15,823 15,291 15,425 15,489
Accrued expenses and other liabilities ...... 2,330 5,173 4,211 579
------------------ ------------------ ------------------ ------------------
Total liabilities ...................... 67,204 58,210 64,287 65,225
------------------ ------------------ ------------------ ------------------
Net assets, at value ................. $ 17,174,395 $ 14,084,080 $ 7,990,144 $ 4,704,467
------------------ ------------------ ------------------ ------------------
Net assets consist of:
Paid-in capital ............................. $ 18,031,987 $ 15,219,972 $ 8,718,714 $ 5,109,149
Undistributed net investment income (loss)... 722 11,678 (11,395) (9,722)
Net unrealized appreciation (depreciation)... (854,400) (1,122,933) (679,923) (376,858)
Accumulated net realized gain (loss) ........ (3,914) (24,637) (37,252) (18,102)
------------------ ------------------ ------------------ ------------------
Net assets, at value ................. $ 17,174,395 $ 14,084,080 $ 7,990,144 $ 4,704,467
------------------ ------------------ ------------------ ------------------
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 57
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2008 (unaudited)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------ ------------------ ------------------ ------------------
CLASS A:
Net assets, at value ........................ $ 9,122,783 $ 11,393,410 $ 5,909,068 $ 3,448,020
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 878,681 1,116,729 582,015 342,592
------------------ ------------------ ------------------ ------------------
Net asset value per share (a) ............... $ 10.38 $ 10.20 $ 10.15 $ 10.06
------------------ ------------------ ------------------ ------------------
Maximum offering price per share
(net asset value per share / 94.25%) ...... $ 11.01 $ 10.82 $ 10.77 $ 10.67
------------------ ------------------ ------------------ ------------------
CLASS C:
Net assets, at value ........................ $ 6,660,241 $ 1,967,619 $ 1,452,059 $ 763,841
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 645,961 194,172 144,800 76,768
------------------ ------------------ ------------------ ------------------
Net asset value and maximum offering price
per share (a) ............................. $ 10.31 $ 10.13 $ 10.03 $ 9.95
------------------ ------------------ ------------------ ------------------
CLASS R:
Net assets, at value ........................ $ 1,170,836 $ 239,981 $ 355,332 $ 303,383
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 113,020 23,581 35,131 30,247
------------------ ------------------ ------------------ ------------------
Net asset value and maximum offering price
per share (a) ............................. $ 10.36 $ 10.18 $ 10.11 $ 10.03
------------------ ------------------ ------------------ ------------------
ADVISOR CLASS:
Net assets, at value ........................ $ 220,535 $ 483,070 $ 273,685 $ 189,223
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 21,199 47,262 26,863 18,741
------------------ ------------------ ------------------ ------------------
Net asset value and maximum offering price
per share (a) ............................. $ 10.40 $ 10.22 $ 10.19 $ 10.10
------------------ ------------------ ------------------ ------------------
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
58 | The accompanying notes are an integral part of these
financial statements. | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended June 30, 2008 (unaudited)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------------ ------------------ ------------------ ------------------
Investment income:
Dividends from Underlying Funds
(Note 6) ......................... $ 107,387 $ 53,051 $ 9,741 $ 1,821
Interest .............................. 924 190 156 --
---------------- ------------------ ------------------ ------------------
Total investment income ..... 108,311 53,241 9,897 1,821
---------------- ------------------ ------------------ ------------------
Expenses:
Asset allocation fees (Note 3a) ....... 15,850 14,374 8,486 4,927
Distribution fees: (Note 3c) ..........
Class A .......................... 11,231 14,947 7,670 4,546
Class C .......................... 24,966 7,209 6,417 3,024
Class R .......................... 2,875 562 768 562
Transfer agent fees (Note 3e) ......... 7,624 10,469 10,471 10,746
Reports to shareholders ............... 7,336 8,282 7,021 5,610
Registration and filing fees .......... 34,657 31,328 30,388 26,159
Professional fees ..................... 13,882 12,836 12,664 12,519
Trustees' fees and expenses ........... 235 120 78 17
Other ................................. 648 635 583 401
---------------- ------------------ ------------------ ------------------
Total expenses .............. 119,304 100,762 84,546 68,511
Expenses waived/paid by
affiliates (Note 3f) ....... (65,814) (66,680) (63,166) (56,984)
---------------- ------------------ ------------------ ------------------
Net expenses ....... 53,490 34,082 21,380 11,527
---------------- ------------------ ------------------ ------------------
Net investment
income (loss) .. 54,821 19,159 (11,483) (9,706)
---------------- ------------------ ------------------ ------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from sale of
investments in Underlying Funds .. (1,004) (263) (27,834) (5,554)
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ................. (755,023) (961,007) (604,404) (376,160)
---------------- ------------------ ------------------ ------------------
Net realized and unrealized gain (loss) ..... (756,027) (961,270) (632,238) (381,714)
---------------- ------------------ ------------------ ------------------
Net increase (decrease) in net assets
resulting from operations ............. $ (701,206) $ (942,111) $ (643,721) $ (391,420)
---------------- ------------------ ------------------ ------------------
Semiannual Report | The accompanying notes are an integral part of these
financial statements | 59
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON 2015 FRANKLIN TEMPLETON 2025
RETIREMENT TARGET FUND RETIREMENT TARGET FUND
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2008 YEAR ENDED JUNE 30, 2008 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2007 (UNAUDITED) DECEMBER 31, 2007
---------------- ----------------- ---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income .................. $ 54,821 $ 122,203 $ 19,159 $ 118,086
Net realized gain (loss) from
Underlying Funds .................. (1,004) 303,497 (263) 391,470
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds .................. (755,023) (132,654) (961,007) (195,462)
---------------- ----------------- ---------------- -----------------
Net increase (decrease) in
net assets resulting
from operations ......... (701,206) 293,046 (942,111) 314,094
---------------- ----------------- ---------------- -----------------
Distributions to shareholders from:
Net investment income and short term
gains received from Underlying Funds:
Class A ...................... (38,279) (89,066) (9,290) (116,293)
Class C ...................... (13,005) (31,491) -- (15,006)
Class R ...................... (4,251) (17,779) (159) (2,899)
Advisor Class ................ (978) (736) (556) (7,148)
Net realized gains:
Class A ...................... (143,914) (42,032) (294,602) (81,106)
Class C ...................... (107,235) (12,628) (51,039) (9,526)
Class R ...................... (18,739) (7,035) (6,089) (1,831)
Advisor Class ................ (3,513) (438) (12,457) (3,157)
---------------- ----------------- ---------------- -----------------
Total distributions to shareholders ......... (329,914) (201,205) (374,192) (236,966)
---------------- ----------------- ---------------- -----------------
Capital share transactions: (Note 2)
Class A ...................... 4,478,194 3,834,014 5,501,500 5,156,687
Class C ...................... 4,751,475 2,150,974 1,041,626 1,061,155
Class R ...................... 194,542 1,040,251 75,655 166,698
Advisor Class ................ 195,200 10,740 119,348 377,760
---------------- ----------------- ---------------- -----------------
Total capital share transactions ............ 9,619,411 7,035,979 6,738,129 6,762,300
---------------- ----------------- ---------------- -----------------
Redemption fees ............................. 112 41 219 157
---------------- ----------------- ---------------- -----------------
Net increase (decrease) in
net assets .............. 8,588,403 7,127,861 5,422,045 6,839,585
Net assets:
Beginning of period ......................... 8,585,992 1,458,131 8,662,035 1,822,450
---------------- ----------------- ---------------- -----------------
End of period ............................... $ 17,174,395 $ 8,585,992 $ 14,084,080 $ 8,662,035
---------------- ----------------- ---------------- -----------------
Undistributed net investment income
included in net assets:
End of period .......................... $ 722 $ 2,414 $ 11,678 $ 2,524
---------------- ----------------- ---------------- -----------------
60 | The accompanying notes are an integral part of these
financial statements | Semiannual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON 2035 FRANKLIN TEMPLETON 2045
RETIREMENT TARGET FUND RETIREMENT TARGET FUND
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2008 YEAR ENDED JUNE 30, 2008 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2007 (UNAUDITED) DECEMBER 31, 2007
---------------- ----------------- ---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .......... $ (11,483) $ 54,544 $ (9,706) $ 33,275
Net realized gain (loss) from
Underlying Funds ................. (27,834) 269,980 (5,554) 177,675
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ................. (604,404) (116,810) (376,160) (42,627)
---------------- ----------------- ---------------- ----------------
Net increase (decrease) in
net assets resulting from
operations ................ (643,721) 207,714 (391,420) 168,323
---------------- ----------------- ---------------- ----------------
Distributions to shareholders from:
Net investment income and short term
gains received from Underlying
Funds:
Class A ..................... (966) (50,435) (848) (33,285)
Class C ..................... (270) (13,163) (163) (5,813)
Class R ..................... (65) (4,205) (63) (2,128)
Advisor Class ............... (29) (1,855) (43) (2,578)
Net realized gains:
Class A ..................... (183,422) (52,659) (120,349) (57,461)
Class C ..................... (45,412) (10,159) (26,725) (5,731)
Class R ..................... (10,162) (3,259) (10,466) (2,945)
Advisor Class ............... (8,438) (2,845) (6,548) (1,299)
---------------- ----------------- ---------------- ----------------
Total distributions to shareholders ........ (248,764) (138,580) (165,205) (111,240)
---------------- ----------------- ---------------- ----------------
Capital share transactions: (Note 2)
Class A ..................... 2,804,085 2,512,921 1,422,279 1,203,127
Class C ..................... 523,785 1,061,051 365,286 421,465
Class R ..................... 84,650 286,076 174,995 148,108
Advisor Class ............... 173,956 56,592 49,014 154,787
---------------- ----------------- ---------------- ----------------
Total capital share transactions ........... 3,586,476 3,916,640 2,011,574 1,927,487
---------------- ----------------- ---------------- ----------------
Redemption fees ............................ 102 324 26 4
---------------- ----------------- ---------------- ----------------
Net increase (decrease) in
net assets ............. 2,694,093 3,986,098 1,454,975 1,984,574
Net assets:
Beginning of period ........................ 5,296,051 1,309,953 3,249,492 1,264,918
---------------- ----------------- ---------------- ----------------
End of period .............................. $ 7,990,144 $ 5,296,051 $ 4,704,467 $ 3,249,492
---------------- ----------------- ---------------- ----------------
Undistributed net investment income (loss)
included in net assets:
End of period ......................... $ (11,395) $ 1,418 $ (9,722) $ 1,101
---------------- ----------------- ---------------- ----------------
Semiannual Report | The accompanying notes are an integral part of these
financial statements | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (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.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of June 30, 2008, and have
determined that no provision for income tax is required in the Funds' financial
statements.
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.
62 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in 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 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.
Semiannual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2008, there were an unlimited number of shares authorized (without
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:
Six months ended June 30, 2008
Shares sold ..................................... 445,806 $ 4,828,332 542,069 $ 5,860,624
Shares issued in reinvestment of distributions .. 15,104 156,648 27,052 275,874
Shares redeemed ................................. (46,465) (506,786) (59,607) (634,998)
------- ------------ ------- -----------
Net increase (decrease) ......................... 414,445 $ 4,478,194 509,514 $ 5,501,500
------- ------------ ------- -----------
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
------- ------------ ------- -----------
CLASS C SHARES:
Six months ended June 30, 2008
Shares sold ..................................... 500,559 $ 5,307,254 98,728 $ 1,058,589
Shares issued in reinvestment of distributions .. 10,111 104,226 4,856 49,190
Shares redeemed ................................. (60,920) (660,005) (6,272) (66,153)
------- ------------ ------- -----------
Net increase (decrease) ......................... 449,750 $ 4,751,475 97,312 $ 1,041,626
------- ------------ ------- -----------
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
------- ------------ ------- -----------
CLASS R SHARES:
Six months ended June 30, 2008
Shares sold...................................... 22,722 $ 240,815 9,369 $ 100,655
Shares issued in reinvestment of distributions .. 2,220 22,990 587 5,970
Shares redeemed ................................. (6,472) (69,263) (2,846) (30,970)
------- ------------ ------- -----------
Net increase (decrease) ......................... 18,470 $ 194,542 7,110 $ 75,655
------- ------------ ------- -----------
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
------- ------------ ------- -----------
64 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
SHARES AMOUNT SHARES AMOUNT
------- --------- --------- -----------
ADVISOR CLASS SHARES:
Six months ended June 30, 2008
Shares sold ...................................... 18,900 $ 201,721 9,632 $ 106,620
Shares issued in reinvestment of distributions ... 409 4,258 1,246 12,728
Shares redeemed .................................. (968) (10,779) -- --
------- --------- --------- -----------
Net increase (decrease) .......................... 18,341 $ 195,200 10,878 $ 119,348
------- --------- --------- -----------
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
------- --------- --------- -----------
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- -----------
CLASS A SHARES:
Six months ended June 30, 2008
Shares sold ..................................... 300,570 $ 3,265,457 144,089 $ 1,560,194
Shares issued in reinvestment of distributions .. 15,028 152,516 8,491 85,420
Shares redeemed ................................. (57,327) (613,888) (20,762) (223,335)
------- ----------- ------- -----------
Net increase (decrease) ......................... 258,271 $ 2,804,085 131,818 $ 1,422,279
------- ----------- ------- -----------
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
------- ----------- ------- -----------
CLASS C SHARES:
Six months ended June 30, 2008
Shares sold ..................................... 53,310 $ 570,862 33,609 $ 359,140
Shares issued in reinvestment of distributions... 4,076 40,885 2,169 21,577
Shares redeemed ................................. (8,282) (87,962) (1,427) (15,431)
------- ----------- ------- -----------
Net increase (decrease) ......................... 49,104 $ 523,785 34,351 $ 365,286
------- ----------- ------- -----------
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
------- ----------- ------- -----------
Semiannual Report | 65
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
SHARES AMOUNT SHARES AMOUNT
------ --------- ------- ---------
CLASS R SHARES:
Six months ended June 30, 2008
Shares sold ..................................... 11,423 $ 123,070 15,806 $ 169,051
Shares issued in reinvestment of distributions .. 979 9,901 1,001 10,038
Shares redeemed ................................. (4,365) (48,321) (403) (4,094)
------ --------- ------- ---------
Net increase (decrease) ......................... 8,037 $ 84,650 16,404 $ 174,995
------ --------- ------- ---------
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
------ --------- ------- ---------
ADVISOR CLASS SHARES:
Six months ended June 30, 2008
Shares sold ..................................... 16,266 $ 170,815 5,222 $ 56,286
Shares issued in reinvestment of distributions .. 799 8,141 617 6,227
Shares redeemed ................................. (444) (5,000) (1,260) (13,499)
------ --------- ------- ---------
Net increase (decrease) ......................... 16,621 $ 173,956 4,579 $ 49,014
------ --------- ------- ---------
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
------ --------- ------- ---------
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/trustees 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
Templeton Distributors, Inc. (Distributors) Principal underwriter
Templeton Investor Services, LLC (Investor Services) Transfer agent
66 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
a. ASSET ALLOCATION FEES
The Funds pay an asset allocation fee to Advisers of 0.25% per year of the
average daily net assets of each of the Funds for investment advisory services,
consisting principally of determining the allocation of assets of the Funds
among the designated Underlying Funds.
b. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
c. DISTRIBUTION FEES
The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' 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 period:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------- ----------- ------------ -------------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ......................... $ 8,046 $ 12,867 $ 7,774 $ 5,494
Contingent deferred sales charges retained .......... $ 211 $ 196 $ 215 $ 30
Semiannual Report | 67
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
e. TRANSFER AGENT FEES
For the period ended June 30, 2008, 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 ... $ 5,422 $ 7,564 $ 7,905 $ 8,156
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 or paid are not subject to reimbursement by the
Funds subsequent to the Funds' fiscal year end. After April 30, 2009, Advisers
may discontinue this waiver at any time upon notice to the Funds' Board of
Trustees.
g. OTHER AFFILIATED TRANSACTIONS
At June 30, 2008, 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
------------------ ------------------ ------------------ ------------------
5.85% 7.02% 12.30% 20.92%
4. INCOME TAXES
At June 30, 2008, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
------------ ------------ ------------ -----------
Cost of investments ......................... $ 17,914,992 $ 15,192,071 $ 8,632,874 $ 5,084,769
------------ ------------ ------------ ------------
Unrealized appreciation ..................... $ 196,906 $ 200,254 $ 135,587 $ 97,511
Unrealized depreciation ..................... (1,055,136) (1,347,797) (852,703) (492,130)
------------ ------------ ------------ ------------
Net unrealized appreciation (depreciation) .. $ (858,230) $ (1,147,543) $ (717,116) $ (394,619)
------------ ------------ ------------ ------------
68 | Semiannual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. INCOME TAXES (CONTINUED)
Net investment income (loss) 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.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended June 30, 2008, 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................ $ 8,891,981 $ 6,111,217 $ 3,526,367 $ 1,950,799
Sales.................... $ 65,476 $ 28,589 $ 150,438 $ 41,000
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for
the purpose of exercising management or control. At June 30, 2008, 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, 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. FAIR VALUE MEASUREMENTS
The Funds adopted Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The Funds have determined
that the implementation of SFAS 157 did not have a material impact on the Funds'
financial statements.
Semiannual Report | 69
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. FAIR VALUE MEASUREMENTS (CONTINUED)
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Trust's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Funds' investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
As of June 30, 2008, all of the Funds' investments in securities carried at fair
value were in Level 1 inputs.
70 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 25, 2008, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate funds comprising
Franklin Templeton Fund Allocator Series (Fund(s)). In reaching this decision,
the Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for each Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared each Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional material
accompanying such report was a memorandum prepared by management describing
project initiatives and capital investments relating to the services provided to
the Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale and a comparative analysis concerning
transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other
Semiannual Report | 71
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
management personnel with the code of ethics adopted throughout the Franklin
Templeton fund complex, the adherence to fair value pricing procedures
established by the Board, and the accuracy of net asset value calculations. The
Board also noted the extent of benefits provided Fund shareholders from being
part of the Franklin Templeton family of funds, including the right to exchange
investments between the same class of funds without a sales charge, the ability
to reinvest Fund dividends into other funds and the right to combine holdings in
other funds to obtain a reduced sales charge. Favorable consideration was given
to management's continuous efforts and expenditures in establishing back-up
systems and recovery procedures to function in the event of a natural disaster,
it being noted that such systems and procedures had functioned smoothly during
the Florida hurricanes and blackouts experienced in recent years. Among other
factors taken into account by the Board were the Manager's best execution
trading policies, including a favorable report by an independent portfolio
trading analytical firm. Consideration was also given to the experience of each
Fund's portfolio management team, the number of accounts managed and general
method of compensation. In this latter respect, the Board noted that a primary
factor in management's determination of a portfolio manager's bonus compensation
was the relative investment performance of the funds he or she managed and that
a portion of such bonus was required to be invested in a predesignated list of
funds within such person's fund management area so as to be aligned with the
interests of Fund shareholders. The Board also took into account the quality of
transfer agent and shareholder services provided Fund shareholders by an
affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, the high industry ranking given to the
Franklin Templeton website, and the firsthand experience of individual Board
members who deal with the shareholder services department in their capacities as
shareholders in one or more of the various Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
the investment performance of Class A shares, in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
the one-year period ended December 31, 2007, and for additional periods ended
that date depending on when a particular Fund commenced operations. The
following summarizes the performance results for each of the Funds and the
Board's view of such performance.
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional mixed-asset
target 2020 funds as selected by Lipper. The Fund has been in operation for only
one full year at the date of the Lipper report, which showed its income return
to be in the lowest quintile of its performance universe, and its total return
72 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
to be in the highest quintile of its performance universe. While noting that the
Fund's brief period of existence limited the meaningfulness of its performance
record, the Board was satisfied with this performance.
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional mixed-asset
target 2030 funds as selected by Lipper. The Fund had been in operation for only
one full year at the date of the Lipper report, which showed its income return
to be in the second-lowest quintile of its performance universe, and its total
return to be in the highest quintile of its performance universe. While noting
that the Fund's brief period of existence limited the meaningfulness of its
performance record, the Board was satisfied with this performance.
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional mixed-asset
target 2030+ funds as selected by Lipper. The Fund has been in operation for
only one full year at the date of the Lipper report, which showed its income
return to be in the second-lowest quintile of its performance universe, and its
total return to be in the highest quintile of its performance universe. While
noting that the Fund's brief period of existence limited the meaningfulness of
its performance record, the Board was satisfied with this performance.
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND - The performance universe for
this Fund consisted of the Fund and all retail and institutional mixed-asset
target 2030+ funds as selected by Lipper. The Fund has been in operation for
only one full year at the date of the Lipper report, which showed its income
return to be in the second-lowest quintile of its performance universe, and its
total return to be in the highest quintile of its performance universe. While
noting that the Fund's brief period of existence limited the meaningfulness of
its performance record, the Board was satisfied with this performance.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund compared with those of a group of retail front-end
load fund of funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparisons, the Board relied upon a survey showing that
the scope of management services covered under a Fund's investment management
agreement was similar to those provided by fund managers to other mutual fund
groups. In reviewing comparative costs, emphasis was given to each Fund's
contractual investment management fee in comparison with the contractual
investment management fee that would have been charged by other funds within its
Lipper expense group assuming they were similar in size to the Fund, as well as
the actual total expenses of the Fund including expenses of the underlying funds
they invest in. The Board noted that the Funds pay an asset allocation advisory
fee. The Lipper contractual investment management fee analysis includes the
advisory and administrative fees directly
Semiannual Report | 73
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
charged to each Fund as being part of the contractual investment management fee,
with the investment management fees charged underlying funds being included
within actual total expenses. Contractual investment management fees and total
expenses for comparative consistency are shown by Lipper for Fund Class A
shares. The Lipper expense reports noted in the case of each Fund that expenses
had been subsidized by management fee waivers and reimbursements. The Lipper
reports for each of Franklin Templeton 2015, 2025, 2035 and 2045 Retirement
Target Funds showed the contractual management fee rate to be at the expense
group median with actual total expense ratios to be within 3 to 7 basis points
above the medians of their respective expense groups. The Board believed the
expenses of each Fund were acceptable taking into account the fee waivers and
expense reimbursements applicable to each of them.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each Fund. Specific attention was given to the methodology followed in
allocating costs to each Fund, it being recognized that allocation methodologies
are inherently subjective and various allocation methodologies may each be
reasonable while producing different results. In this respect, the Board noted
that, while being continuously refined and reflecting changes in the Manager's
own cost accounting, the allocation methodology was consistent with that
followed in profitability report presentations for the Funds made in prior years
and that the Fund's independent registered public accounting firm had been
engaged by the Manager to perform certain procedures on a biennial basis,
specified and approved by the Manager and the Fund's Board solely for their
purposes and use in reference to the profitability analysis. In reviewing and
discussing such analysis, management discussed with the Board its belief that
costs incurred in establishing the infrastructure necessary for the type of
mutual fund operations conducted by the Manager and its affiliates may not be
fully reflected in the expenses allocated to each Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Funds, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid to
brokers/dealers who sold fund Class B shares prior to February 2005 when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage
74 | Semiannual Report
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION (CONTINUED)
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
and the use of "soft" commission dollars to pay for research. Based upon its
consideration of all these factors, the Board determined that the level of
profits realized by the Manager and its affiliates from providing services to
each Fund was not excessive in view of the nature, quality and extent of
services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Managers as the Funds grow larger and the extent to which this
is reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Managers realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. With the exception of Templeton Global Long Short
Fund, which has a performance adjusted base fee, the fees charged all the
underlying funds in which the Funds may invest provide for management fee
breakpoints. Consequently, to the extent economies of scale may be realized by
the investment managers of these funds, the schedule of fees under their
investment management agreements provides a sharing of benefits with a Fund and
its shareholders.
PROXY VOTING POLICIES AND PROCEDURES
The Trust's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Trust uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Trust's complete
Policies online at franklintempleton.com. Alternatively, shareholders may
request copies of the Policies free of charge by calling the Proxy Group collect
at 1-954/527-7678 or by sending a written request to: Franklin Templeton
Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
Securities and Exchange Commission's website at sec.gov and reflect the most
recent 12-month period ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Semiannual Report | 75
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[FRANKLIN TEMPLETON INVESTMENTS LOGO] One Franklin Parkway
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a
copy of its code of ethics that applies to its principal executive officers
and principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange
Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Registrant's filings under the
Securities Exchange Act of 1934 and the Investment Company Act of 1940 is
recorded, processed, summarized and reported within the periods specified in
the rules and forms of the Securities and Exchange Commission. Such
information is accumulated and communicated to the Registrant's management,
including its principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. The
Registrant's management, including the principal executive officer and the
principal financial officer, recognizes that any set of controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision
and with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation,
the Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) Changes in Internal Controls. There have been no significant changes in
the Registrant's internal controls or in other factors that could
significantly affect the internal controls subsequent to the date of their
evaluation in connection with the preparation of this Shareholder Report on
Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of 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 August 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 August 27, 2008
By /S/LAURA F. FERGERSON
---------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date August 27, 2008