UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07851
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
------------------------------------------
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices)(Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
--------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code:(650) 312-2000
Date of fiscal year end: 12/31
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Date of reporting period: 12/31/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
(GRAPHIC)
DECEMBER 31, 2008
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
ASSET ALLOCATION
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(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Franklin - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups-- Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups
operates autonomously, relying on its own
research and staying true to the unique
investment disciplines that underlie its
success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and
value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global
fund. Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series
is dedicated to a unique style of value
investing, searching aggressively for
opportunity among what it believes are
undervalued stocks, as well as arbitrage
situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work
independently and adhere to different
investment approaches, Franklin, Templeton and
Mutual Series funds typically have distinct
portfolios. That's why our funds can be used to
build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as
well as the reliable, accurate and personal
service that has helped us become one of the
most trusted names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton Conservative Target Fund ............................... 5
Franklin Templeton Moderate Target Fund ................................... 15
Franklin Templeton Growth Target Fund ..................................... 25
Financial Highlights and Statements of Investments ........................ 35
Financial Statements ...................................................... 53
Notes to Financial Statements ............................................. 58
Report of Independent Registered Public Accounting Firm ................... 68
Tax Designation ........................................................... 69
Board Members and Officers ................................................ 70
Shareholder Information ................................................... 74
Shareholder Letter
Dear Shareholder:
The year 2008 was an extraordinary and stressful time for investors and those of
us who have worked in financial markets for many years. During this turbulent
period, the U.S. economy slipped into recession, credit markets froze and
housing prices plummeted. Most stocks and bonds suffered major losses as
investors worried about an uncertain future. Although this environment is bound
to provoke great concern, we think it is important to put short-term market
developments in perspective. Keep in mind that as daunting as current conditions
may be, we have navigated through other periods of high market volatility, such
as the stock market crash of 1987. We remain committed to our long-term
perspective and our disciplined investment philosophy. Therefore, we view recent
declines as potential opportunities to find bargains that we believe may be well
positioned to become eventual winners. Although conditions remain challenging,
our experience gives us ample reason to be optimistic about future market
stabilization and recovery.
In the enclosed annual report for Franklin Templeton Fund Allocator Series, the
portfolio manager discusses market conditions, investment management decisions
and Fund performance during the period under review. You will also find
performance data and financial information. Please remember that all securities
markets fluctuate, as do mutual fund share prices.
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
As always, we recommend investors consult their financial advisors and review
their portfolios to design a long-term strategy and portfolio allocation that
meet their individual needs, goals and risk tolerance. We firmly believe that
most people benefit from professional advice, and that advice is invaluable as
investors navigate changing market environments.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Templeton Fund Allocator Series
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2008. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE OBTAINED FROM SOURCES
CONSIDERED RELIABLE.
2 | Not part of the annual report
Annual Report
Economic and Market Overview
In 2008, the U.S. economy faltered and The Conference Board's Consumer
Confidence Index fell to an all-time low since it began in 1967. The
government's abrupt conservatorship of Fannie Mae and Freddie Mac and the
failure of several blue-chip banks and financial institutions roiled the equity
markets. Despite government interventions and massive emergency funding, rapidly
weakening manufacturing activity and falling home prices exacerbated the
nation's economic troubles. Jobless claims mounted and the unemployment rate
rose to 7.2% by period-end.(1) In early December, the National Bureau of
Economic Research officially declared the U.S. economy has been in recession
since December 2007.
The weakening U.S. economy negatively impacted growth prospects around the
world. Although growth in the first half of the year was robust in developing
economies, particularly in Asia, signs of a global slowdown surfaced in the
latter half. In an environment of extremely high commodity prices that increased
inflationary pressure, the world's monetary authorities faced the choice of
lowering short-term interest rates to stimulate growth or raising them to fight
rising inflation. Stimulus provided through fiscal and monetary policies
implemented around the globe sought to restore financial market stability and
reignite economic growth.
The U.S. Treasury and the Federal Reserve Board took unprecedented steps,
including lowering short-term rates to near 0% from 4.25%. The European Central
Bank and many of the world's other central banks had raised rates due to
inflationary pressures. Later in the year, the potential for global recession
trumped inflationary concerns, and the world's monetary authorities cut interest
rates aggressively. The U.S. dollar, which had declined earlier in the period
versus many of the world's currencies, regained ground quickly toward period-end
as a flight to the relative safety of U.S. Treasuries prevailed.
(1.) Source: Bureau of Labor Statistics.
Annual Report | 3
In this challenging economic time, volatility came to define global equity
markets. Virtually all local indexes ended the 12-month period with marked
losses. Despite negative economic data and an outlook for decelerating corporate
earnings and profit margins globally, many companies outside the financials
sector retained relatively strong balance sheets.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Annual Report
Franklin Templeton Conservative Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target
Fund seeks the highest level of long-term total return consistent with a lower
level of risk.(1)
ASSET ALLOCATION*
Franklin Templeton Conservative Target Fund
Based on Total Net Assets as of 12/31/08
(PIE CHART)
Domestic Fixed Income ........................ 27.0%
Domestic Equity .............................. 25.9%
Foreign Fixed Income ......................... 14.4%
Foreign Equity ............................... 11.8%
Short-Term Investments & Other Net Assets .... 20.9%
* 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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin Templeton Conservative Target Fund covers the
fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Conservative Target Fund - Class A had a -15.41% cumulative
total return for the 12 months under review. 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 Barclays Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for
fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for
short-term investments and other net assets, had total returns of -37.00%,
(1.) The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 40.
Annual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton Conservative Target Fund
12/31/08
% OF TOTAL
NET ASSETS
----------
Franklin U.S. Government Securities Fund - Advisor Class 14.6%
Templeton Global Bond Fund - Advisor Class 14.4%
Franklin Total Return Fund - Advisor Class 9.6%
Franklin Flex Cap Growth Fund - Advisor Class 8.8%
Mutual Shares Fund - Class Z 8.0%
Mutual European Fund - Class Z 4.3%
Franklin Small Cap Growth Fund - Advisor Class 4.0%
Franklin Strategic Mortgage Portfolio 2.8%
Templeton Foreign Fund - Advisor Class 2.5%
Franklin Gold and Precious Metals Fund - Advisor Class 2.4%
- -43.06%, +5.24% and +2.10%, 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 68.6% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, representing 8.8% of the Fund's
total net assets, was our largest equity fund weighting at period-end.
(2.) Source: (C) 2009 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 BC 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. T-Bill Index is a total return index
based on a constant maturity instrument. Payden & Rygel includes both accrued
interest and change in market price in its monthly total return calculations.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
The indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
6 | Annual Report
On the fixed income side, domestic exposure was 65.2% of the Fund's total income
weighting, with the balance represented by foreign fixed income. Franklin U.S.
Government Securities Fund - Advisor Class was our largest fixed income fund
weighting at 14.6% of total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund -
Class Z, performed comparably to the S&P 500 during the 12-month reporting
period. However, Franklin Small Cap Growth Fund - Advisor Class lagged the S&P
500. Our largest foreign equity fund holding, Mutual European Fund - Class Z,
performed better than the MSCI EAFE Index. In contrast, Templeton Foreign Fund -
Advisor Class 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 BC U.S. Aggregate Index, while
Franklin Strategic Mortgage Portfolio underperformed.
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 DECEMBER 31, 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.
Annual Report | 7
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCIX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$2.67 $10.92 $13.59
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.3831
Long-Term Capital Gain $0.2407
TOTAL $0.6238
CLASS B (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$2.67 $10.88 $13.55
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2918
Long-Term Capital Gain $0.2407
TOTAL $0.5325
CLASS C (SYMBOL: FTCCX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$2.65 $10.77 $13.42
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2992
Long-Term Capital Gain $0.2407
TOTAL $0.5399
CLASS R (SYMBOL: FTCRX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$2.66 $10.89 $13.55
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.3539
Long-Term Capital Gain $0.2407
TOTAL $0.5946
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$2.66 $10.91 $13.57
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.4131
Long-Term Capital Gain $0.2407
TOTAL $0.6538
8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ---------
Cumulative Total Return(2) -15.41% +13.83% +57.83%
Average Annual Total Return(3) -20.28% +1.41% +4.05%
Value of $10,000 Investment(4) $ 7,972 $10,726 $14,875
Total Annual Operating Expenses(5)
Without Waiver 1.41%
With Waiver 1.18%
INCEPTION
CLASS B 1-YEAR 5-YEAR (12/1/03)
- ------- ------- ------- ---------
Cumulative Total Return(2) -16.02% +9.58% +11.45%
Average Annual Total Return(3) -19.24% +1.50% +1.99%
Value of $10,000 Investment(4) $ 8,076 $10,773 $11,052
Total Annual Operating Expenses(5)
Without Waiver 2.16%
With Waiver 1.93%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ---------
Cumulative Total Return(2) -16.04% +9.63% +46.46%
Average Annual Total Return(3) -16.84% +1.86% +3.89%
Value of $10,000 Investment(4) $ 8,316 $10,963 $14,646
Total Annual Operating Expenses(5)
Without Waiver 2.16%
With Waiver 1.93%
INCEPTION
CLASS R 1-YEAR 5-YEAR (1/1/02)
- ------- ------- ------- ---------
Cumulative Total Return(2) -15.58% +12.40% +26.21%
Average Annual Total Return(3) -15.58% +2.37% +3.38%
Value of $10,000 Investment(4) $ 8,442 $11,240 $12,621
Total Annual Operating Expenses(5)
Without Waiver 1.66%
With Waiver 1.43%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- ---------
Cumulative Total Return(2) -15.15% +14.67% +59.00%
Average Annual Total Return(3) -15.15% +2.78% +4.75%
Value of $10,000 Investment(4) $ 8,485 $11,467 $15,900
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 (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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -20.28%
5-Year +1.41%
10-Year +4.05%
CLASS A (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. P&R 90-DAY U.S.
DATE TARGET FUND - CLASS A INDEX INDEX AGGREGATE INDEX TREASURY BILL INDEX
- ---------- ------------------------------- ------- --------- --------------------- -------------------
1/1/1999 $ 9,424 $10,000 $10,000 $10,000 $10,000
1/31/1999 $ 9,487 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,362 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $ 9,503 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $ 9,737 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $ 9,656 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $ 9,814 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $ 9,750 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $ 9,759 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $ 9,746 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $10,012 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $10,553 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $11,335 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $11,213 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $12,144 $11,278 $12,231 $10,005 $10,574
3/31/2000 $11,975 $12,382 $12,722 $10,137 $10,627
4/30/2000 $11,530 $12,009 $12,062 $10,108 $10,681
5/31/2000 $11,284 $11,763 $11,788 $10,103 $10,738
6/30/2000 $11,609 $12,053 $12,257 $10,313 $10,785
7/31/2000 $11,580 $11,864 $11,740 $10,407 $10,834
8/31/2000 $12,029 $12,601 $11,847 $10,558 $10,891
9/30/2000 $11,905 $11,936 $11,271 $10,624 $10,950
10/31/2000 $11,741 $11,886 $10,999 $10,694 $11,006
11/30/2000 $11,316 $10,949 $10,582 $10,869 $11,066
12/31/2000 $11,681 $11,002 $10,953 $11,071 $11,130
1/31/2001 $11,997 $11,392 $10,948 $11,252 $11,202
2/28/2001 $11,620 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,321 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $11,679 $10,451 $10,121 $11,360 $11,351
5/31/2001 $11,751 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $11,699 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $11,647 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,503 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $10,875 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $11,177 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $11,448 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $11,574 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $11,563 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $11,553 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $11,791 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $11,823 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $11,780 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $11,440 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $10,979 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $11,054 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $10,712 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $10,917 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $11,209 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $11,136 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $11,092 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $11,059 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $11,044 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $11,449 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $11,886 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $11,955 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $11,965 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $12,229 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $12,311 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $12,609 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $12,807 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $13,068 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $13,168 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $13,290 $10,034 $10,513 $14,042 $11,980
3/31/2004 $13,308 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $12,974 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $13,052 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $13,208 $10,053 $10,623 $13,801 $12,012
7/31/2004 $13,029 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $13,130 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $13,345 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $13,536 $10,016 $10,961 $14,362 $12,063
11/30/2004 $13,883 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,111 $10,776 $12,227 $14,379 $12,098
1/31/2005 $13,930 $10,513 $12,003 $14,469 $12,115
2/28/2005 $14,145 $10,734 $12,525 $14,384 $12,134
3/31/2005 $13,953 $10,544 $12,215 $14,310 $12,162
4/30/2005 $13,805 $10,344 $11,941 $14,503 $12,188
5/31/2005 $14,010 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,136 $10,689 $12,123 $14,740 $12,243
7/31/2005 $14,352 $11,086 $12,496 $14,606 $12,270
8/31/2005 $14,409 $10,985 $12,815 $14,793 $12,304
9/30/2005 $14,515 $11,074 $13,388 $14,641 $12,339
10/31/2005 $14,298 $10,889 $12,998 $14,525 $12,367
11/30/2005 $14,595 $11,301 $13,320 $14,589 $12,408
12/31/2005 $14,774 $11,305 $13,940 $14,728 $12,447
1/31/2006 $15,226 $11,604 $14,797 $14,729 $12,483
2/28/2006 $15,226 $11,636 $14,767 $14,778 $12,523
3/31/2006 $15,388 $11,781 $15,261 $14,633 $12,572
4/30/2006 $15,551 $11,939 $16,001 $14,606 $12,617
5/31/2006 $15,236 $11,595 $15,399 $14,591 $12,666
6/30/2006 $15,247 $11,611 $15,404 $14,621 $12,714
7/31/2006 $15,247 $11,683 $15,559 $14,819 $12,766
8/31/2006 $15,459 $11,961 $15,991 $15,046 $12,822
9/30/2006 $15,518 $12,269 $16,019 $15,178 $12,879
10/31/2006 $15,851 $12,669 $16,643 $15,278 $12,928
11/30/2006 $16,172 $12,909 $17,145 $15,456 $12,983
12/31/2006 $16,239 $13,091 $17,684 $15,366 $13,039
1/31/2007 $16,385 $13,289 $17,805 $15,360 $13,092
2/28/2007 $16,422 $13,029 $17,952 $15,597 $13,143
3/31/2007 $16,584 $13,174 $18,418 $15,597 $13,203
4/30/2007 $16,903 $13,758 $19,252 $15,681 $13,260
5/31/2007 $17,147 $14,238 $19,616 $15,562 $13,320
6/30/2007 $17,100 $14,001 $19,646 $15,516 $13,370
7/31/2007 $16,975 $13,567 $19,359 $15,646 $13,421
8/31/2007 $17,025 $13,771 $19,061 $15,838 $13,497
9/30/2007 $17,577 $14,286 $20,084 $15,958 $13,546
10/31/2007 $17,968 $14,513 $20,876 $16,101 $13,587
11/30/2007 $17,602 $13,906 $20,195 $16,391 $13,648
12/31/2007 $17,585 $13,810 $19,741 $16,437 $13,680
1/31/2008 $17,145 $12,981 $17,920 $16,713 $13,750
2/29/2008 $17,171 $12,560 $18,182 $16,736 $13,774
3/31/2008 $17,030 $12,505 $17,999 $16,793 $13,806
4/30/2008 $17,394 $13,115 $18,999 $16,758 $13,820
5/31/2008 $17,576 $13,284 $19,220 $16,635 $13,827
6/30/2008 $16,943 $12,164 $17,652 $16,622 $13,848
7/31/2008 $16,823 $12,062 $17,087 $16,608 $13,876
8/31/2008 $16,850 $12,237 $16,399 $16,766 $13,895
9/30/2008 $16,069 $11,146 $14,034 $16,541 $13,933
10/31/2008 $14,730 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $14,462 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $14,875 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 48.75% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08
- ------- --------
1-Year -19.24%
5-Year +1.50%
Since Inception (12/1/03) +1.99%
CLASS B (12/1/03-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. P&R 90-DAY U.S.
DATE TARGET FUND - CLASS B INDEX INDEX AGGREGATE INDEX TREASURY BILL INDEX
- ---------- ------------------------------- ------- --------- --------------------- -------------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,239 $10,718 $10,935 $10,183 $10,016
2/29/2004 $10,326 $10,867 $11,189 $10,293 $10,023
3/31/2004 $10,337 $10,703 $11,257 $10,370 $10,031
4/30/2004 $10,068 $10,535 $11,012 $10,101 $10,038
5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,237 $10,887 $11,306 $10,117 $10,050
7/31/2004 $10,098 $10,527 $10,941 $10,217 $10,059
8/31/2004 $10,168 $10,569 $10,991 $10,412 $10,069
9/30/2004 $10,329 $10,684 $11,280 $10,440 $10,080
10/31/2004 $10,468 $10,847 $11,666 $10,528 $10,092
11/30/2004 $10,738 $11,286 $12,466 $10,444 $10,102
12/31/2004 $10,908 $11,670 $13,013 $10,540 $10,122
1/31/2005 $10,751 $11,385 $12,775 $10,606 $10,136
2/28/2005 $10,917 $11,625 $13,330 $10,544 $10,151
3/31/2005 $10,757 $11,419 $13,001 $10,490 $10,175
4/30/2005 $10,643 $11,202 $12,710 $10,632 $10,196
5/31/2005 $10,792 $11,559 $12,729 $10,747 $10,220
6/30/2005 $10,878 $11,575 $12,903 $10,805 $10,243
7/31/2005 $11,045 $12,006 $13,299 $10,707 $10,265
8/31/2005 $11,080 $11,896 $13,639 $10,844 $10,293
9/30/2005 $11,150 $11,993 $14,250 $10,732 $10,323
10/31/2005 $10,982 $11,793 $13,834 $10,647 $10,347
11/30/2005 $11,194 $12,239 $14,177 $10,695 $10,381
12/31/2005 $11,330 $12,243 $14,837 $10,796 $10,414
1/31/2006 $11,669 $12,567 $15,749 $10,797 $10,443
2/28/2006 $11,669 $12,601 $15,717 $10,833 $10,477
3/31/2006 $11,779 $12,758 $16,243 $10,726 $10,518
4/30/2006 $11,886 $12,929 $17,030 $10,707 $10,555
5/31/2006 $11,645 $12,557 $16,389 $10,695 $10,597
6/30/2006 $11,650 $12,574 $16,395 $10,718 $10,637
7/31/2006 $11,632 $12,652 $16,560 $10,863 $10,680
8/31/2006 $11,795 $12,953 $17,019 $11,029 $10,727
9/30/2006 $11,835 $13,287 $17,049 $11,126 $10,774
10/31/2006 $12,071 $13,720 $17,714 $11,200 $10,816
11/30/2006 $12,316 $13,981 $18,248 $11,330 $10,862
12/31/2006 $12,355 $14,177 $18,822 $11,264 $10,909
1/31/2007 $12,457 $14,391 $18,951 $11,259 $10,953
2/28/2007 $12,485 $14,110 $19,106 $11,433 $10,996
3/31/2007 $12,593 $14,267 $19,603 $11,433 $11,046
4/30/2007 $12,836 $14,899 $20,491 $11,495 $11,094
5/31/2007 $13,013 $15,419 $20,878 $11,408 $11,143
6/30/2007 $12,962 $15,163 $20,910 $11,374 $11,185
7/31/2007 $12,857 $14,693 $20,604 $11,469 $11,228
8/31/2007 $12,886 $14,913 $20,287 $11,610 $11,292
9/30/2007 $13,299 $15,471 $21,376 $11,698 $11,333
10/31/2007 $13,587 $15,717 $22,219 $11,803 $11,367
11/30/2007 $13,299 $15,060 $21,494 $12,015 $11,419
12/31/2007 $13,272 $14,955 $21,011 $12,049 $11,445
1/31/2008 $12,948 $14,058 $19,072 $12,251 $11,504
2/29/2008 $12,948 $13,602 $19,352 $12,268 $11,524
3/31/2008 $12,836 $13,543 $19,157 $12,310 $11,550
4/30/2008 $13,111 $14,203 $20,222 $12,284 $11,562
5/31/2008 $13,229 $14,387 $20,457 $12,194 $11,568
6/30/2008 $12,748 $13,174 $18,788 $12,184 $11,586
7/31/2008 $12,647 $13,063 $18,187 $12,174 $11,609
8/31/2008 $12,667 $13,252 $17,454 $12,290 $11,624
9/30/2008 $12,066 $12,071 $14,937 $12,125 $11,656
10/31/2008 $11,058 $10,044 $11,923 $11,839 $11,674
11/30/2008 $10,846 $ 9,323 $11,285 $12,224 $11,687
12/31/2008 $11,052 $ 9,422 $11,964 $12,680 $11,685
------- ------- ------- ------- -------
Total Returns 10.52% -5.78% 19.64% 26.80% 16.85%
======= ======= ======= ======= =======
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -16.84%
5-Year +1.86%
10-Year +3.89%
CLASS C (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
P&R 90-DAY
FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. U.S. TREASURY
DATE TARGET FUND - CLASS C INDEX INDEX AGGREGATE INDEX BILL INDEX
- ---------- ------------------------------- ------- --------- --------------------- -------------
1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1999 $10,058 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,923 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $10,071 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $10,302 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $10,215 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $10,371 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $10,304 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $10,304 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $10,288 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $10,561 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $11,117 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $11,940 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $11,801 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $12,778 $11,278 $12,231 $10,005 $10,574
3/31/2000 $12,587 $12,382 $12,722 $10,137 $10,627
4/30/2000 $12,115 $12,009 $12,062 $10,108 $10,681
5/31/2000 $11,855 $11,763 $11,788 $10,103 $10,738
6/30/2000 $12,176 $12,053 $12,257 $10,313 $10,785
7/31/2000 $12,146 $11,864 $11,740 $10,407 $10,834
8/31/2000 $12,600 $12,601 $11,847 $10,558 $10,891
9/30/2000 $12,467 $11,936 $11,271 $10,624 $10,950
10/31/2000 $12,294 $11,886 $10,999 $10,694 $11,006
11/30/2000 $11,835 $10,949 $10,582 $10,869 $11,066
12/31/2000 $12,211 $11,002 $10,953 $11,071 $11,130
1/31/2001 $12,533 $11,392 $10,948 $11,252 $11,202
2/28/2001 $12,136 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,815 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $12,181 $10,451 $10,121 $11,360 $11,351
5/31/2001 $12,246 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $12,181 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $12,127 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,964 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $11,305 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $11,611 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $11,884 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $12,018 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $11,985 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $11,963 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $12,209 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $12,231 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $12,176 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $11,822 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $11,341 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $11,419 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $11,057 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $11,259 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $11,551 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $11,472 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $11,415 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $11,381 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $11,359 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $11,756 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $12,210 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $12,271 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $12,271 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $12,532 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $12,609 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $12,905 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $13,098 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $13,360 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $13,451 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $13,566 $10,034 $10,513 $14,042 $11,980
3/31/2004 $13,582 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $13,226 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $13,306 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $13,441 $10,053 $10,623 $13,801 $12,012
7/31/2004 $13,257 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $13,349 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $13,569 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $13,753 $10,016 $10,961 $14,362 $12,063
11/30/2004 $14,099 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,321 $10,776 $12,227 $14,379 $12,098
1/31/2005 $14,113 $10,513 $12,003 $14,469 $12,115
2/28/2005 $14,333 $10,734 $12,525 $14,384 $12,134
3/31/2005 $14,131 $10,544 $12,215 $14,310 $12,162
4/30/2005 $13,980 $10,344 $11,941 $14,503 $12,188
5/31/2005 $14,166 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,291 $10,689 $12,123 $14,740 $12,243
7/31/2005 $14,501 $11,086 $12,496 $14,606 $12,270
8/31/2005 $14,547 $10,985 $12,815 $14,793 $12,304
9/30/2005 $14,641 $11,074 $13,388 $14,641 $12,339
10/31/2005 $14,419 $10,889 $12,998 $14,525 $12,367
11/30/2005 $14,700 $11,301 $13,320 $14,589 $12,408
12/31/2005 $14,869 $11,305 $13,940 $14,728 $12,447
1/31/2006 $15,330 $11,604 $14,797 $14,729 $12,483
2/28/2006 $15,318 $11,636 $14,767 $14,778 $12,523
3/31/2006 $15,476 $11,781 $15,261 $14,633 $12,572
4/30/2006 $15,618 $11,939 $16,001 $14,606 $12,617
5/31/2006 $15,287 $11,595 $15,399 $14,591 $12,666
6/30/2006 $15,304 $11,611 $15,404 $14,621 $12,714
7/31/2006 $15,280 $11,683 $15,559 $14,819 $12,766
8/31/2006 $15,484 $11,961 $15,991 $15,046 $12,822
9/30/2006 $15,539 $12,269 $16,019 $15,178 $12,879
10/31/2006 $15,864 $12,669 $16,643 $15,278 $12,928
11/30/2006 $16,177 $12,909 $17,145 $15,456 $12,983
12/31/2006 $16,231 $13,091 $17,684 $15,366 $13,039
1/31/2007 $16,366 $13,289 $17,805 $15,360 $13,092
2/28/2007 $16,391 $13,029 $17,952 $15,597 $13,143
3/31/2007 $16,548 $13,174 $18,418 $15,597 $13,203
4/30/2007 $16,857 $13,758 $19,252 $15,681 $13,260
5/31/2007 $17,092 $14,238 $19,616 $15,562 $13,320
6/30/2007 $17,026 $14,001 $19,646 $15,516 $13,370
7/31/2007 $16,887 $13,567 $19,359 $15,646 $13,421
8/31/2007 $16,938 $13,771 $19,061 $15,838 $13,497
9/30/2007 $17,463 $14,286 $20,084 $15,958 $13,546
10/31/2007 $17,856 $14,513 $20,876 $16,101 $13,587
11/30/2007 $17,476 $13,906 $20,195 $16,391 $13,648
12/31/2007 $17,444 $13,810 $19,741 $16,437 $13,680
1/31/2008 $17,002 $12,981 $17,920 $16,713 $13,750
2/29/2008 $17,002 $12,560 $18,182 $16,736 $13,774
3/31/2008 $16,856 $12,505 $17,999 $16,793 $13,806
4/30/2008 $17,221 $13,115 $18,999 $16,758 $13,820
5/31/2008 $17,377 $13,284 $19,220 $16,635 $13,827
6/30/2008 $16,744 $12,164 $17,652 $16,622 $13,848
7/31/2008 $16,611 $12,062 $17,087 $16,608 $13,876
8/31/2008 $16,638 $12,237 $16,399 $16,766 $13,895
9/30/2008 $15,853 $11,146 $14,034 $16,541 $13,933
10/31/2008 $14,514 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $14,246 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $14,646 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 46.46% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------- --------
1-Year -15.58%
5-Year +2.37%
Since Inception (1/1/02) +3.38%
CLASS R (1/1/02-12/31/08)
(PERFORMANCE GRAPH)
P&R 90-DAY
FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. U.S. TREASURY
DATE TARGET FUND - CLASS R INDEX INDEX AGGREGATE INDEX BILL INDEX
- ---------- ------------------------------- ------- --------- --------------------- -------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,982 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,972 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,178 $10,027 $10,057 $10,009 $10,042
4/30/2002 $10,196 $ 9,420 $10,130 $10,204 $10,057
5/31/2002 $10,159 $ 9,350 $10,267 $10,290 $10,073
6/30/2002 $ 9,869 $ 8,684 $ 9,862 $10,379 $10,088
7/31/2002 $ 9,461 $ 8,007 $ 8,889 $10,505 $10,102
8/31/2002 $ 9,526 $ 8,060 $ 8,871 $10,682 $10,117
9/30/2002 $ 9,232 $ 7,184 $ 7,921 $10,855 $10,133
10/31/2002 $ 9,409 $ 7,816 $ 8,347 $10,806 $10,149
11/30/2002 $ 9,650 $ 8,276 $ 8,727 $10,803 $10,165
12/31/2002 $ 9,591 $ 7,790 $ 8,434 $11,026 $10,175
1/31/2003 $ 9,554 $ 7,586 $ 8,083 $11,035 $10,186
2/28/2003 $ 9,516 $ 7,472 $ 7,898 $11,188 $10,195
3/31/2003 $ 9,510 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 9,850 $ 8,166 $ 8,517 $11,272 $10,217
5/31/2003 $10,228 $ 8,596 $ 9,041 $11,482 $10,227
6/30/2003 $10,284 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $10,293 $ 8,859 $ 9,491 $11,074 $10,247
8/31/2003 $10,511 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $10,584 $ 8,936 $10,023 $11,442 $10,263
10/31/2003 $10,831 $ 9,442 $10,648 $11,336 $10,272
11/30/2003 $11,002 $ 9,525 $10,887 $11,363 $10,280
12/31/2003 $11,228 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,314 $10,208 $11,904 $11,571 $10,297
2/29/2004 $11,410 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,431 $10,194 $12,255 $11,784 $10,312
4/30/2004 $11,134 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,210 $10,172 $12,040 $11,431 $10,326
6/30/2004 $11,328 $10,370 $12,308 $11,496 $10,331
7/31/2004 $11,174 $10,026 $11,911 $11,610 $10,341
8/31/2004 $11,260 $10,067 $11,966 $11,831 $10,351
9/30/2004 $11,449 $10,176 $12,280 $11,863 $10,363
10/31/2004 $11,604 $10,332 $12,700 $11,963 $10,375
11/30/2004 $11,902 $10,750 $13,571 $11,867 $10,385
12/31/2004 $12,098 $11,115 $14,167 $11,976 $10,405
1/31/2005 $11,932 $10,844 $13,908 $12,052 $10,420
2/28/2005 $12,117 $11,073 $14,512 $11,981 $10,436
3/31/2005 $11,948 $10,877 $14,153 $11,919 $10,460
4/30/2005 $11,821 $10,670 $13,837 $12,080 $10,482
5/31/2005 $11,996 $11,010 $13,858 $12,211 $10,506
6/30/2005 $12,097 $11,025 $14,047 $12,278 $10,530
7/31/2005 $12,283 $11,435 $14,479 $12,166 $10,553
8/31/2005 $12,332 $11,331 $14,849 $12,322 $10,582
9/30/2005 $12,415 $11,423 $15,513 $12,195 $10,612
10/31/2005 $12,228 $11,232 $15,061 $12,098 $10,636
11/30/2005 $12,474 $11,657 $15,433 $12,152 $10,672
12/31/2005 $12,627 $11,661 $16,153 $12,267 $10,705
1/31/2006 $13,013 $11,970 $17,145 $12,268 $10,736
2/28/2006 $13,013 $12,003 $17,110 $12,309 $10,770
3/31/2006 $13,155 $12,152 $17,683 $12,188 $10,812
4/30/2006 $13,284 $12,315 $18,540 $12,166 $10,851
5/31/2006 $13,005 $11,961 $17,843 $12,153 $10,893
6/30/2006 $13,025 $11,977 $17,849 $12,179 $10,934
7/31/2006 $13,015 $12,051 $18,028 $12,343 $10,979
8/31/2006 $13,197 $12,338 $18,528 $12,532 $11,028
9/30/2006 $13,239 $12,655 $18,561 $12,642 $11,076
10/31/2006 $13,524 $13,068 $19,284 $12,726 $11,119
11/30/2006 $13,798 $13,316 $19,866 $12,874 $11,166
12/31/2006 $13,855 $13,503 $20,491 $12,799 $11,215
1/31/2007 $13,969 $13,707 $20,631 $12,794 $11,260
2/28/2007 $14,000 $13,439 $20,800 $12,991 $11,304
3/31/2007 $14,134 $13,590 $21,340 $12,991 $11,355
4/30/2007 $14,406 $14,192 $22,308 $13,061 $11,404
5/31/2007 $14,615 $14,687 $22,729 $12,962 $11,455
6/30/2007 $14,565 $14,443 $22,764 $12,924 $11,499
7/31/2007 $14,458 $13,995 $22,431 $13,032 $11,542
8/31/2007 $14,501 $14,205 $22,086 $13,192 $11,608
9/30/2007 $14,953 $14,736 $23,272 $13,292 $11,650
10/31/2007 $15,297 $14,970 $24,189 $13,411 $11,686
11/30/2007 $14,974 $14,345 $23,399 $13,652 $11,738
12/31/2007 $14,951 $14,245 $22,874 $13,691 $11,766
1/31/2008 $14,587 $13,391 $20,763 $13,921 $11,826
2/29/2008 $14,598 $12,956 $21,067 $13,940 $11,846
3/31/2008 $14,472 $12,900 $20,856 $13,987 $11,874
4/30/2008 $14,794 $13,528 $22,015 $13,958 $11,886
5/31/2008 $14,938 $13,703 $22,271 $13,856 $11,892
6/30/2008 $14,399 $12,548 $20,454 $13,845 $11,910
7/31/2008 $14,285 $12,442 $19,799 $13,833 $11,934
8/31/2008 $14,308 $12,622 $19,002 $13,965 $11,950
9/30/2008 $13,646 $11,498 $16,261 $13,777 $11,983
10/31/2008 $12,506 $ 9,567 $12,981 $13,452 $12,001
11/30/2008 $12,278 $ 8,880 $12,285 $13,890 $12,014
12/31/2008 $12,621 $ 8,975 $13,025 $14,408 $12,012
------- ------- ------- ------- -------
Total Returns 26.21% -10.25% 30.25% 44.08% 20.12%
======= ======= ======= ======= =======
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/08
- ---------------- --------
1-Year -15.15%
5-Year +2.78%
10-Year +4.75%
ADVISOR CLASS (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
P&R 90-DAY
FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. U.S. TREASURY
DATE TARGET FUND - ADVISOR CLASS INDEX INDEX AGGREGATE INDEX BILL INDEX
- ---------- ------------------------------- ------- --------- --------------------- -------------
1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1999 $10,067 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $9,933 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $10,083 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $10,332 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $10,246 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $10,413 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $10,346 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $10,355 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $10,341 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $10,624 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $11,198 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $12,028 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $11,898 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $12,886 $11,278 $12,231 $10,005 $10,574
3/31/2000 $12,706 $12,382 $12,722 $10,137 $10,627
4/30/2000 $12,234 $12,009 $12,062 $10,108 $10,681
5/31/2000 $11,973 $11,763 $11,788 $10,103 $10,738
6/30/2000 $12,318 $12,053 $12,257 $10,313 $10,785
7/31/2000 $12,287 $11,864 $11,740 $10,407 $10,834
8/31/2000 $12,764 $12,601 $11,847 $10,558 $10,891
9/30/2000 $12,632 $11,936 $11,271 $10,624 $10,950
10/31/2000 $12,458 $11,886 $10,999 $10,694 $11,006
11/30/2000 $12,007 $10,949 $10,582 $10,869 $11,066
12/31/2000 $12,395 $11,002 $10,953 $11,071 $11,130
1/31/2001 $12,730 $11,392 $10,948 $11,252 $11,202
2/28/2001 $12,330 $10,354 $10,128 $11,350 $11,248
3/31/2001 $12,012 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $12,392 $10,451 $10,121 $11,360 $11,351
5/31/2001 $12,468 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $12,413 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $12,359 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $12,206 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $11,539 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $11,860 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $12,147 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $12,281 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $12,270 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $12,258 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $12,511 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $12,545 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $12,500 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $12,138 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $11,649 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $11,729 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $11,367 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $11,584 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $11,893 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $11,816 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $11,769 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $11,735 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $11,719 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $12,148 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $12,612 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $12,685 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $12,696 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $12,975 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $13,063 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $13,379 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $13,589 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $13,866 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $13,972 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $14,101 $10,034 $10,513 $14,042 $11,980
3/31/2004 $14,121 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $13,767 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $13,849 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $14,014 $10,053 $10,623 $13,801 $12,012
7/31/2004 $13,825 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $13,931 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $14,160 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $14,362 $10,016 $10,961 $14,362 $12,063
11/30/2004 $14,731 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,972 $10,776 $12,227 $14,379 $12,098
1/31/2005 $14,780 $10,513 $12,003 $14,469 $12,115
2/28/2005 $15,008 $10,734 $12,525 $14,384 $12,134
3/31/2005 $14,805 $10,544 $12,215 $14,310 $12,162
4/30/2005 $14,649 $10,344 $11,941 $14,503 $12,188
5/31/2005 $14,865 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,999 $10,689 $12,123 $14,740 $12,243
7/31/2005 $15,229 $11,086 $12,496 $14,606 $12,270
8/31/2005 $15,289 $10,985 $12,815 $14,793 $12,304
9/30/2005 $15,401 $11,074 $13,388 $14,641 $12,339
10/31/2005 $15,171 $10,889 $12,998 $14,525 $12,367
11/30/2005 $15,487 $11,301 $13,320 $14,589 $12,408
12/31/2005 $15,664 $11,305 $13,940 $14,728 $12,447
1/31/2006 $16,157 $11,604 $14,797 $14,729 $12,483
2/28/2006 $16,157 $11,636 $14,767 $14,778 $12,523
3/31/2006 $16,335 $11,781 $15,261 $14,633 $12,572
4/30/2006 $16,508 $11,939 $16,001 $14,606 $12,617
5/31/2006 $16,174 $11,595 $15,399 $14,591 $12,666
6/30/2006 $16,196 $11,611 $15,404 $14,621 $12,714
7/31/2006 $16,196 $11,683 $15,559 $14,819 $12,766
8/31/2006 $16,421 $11,961 $15,991 $15,046 $12,822
9/30/2006 $16,494 $12,269 $16,019 $15,178 $12,879
10/31/2006 $16,848 $12,669 $16,643 $15,278 $12,928
11/30/2006 $17,189 $12,909 $17,145 $15,456 $12,983
12/31/2006 $17,275 $13,091 $17,684 $15,366 $13,039
1/31/2007 $17,431 $13,289 $17,805 $15,360 $13,092
2/28/2007 $17,470 $13,029 $17,952 $15,597 $13,143
3/31/2007 $17,650 $13,174 $18,418 $15,597 $13,203
4/30/2007 $17,989 $13,758 $19,252 $15,681 $13,260
5/31/2007 $18,262 $14,238 $19,616 $15,562 $13,320
6/30/2007 $18,210 $14,001 $19,646 $15,516 $13,370
7/31/2007 $18,076 $13,567 $19,359 $15,646 $13,421
8/31/2007 $18,130 $13,771 $19,061 $15,838 $13,497
9/30/2007 $18,716 $14,286 $20,084 $15,958 $13,546
10/31/2007 $19,146 $14,513 $20,876 $16,101 $13,587
11/30/2007 $18,757 $13,906 $20,195 $16,391 $13,648
12/31/2007 $18,739 $13,810 $19,741 $16,437 $13,680
1/31/2008 $18,283 $12,981 $17,920 $16,713 $13,750
2/29/2008 $18,311 $12,560 $18,182 $16,736 $13,774
3/31/2008 $18,168 $12,505 $17,999 $16,793 $13,806
4/30/2008 $18,570 $13,115 $18,999 $16,758 $13,820
5/31/2008 $18,751 $13,284 $19,220 $16,635 $13,827
6/30/2008 $18,090 $12,164 $17,652 $16,622 $13,848
7/31/2008 $17,961 $12,062 $17,087 $16,608 $13,876
8/31/2008 $17,990 $12,237 $16,399 $16,766 $13,895
9/30/2008 $17,167 $11,146 $14,034 $16,541 $13,933
10/31/2008 $15,735 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $15,449 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $15,900 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 59.00% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
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 THE FUND INVESTS IN UNDERLYING FUNDS THAT 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 B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the manager had not waived fees, the Fund's total returns would have
been lower.
(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were +2.19% and +0.70%.
(7.) Sources: (C) 2009 Morningstar; Payden & Rygel. See page 6 for descriptions
of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the
Payden & Rygel 90 Day U.S. T-Bill Index.
12 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
------------- ------------- ---------------- -----------------
CLASS A
Actual $1,000 $ 877.90 $2.36 $5.52
Hypothetical
(5% return before
expenses) $1,000 $1,022.62 $2.54 $5.94
CLASS B
Actual $1,000 $ 874.30 $5.89 $9.05
Hypothetical
(5% return before
expenses) $1,000 $1,018.85 $6.34 $9.73
CLASS C
Actual $1,000 $ 874.70 $5.84 $9.00
Hypothetical
(5% return before
expenses) $1,000 $1,018.90 $6.29 $9.68
CLASS R
Actual $1,000 $ 876.50 $3.54 $6.70
Hypothetical
(5% return before
expenses) $1,000 $1,021.37 $3.81 $7.20
ADVISOR CLASS
Actual $1,000 $ 878.90 $1.18 $4.35
Hypothetical
(5% return before
expenses) $1,000 $1,023.88 $1.27 $4.67
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 0.50%; B: 1.25%; C: 1.24%; R: 0.75%; and
Advisor: 0.25%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.17%; B: 1.92%; C: 1.91%; R: 1.42%; and
Advisor: 0.92%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
14 | Annual Report
Franklin Templeton Moderate Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund
seeks the highest level of long-term total return consistent with a moderate
level of risk.(1)
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
(PIE CHART)
ASSET ALLOCATION*
Franklin Templeton Moderate Target Fund
Based on Total Net Assets as of 12/31/08
Domestic Equity............................. 35.5%
Domestic Fixed Income....................... 23.1%
Foreign Equity.............................. 16.5%
Foreign Fixed Income........................ 12.5%
Short-Term Investments & Other Net Assets... 12.4%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This annual report for Franklin Templeton Moderate Target Fund covers the fiscal
year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Moderate Target Fund - Class A had a -21.22% cumulative total
return for the 12 months under review. 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 Barclays
Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for fixed income,
and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments
and other net assets, had total returns of
(1.) The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 46.
Annual Report | 15
TOP 10 FUND HOLDINGS
Franklin Templeton Moderate Target Fund
12/31/08
% OF TOTAL NET
ASSETS
--------------
Templeton Global Bond Fund
- Advisor Class 12.5%
Franklin U.S. Government Securities
Fund - Advisor Class 12.4%
Franklin Flex Cap Growth Fund
- Advisor Class 12.0%
Mutual Shares Fund - Class Z 10.7%
Franklin Total Return Fund
- Advisor Class 8.4%
Mutual European Fund - Class Z 6.1%
Franklin Small Cap Growth Fund
- Advisor Class 5.6%
Franklin Gold and Precious Metals
Fund - Advisor Class 3.3%
Templeton Foreign Fund
- Advisor Class 3.2%
Franklin Growth Opportunities Fund
- Advisor Class 2.9%
- -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(2) You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 18.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series is intended to increase
the consistency of the Target Funds' results relative to one another. For your
reference, Franklin Templeton Moderate Target Fund seeks to maintain the
following asset class allocations: 55% equity funds, 35% fixed income funds, and
10% short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Moderate Target Fund's domestic equity
exposure was 68.3% of its total equity weighting, with the balance represented
by foreign equity. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, representing 12.0% of the
(2.) Source: (C) 2009 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 BC 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. T-Bill Index is a total return index
based on a constant maturity instrument. Payden & Rygel includes both accrued
interest and change in market price in its monthly total return calculations.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
The indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
16 | Annual Report
Fund's total net assets, was our largest equity fund weighting at period-end. On
the fixed income side, domestic exposure was 64.9% of the Fund's total income
weighting, with the balance represented by foreign fixed income. Templeton
Global Bond Fund - Advisor Class was our largest fixed income fund weighting at
12.5% of total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund -
Class Z, performed comparably to the S&P 500 during the 12-month reporting
period. However, Franklin Small Cap Growth Fund - Advisor Class lagged the S&P
500. Our largest foreign equity fund holding, Mutual European Fund - Class Z,
performed better than the MSCI EAFE Index. In contrast, Templeton Foreign Fund -
Advisor Class 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 BC U.S. Aggregate Index.
Thank you for your continued participation in Franklin Templeton Moderate Target
Fund. We look forward to serving your future investment needs.
(PHOTO 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 DECEMBER 31, 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.
Annual Report | 17
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FMTIX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$3.68 $10.67 $14.35
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.3485
Long-Term Capital Gain $0.3712
TOTAL $0.7197
CLASS B (SYMBOL: FBMTX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$3.67 $10.64 $14.31
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2545
Long-Term Capital Gain $0.3712
TOTAL $0.6257
CLASS C (SYMBOL: FTMTX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$3.64 $10.47 $14.11
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2592
Long-Term Capital Gain $0.3712
TOTAL $0.6304
CLASS R (SYMBOL: FTMRX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$3.68 $10.64 $14.32
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.3188
Long-Term Capital Gain $0.3712
TOTAL $0.6900
ADVISOR CLASS (SYMBOL: FMTZX) CHANGE 12/31/08 12/31/07
- ----------------------------- ------ -------- --------
Net Asset Value (NAV) -$3.68 $10.67 $14.35
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.3795
Long-Term Capital Gain $0.3712
TOTAL $0.7507
18 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- -------- ------- -------
Cumulative Total Return(2) -21.22% +11.69% +52.43%
Average Annual Total Return(3) -25.77% +1.03% +3.69%
Value of $10,000 Investment(4) $ 7,423 $10,524 $14,361
Total Annual Operating Expenses(5)
Without Waiver 1.46%
With Waiver 1.25%
CLASS B 1-YEAR 5-YEAR INCEPTION (12/1/03)
- ------- -------- ------- -------------------
Cumulative Total Return(2) -21.80% +7.72% +9.76%
Average Annual Total Return(3) -24.77% +1.15% +1.68%
Value of $10,000 Investment(4) $ 7,523 $10,591 $10,884
Total Annual Operating Expenses(5)
Without Waiver 2.21%
With Waiver 2.00%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- -------- ------- -------
Cumulative Total Return(2) -21.87% +7.52% +41.36%
Average Annual Total Return(3) -22.61% +1.46% +3.52%
Value of $10,000 Investment(4) $ 7,739 $10,752 $14,136
Total Annual Operating Expenses(5)
Without Waiver 2.21%
With Waiver 2.00%
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------- -------- ------- ------------------
Cumulative Total Return(2) -21.45% +10.26% +24.10%
Average Annual Total Return(3) -21.45% +1.97% +3.13%
Value of $10,000 Investment(4) $ 7,855 $11,026 $12,410
Total Annual Operating Expenses(5)
Without Waiver 1.71%
With Waiver 1.50%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- -------- ------- -------
Cumulative Total Return(2) -21.02% +12.61% +53.68%
Average Annual Total Return(3) -21.02% +2.40% +4.39%
Value of $10,000 Investment(4) $ 7,898 $11,261 $15,368
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 (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.
Annual Report | 19
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -25.77%
5-Year +1.03%
10-Year +3.69%
CLASS A (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY U.S.
MODERATE TARGET S&P 500 EAFE U.S. AGGREGATE TREASURY BILL
DATE FUND - CLASS A INDEX INDEX INDEX INDEX
- ---------- --------------- ------- ------- ---------------- ---------------
1/1/1999 $ 9,421 $10,000 $10,000 $10,000 $10,000
1/31/1999 $ 9,505 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,318 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $ 9,527 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $ 9,817 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $ 9,724 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $ 9,913 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $ 9,819 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $ 9,838 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $ 9,820 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $10,189 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $10,900 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $11,988 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $11,843 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $13,159 $11,278 $12,231 $10,005 $10,574
3/31/2000 $12,896 $12,382 $12,722 $10,137 $10,627
4/30/2000 $12,274 $12,009 $12,062 $10,108 $10,681
5/31/2000 $11,934 $11,763 $11,788 $10,103 $10,738
6/30/2000 $12,675 $12,053 $12,257 $10,313 $10,785
7/31/2000 $12,548 $11,864 $11,740 $10,407 $10,834
8/31/2000 $13,242 $12,601 $11,847 $10,558 $10,891
9/30/2000 $12,950 $11,936 $11,271 $10,624 $10,950
10/31/2000 $12,477 $11,886 $10,999 $10,694 $11,006
11/30/2000 $11,462 $10,949 $10,582 $10,869 $11,066
12/31/2000 $11,857 $11,002 $10,953 $11,071 $11,130
1/31/2001 $12,281 $11,392 $10,948 $11,252 $11,202
2/28/2001 $11,624 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,174 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $11,733 $10,451 $10,121 $11,360 $11,351
5/31/2001 $11,793 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $11,681 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $11,538 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,273 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $10,441 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $10,811 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $11,181 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $11,361 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $11,319 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $11,245 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $11,580 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $11,549 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $11,475 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $11,046 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $10,420 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $10,494 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $10,002 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $10,300 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $10,663 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $10,506 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $10,430 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $10,366 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $10,332 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $10,818 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $11,347 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $11,436 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $11,512 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $11,858 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $11,896 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $12,308 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $12,558 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $12,857 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $12,978 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $13,120 $10,034 $10,513 $14,042 $11,980
3/31/2004 $13,152 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $12,746 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $12,877 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $13,063 $10,053 $10,623 $13,801 $12,012
7/31/2004 $12,799 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $12,898 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $13,177 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $13,386 $10,016 $10,961 $14,362 $12,063
11/30/2004 $13,817 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,097 $10,776 $12,227 $14,379 $12,098
1/31/2005 $13,841 $10,513 $12,003 $14,469 $12,115
2/28/2005 $14,130 $10,734 $12,525 $14,384 $12,134
3/31/2005 $13,896 $10,544 $12,215 $14,310 $12,162
4/30/2005 $13,673 $10,344 $11,941 $14,503 $12,188
5/31/2005 $13,940 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,116 $10,689 $12,123 $14,740 $12,243
7/31/2005 $14,429 $11,086 $12,496 $14,606 $12,270
8/31/2005 $14,484 $10,985 $12,815 $14,793 $12,304
9/30/2005 $14,630 $11,074 $13,388 $14,641 $12,339
10/31/2005 $14,349 $10,889 $12,998 $14,525 $12,367
11/30/2005 $14,731 $11,301 $13,320 $14,589 $12,408
12/31/2005 $14,935 $11,305 $13,940 $14,728 $12,447
1/31/2006 $15,514 $11,604 $14,797 $14,729 $12,483
2/28/2006 $15,503 $11,636 $14,767 $14,778 $12,523
3/31/2006 $15,741 $11,781 $15,261 $14,633 $12,572
4/30/2006 $15,912 $11,939 $16,001 $14,606 $12,617
5/31/2006 $15,479 $11,595 $15,399 $14,591 $12,666
6/30/2006 $15,507 $11,611 $15,404 $14,621 $12,714
7/31/2006 $15,449 $11,683 $15,559 $14,819 $12,766
8/31/2006 $15,702 $11,961 $15,991 $15,046 $12,822
9/30/2006 $15,763 $12,269 $16,019 $15,178 $12,879
10/31/2006 $16,168 $12,669 $16,643 $15,278 $12,928
11/30/2006 $16,572 $12,909 $17,145 $15,456 $12,983
12/31/2006 $16,662 $13,091 $17,684 $15,366 $13,039
1/31/2007 $16,852 $13,289 $17,805 $15,360 $13,092
2/28/2007 $16,864 $13,029 $17,952 $15,597 $13,143
3/31/2007 $17,073 $13,174 $18,418 $15,597 $13,203
4/30/2007 $17,490 $13,758 $19,252 $15,681 $13,260
5/31/2007 $17,835 $14,238 $19,616 $15,562 $13,320
6/30/2007 $17,769 $14,001 $19,646 $15,516 $13,370
7/31/2007 $17,561 $13,567 $19,359 $15,646 $13,421
8/31/2007 $17,634 $13,771 $19,061 $15,838 $13,497
9/30/2007 $18,323 $14,286 $20,084 $15,958 $13,546
10/31/2007 $18,840 $14,513 $20,876 $16,101 $13,587
11/30/2007 $18,274 $13,906 $20,195 $16,391 $13,648
12/31/2007 $18,228 $13,810 $19,741 $16,437 $13,680
1/31/2008 $17,555 $12,981 $17,920 $16,713 $13,750
2/29/2008 $17,529 $12,560 $18,182 $16,736 $13,774
3/31/2008 $17,333 $12,505 $17,999 $16,793 $13,806
4/30/2008 $17,856 $13,115 $18,999 $16,758 $13,820
5/31/2008 $18,123 $13,284 $19,220 $16,635 $13,827
6/30/2008 $17,281 $12,164 $17,652 $16,622 $13,848
7/31/2008 $17,097 $12,062 $17,087 $16,608 $13,876
8/31/2008 $17,137 $12,237 $16,399 $16,766 $13,895
9/30/2008 $16,062 $11,146 $14,034 $16,541 $13,933
10/31/2008 $14,329 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $13,918 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $14,361 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 43.61% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08
- ------- --------
1-Year -24.77%
5-Year +1.15%
Since Inception (12/1/03) +1.68%
CLASS B (12/1/03-12/31/08)
(PERFORMANCE GRAPH)
BARCLAYS
FRANKLIN TEMPLETON MSCI CAPITAL U.S. P&R 90-DAY
MODERATE TARGET S&P 500 EAFE AGGREGATE U.S. Treasury
DATE FUND - CLASS B INDEX INDEX INDEX BILL INDEX
- ------------- ------------------ ------- ------- ------------ -------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,189 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,284 $10,718 $10,935 $10,183 $10,016
2/29/2004 $10,389 $10,867 $11,189 $10,293 $10,023
3/31/2004 $10,410 $10,703 $11,257 $10,370 $10,031
4/30/2004 $10,088 $10,535 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,327 $10,887 $11,306 $10,117 $10,050
7/31/2004 $10,110 $10,527 $10,941 $10,217 $10,059
8/31/2004 $10,188 $10,569 $10,991 $10,412 $10,069
9/30/2004 $10,393 $10,684 $11,280 $10,440 $10,080
10/31/2004 $10,550 $10,847 $11,666 $10,528 $10,092
11/30/2004 $10,890 $11,286 $12,466 $10,444 $10,102
12/31/2004 $11,098 $11,670 $13,013 $10,540 $10,122
1/31/2005 $10,896 $11,385 $12,775 $10,606 $10,136
2/28/2005 $11,115 $11,625 $13,330 $10,544 $10,151
3/31/2005 $10,917 $11,419 $13,001 $10,490 $10,175
4/30/2005 $10,742 $11,202 $12,710 $10,632 $10,196
5/31/2005 $10,944 $11,559 $12,729 $10,747 $10,220
6/30/2005 $11,079 $11,575 $12,903 $10,805 $10,243
7/31/2005 $11,317 $12,006 $13,299 $10,707 $10,265
8/31/2005 $11,352 $11,896 $13,639 $10,844 $10,293
9/30/2005 $11,454 $11,993 $14,250 $10,732 $10,323
10/31/2005 $11,225 $11,793 $13,834 $10,647 $10,347
11/30/2005 $11,516 $12,239 $14,177 $10,695 $10,381
12/31/2005 $11,672 $12,243 $14,837 $10,796 $10,414
1/31/2006 $12,118 $12,567 $15,749 $10,797 $10,443
2/28/2006 $12,100 $12,601 $15,717 $10,833 $10,477
3/31/2006 $12,274 $12,758 $16,243 $10,726 $10,518
4/30/2006 $12,408 $12,929 $17,030 $10,707 $10,555
5/31/2006 $12,060 $12,557 $16,389 $10,695 $10,597
6/30/2006 $12,075 $12,574 $16,395 $10,718 $10,637
7/31/2006 $12,021 $12,652 $16,560 $10,863 $10,680
8/31/2006 $12,209 $12,953 $17,019 $11,029 $10,727
9/30/2006 $12,252 $13,287 $17,049 $11,126 $10,774
10/31/2006 $12,559 $13,720 $17,714 $11,200 $10,816
11/30/2006 $12,856 $13,981 $18,248 $11,330 $10,862
12/31/2006 $12,922 $14,177 $18,822 $11,264 $10,909
1/31/2007 $13,060 $14,391 $18,951 $11,259 $10,953
2/28/2007 $13,070 $14,110 $19,106 $11,433 $10,996
3/31/2007 $13,216 $14,267 $19,603 $11,433 $11,046
4/30/2007 $13,530 $14,899 $20,491 $11,495 $11,094
5/31/2007 $13,789 $15,419 $20,878 $11,408 $11,143
6/30/2007 $13,729 $15,163 $20,910 $11,374 $11,185
7/31/2007 $13,559 $14,693 $20,604 $11,469 $11,228
8/31/2007 $13,606 $14,913 $20,287 $11,610 $11,292
9/30/2007 $14,133 $15,471 $21,376 $11,698 $11,333
10/31/2007 $14,523 $15,717 $22,219 $11,803 $11,367
11/30/2007 $14,076 $15,060 $21,494 $12,015 $11,419
12/31/2007 $14,034 $14,955 $21,011 $12,049 $11,445
1/31/2008 $13,495 $14,058 $19,072 $12,251 $11,504
2/29/2008 $13,475 $13,602 $19,352 $12,268 $11,524
3/31/2008 $13,317 $13,543 $19,157 $12,310 $11,550
4/30/2008 $13,710 $14,203 $20,222 $12,284 $11,562
5/31/2008 $13,907 $14,387 $20,457 $12,194 $11,568
6/30/2008 $13,244 $13,174 $18,788 $12,184 $11,586
7/31/2008 $13,103 $13,063 $18,187 $12,174 $11,609
8/31/2008 $13,123 $13,252 $17,454 $12,290 $11,624
9/30/2008 $12,292 $12,071 $14,937 $12,125 $11,656
10/31/2008 $10,961 $10,044 $11,923 $11,839 $11,674
11/30/2008 $10,636 $ 9,323 $11,285 $12,224 $11,687
12/31/2008 $10,884 $ 9,422 $11,964 $12,680 $11,685
------- ------- ------- ------- -------
Total Returns 8.84% -5.78% 19.64% 26.80% 16.85%
======= ======= ======= ======= =======
20 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -22.61%
5-Year +1.46%
10-Year +3.52%
CLASS C (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BARCLAYS
TEMPLETON MODERATE CAPITAL U.S. P&R 90-DAY
TARGET FUND - S&P 500 MSCI EAFE U.S. AGGREGATE TREASURY
DATE CLASS C INDEX INDEX INDEX BILL INDEX
- ------------- ------------------ -------- --------- -------------- -----------
1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1999 $10,080 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,880 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $10,091 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $10,391 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $10,281 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $10,474 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $10,373 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $10,383 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $10,363 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $10,748 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $11,487 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $12,630 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $12,465 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $13,836 $11,278 $12,231 $10,005 $10,574
3/31/2000 $13,562 $12,382 $12,722 $10,137 $10,627
4/30/2000 $12,900 $12,009 $12,062 $10,108 $10,681
5/31/2000 $12,528 $11,763 $11,788 $10,103 $10,738
6/30/2000 $13,313 $12,053 $12,257 $10,313 $10,785
7/31/2000 $13,157 $11,864 $11,740 $10,407 $10,834
8/31/2000 $13,884 $12,601 $11,847 $10,558 $10,891
9/30/2000 $13,569 $11,936 $11,271 $10,624 $10,950
10/31/2000 $13,056 $11,886 $10,999 $10,694 $11,006
11/30/2000 $11,990 $10,949 $10,582 $10,869 $11,066
12/31/2000 $12,399 $11,002 $10,953 $11,071 $11,130
1/31/2001 $12,837 $11,392 $10,948 $11,252 $11,202
2/28/2001 $12,142 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,662 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $12,241 $10,451 $10,121 $11,360 $11,351
5/31/2001 $12,295 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $12,165 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $12,014 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,734 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $10,857 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $11,236 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $11,604 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $11,786 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $11,731 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $11,653 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $12,004 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $11,959 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $11,870 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $11,420 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $10,776 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $10,831 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $10,328 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $10,618 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $10,997 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $10,819 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $10,729 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $10,662 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $10,623 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $11,107 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $11,647 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $11,732 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $11,799 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $12,148 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $12,189 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $12,595 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $12,843 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $13,147 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $13,261 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $13,397 $10,034 $10,513 $14,042 $11,980
3/31/2004 $13,414 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $13,005 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $13,119 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $13,310 $10,053 $10,623 $13,801 $12,012
7/31/2004 $13,025 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $13,116 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $13,391 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $13,596 $10,016 $10,961 $14,362 $12,063
11/30/2004 $14,029 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,295 $10,776 $12,227 $14,379 $12,098
1/31/2005 $14,032 $10,513 $12,003 $14,469 $12,115
2/28/2005 $14,318 $10,734 $12,525 $14,384 $12,134
3/31/2005 $14,071 $10,544 $12,215 $14,310 $12,162
4/30/2005 $13,842 $10,344 $11,941 $14,503 $12,188
5/31/2005 $14,105 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,271 $10,689 $12,123 $14,740 $12,243
7/31/2005 $14,581 $11,086 $12,496 $14,606 $12,270
8/31/2005 $14,627 $10,985 $12,815 $14,793 $12,304
9/30/2005 $14,760 $11,074 $13,388 $14,641 $12,339
10/31/2005 $14,461 $10,889 $12,998 $14,525 $12,367
11/30/2005 $14,841 $11,301 $13,320 $14,589 $12,408
12/31/2005 $15,046 $11,305 $13,940 $14,728 $12,447
1/31/2006 $15,616 $11,604 $14,797 $14,729 $12,483
2/28/2006 $15,593 $11,636 $14,767 $14,778 $12,523
3/31/2006 $15,820 $11,781 $15,261 $14,633 $12,572
4/30/2006 $15,995 $11,939 $16,001 $14,606 $12,617
5/31/2006 $15,541 $11,595 $15,399 $14,591 $12,666
6/30/2006 $15,563 $11,611 $15,404 $14,621 $12,714
7/31/2006 $15,492 $11,683 $15,559 $14,819 $12,766
8/31/2006 $15,739 $11,961 $15,991 $15,046 $12,822
9/30/2006 $15,784 $12,269 $16,019 $15,178 $12,879
10/31/2006 $16,184 $12,669 $16,643 $15,278 $12,928
11/30/2006 $16,572 $12,909 $17,145 $15,456 $12,983
12/31/2006 $16,658 $13,091 $17,684 $15,366 $13,039
1/31/2007 $16,839 $13,289 $17,805 $15,360 $13,092
2/28/2007 $16,839 $13,029 $17,952 $15,597 $13,143
3/31/2007 $17,031 $13,174 $18,418 $15,597 $13,203
4/30/2007 $17,442 $13,758 $19,252 $15,681 $13,260
5/31/2007 $17,768 $14,238 $19,616 $15,562 $13,320
6/30/2007 $17,704 $14,001 $19,646 $15,516 $13,370
7/31/2007 $17,481 $13,567 $19,359 $15,646 $13,421
8/31/2007 $17,530 $13,771 $19,061 $15,838 $13,497
9/30/2007 $18,207 $14,286 $20,084 $15,958 $13,546
10/31/2007 $18,717 $14,513 $20,876 $16,101 $13,587
11/30/2007 $18,145 $13,906 $20,195 $16,391 $13,648
12/31/2007 $18,092 $13,810 $19,741 $16,437 $13,680
1/31/2008 $17,400 $12,981 $17,920 $16,713 $13,750
2/29/2008 $17,374 $12,560 $18,182 $16,736 $13,774
3/31/2008 $17,155 $12,505 $17,999 $16,793 $13,806
4/30/2008 $17,669 $13,115 $18,999 $16,758 $13,820
5/31/2008 $17,926 $13,284 $19,220 $16,635 $13,827
6/30/2008 $17,076 $12,164 $17,652 $16,622 $13,848
7/31/2008 $16,891 $12,062 $17,087 $16,608 $13,876
8/31/2008 $16,917 $12,237 $16,399 $16,766 $13,895
9/30/2008 $15,844 $11,146 $14,034 $16,541 $13,933
10/31/2008 $14,129 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $13,704 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $14,136 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 41.36% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------- --------
1-Year -21.45%
5-Year +1.97%
Since Inception (1/1/02) +3.13%
CLASS R (1/1/02-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY
MODERATE TARGET S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY
DATE FUND - CLASS R INDEX INDEX INDEX BILL INDEX
- ------------- ------------------ ------- ------- ---------------- --------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,954 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,889 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,182 $10,027 $10,057 $10,009 $10,042
4/30/2002 $10,154 $ 9,420 $10,130 $10,204 $10,057
5/31/2002 $10,089 $ 9,350 $10,267 $10,290 $10,073
6/30/2002 $ 9,703 $ 8,684 $ 9,862 $10,379 $10,088
7/31/2002 $ 9,162 $ 8,007 $ 8,889 $10,505 $10,102
8/31/2002 $ 9,218 $ 8,060 $ 8,871 $10,682 $10,117
9/30/2002 $ 8,787 $ 7,184 $ 7,921 $10,855 $10,133
10/31/2002 $ 9,040 $ 7,816 $ 8,347 $10,806 $10,149
11/30/2002 $ 9,360 $ 8,276 $ 8,727 $10,803 $10,165
12/31/2002 $ 9,212 $ 7,790 $ 8,434 $11,026 $10,175
1/31/2003 $ 9,146 $ 7,586 $ 8,083 $11,035 $10,186
2/28/2003 $ 9,089 $ 7,472 $ 7,898 $11,188 $10,195
3/31/2003 $ 9,066 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 9,483 $ 8,166 $ 8,517 $11,272 $10,217
5/31/2003 $ 9,948 $ 8,596 $ 9,041 $11,482 $10,227
6/30/2003 $10,021 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $10,088 $ 8,859 $ 9,491 $11,074 $10,247
8/31/2003 $10,383 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $10,420 $ 8,936 $10,023 $11,442 $10,263
10/31/2003 $10,772 $ 9,442 $10,648 $11,336 $10,272
11/30/2003 $10,991 $ 9,525 $10,887 $11,363 $10,280
12/31/2003 $11,256 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,361 $10,208 $11,904 $11,571 $10,297
2/29/2004 $11,477 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,500 $10,194 $12,255 $11,784 $10,312
4/30/2004 $11,153 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,259 $10,172 $12,040 $11,431 $10,326
6/30/2004 $11,424 $10,370 $12,308 $11,496 $10,331
7/31/2004 $11,193 $10,026 $11,911 $11,610 $10,341
8/31/2004 $11,270 $10,067 $11,966 $11,831 $10,351
9/30/2004 $11,507 $10,176 $12,280 $11,863 $10,363
10/31/2004 $11,690 $10,332 $12,700 $11,963 $10,375
11/30/2004 $12,067 $10,750 $13,571 $11,867 $10,385
12/31/2004 $12,303 $11,115 $14,167 $11,976 $10,405
1/31/2005 $12,079 $10,844 $13,908 $12,052 $10,420
2/28/2005 $12,332 $11,073 $14,512 $11,981 $10,436
3/31/2005 $12,122 $10,877 $14,153 $11,919 $10,460
4/30/2005 $11,927 $10,670 $13,837 $12,080 $10,482
5/31/2005 $12,161 $11,010 $13,858 $12,211 $10,506
6/30/2005 $12,317 $11,025 $14,047 $12,278 $10,530
7/31/2005 $12,581 $11,435 $14,479 $12,166 $10,553
8/31/2005 $12,630 $11,331 $14,849 $12,322 $10,582
9/30/2005 $12,748 $11,423 $15,513 $12,195 $10,612
10/31/2005 $12,504 $11,232 $15,061 $12,098 $10,636
11/30/2005 $12,836 $11,657 $15,433 $12,152 $10,672
12/31/2005 $13,007 $11,661 $16,153 $12,267 $10,705
1/31/2006 $13,513 $11,970 $17,145 $12,268 $10,736
2/28/2006 $13,503 $12,003 $17,110 $12,309 $10,770
3/31/2006 $13,700 $12,152 $17,683 $12,188 $10,812
4/30/2006 $13,849 $12,315 $18,540 $12,166 $10,851
5/31/2006 $13,472 $11,961 $17,843 $12,153 $10,893
6/30/2006 $13,496 $11,977 $17,849 $12,179 $10,934
7/31/2006 $13,436 $12,051 $18,028 $12,343 $10,979
8/31/2006 $13,657 $12,338 $18,528 $12,532 $11,028
9/30/2006 $13,702 $12,655 $18,561 $12,642 $11,076
10/31/2006 $14,053 $13,068 $19,284 $12,726 $11,119
11/30/2006 $14,396 $13,316 $19,866 $12,874 $11,166
12/31/2006 $14,473 $13,503 $20,491 $12,799 $11,215
1/31/2007 $14,639 $13,707 $20,631 $12,794 $11,260
2/28/2007 $14,649 $13,439 $20,800 $12,991 $11,304
3/31/2007 $14,826 $13,590 $21,340 $12,991 $11,355
4/30/2007 $15,178 $14,192 $22,308 $13,061 $11,404
5/31/2007 $15,478 $14,687 $22,729 $12,962 $11,455
6/30/2007 $15,421 $14,443 $22,764 $12,924 $11,499
7/31/2007 $15,240 $13,995 $22,431 $13,032 $11,542
8/31/2007 $15,293 $14,205 $22,086 $13,192 $11,608
9/30/2007 $15,894 $14,736 $23,272 $13,292 $11,650
10/31/2007 $16,343 $14,970 $24,189 $13,411 $11,686
11/30/2007 $15,840 $14,345 $23,399 $13,652 $11,738
12/31/2007 $15,799 $14,245 $22,874 $13,691 $11,766
1/31/2008 $15,203 $13,391 $20,763 $13,921 $11,826
2/29/2008 $15,192 $12,956 $21,067 $13,940 $11,846
3/31/2008 $15,004 $12,900 $20,856 $13,987 $11,874
4/30/2008 $15,458 $13,528 $22,015 $13,958 $11,886
5/31/2008 $15,691 $13,703 $22,271 $13,856 $11,892
6/30/2008 $14,948 $12,548 $20,454 $13,845 $11,910
7/31/2008 $14,789 $12,442 $19,799 $13,833 $11,934
8/31/2008 $14,823 $12,622 $19,002 $13,965 $11,950
9/30/2008 $13,893 $11,498 $16,261 $13,777 $11,983
10/31/2008 $12,390 $ 9,567 $12,981 $13,452 $12,001
11/30/2008 $12,034 $ 8,880 $12,285 $13,890 $12,014
12/31/2008 $12,410 $ 8,975 $13,025 $14,408 $12,012
------- ------- ------- ------- -------
Total Returns 24.10% -10.25% 30.25% 44.08% 20.12%
======= ======= ======= ======= =======
Annual Report | 21
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/08
- ---------------- --------
1-Year -21.02%
5-Year +2.40%
10-Year +4.39%
ADVISOR CLASS (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON
MODERATE TARGET MSCI BARCLAYS CAPITAL P&R 90-DAY
FUND - ADVISOR S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY
DATE CLASS INDEX INDEX INDEX BILL INDEX
- ------------- ------------------ -------- -------- ---------------- -------------
1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1999 $10,089 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,891 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $10,112 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $10,420 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $10,321 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $10,522 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $10,423 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $10,442 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $10,423 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $10,815 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $11,570 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $12,725 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $12,571 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $13,967 $11,278 $12,231 $10,005 $10,574
3/31/2000 $13,689 $12,382 $12,722 $10,137 $10,627
4/30/2000 $13,028 $12,009 $12,062 $10,108 $10,681
5/31/2000 $12,667 $11,763 $11,788 $10,103 $10,738
6/30/2000 $13,454 $12,053 $12,257 $10,313 $10,785
7/31/2000 $13,319 $11,864 $11,740 $10,407 $10,834
8/31/2000 $14,056 $12,601 $11,847 $10,558 $10,891
9/30/2000 $13,745 $11,936 $11,271 $10,624 $10,950
10/31/2000 $13,243 $11,886 $10,999 $10,694 $11,006
11/30/2000 $12,166 $10,949 $10,582 $10,869 $11,066
12/31/2000 $12,585 $11,002 $10,953 $11,071 $11,130
1/31/2001 $13,036 $11,392 $10,948 $11,252 $11,202
2/28/2001 $12,339 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,861 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $12,453 $10,451 $10,121 $11,360 $11,351
5/31/2001 $12,518 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $12,399 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $12,247 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,966 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $11,083 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $11,476 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $11,868 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $12,059 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $12,014 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $11,936 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $12,292 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $12,258 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $12,180 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $11,725 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $11,060 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $11,139 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $10,616 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $10,933 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $11,318 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $11,151 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $11,071 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $11,003 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $10,967 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $11,483 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $12,044 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $12,139 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $12,219 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $12,587 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $12,626 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $13,064 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $13,329 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $13,647 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $13,775 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $13,926 $10,034 $10,513 $14,042 $11,980
3/31/2004 $13,960 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $13,529 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $13,669 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $13,866 $10,053 $10,623 $13,801 $12,012
7/31/2004 $13,586 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $13,691 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $13,986 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $14,209 $10,016 $10,961 $14,362 $12,063
11/30/2004 $14,666 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,963 $10,776 $12,227 $14,379 $12,098
1/31/2005 $14,692 $10,513 $12,003 $14,469 $12,115
2/28/2005 $14,999 $10,734 $12,525 $14,384 $12,134
3/31/2005 $14,749 $10,544 $12,215 $14,310 $12,162
4/30/2005 $14,513 $10,344 $11,941 $14,503 $12,188
5/31/2005 $14,797 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,983 $10,689 $12,123 $14,740 $12,243
7/31/2005 $15,315 $11,086 $12,496 $14,606 $12,270
8/31/2005 $15,374 $10,985 $12,815 $14,793 $12,304
9/30/2005 $15,529 $11,074 $13,388 $14,641 $12,339
10/31/2005 $15,231 $10,889 $12,998 $14,525 $12,367
11/30/2005 $15,636 $11,301 $13,320 $14,589 $12,408
12/31/2005 $15,862 $11,305 $13,940 $14,728 $12,447
1/31/2006 $16,490 $11,604 $14,797 $14,729 $12,483
2/28/2006 $16,477 $11,636 $14,767 $14,778 $12,523
3/31/2006 $16,729 $11,781 $15,261 $14,633 $12,572
4/30/2006 $16,922 $11,939 $16,001 $14,606 $12,617
5/31/2006 $16,462 $11,595 $15,399 $14,591 $12,666
6/30/2006 $16,502 $11,611 $15,404 $14,621 $12,714
7/31/2006 $16,441 $11,683 $15,559 $14,819 $12,766
8/31/2006 $16,710 $11,961 $15,991 $15,046 $12,822
9/30/2006 $16,773 $12,269 $16,019 $15,178 $12,879
10/31/2006 $17,216 $12,669 $16,643 $15,278 $12,928
11/30/2006 $17,646 $12,909 $17,145 $15,456 $12,983
12/31/2006 $17,744 $13,091 $17,684 $15,366 $13,039
1/31/2007 $17,959 $13,289 $17,805 $15,360 $13,092
2/28/2007 $17,972 $13,029 $17,952 $15,597 $13,143
3/31/2007 $18,189 $13,174 $18,418 $15,597 $13,203
4/30/2007 $18,633 $13,758 $19,252 $15,681 $13,260
5/31/2007 $19,014 $14,238 $19,616 $15,562 $13,320
6/30/2007 $18,955 $14,001 $19,646 $15,516 $13,370
7/31/2007 $18,733 $13,567 $19,359 $15,646 $13,421
8/31/2007 $18,798 $13,771 $19,061 $15,838 $13,497
9/30/2007 $19,544 $14,286 $20,084 $15,958 $13,546
10/31/2007 $20,108 $14,513 $20,876 $16,101 $13,587
11/30/2007 $19,505 $13,906 $20,195 $16,391 $13,648
12/31/2007 $19,458 $13,810 $19,741 $16,437 $13,680
1/31/2008 $18,740 $12,981 $17,920 $16,713 $13,750
2/29/2008 $18,726 $12,560 $18,182 $16,736 $13,774
3/31/2008 $18,511 $12,505 $17,999 $16,793 $13,806
4/30/2008 $19,082 $13,115 $18,999 $16,758 $13,820
5/31/2008 $19,368 $13,284 $19,220 $16,635 $13,827
6/30/2008 $18,470 $12,164 $17,652 $16,622 $13,848
7/31/2008 $18,273 $12,062 $17,087 $16,608 $13,876
8/31/2008 $18,330 $12,237 $16,399 $16,766 $13,895
9/30/2008 $17,178 $11,146 $14,034 $16,541 $13,933
10/31/2008 $15,324 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $14,886 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $15,368 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 53.68% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
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 THE FUND INVESTS IN UNDERLYING FUNDS THAT 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 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 Shares are available to certain eligible investors as described in
CLASS: the prospectus.
(1.) If the manager had not waived fees, the Fund's total returns would have
been lower.
(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were -2.46% and -0.80%.
(7.) Sources: (C) 2009 Morningstar; Payden & Rygel. See page 16 for descriptions
of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the
Payden & Rygel 90 Day U.S. T-Bill Index.
22 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON MODERATE TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 23
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
------------- ------------- ---------------- -----------------
CLASS A
Actual $1,000 $ 831.00 $2.39 $ 5.75
Hypothetical
(5% return before expenses) $1,000 $1,022.52 $2.64 $ 6.34
CLASS B
Actual $1,000 $ 828.70 $5.84 $ 9.19
Hypothetical
(5% return before expenses) $1,000 $1,018.75 $6.44 $10.13
CLASS C
Actual $1,000 $ 827.80 $5.83 $ 9.19
Hypothetical
(5% return before expenses) $1,000 $1,018.75 $6.44 $10.13
CLASS R
Actual $1,000 $ 830.20 $3.54 $ 6.90
Hypothetical
(5% return before expenses) $1,000 $1,021.27 $3.91 $ 7.61
ADVISOR CLASS
Actual $1,000 $ 832.00 $1.24 $ 4.61
Hypothetical
(5% return before expenses) $1,000 $1,023.78 $1.37 $ 5.08
* 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 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.25%; B: 2.00%; C: 2.00%; R: 1.50%; and
Advisor: 1.00%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
24 | Annual Report
Franklin Templeton Growth Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Growth Target Fund
seeks the highest level of long-term total return consistent with a higher level
of risk.(1)
ASSET ALLOCATION*
Franklin Templeton Growth Target Fund
Based on Total Net Assets as of 12/31/08
(PIE CHART)
Domestic Equity ........... 53.7%
Foreign Equity ............ 24.2%
Domestic Fixed Income ..... 11.0%
Foreign Fixed Income ...... 5.9%
Short-Term Investments &
Other Net Assets ....... 5.2%
* 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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin Templeton Growth Target Fund covers the fiscal
year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Growth Target Fund - Class A had a -30.75% cumulative total
return for the 12 months under review. 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 Barclays
Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for fixed income,
and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments
and other net assets, had total returns of
(1.) The risk/reward potential is based on the Fund's goal and level of risk. It
is not indicative of the Fund's actual or implied performance or portfolio
composition, which may change on a continuous basis.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 52.
Annual Report | 25
TOP 10 FUND HOLDINGS
Franklin Templeton Growth Target Fund
12/31/08
% OF TOTAL
NET ASSETS
----------
Franklin Flex Cap Growth Fund
- Advisor Class 18.1%
Mutual Shares Fund - Class Z 16.3%
Mutual European Fund - Class Z 8.9%
Franklin Small Cap Growth Fund
- Advisor Class 8.5%
Franklin U.S. Government Securities
Fund - Advisor Class 5.9%
Templeton Global Bond Fund
- Advisor Class 5.9%
Templeton Foreign Fund
- Advisor Class 4.9%
Franklin Gold and Precious Metals
Fund - Advisor Class 4.8%
Franklin Growth Opportunities
Fund - Advisor Class 4.1%
Franklin Total Return Fund
- Advisor Class 3.9%
- -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(2) You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 28.
INVESTMENT STRATEGY
Whenever possible, we attempt to hold the same underlying Franklin Templeton
funds in each Target Fund's portfolio. We generally diversify the Target Funds'
broad equity allocations across investment styles, market capitalization sizes
and countries of origin. Maintaining similarity of the underlying Franklin
Templeton fund investments across the Allocator Series is intended to increase
the consistency of the Target Funds' results relative to one another. For your
reference, Franklin Templeton Growth Target Fund seeks to maintain the following
asset class allocations: 80% equity funds, 15% fixed income funds, and 5%
short-term investments and other net assets.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to maintaining a static
allocation among equities, fixed income securities, and short-term investments
and other net assets, and by the actual performance of the selected underlying
funds.
At period-end, Franklin Templeton Growth Target Fund's domestic equity exposure
was 68.9% of its total equity weighting, with the balance represented by foreign
equity. The portfolio was diversified across capitalization sizes and investment
styles, and on December 31, 2008, we held shares in large-, mid- and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, representing 18.1% of the Fund's
total net assets, was our largest equity fund weighting at period-end.
(2.) Source: (C) 2009 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 BC 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. T-Bill Index is a total return index
based on a constant maturity instrument. Payden & Rygel includes both accrued
interest and change in market price in its monthly total return calculations.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
The indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
26 | Annual Report
On the fixed income side, domestic exposure was 65.1% of the Fund's total income
weighting, with the balance represented by 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 5.9% of total net
assets each.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund -
Class Z, performed comparably to the S&P 500 during the 12-month reporting
period. However, Franklin Small Cap Growth Fund - Advisor Class lagged the S&P
500. Our largest foreign equity fund holding, Mutual European Fund - Class Z,
performed better than the MSCI EAFE Index. In contrast, Templeton Foreign Fund -
Advisor Class 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 BC U.S. Aggregate Index.
Thank you for your continued participation in Franklin Templeton Growth Target
Fund. We look forward to serving your future investment needs.
(PHOTO 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 DECEMBER 31, 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.
Annual Report | 27
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FGTIX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.69 $10.48 $16.17
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2182
Long-Term Capital Gain $0.6580
TOTAL $0.8762
CLASS B (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$5.59 $10.32 $15.91
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1242
Long-Term Capital Gain $0.6580
TOTAL $0.7822
CLASS C (SYMBOL: FTGTX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.59 $10.31 $15.90
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1241
Long-Term Capital Gain $0.6580
TOTAL $0.7821
CLASS R (SYMBOL: FGTRX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.64 $10.38 $16.02
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1948
Long-Term Capital Gain $0.6580
TOTAL $0.8528
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$5.70 $10.49 $16.19
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2511
Long-Term Capital Gain $0.6580
TOTAL $0.9091
28 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -------- ------- ------ -------
Cumulative Total Return(2) -30.75% +5.28% +38.84%
Average Annual Total Return(3) -34.75% -0.16% +2.72%
Value of $10,000 Investment(4) $ 6,525 $9,920 $13,083
Total Annual Operating Expenses(5)
Without Waiver 1.58%
With Waiver 1.33%
INCEPTION
CLASS B 1-YEAR 5-YEAR (12/1/03)
- ------- ------- ------ ---------
Cumulative Total Return(2) -31.24% +1.43% +3.21%
Average Annual Total Return(3) -33.84% -0.06% +0.46%
Value of $10,000 Investment(4) $ 6,616 $9,970 $10,234
Total Annual Operating Expenses(5)
Without Waiver 2.33%
With Waiver 2.08%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(2) -31.26% +1.39% +28.78%
Average Annual Total Return(3) -31.91% +0.28% +2.56%
Value of $10,000 Investment(4) $ 6,809 $10,139 $12,878
Total Annual Operating Expenses(5)
Without Waiver 2.33%
With Waiver 2.08%
INCEPTION
CLASS R 1-YEAR 5-YEAR (1/1/02)
- ------- ------- ------- ---------
Cumulative Total Return(2) -30.92% +3.95% +14.73%
Average Annual Total Return(3) -30.92% +0.78% +1.98%
Value of $10,000 Investment(4) $ 6,908 $10,395 $11,473
Total Annual Operating Expenses(5)
Without Waiver 1.83%
With Waiver 1.58%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- -------
Cumulative Total Return(2) -30.56% +6.12% +39.94%
Average Annual Total Return(3) -30.56% +1.19% +3.42%
Value of $10,000 Investment(4) $ 6,944 $10,612 $13,994
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 (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.
Annual Report | 29
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -34.75%
5-Year -0.16%
10-Year +2.72%
CLASS A (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY
FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY
DATE TARGET FUND - CLASS A INDEX INDEX AGGREGATE INDEX INDEX
- ------------- ------------------------- ------- --------- ------------------ -------------
1/1/1999 $ 9,423 $10,000 $10,000 $10,000 $10,000
1/31/1999 $ 9,570 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,368 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $ 9,643 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $10,027 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $ 9,908 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $10,201 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $10,082 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $10,137 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $10,132 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $10,667 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $11,627 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $13,302 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $13,081 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $15,137 $11,278 $12,231 $10,005 $10,574
3/31/2000 $14,702 $12,382 $12,722 $10,137 $10,627
4/30/2000 $13,712 $12,009 $12,062 $10,108 $10,681
5/31/2000 $13,164 $11,763 $11,788 $10,103 $10,738
6/30/2000 $14,248 $12,053 $12,257 $10,313 $10,785
7/31/2000 $13,969 $11,864 $11,740 $10,407 $10,834
8/31/2000 $15,067 $12,601 $11,847 $10,558 $10,891
9/30/2000 $14,583 $11,936 $11,271 $10,624 $10,950
10/31/2000 $13,818 $11,886 $10,999 $10,694 $11,006
11/30/2000 $12,151 $10,949 $10,582 $10,869 $11,066
12/31/2000 $12,620 $11,002 $10,953 $11,071 $11,130
1/31/2001 $13,196 $11,392 $10,948 $11,252 $11,202
2/28/2001 $12,003 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,288 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $12,073 $10,451 $10,121 $11,360 $11,351
5/31/2001 $12,113 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $11,892 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $11,603 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,134 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $ 9,928 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $10,408 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $10,928 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $11,190 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $11,087 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $10,934 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $11,446 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $11,282 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $11,159 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $10,565 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $ 9,695 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $ 9,726 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $ 9,030 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $ 9,408 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $ 9,869 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $ 9,550 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $ 9,416 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $ 9,292 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $ 9,261 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $ 9,850 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $10,482 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $10,595 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $10,823 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $11,268 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $11,206 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $11,796 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $12,116 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $12,426 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $12,583 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $12,739 $10,034 $10,513 $14,042 $11,980
3/31/2004 $12,760 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $12,312 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $12,478 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $12,739 $10,053 $10,623 $13,801 $12,012
7/31/2004 $12,343 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $12,385 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $12,718 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $12,948 $10,016 $10,961 $14,362 $12,063
11/30/2004 $13,501 $10,421 $11,712 $14,248 $12,075
12/31/2004 $13,829 $10,776 $12,227 $14,379 $12,098
1/31/2005 $13,482 $10,513 $12,003 $14,469 $12,115
2/28/2005 $13,871 $10,734 $12,525 $14,384 $12,134
3/31/2005 $13,577 $10,544 $12,215 $14,310 $12,162
4/30/2005 $13,251 $10,344 $11,941 $14,503 $12,188
5/31/2005 $13,619 $10,673 $11,960 $14,660 $12,216
6/30/2005 $13,861 $10,689 $12,123 $14,740 $12,243
7/31/2005 $14,313 $11,086 $12,496 $14,606 $12,270
8/31/2005 $14,345 $10,985 $12,815 $14,793 $12,304
9/30/2005 $14,604 $11,074 $13,388 $14,641 $12,339
10/31/2005 $14,226 $10,889 $12,998 $14,525 $12,367
11/30/2005 $14,752 $11,301 $13,320 $14,589 $12,408
12/31/2005 $14,999 $11,305 $13,940 $14,728 $12,447
1/31/2006 $15,765 $11,604 $14,797 $14,729 $12,483
2/28/2006 $15,733 $11,636 $14,767 $14,778 $12,523
3/31/2006 $16,116 $11,781 $15,261 $14,633 $12,572
4/30/2006 $16,307 $11,939 $16,001 $14,606 $12,617
5/31/2006 $15,668 $11,595 $15,399 $14,591 $12,666
6/30/2006 $15,732 $11,611 $15,404 $14,621 $12,714
7/31/2006 $15,561 $11,683 $15,559 $14,819 $12,766
8/31/2006 $15,870 $11,961 $15,991 $15,046 $12,822
9/30/2006 $15,922 $12,269 $16,019 $15,178 $12,879
10/31/2006 $16,457 $12,669 $16,643 $15,278 $12,928
11/30/2006 $16,949 $12,909 $17,145 $15,456 $12,983
12/31/2006 $17,084 $13,091 $17,684 $15,366 $13,039
1/31/2007 $17,379 $13,289 $17,805 $15,360 $13,092
2/28/2007 $17,325 $13,029 $17,952 $15,597 $13,143
3/31/2007 $17,580 $13,174 $18,418 $15,597 $13,203
4/30/2007 $18,105 $13,758 $19,252 $15,681 $13,260
5/31/2007 $18,608 $14,238 $19,616 $15,562 $13,320
6/30/2007 $18,539 $14,001 $19,646 $15,516 $13,370
7/31/2007 $18,178 $13,567 $19,359 $15,646 $13,421
8/31/2007 $18,279 $13,771 $19,061 $15,838 $13,497
9/30/2007 $19,165 $14,286 $20,084 $15,958 $13,546
10/31/2007 $19,856 $14,513 $20,876 $16,101 $13,587
11/30/2007 $18,973 $13,906 $20,195 $16,391 $13,648
12/31/2007 $18,892 $13,810 $19,741 $16,437 $13,680
1/31/2008 $17,712 $12,981 $17,920 $16,713 $13,750
2/29/2008 $17,642 $12,560 $18,182 $16,736 $13,774
3/31/2008 $17,326 $12,505 $17,999 $16,793 $13,806
4/30/2008 $18,097 $13,115 $18,999 $16,758 $13,820
5/31/2008 $18,530 $13,284 $19,220 $16,635 $13,827
6/30/2008 $17,358 $12,164 $17,652 $16,622 $13,848
7/31/2008 $17,077 $12,062 $17,087 $16,608 $13,876
8/31/2008 $17,138 $12,237 $16,399 $16,766 $13,895
9/30/2008 $15,609 $11,146 $14,034 $16,541 $13,933
10/31/2008 $13,260 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $12,661 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $13,083 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 30.83% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08
- ------- --------
1-Year -33.84%
5-Year -0.06%
Since Inception (12/1/03) +0.46%
CLASS B (12/1/03-12/31/08)
(PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY
FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY
DATE TARGET FUND - CLASS B INDEX INDEX AGGREGATE INDEX INDEX
- ------------- ------------------------- ------- --------- --------------- -------------
12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/2003 $10,175 $10,524 $10,782 $10,102 $10,008
1/31/2004 $10,295 $10,718 $10,935 $10,183 $10,016
2/29/2004 $10,415 $10,867 $11,189 $10,293 $10,023
3/31/2004 $10,424 $10,703 $11,257 $10,370 $10,031
4/30/2004 $10,047 $10,535 $11,012 $10,101 $10,038
5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045
6/30/2004 $10,389 $10,887 $11,306 $10,117 $10,050
7/31/2004 $10,056 $10,527 $10,941 $10,217 $10,059
8/31/2004 $10,090 $10,569 $10,991 $10,412 $10,069
9/30/2004 $10,355 $10,684 $11,280 $10,440 $10,080
10/31/2004 $10,535 $10,847 $11,666 $10,528 $10,092
11/30/2004 $10,971 $11,286 $12,466 $10,444 $10,102
12/31/2004 $11,238 $11,670 $13,013 $10,540 $10,122
1/31/2005 $10,946 $11,385 $12,775 $10,606 $10,136
2/28/2005 $11,255 $11,625 $13,330 $10,544 $10,151
3/31/2005 $11,012 $11,419 $13,001 $10,490 $10,175
4/30/2005 $10,737 $11,202 $12,710 $10,632 $10,196
5/31/2005 $11,029 $11,559 $12,729 $10,747 $10,220
6/30/2005 $11,218 $11,575 $12,903 $10,805 $10,243
7/31/2005 $11,578 $12,006 $13,299 $10,707 $10,265
8/31/2005 $11,596 $11,896 $13,639 $10,844 $10,293
9/30/2005 $11,793 $11,993 $14,250 $10,732 $10,323
10/31/2005 $11,484 $11,793 $13,834 $10,647 $10,347
11/30/2005 $11,913 $12,239 $14,177 $10,695 $10,381
12/31/2005 $12,096 $12,243 $14,837 $10,796 $10,414
1/31/2006 $12,711 $12,567 $15,749 $10,797 $10,443
2/28/2006 $12,676 $12,601 $15,717 $10,833 $10,477
3/31/2006 $12,973 $12,758 $16,243 $10,726 $10,518
4/30/2006 $13,129 $12,929 $17,030 $10,707 $10,555
5/31/2006 $12,608 $12,557 $16,389 $10,695 $10,597
6/30/2006 $12,643 $12,574 $16,395 $10,718 $10,637
7/31/2006 $12,495 $12,652 $16,560 $10,863 $10,680
8/31/2006 $12,738 $12,953 $17,019 $11,029 $10,727
9/30/2006 $12,765 $13,287 $17,049 $11,126 $10,774
10/31/2006 $13,191 $13,720 $17,714 $11,200 $10,816
11/30/2006 $13,574 $13,981 $18,248 $11,330 $10,862
12/31/2006 $13,676 $14,177 $18,822 $11,264 $10,909
1/31/2007 $13,906 $14,391 $18,951 $11,259 $10,953
2/28/2007 $13,853 $14,110 $19,106 $11,433 $10,996
3/31/2007 $14,052 $14,267 $19,603 $11,433 $11,046
4/30/2007 $14,459 $14,899 $20,491 $11,495 $11,094
5/31/2007 $14,849 $15,419 $20,878 $11,408 $11,143
6/30/2007 $14,793 $15,163 $20,910 $11,374 $11,185
7/31/2007 $14,491 $14,693 $20,604 $11,469 $11,228
8/31/2007 $14,564 $14,913 $20,287 $11,610 $11,292
9/30/2007 $15,262 $15,471 $21,376 $11,698 $11,333
10/31/2007 $15,802 $15,717 $22,219 $11,803 $11,367
11/30/2007 $15,088 $15,060 $21,494 $12,015 $11,419
12/31/2007 $15,011 $14,955 $21,011 $12,049 $11,445
1/31/2008 $14,068 $14,058 $19,072 $12,251 $11,504
2/29/2008 $14,002 $13,602 $19,352 $12,268 $11,524
3/31/2008 $13,746 $13,543 $19,157 $12,310 $11,550
4/30/2008 $14,350 $14,203 $20,222 $12,284 $11,562
5/31/2008 $14,681 $14,387 $20,457 $12,194 $11,568
6/30/2008 $13,744 $13,174 $18,788 $12,184 $11,586
7/31/2008 $13,507 $13,063 $18,187 $12,174 $11,609
8/31/2008 $13,546 $13,252 $17,454 $12,290 $11,624
9/30/2008 $12,330 $12,071 $14,937 $12,125 $11,656
10/31/2008 $10,471 $10,044 $11,923 $11,839 $11,674
11/30/2008 $ 9,987 $ 9,323 $11,285 $12,224 $11,687
12/31/2008 $10,234 $ 9,422 $11,964 $12,680 $11,685
------- ------- ------- ------- -------
Total Returns 2.34% -5.78% 19.64% 26.80% 16.85%
======= ======= ======= ======= =======
30 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -31.91%
5-Year +0.28%
10-Year +2.56%
CLASS C (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY
FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY
DATE TARGET FUND - CLASS C INDEX INDEX AGGREGATE INDEX INDEX
- ------------- ------------------------- ------- --------- --------------- -------------
1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1999 $10,146 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,932 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $10,205 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $10,614 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $10,478 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $10,780 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $10,643 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $10,702 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $10,689 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $11,245 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $12,252 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $14,006 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $13,773 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $15,925 $11,278 $12,231 $10,005 $10,574
3/31/2000 $15,449 $12,382 $12,722 $10,137 $10,627
4/30/2000 $14,404 $12,009 $12,062 $10,108 $10,681
5/31/2000 $13,815 $11,763 $11,788 $10,103 $10,738
6/30/2000 $14,953 $12,053 $12,257 $10,313 $10,785
7/31/2000 $14,649 $11,864 $11,740 $10,407 $10,834
8/31/2000 $15,796 $12,601 $11,847 $10,558 $10,891
9/30/2000 $15,281 $11,936 $11,271 $10,624 $10,950
10/31/2000 $14,465 $11,886 $10,999 $10,694 $11,006
11/30/2000 $12,712 $10,949 $10,582 $10,869 $11,066
12/31/2000 $13,190 $11,002 $10,953 $11,071 $11,130
1/31/2001 $13,795 $11,392 $10,948 $11,252 $11,202
2/28/2001 $12,533 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,772 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $12,596 $10,451 $10,121 $11,360 $11,351
5/31/2001 $12,627 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $12,388 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $12,075 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,585 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $10,332 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $10,812 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $11,344 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $11,611 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $11,493 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $11,334 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $11,856 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $11,685 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $11,547 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $10,928 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $10,022 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $10,043 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $ 9,318 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $ 9,702 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $10,171 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $ 9,848 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $ 9,698 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $ 9,570 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $ 9,516 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $10,115 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $10,757 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $10,874 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $11,099 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $11,548 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $11,484 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $12,072 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $12,393 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $12,701 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $12,851 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $13,012 $10,034 $10,513 $14,042 $11,980
3/31/2004 $13,012 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $12,551 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $12,723 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $12,969 $10,053 $10,623 $13,801 $12,012
7/31/2004 $12,562 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $12,605 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $12,926 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $13,152 $10,016 $10,961 $14,362 $12,063
11/30/2004 $13,698 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,030 $10,776 $12,227 $14,379 $12,098
1/31/2005 $13,666 $10,513 $12,003 $14,469 $12,115
2/28/2005 $14,052 $10,734 $12,525 $14,384 $12,134
3/31/2005 $13,747 $10,544 $12,215 $14,310 $12,162
4/30/2005 $13,404 $10,344 $11,941 $14,503 $12,188
5/31/2005 $13,769 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,004 $10,689 $12,123 $14,740 $12,243
7/31/2005 $14,455 $11,086 $12,496 $14,606 $12,270
8/31/2005 $14,487 $10,985 $12,815 $14,793 $12,304
9/30/2005 $14,723 $11,074 $13,388 $14,641 $12,339
10/31/2005 $14,337 $10,889 $12,998 $14,525 $12,367
11/30/2005 $14,862 $11,301 $13,320 $14,589 $12,408
12/31/2005 $15,101 $11,305 $13,940 $14,728 $12,447
1/31/2006 $15,857 $11,604 $14,797 $14,729 $12,483
2/28/2006 $15,825 $11,636 $14,767 $14,778 $12,523
3/31/2006 $16,195 $11,781 $15,261 $14,633 $12,572
4/30/2006 $16,379 $11,939 $16,001 $14,606 $12,617
5/31/2006 $15,729 $11,595 $15,399 $14,591 $12,666
6/30/2006 $15,783 $11,611 $15,404 $14,621 $12,714
7/31/2006 $15,599 $11,683 $15,559 $14,819 $12,766
8/31/2006 $15,902 $11,961 $15,991 $15,046 $12,822
9/30/2006 $15,936 $12,269 $16,019 $15,178 $12,879
10/31/2006 $16,468 $12,669 $16,643 $15,278 $12,928
11/30/2006 $16,945 $12,909 $17,145 $15,456 $12,983
12/31/2006 $17,076 $13,091 $17,684 $15,366 $13,039
1/31/2007 $17,363 $13,289 $17,805 $15,360 $13,092
2/28/2007 $17,297 $13,029 $17,952 $15,597 $13,143
3/31/2007 $17,534 $13,174 $18,418 $15,597 $13,203
4/30/2007 $18,054 $13,758 $19,252 $15,681 $13,260
5/31/2007 $18,540 $14,238 $19,616 $15,562 $13,320
6/30/2007 $18,459 $14,001 $19,646 $15,516 $13,370
7/31/2007 $18,093 $13,567 $19,359 $15,646 $13,421
8/31/2007 $18,184 $13,771 $19,061 $15,838 $13,497
9/30/2007 $19,045 $14,286 $20,084 $15,958 $13,546
10/31/2007 $19,720 $14,513 $20,876 $16,101 $13,587
11/30/2007 $18,828 $13,906 $20,195 $16,391 $13,648
12/31/2007 $18,735 $13,810 $19,741 $16,437 $13,680
1/31/2008 $17,557 $12,981 $17,920 $16,713 $13,750
2/29/2008 $17,475 $12,560 $18,182 $16,736 $13,774
3/31/2008 $17,155 $12,505 $17,999 $16,793 $13,806
4/30/2008 $17,910 $13,115 $18,999 $16,758 $13,820
5/31/2008 $18,323 $13,284 $19,220 $16,635 $13,827
6/30/2008 $17,153 $12,164 $17,652 $16,622 $13,848
7/31/2008 $16,869 $12,062 $17,087 $16,608 $13,876
8/31/2008 $16,906 $12,237 $16,399 $16,766 $13,895
9/30/2008 $15,400 $11,146 $14,034 $16,541 $13,933
10/31/2008 $13,078 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $12,473 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $12,878 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 28.78% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------- --------
1-Year -30.92%
5-Year +0.78%
Since Inception (1/1/02) +1.98%
CLASS R (1/1/02-12/31/08)
(PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY
FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY
DATE TARGET FUND - CLASS R INDEX INDEX AGGREGATE INDEX INDEX
- ------------- ------------------------- ------- --------- --------------- -------------
1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/2002 $ 9,908 $ 9,854 $ 9,469 $10,081 $10,014
2/28/2002 $ 9,771 $ 9,664 $ 9,536 $10,179 $10,027
3/31/2002 $10,219 $10,027 $10,057 $10,009 $10,042
4/30/2002 $10,082 $ 9,420 $10,130 $10,204 $10,057
5/31/2002 $ 9,963 $ 9,350 $10,267 $10,290 $10,073
6/30/2002 $ 9,442 $ 8,684 $ 9,862 $10,379 $10,088
7/31/2002 $ 8,664 $ 8,007 $ 8,889 $10,505 $10,102
8/31/2002 $ 8,682 $ 8,060 $ 8,871 $10,682 $10,117
9/30/2002 $ 8,051 $ 7,184 $ 7,921 $10,855 $10,133
10/31/2002 $ 8,390 $ 7,816 $ 8,347 $10,806 $10,149
11/30/2002 $ 8,792 $ 8,276 $ 8,727 $10,803 $10,165
12/31/2002 $ 8,516 $ 7,790 $ 8,434 $11,026 $10,175
1/31/2003 $ 8,395 $ 7,586 $ 8,083 $11,035 $10,186
2/28/2003 $ 8,284 $ 7,472 $ 7,898 $11,188 $10,195
3/31/2003 $ 8,247 $ 7,545 $ 7,749 $11,179 $10,207
4/30/2003 $ 8,775 $ 8,166 $ 8,517 $11,272 $10,217
5/31/2003 $ 9,330 $ 8,596 $ 9,041 $11,482 $10,227
6/30/2003 $ 9,432 $ 8,706 $ 9,265 $11,459 $10,240
7/31/2003 $ 9,626 $ 8,859 $ 9,491 $11,074 $10,247
8/31/2003 $10,034 $ 9,032 $ 9,721 $11,147 $10,255
9/30/2003 $ 9,969 $ 8,936 $10,023 $11,442 $10,263
10/31/2003 $10,487 $ 9,442 $10,648 $11,336 $10,272
11/30/2003 $10,774 $ 9,525 $10,887 $11,363 $10,280
12/31/2003 $11,057 $10,024 $11,738 $11,478 $10,288
1/31/2004 $11,187 $10,208 $11,904 $11,571 $10,297
2/29/2004 $11,327 $10,350 $12,181 $11,696 $10,303
3/31/2004 $11,336 $10,194 $12,255 $11,784 $10,312
4/30/2004 $10,935 $10,034 $11,988 $11,477 $10,319
5/31/2004 $11,094 $10,172 $12,040 $11,431 $10,326
6/30/2004 $11,318 $10,370 $12,308 $11,496 $10,331
7/31/2004 $10,963 $10,026 $11,911 $11,610 $10,341
8/31/2004 $11,001 $10,067 $11,966 $11,831 $10,351
9/30/2004 $11,299 $10,176 $12,280 $11,863 $10,363
10/31/2004 $11,495 $10,332 $12,700 $11,963 $10,375
11/30/2004 $11,979 $10,750 $13,571 $11,867 $10,385
12/31/2004 $12,278 $11,115 $14,167 $11,976 $10,405
1/31/2005 $11,960 $10,844 $13,908 $12,052 $10,420
2/28/2005 $12,297 $11,073 $14,512 $11,981 $10,436
3/31/2005 $12,040 $10,877 $14,153 $11,919 $10,460
4/30/2005 $11,740 $10,670 $13,837 $12,080 $10,482
5/31/2005 $12,068 $11,010 $13,858 $12,211 $10,506
6/30/2005 $12,284 $11,025 $14,047 $12,278 $10,530
7/31/2005 $12,678 $11,435 $14,479 $12,166 $10,553
8/31/2005 $12,706 $11,331 $14,849 $12,322 $10,582
9/30/2005 $12,931 $11,423 $15,513 $12,195 $10,612
10/31/2005 $12,594 $11,232 $15,061 $12,098 $10,636
11/30/2005 $13,062 $11,657 $15,433 $12,152 $10,672
12/31/2005 $13,273 $11,661 $16,153 $12,267 $10,705
1/31/2006 $13,945 $11,970 $17,145 $12,268 $10,736
2/28/2006 $13,916 $12,003 $17,110 $12,309 $10,770
3/31/2006 $14,252 $12,152 $17,683 $12,188 $10,812
4/30/2006 $14,422 $12,315 $18,540 $12,166 $10,851
5/31/2006 $13,862 $11,961 $17,843 $12,153 $10,893
6/30/2006 $13,910 $11,977 $17,849 $12,179 $10,934
7/31/2006 $13,748 $12,051 $18,028 $12,343 $10,979
8/31/2006 $14,024 $12,338 $18,528 $12,532 $11,028
9/30/2006 $14,061 $12,655 $18,561 $12,642 $11,076
10/31/2006 $14,537 $13,068 $19,284 $12,726 $11,119
11/30/2006 $14,966 $13,316 $19,866 $12,874 $11,166
12/31/2006 $15,084 $13,503 $20,491 $12,799 $11,215
1/31/2007 $15,337 $13,707 $20,631 $12,794 $11,260
2/28/2007 $15,288 $13,439 $20,800 $12,991 $11,304
3/31/2007 $15,515 $13,590 $21,340 $12,991 $11,355
4/30/2007 $15,972 $14,192 $22,308 $13,061 $11,404
5/31/2007 $16,410 $14,687 $22,729 $12,962 $11,455
6/30/2007 $16,348 $14,443 $22,764 $12,924 $11,499
7/31/2007 $16,027 $13,995 $22,431 $13,032 $11,542
8/31/2007 $16,117 $14,205 $22,086 $13,192 $11,608
9/30/2007 $16,885 $14,736 $23,272 $13,292 $11,650
10/31/2007 $17,498 $14,970 $24,189 $13,411 $11,686
11/30/2007 $16,714 $14,345 $23,399 $13,652 $11,738
12/31/2007 $16,639 $14,245 $22,874 $13,691 $11,766
1/31/2008 $15,601 $13,391 $20,763 $13,921 $11,826
2/29/2008 $15,529 $12,956 $21,067 $13,940 $11,846
3/31/2008 $15,248 $12,900 $20,856 $13,987 $11,874
4/30/2008 $15,933 $13,528 $22,015 $13,958 $11,886
5/31/2008 $16,307 $13,703 $22,271 $13,856 $11,892
6/30/2008 $15,277 $12,548 $20,454 $13,845 $11,910
7/31/2008 $15,016 $12,442 $19,799 $13,833 $11,934
8/31/2008 $15,059 $12,622 $19,002 $13,965 $11,950
9/30/2008 $13,722 $11,498 $16,261 $13,777 $11,983
10/31/2008 $11,656 $ 9,567 $12,981 $13,452 $12,001
11/30/2008 $11,123 $ 8,880 $12,285 $13,890 $12,014
12/31/2008 $11,473 $ 8,975 $13,025 $14,408 $12,012
------- ------- ------- ------- -------
Total Returns 14.73% -10.25% 30.25% 44.08% 20.12%
======= ======= ======= ======= =======
Annual Report | 31
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/08
- ---------------- --------
1-Year -30.56%
5-Year +1.19%
10-Year +3.42%
ADVISOR CLASS (1/1/99-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BARCLAYS P&R 90-DAY
GROWTH TARGET S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY
DATE FUND - ADVISOR CLASS INDEX INDEX AGGREGATE INDEX INDEX
- ------------- ------------------------- ------- --------- --------------- -------------
1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000
1/31/1999 $10,155 $10,418 $ 9,957 $10,071 $10,039
2/28/1999 $ 9,942 $10,094 $ 9,714 $ 9,896 $10,071
3/31/1999 $10,233 $10,498 $10,139 $ 9,950 $10,114
4/30/1999 $10,641 $10,905 $10,556 $ 9,982 $10,152
5/31/1999 $10,515 $10,647 $10,033 $ 9,894 $10,190
6/30/1999 $10,826 $11,238 $10,437 $ 9,863 $10,228
7/31/1999 $10,700 $10,887 $10,744 $ 9,821 $10,272
8/31/1999 $10,758 $10,833 $10,789 $ 9,816 $10,310
9/30/1999 $10,752 $10,536 $10,899 $ 9,930 $10,355
10/31/1999 $11,320 $11,203 $11,299 $ 9,967 $10,396
11/30/1999 $12,339 $11,431 $11,687 $ 9,966 $10,437
12/31/1999 $14,117 $12,104 $12,730 $ 9,918 $10,485
1/31/2000 $13,882 $11,496 $11,913 $ 9,885 $10,526
2/29/2000 $16,064 $11,278 $12,231 $10,005 $10,574
3/31/2000 $15,603 $12,382 $12,722 $10,137 $10,627
4/30/2000 $14,551 $12,009 $12,062 $10,108 $10,681
5/31/2000 $13,970 $11,763 $11,788 $10,103 $10,738
6/30/2000 $15,120 $12,053 $12,257 $10,313 $10,785
7/31/2000 $14,824 $11,864 $11,740 $10,407 $10,834
8/31/2000 $15,989 $12,601 $11,847 $10,558 $10,891
9/30/2000 $15,476 $11,936 $11,271 $10,624 $10,950
10/31/2000 $14,664 $11,886 $10,999 $10,694 $11,006
11/30/2000 $12,895 $10,949 $10,582 $10,869 $11,066
12/31/2000 $13,392 $11,002 $10,953 $11,071 $11,130
1/31/2001 $14,004 $11,392 $10,948 $11,252 $11,202
2/28/2001 $12,738 $10,354 $10,128 $11,350 $11,248
3/31/2001 $11,979 $ 9,698 $ 9,457 $11,407 $11,304
4/30/2001 $12,812 $10,451 $10,121 $11,360 $11,351
5/31/2001 $12,854 $10,521 $ 9,771 $11,428 $11,395
6/30/2001 $12,620 $10,265 $ 9,375 $11,471 $11,428
7/31/2001 $12,313 $10,164 $ 9,206 $11,728 $11,466
8/31/2001 $11,816 $ 9,528 $ 8,974 $11,862 $11,504
9/30/2001 $10,536 $ 8,759 $ 8,067 $12,000 $11,554
10/31/2001 $11,045 $ 8,926 $ 8,274 $12,251 $11,584
11/30/2001 $11,597 $ 9,610 $ 8,579 $12,082 $11,609
12/31/2001 $11,875 $ 9,694 $ 8,630 $12,006 $11,627
1/31/2002 $11,766 $ 9,553 $ 8,172 $12,103 $11,644
2/28/2002 $11,603 $ 9,369 $ 8,230 $12,220 $11,659
3/31/2002 $12,146 $ 9,721 $ 8,679 $12,017 $11,676
4/30/2002 $11,973 $ 9,132 $ 8,742 $12,250 $11,694
5/31/2002 $11,842 $ 9,064 $ 8,861 $12,354 $11,712
6/30/2002 $11,212 $ 8,419 $ 8,512 $12,461 $11,730
7/31/2002 $10,289 $ 7,763 $ 7,672 $12,612 $11,746
8/31/2002 $10,321 $ 7,813 $ 7,656 $12,825 $11,764
9/30/2002 $ 9,582 $ 6,964 $ 6,836 $13,032 $11,782
10/31/2002 $ 9,984 $ 7,577 $ 7,204 $12,973 $11,800
11/30/2002 $10,473 $ 8,023 $ 7,532 $12,969 $11,819
12/31/2002 $10,135 $ 7,552 $ 7,279 $13,237 $11,831
1/31/2003 $ 9,992 $ 7,354 $ 6,976 $13,249 $11,844
2/28/2003 $ 9,861 $ 7,244 $ 6,816 $13,432 $11,854
3/31/2003 $ 9,828 $ 7,314 $ 6,687 $13,422 $11,868
4/30/2003 $10,454 $ 7,917 $ 7,351 $13,532 $11,879
5/31/2003 $11,123 $ 8,334 $ 7,803 $13,785 $11,891
6/30/2003 $11,244 $ 8,440 $ 7,996 $13,757 $11,906
7/31/2003 $11,486 $ 8,589 $ 8,191 $13,295 $11,914
8/31/2003 $11,958 $ 8,756 $ 8,390 $13,383 $11,923
9/30/2003 $11,892 $ 8,663 $ 8,650 $13,737 $11,934
10/31/2003 $12,518 $ 9,153 $ 9,190 $13,609 $11,943
11/30/2003 $12,858 $ 9,234 $ 9,396 $13,642 $11,953
12/31/2003 $13,187 $ 9,718 $10,130 $13,781 $11,962
1/31/2004 $13,353 $ 9,897 $10,274 $13,892 $11,972
2/29/2004 $13,519 $10,034 $10,513 $14,042 $11,980
3/31/2004 $13,541 $ 9,883 $10,576 $14,147 $11,990
4/30/2004 $13,065 $ 9,728 $10,346 $13,779 $11,999
5/31/2004 $13,242 $ 9,861 $10,391 $13,724 $12,007
6/30/2004 $13,519 $10,053 $10,623 $13,801 $12,012
7/31/2004 $13,099 $ 9,720 $10,279 $13,938 $12,024
8/31/2004 $13,143 $ 9,759 $10,327 $14,204 $12,035
9/30/2004 $13,497 $ 9,865 $10,598 $14,243 $12,049
10/31/2004 $13,741 $10,016 $10,961 $14,362 $12,063
11/30/2004 $14,328 $10,421 $11,712 $14,248 $12,075
12/31/2004 $14,675 $10,776 $12,227 $14,379 $12,098
1/31/2005 $14,307 $10,513 $12,003 $14,469 $12,115
2/28/2005 $14,720 $10,734 $12,525 $14,384 $12,134
3/31/2005 $14,408 $10,544 $12,215 $14,310 $12,162
4/30/2005 $14,062 $10,344 $11,941 $14,503 $12,188
5/31/2005 $14,453 $10,673 $11,960 $14,660 $12,216
6/30/2005 $14,710 $10,689 $12,123 $14,740 $12,243
7/31/2005 $15,190 $11,086 $12,496 $14,606 $12,270
8/31/2005 $15,223 $10,985 $12,815 $14,793 $12,304
9/30/2005 $15,499 $11,074 $13,388 $14,641 $12,339
10/31/2005 $15,097 $10,889 $12,998 $14,525 $12,367
11/30/2005 $15,655 $11,301 $13,320 $14,589 $12,408
12/31/2005 $15,919 $11,305 $13,940 $14,728 $12,447
1/31/2006 $16,732 $11,604 $14,797 $14,729 $12,483
2/28/2006 $16,710 $11,636 $14,767 $14,778 $12,523
3/31/2006 $17,111 $11,781 $15,261 $14,633 $12,572
4/30/2006 $17,327 $11,939 $16,001 $14,606 $12,617
5/31/2006 $16,658 $11,595 $15,399 $14,591 $12,666
6/30/2006 $16,726 $11,611 $15,404 $14,621 $12,714
7/31/2006 $16,533 $11,683 $15,559 $14,819 $12,766
8/31/2006 $16,873 $11,961 $15,991 $15,046 $12,822
9/30/2006 $16,927 $12,269 $16,019 $15,178 $12,879
10/31/2006 $17,507 $12,669 $16,643 $15,278 $12,928
11/30/2006 $18,030 $12,909 $17,145 $15,456 $12,983
12/31/2006 $18,189 $13,091 $17,684 $15,366 $13,039
1/31/2007 $18,503 $13,289 $17,805 $15,360 $13,092
2/28/2007 $18,445 $13,029 $17,952 $15,597 $13,143
3/31/2007 $18,717 $13,174 $18,418 $15,597 $13,203
4/30/2007 $19,287 $13,758 $19,252 $15,681 $13,260
5/31/2007 $19,822 $14,238 $19,616 $15,562 $13,320
6/30/2007 $19,760 $14,001 $19,646 $15,516 $13,370
7/31/2007 $19,376 $13,567 $19,359 $15,646 $13,421
8/31/2007 $19,484 $13,771 $19,061 $15,838 $13,497
9/30/2007 $20,427 $14,286 $20,084 $15,958 $13,546
10/31/2007 $21,174 $14,513 $20,876 $16,101 $13,587
11/30/2007 $20,234 $13,906 $20,195 $16,391 $13,648
12/31/2007 $20,153 $13,810 $19,741 $16,437 $13,680
1/31/2008 $18,908 $12,981 $17,920 $16,713 $13,750
2/29/2008 $18,833 $12,560 $18,182 $16,736 $13,774
3/31/2008 $18,496 $12,505 $17,999 $16,793 $13,806
4/30/2008 $19,331 $13,115 $18,999 $16,758 $13,820
5/31/2008 $19,792 $13,284 $19,220 $16,635 $13,827
6/30/2008 $18,544 $12,164 $17,652 $16,622 $13,848
7/31/2008 $18,244 $12,062 $17,087 $16,608 $13,876
8/31/2008 $18,309 $12,237 $16,399 $16,766 $13,895
9/30/2008 $16,680 $11,146 $14,034 $16,541 $13,933
10/31/2008 $14,178 $ 9,274 $11,203 $16,150 $13,954
11/30/2008 $13,540 $ 8,609 $10,602 $16,676 $13,969
12/31/2008 $13,994 $ 8,700 $11,241 $17,298 $13,967
------- ------- ------- ------- -------
Total Returns 39.94% -13.00% 12.41% 72.98% 39.67%
======= ======= ======= ======= =======
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 THE FUND INVESTS IN UNDERLYING FUNDS THAT 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 B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the manager had not waived fees, the Fund's total returns would have
been lower.
(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 12/1/05, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 11/30/05, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/05
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were -11.62% and -3.93%.
(7.) Sources: (C) 2009 Morningstar; Payden & Rygel. See page 26 for descriptions
of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the
Payden & Rygel 90 Day U.S. T-Bill Index.
32 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON GROWTH TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 33
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
------------- ------------- ---------------- -----------------
CLASS A
Actual $1,000 $ 753.70 $2.20 $ 5.73
Hypothetical
(5% return before expenses) $1,000 $1,022.62 $2.54 $ 6.60
CLASS B
Actual $1,000 $ 750.90 $5.50 $ 9.02
Hypothetical
(5% return before expenses) $1,000 $1,018.85 $6.34 $10.38
CLASS C
Actual $1,000 $ 750.80 $5.50 $ 9.02
Hypothetical
(5% return before expenses) $1,000 $1,018.85 $6.34 $10.38
CLASS R
Actual $1,000 $ 752.40 $3.30 $ 6.83
Hypothetical
(5% return before expenses) $1,000 $1,021.37 $3.81 $ 7.86
ADVISOR CLASS
Actual $1,000 $ 754.60 $1.10 $ 4.63
Hypothetical
(5% return before expenses) $1,000 $1,023.88 $1.27 $ 5.33
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 0.50%; B: 1.25%; C: 1.25%; R: 0.75%; and
Advisor: 0.25%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.30%; B: 2.05%; C: 2.05%; R: 1.55%; and
Advisor: 1.05%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
34 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- JULY 31,
CLASS A 2008 2007 2006 2005 2004(A) 2004
- ------- -------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 13.59 $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91
-------- -------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c, d) ...................... 0.39 0.48 0.41 0.29 0.12 0.23
Net realized and unrealized gains (losses) ....... (2.44) 0.60 0.84 0.29 0.84 0.74
-------- -------- -------- -------- -------- --------
Total from investment operations .................... (2.05) 1.08 1.25 0.58 0.96 0.97
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ........................... (0.38) (0.47) (0.42) (0.32) (0.14) (0.22)
Net realized gains .............................. (0.24) (0.35) (0.24) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ................................ (0.62) (0.82) (0.66) (0.32) (0.14) (0.22)
-------- -------- -------- -------- -------- --------
Redemption fees(e, f) .............................. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 10.92 $ 13.59 $ 13.33 $ 12.74 $ 12.48 $ 11.66
======== ======== ======== ======== ======== ========
Total return(g) .................................... (15.41)% 8.29% 9.92% 4.70% 8.30% 8.89%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i)..................................... 0.65% 0.68% 0.69% 0.73% 0.82% 0.85%
Expenses net of waiver and payments by
affiliates(i)..................................... 0.51% 0.49% 0.50% 0.69% 0.82% 0.85%
Net investment income(d) ............................ 3.18% 3.52% 3.09% 2.31% 2.40% 2.00%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $282,769 $251,570 $194,477 $162,079 $139,153 $117,013
Portfolio turnover rate ............................. 4.84% 8.11% 11.08% 8.16% 2.63% 3.71%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------- JULY 31,
CLASS B 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ------- ------ ------ ------ ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 13.55 $13.29 $12.71 $12.46 $11.63 $11.67
------- ------ ------ ------ ------ ------
Income from investment operations(c):
Net investment income(d, e) ................... 0.30 0.36 0.30 0.19 0.09 0.07
Net realized and unrealized gains (losses) .... (2.44) 0.61 0.84 0.29 0.84 0.04
------- ------ ------ ------ ------ ------
Total from investment operations ................. (2.14) 0.97 1.14 0.48 0.93 0.11
------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income ......................... (0.29) (0.36) (0.32) (0.23) (0.10) (0.15)
Net realized gains ............................ (0.24) (0.35) (0.24) -- -- --
------- ------ ------ ------ ------ ------
Total distributions .............................. (0.53) (0.71) (0.56) (0.23) (0.10) (0.15)
------- ------ ------ ------ ------ ------
Redemption fees(f, g) ............................ -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Net asset value, end of year ..................... $ 10.88 $13.55 $13.29 $12.71 $12.46 $11.63
======= ====== ====== ====== ====== ======
Total return(h) .................................. (16.02)% 7.42% 9.05% 3.87% 8.02% 0.98%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ................................. 1.40% 1.43% 1.44% 1.48% 1.57% 1.60%
Expenses net of waiver and payments by
affiliates(j) ................................. 1.26% 1.24% 1.25% 1.44% 1.57% 1.60%
Net investment income(e) ......................... 2.43% 2.77% 2.34% 1.56% 1.65% 1.25%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $ 7,150 $6,497 $6,422 $6,202 $5,223 $3,567
Portfolio turnover rate .......................... 4.84% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
36 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------- JULY 31,
CLASS C 2008 2007 2006 2005 2004(a) 2004
- ------- -------- -------- ------- ------ ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.42 $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80
-------- -------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c, d) ................. 0.30 0.38 0.30 0.19 0.08 0.14
Net realized and unrealized gains (losses) .. (2.41) 0.58 0.85 0.28 0.84 0.73
-------- -------- ------- ------- ------- -------
Total from investment operations ............... (2.11) 0.96 1.15 0.47 0.92 0.87
-------- -------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.30) (0.37) (0.33) (0.23) (0.09) (0.14)
Net realized gains .......................... (0.24) (0.35) (0.24) -- -- --
-------- -------- ------- ------- ------- -------
Total distributions ............................ (0.54) (0.72) (0.57) (0.23) (0.09) (0.14)
-------- -------- ------- ------- ------- -------
Redemption fees(e, f) .......................... -- -- -- -- -- --
-------- -------- ------- ------- ------- -------
Net asset value, end of year ................... $ 10.77 $ 13.42 $ 13.18 $ 12.60 $ 12.36 $ 11.53
======== ======== ======= ======= ======= =======
Total return(g) ................................ (16.04)% 7.48% 9.16% 3.83% 8.03% 8.04%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 1.39% 1.43% 1.43% 1.47% 1.57% 1.60%
Expenses net of waiver and payments by
affiliates(i) ............................... 1.25% 1.24% 1.24% 1.43% 1.57% 1.60%
Net investment income(d) ....................... 2.44% 2.77% 2.35% 1.57% 1.65% 1.25%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $152,773 $110,914 $76,018 $63,298 $59,803 $52,881
Portfolio turnover rate ........................ 4.84% 8.11% 11.08% 8.16% 2.63% 3.71%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------- JULY 31,
CLASS R 2008 2007 2006 2005 2004(a) 2004
- ------- ------- ------- ------- ------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.55 $ 13.30 $ 12.71 $ 12.46 $ 11.63 $10.89
------- ------- ------- ------- ------- ------
Income from investment operations(b):
Net investment income(c, d) ................. 0.37 0.47 0.37 0.26 0.11 0.21
Net realized and unrealized gains (losses) .. (2.44) 0.57 0.85 0.28 0.85 0.72
------- ------- ------- ------- ------- ------
Total from investment operations ............... (2.07) 1.04 1.22 0.54 0.96 0.93
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income ....................... (0.35) (0.44) (0.39) (0.29) (0.13) (0.19)
Net realized gains .......................... (0.24) (0.35) (0.24) -- -- --
------- ------- ------- ------- ------- ------
Total distributions ............................ (0.59) (0.79) (0.63) (0.29) (0.13) (0.19)
------- ------- ------- ------- ------- ------
Redemption fees(e, f) .......................... -- -- -- -- -- --
------- ------- ------- ------- ------- ------
Net asset value, end of year ................... $ 10.89 $ 13.55 $ 13.30 $ 12.71 $ 12.46 $11.63
======= ======= ======= ======= ======= ======
Total return(g) ................................ (15.58)% 7.91% 9.73% 4.37% 8.27% 8.56%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 0.90% 0.93% 0.94% 0.98% 1.07% 1.10%
Expenses net of waiver and payments by
affiliates(i) ............................... 0.76% 0.74% 0.75% 0.94% 1.07% 1.10%
Net investment income(d) ....................... 2.93% 3.27% 2.84% 2.06% 2.15% 1.75%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $29,466 $25,476 $14,490 $14,112 $12,199 $8,370
Portfolio turnover rate ........................ 4.84% 8.11% 11.08% 8.16% 2.63% 3.71%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
38 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------ DECEMBER 31,
ADVISOR CLASS 2008 2007 2006 2005(a)
- ------------- ------- ------ ------ ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 13.57 $13.31 $12.72 $12.81
------- ------ ------ ------
Income from investment operations(b):
Net investment income(c, d) ........................ 0.45 0.53 0.45 0.07
Net realized and unrealized gains (losses) ......... (2.46) 0.58 0.83 0.02
------- ------ ------ ------
Total from investment operations ...................... (2.01) 1.11 1.28 0.09
------- ------ ------ ------
Less distributions from:
Net investment income .............................. (0.41) (0.50) (0.45) (0.18)
Net realized gains ................................. (0.24) (0.35) (0.24) --
------- ------ ------ ------
Total distributions ................................... (0.65) (0.85) (0.69) (0.18)
------- ------ ------ ------
Redemption fees(e, f) ................................. -- -- -- --
------- ------ ------ ------
Net asset value, end of year .......................... $ 10.91 $13.57 $13.31 $12.72
======= ====== ====== ======
Total return(g) ....................................... (15.15)% 8.48% 10.28% 0.68%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by affiliates(i) .. 0.40% 0.43% 0.44% 0.48%
Expenses net of waiver and payments by affiliates(i) .. 0.26% 0.24% 0.25% 0.44%
Net investment income(d) .............................. 3.43% 3.77% 3.34% 2.56%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 4,307 $3,536 $1,726 $ 753
Portfolio turnover rate ............................... 4.84% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 39
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- ------------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS 79.1%(a)
DOMESTIC EQUITY 25.9%
(b) Franklin Flex Cap Growth Fund, Advisor Class ......................... 1,340,796 $ 41,846,252
(b) Franklin Growth Opportunities Fund, Advisor Class .................... 665,939 8,783,735
Franklin MicroCap Value Fund, Advisor Class .......................... 411,171 8,737,379
(b) Franklin Natural Resources Fund, Advisor Class ....................... 325,130 6,687,931
(b) Franklin Small Cap Growth Fund, Advisor Class ........................ 3,116,009 19,288,094
Mutual Shares Fund, Class Z .......................................... 2,478,691 37,973,540
------------
123,316,931
------------
DOMESTIC FIXED INCOME 27.0%
Franklin Strategic Mortgage Portfolio ................................ 1,588,251 13,277,775
Franklin Total Return Fund, Advisor Class ............................ 5,220,454 45,522,363
Franklin U.S. Government Securities Fund, Advisor Class .............. 10,528,051 69,800,978
------------
128,601,116
------------
FOREIGN EQUITY 11.8%
Franklin Global Real Estate Fund, Advisor Class ...................... 819,615 4,278,392
(b) Franklin Gold and Precious Metals Fund, Advisor Class ................ 436,156 11,248,469
Mutual European Fund, Class Z ........................................ 1,188,214 20,496,687
Templeton China World Fund, Advisor Class ............................ 413,757 8,755,108
Templeton Foreign Fund, Advisor Class ................................ 2,685,225 11,788,138
------------
56,566,794
------------
FOREIGN FIXED INCOME 14.4%
Templeton Global Bond Fund, Advisor Class ............................ 6,133,308 68,509,055
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $437,244,196) ............................................... 376,993,896
------------
SHORT TERM INVESTMENTS (COST $97,970,385) 20.6%(a)
MONEY MARKET FUNDS 20.6%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio,
0.55% ............................................................. 97,970,385 97,970,385
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $535,214,581) 99.7% ...... 474,964,281
OTHER ASSETS, LESS LIABILITIES 0.3% .................................. 1,500,169
------------
NET ASSETS 100.0% .................................................... $476,464,450
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 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.
40 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------------- JULY 31,
CLASS A 2008 2007 2006 2005 2004(a) 2004
- ------- -------- -------- -------- -------- -------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 14.35 $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64
-------- -------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c, d) ........................ 0.35 0.43 0.35 0.25 0.12 0.20
Net realized and unrealized gains (losses) ......... (3.31) 0.87 1.15 0.50 1.05 1.00
-------- -------- -------- -------- -------- --------
Total from investment operations ...................... (2.96) 1.30 1.50 0.75 1.17 1.20
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income .............................. (0.35) (0.43) (0.38) (0.30) (0.13) (0.19)
Net realized gains ................................. (0.37) (0.55) (0.23) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ................................... (0.72) (0.98) (0.61) (0.30) (0.13) (0.19)
-------- -------- -------- -------- -------- --------
Redemption fees(e, f) ................................. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 10.67 $ 14.35 $ 14.03 $ 13.14 $ 12.69 $ 11.65
======== ======== ======== ======== ======== ========
Total return(g) ....................................... (21.22)% 9.40% 11.57% 5.94% 10.14% 11.18%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by affiliates(i) .. 0.68% 0.68% 0.70% 0.74% 0.81% 0.89%
Expenses net of waiver and payments by affiliates(i) .. 0.52% 0.50% 0.50% 0.69% 0.81% 0.89%
Net investment income(d) .............................. 2.74% 2.92% 2.56% 1.93% 2.32% 1.75%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $476,415 $491,451 $401,392 $316,754 $281,033 $219,273
Portfolio turnover rate ............................... 7.29% 10.29% 9.40% 10.59% 2.78% 4.13%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------------------------ JULY 31,
CLASS B 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ------- ------- ------- ------- ------- ------------
ER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.31 $ 13.99 $ 13.10 $ 12.66 $11.62 $11.62
------- ------- ------- ------- ------ ------
Income from investment operations(c):
Net investment income(d, e) ................. 0.25 0.31 0.24 0.15 0.09 0.05
Net realized and unrealized gains (losses) .. (3.30) 0.88 1.15 0.50 1.03 0.09
------- ------- ------- ------- ------ ------
Total from investment operations ............... (3.05) 1.19 1.39 0.65 1.12 0.14
------- ------- ------- ------- ------ ------
Less distributions from:
Net investment income ....................... (0.25) (0.32) (0.27) (0.21) (0.08) (0.14)
Net realized gains .......................... (0.37) (0.55) (0.23) -- -- --
------- ------- ------- ------- ------ ------
Total distributions ............................ (0.62) (0.87) (0.50) (0.21) (0.08) (0.14)
------- ------- ------- ------- ------ ------
Redemption fees(f, g) .......................... -- -- -- -- -- --
------- ------- ------- ------- ------ ------
Net asset value, end of year ................... $ 10.64 $ 14.31 $ 13.99 $ 13.10 $12.66 $11.62
======= ======= ======= ======= ====== ======
Total return(h) ................................ (21.80)% 8.61% 10.70% 5.18% 9.77% 1.18%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 1.43% 1.43% 1.45% 1.49% 1.56% 1.64%
Expenses net of waiver and payments by
affiliates(j) ............................... 1.27% 1.25% 1.25% 1.44% 1.56% 1.64%
Net investment income(e) ....................... 1.99% 2.17% 1.81% 1.18% 1.57% 1.00%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $11,060 $12,445 $11,533 $10,170 $8,700 $5,417
Portfolio turnover rate ........................ 7.29% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
42 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------------- JULY 31,
CLASS C 2008 2007 2006 2005 2004(a) 2004
- ------- -------- -------- -------- -------- -------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.11 $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48
-------- -------- -------- -------- -------- -------
Income from investment operations(b):
Net investment income(c, d) ................. 0.25 0.31 0.24 0.15 0.08 0.12
Net realized and unrealized gains (losses) .. (3.26) 0.87 1.13 0.50 1.03 0.98
-------- -------- -------- -------- -------- -------
Total from investment operations ............... (3.01) 1.18 1.37 0.65 1.11 1.10
-------- -------- -------- -------- -------- -------
Less distributions from:
Net investment income ....................... (0.26) (0.33) (0.27) (0.21) (0.08) (0.11)
Net realized gains .......................... (0.37) (0.55) (0.23) -- -- --
-------- -------- -------- -------- -------- -------
Total distributions ............................ (0.63) (0.88) (0.50) (0.21) (0.08) (0.11)
-------- -------- -------- -------- -------- -------
Redemption fees(e, f) .......................... -- -- -- -- -- --
-------- -------- -------- -------- -------- -------
Net asset value, end of year ................... $ 10.47 $ 14.11 $ 13.81 $ 12.94 $ 12.50 $ 11.47
======== ======== ======== ======== ======== =======
Total return(g) ................................ (21.87)% 8.61% 10.72% 5.25% 9.75% 10.39%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 1.43% 1.43% 1.45% 1.48% 1.56% 1.64%
Expenses net of waiver and payments by
affiliates(i) ............................... 1.27% 1.25% 1.25% 1.43% 1.56% 1.64%
Net investment income(d) ....................... 1.99% 2.17% 1.81% 1.19% 1.57% 1.00%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $164,355 $160,563 $134,465 $112,294 $105,966 $90,988
Portfolio turnover rate ........................ 7.29% 10.29% 9.40% 10.59% 2.78% 4.13%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------------- JULY 31,
CLASS R 2008 2007 2006 2005 2004(a) 2004
- ------- ------- ------- ------- ------- ------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.32 $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62
------- ------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c, d) ................. 0.33 0.39 0.31 0.21 0.11 0.18
Net realized and unrealized gains (losses) .. (3.32) 0.88 1.15 0.51 1.04 0.98
------- ------- ------- ------- ------- -------
Total from investment operations ............... (2.99) 1.27 1.46 0.72 1.15 1.16
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.32) (0.40) (0.34) (0.27) (0.11) (0.16)
Net realized gains .......................... (0.37) (0.55) (0.23) -- -- --
------- ------- ------- ------- ------- -------
Total distributions ............................ (0.69) (0.95) (0.57) (0.27) (0.11) (0.16)
------- ------- ------- ------- ------- -------
Redemption fees(e, f) .......................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Net asset value, end of year ................... $ 10.64 $ 14.32 $ 14.00 $ 13.11 $ 12.66 $ 11.62
======= ======= ======= ======= ======= =======
Total return(g) ................................ (21.45)% 9.16% 11.27% 5.73% 9.92% 10.95%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 0.93% 0.93% 0.95% 0.99% 1.06% 1.14%
Expenses net of waiver and payments by
affiliates(i) ............................... 0.77% 0.75% 0.75% 0.94% 1.06% 1.14%
Net investment income(d) ....................... 2.49% 2.67% 2.31% 1.68% 2.07% 1.50%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $47,009 $40,102 $31,719 $30,403 $25,162 $17,161
Portfolio turnover rate ........................ 7.29% 10.29% 9.40% 10.59% 2.78% 4.13%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
44 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------- DECEMBER 31,
ADVISOR CLASS 2008 2007 2006 2005(a)
- ------------- ------- ------ ------ ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.35 $14.03 $13.15 $13.23
------- ------ ------ ------
Income from investment operations(b):
Net investment income(c, d) ................. 0.40 0.46 0.40 0.08
Net realized and unrealized gains (losses) .. (3.33) 0.88 1.13 0.02
------- ------ ------ ------
Total from investment operations ............... (2.93) 1.34 1.53 0.10
------- ------ ------ ------
Less distributions from:
Net investment income ....................... (0.38) (0.47) (0.42) (0.18)
Net realized gains .......................... (0.37) (0.55) (0.23) --
------- ------ ------ ------
Total distributions ............................ (0.75) (1.02) (0.65) (0.18)
------- ------ ------ ------
Redemption fees(e, f) .......................... -- -- -- --
------- ------ ------ ------
Net asset value, end of year ................... $ 10.67 $14.35 $14.03 $13.15
======= ====== ====== ======
Total return(g) ................................ (21.02)% 9.66% 11.87% 0.68%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 0.43% 0.43% 0.45% 0.49%
Expenses net of waiver and payments by
affiliates(i) ............................... 0.27% 0.25% 0.25% 0.44%
Net investment income(d) ....................... 2.99% 3.17% 2.81% 2.18%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $11,489 $9,699 $7,071 $3,890
Portfolio turnover rate ........................ 7.29% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.73% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 45
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- --------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS 87.6%(a)
DOMESTIC EQUITY 35.5%
(b) Franklin Flex Cap Growth Fund, Advisor Class .......................... 2,727,033 $ 85,110,686
(b) Franklin Growth Opportunities Fund, Advisor Class ..................... 1,549,751 20,441,214
Franklin MicroCap Value Fund, Advisor Class ........................... 847,164 18,002,242
(b) Franklin Natural Resources Fund, Advisor Class ........................ 647,108 13,311,021
(b) Franklin Small Cap Growth Fund, Advisor Class ......................... 6,369,467 39,427,004
Mutual Shares Fund, Class Z ........................................... 4,966,209 76,082,317
------------
252,374,484
------------
DOMESTIC FIXED INCOME 23.1%
Franklin Strategic Mortgage Portfolio ................................. 1,996,994 16,694,866
Franklin Total Return Fund, Advisor Class ............................. 6,834,034 59,592,777
Franklin U.S. Government Securities Fund, Advisor Class ............... 13,251,917 87,860,208
------------
164,147,851
------------
FOREIGN EQUITY 16.5%
Franklin Global Real Estate Fund, Advisor Class ....................... 1,892,771 9,880,265
(b) Franklin Gold and Precious Metals Fund, Advisor Class ................. 910,297 23,476,570
Mutual European Fund, Class Z ......................................... 2,511,618 43,325,411
Templeton China World Fund, Advisor Class ............................. 841,864 17,813,834
Templeton Foreign Fund, Advisor Class ................................. 5,164,040 22,670,135
------------
117,166,215
------------
FOREIGN FIXED INCOME 12.5%
Templeton Global Bond Fund, Advisor Class ............................. 7,960,044 88,913,693
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $731,359,634) ................................................ 622,602,243
------------
SHORT TERM INVESTMENTS (COST $83,588,421) 11.8%(a)
MONEY MARKET FUNDS 11.8%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% .. 83,588,421 83,588,421
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $814,948,055) 99.4% ....... 706,190,664
OTHER ASSETS, LESS LIABILITIES 0.6% ................................... 4,136,792
------------
NET ASSETS 100.0% ..................................................... $710,327,456
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 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 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------------- JULY 31,
CLASS A 2008 2007 2006 2005 2004(a) 2004
- ------- -------- -------- -------- -------- -------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 16.17 $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46
-------- -------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c, d) ................. 0.19 0.32 0.24 0.14 0.09 0.11
Net realized and unrealized gains (losses) .. (5.00) 1.31 1.73 0.96 1.33 1.36
-------- -------- -------- -------- -------- --------
Total from investment operations ............... (4.81) 1.63 1.97 1.10 1.42 1.47
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.22) (0.32) (0.32) (0.17) (0.08) (0.10)
Net realized gains .......................... (0.66) (0.77) (0.12) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ............................ (0.88) (1.09) (0.44) (0.17) (0.08) (0.10)
-------- -------- -------- -------- -------- --------
Redemption fees(e, f) .......................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of year ................... $ 10.48 $ 16.17 $ 15.63 $ 14.10 $ 13.17 $ 11.83
======== ======== ======== ======== ======== ========
Total return(g) ................................ (30.75)% 10.58% 13.90% 8.47% 12.04% 14.04%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 0.76% 0.74% 0.75% 0.79% 0.85% 0.83%
Expenses net of waiver and payments by
affiliates(i) ............................... 0.51% 0.50% 0.50% 0.72% 0.85% 0.83%
Net investment income(d) ....................... 1.43% 1.93% 1.59% 1.07% 1.72% 0.91%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $283,111 $394,689 $319,521 $230,686 $202,560 $165,500
Portfolio turnover rate ........................ 8.87% 10.36% 9.31% 10.50% 3.98% 3.46%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.81% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
--------------------------------------------- JULY 31,
CLASS B 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ------- ------ ------ ------ ------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 15.91 $15.45 $13.97 $13.09 $11.75 $11.80
------- ------ ------ ------ ------ ------
Income from investment operations(c):
Net investment income (loss)(d, e) .......... 0.09 0.17 0.12 0.04 0.06 (0.02)
Net realized and unrealized gains (losses) .. (4.90) 1.31 1.72 0.96 1.32 0.09
------- ------ ------ ------ ------ ------
Total from investment operations ............... (4.81) 1.48 1.84 1.00 1.38 0.07
------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.12) (0.25) (0.24) (0.12) (0.04) (0.12)
Net realized gains .......................... (0.66) (0.77) (0.12) -- -- --
------- ------ ------ ------ ------ ------
Total distributions ............................ (0.78) (1.02) (0.36) (0.12) (0.04) (0.12)
------- ------ ------ ------ ------ ------
Redemption fees(f, g) .......................... -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Net asset value, end of year ................... $ 10.32 $15.91 $15.45 $13.97 $13.09 $11.75
======= ====== ====== ====== ====== ======
Total return(h) ................................ (31.24)% 9.76% 13.06% 7.63% 11.76% 0.56%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 1.51% 1.49% 1.50% 1.54% 1.60% 1.58%
Expenses net of waiver and payments by
affiliates(j) ............................... 1.26% 1.25% 1.25% 1.47% 1.60% 1.58%
Net investment income(c) ....................... 0.68% 1.18% 0.84% 0.32% 0.97% 0.16%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 6,261 $8,292 $8,195 $6,468 $5,343 $3,178
Portfolio turnover rate ........................ 8.87% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
48 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------- JULY 31,
CLASS C 2008 2007 2006 2005 2004(a) 2004
- ------- -------- -------- -------- ------- ------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 15.90 $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38
-------- -------- -------- ------- ------- -------
Income from investment operations(b):
Net investment income(c, d) ................. 0.09 0.19 0.13 0.04 0.05 0.02
Net realized and unrealized gains (losses) .. (4.90) 1.29 1.70 0.96 1.32 1.35
-------- -------- -------- ------- ------- -------
Total from investment operations ............... (4.81) 1.48 1.83 1.00 1.37 1.37
-------- -------- -------- ------- ------- -------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............ (0.12) (0.25) (0.24) (0.12) -- (0.03)
Net realized gains .......................... (0.66) (0.77) (0.12) -- -- --
-------- -------- -------- ------- ------- -------
Total distributions ............................ (0.78) (1.02) (0.36) (0.12) -- (0.03)
-------- -------- -------- ------- ------- -------
Redemption fees(e, f) .......................... -- -- -- -- -- --
-------- -------- -------- ------- ------- -------
Net asset value, end of year ................... $ 10.31 $ 15.90 $ 15.44 $ 13.97 $ 13.09 $ 11.72
======== ======== ======== ======= ======= =======
Total return(g) ................................ (31.26)% 9.72% 13.08% 7.63% 11.69% 13.18%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 1.51% 1.49% 1.50% 1.54% 1.60% 1.58%
Expenses net of waiver and payments by
affiliates(i) ............................... 1.26% 1.25% 1.25% 0.47% 1.60% 1.58%
Net investment income(d) ....................... 0.68% 1.18% 0.84% 0.32% 0.97% 0.16%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $106,379 $145,218 $122,156 $88,986 $73,816 $61,179
Portfolio turnover rate ........................ 8.87% 10.36% 9.31% 10.50% 3.98% 3.46%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.81% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED
-------------------------------------------- JULY 31,
CLASS R 2008 2007 2006 2005 2004(a) 2004
- ------- ------- ------- ------- ------- ------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 16.02 $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40
------- ------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c, d) ..................... 0.17 0.29 0.20 0.11 0.08 0.08
Net realized and unrealized gains (losses) ...... (4.96) 1.28 1.71 0.95 1.33 1.36
------- ------- ------- ------- ------- -------
Total from investment operations ................... (4.79) 1.57 1.91 1.06 1.41 1.44
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ................ (0.19) (0.30) (0.29) (0.15) (0.06) (0.08)
Net realized gains .............................. (0.66) (0.77) (0.12) -- -- --
------- ------- ------- ------- ------- -------
Total distributions ................................ (0.85) (1.07) (0.41) (0.15) (0.06) (0.08)
------- ------- ------- ------- ------- -------
Redemption fees(e, f) .............................. -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Net asset value, end of year ....................... $ 10.38 $ 16.02 $ 15.52 $ 14.02 $ 13.11 $ 11.76
======= ======= ======= ======= ======= =======
Total return(g) .................................... (30.92)% 10.31% 13.65% 8.10% 12.00% 13.89%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ................................... 1.01% 0.99% 1.00% 1.04% 1.10% 1.08%
Expenses net of waiver and payments by
affiliates(i) ................................... 0.76% 0.75% 0.75% 0.97% 1.10% 1.08%
Net investment income(d) ........................... 1.18% 1.68% 1.34% 0.82% 1.47% 0.66%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $35,485 $36,757 $26,215 $19,461 $15,206 $11,714
Portfolio turnover rate ............................ 8.87% 10.36% 9.31% 10.50% 3.98% 3.46%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.81% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
50 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------ DECEMBER 31,
ADVISOR CLASS 2008 2007 2006 2005(a)
- ------------- ------- ------ ------ ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 16.19 $15.64 $14.10 $14.18
------- ------ ------ ------
Income from investment operations(b):
Net investment income(c, d) ..................... 0.27 0.38 0.29 0.11
Net realized and unrealized gains (losses) ...... (5.06) 1.29 1.72 (0.03)
------- ------ ------ ------
Total from investment operations ................... (4.79) 1.67 2.01 0.08
------- ------ ------ ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ............... (0.25) (0.35) (0.35) (0.16)
Net realized gains .............................. (0.66) (0.77) (0.12) --
------- ------ ------ ------
Total distributions ................................ (0.91) (1.12) (0.47) (0.16)
------- ------ ------ ------
Redemption fees(e, f) .............................. -- -- -- --
------- ------ ------ ------
Net asset value, end of year ....................... $ 10.49 $16.19 $15.64 $14.10
======= ====== ====== ======
Total return(g) .................................... (30.56)% 10.80% 14.26% 0.54%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ................................... 0.51% 0.49% 0.50% 0.54%
Expenses net of waiver and payments by
affiliates(i) ................................... 0.26% 0.25% 0.25% 0.47%
Net investment income(d) ........................... 1.68% 2.18% 1.84% 1.32%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $11,059 $9,917 $5,593 $3,320
Portfolio turnover rate ............................ 8.87% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.81% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 51
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- ------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS 94.8%(a)
DOMESTIC EQUITY 53.7%
(b) Franklin Flex Cap Growth Fund, Advisor
Class.................................... 2,564,043 $ 80,023,790
(b) Franklin Growth Opportunities Fund, Advisor
Class ................................... 1,363,020 17,978,237
Franklin MicroCap Value Fund, Advisor
Class ................................... 791,091 16,810,677
(b) Franklin Natural Resources Fund, Advisor
Class ................................... 636,509 13,092,997
(b) Franklin Small Cap Growth Fund, Advisor
Class ................................... 6,082,093 37,648,156
Mutual Shares Fund, Class Z ................ 4,693,775 71,908,626
------------
237,462,483
------------
DOMESTIC FIXED INCOME 11.0%
Franklin Strategic Mortgage Portfolio ...... 602,416 5,036,200
Franklin Total Return Fund, Advisor
Class ................................... 1,996,638 17,410,681
Franklin U.S. Government Securities Fund,
Advisor Class ........................... 3,967,140 26,302,137
------------
48,749,018
------------
FOREIGN EQUITY 24.2%
Franklin Global Real Estate Fund, Advisor
Class ................................... 1,649,225 8,608,954
(b) Franklin Gold and Precious Metals Fund,
Advisor Class ........................... 821,076 21,175,539
Mutual European Fund, Class Z .............. 2,290,529 39,511,618
Templeton China World Fun d, Advisor
Class ................................... 772,967 16,355,972
Templeton Foreign Fund, Advisor Class ...... 4,915,537 21,579,207
------------
107,231,290
------------
FOREIGN FIXED INCOME 5.9%
Templeton Global Bond Fun d, Advisor
Class ................................... 2,344,923 26,192,792
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS
BEFORE SHORT TERM INVESTMENTS
(COST $527,007,856) .................. 419,635,583
------------
SHORT TERM INVESTMENTS (COST $23,259,060)
5.3%(a)
MONEY MARKET FUNDS 5.3%
(c) Franklin Institutional Fiduciary Trust
Money Market Portfolio, 0.55% ........... 23,259,060 23,259,060
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS
(COST $550,266,916) 100.1% .............. 442,894,643
OTHER ASSETS, LESS LIABILITIES (0.1)% ...... (601,424)
------------
NET ASSETS 100.0% .......................... $442,293,219
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 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.
52 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2008
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------- -------------
Assets:
Investments in Underlying Funds (Note 6):
Cost ..................................... $535,214,581 $ 814,948,055 $ 550,266,916
------------ ------------ -------------
Value .................................... $474,964,281 $ 706,190,664 $ 442,894,643
Receivables from capital shares sold ........ 4,023,622 7,096,497 1,670,129
------------ ------------- -------------
Total assets .......................... 478,987,903 713,287,161 444,564,772
------------ ------------- -------------
Liabilities:
Payables:
Capital shares redeemed .................. 2,013,440 2,225,825 1,832,087
Affiliates ............................... 355,381 471,034 201,119
Unaffiliated transfer agent fees ......... 117,155 208,983 189,227
Accrued expenses and other liabilities ...... 37,477 53,863 49,120
------------ ------------- -------------
Total liabilities ..................... 2,523,453 2,959,705 2,271,553
------------ ------------- -------------
Net assets, at value ............... $476,464,450 $ 710,327,456 $ 442,293,219
------------ ------------- -------------
Net assets consist of:
Paid-in capital ............................. $534,752,241 $ 813,895,457 $ 551,098,719
Undistributed net investment income ......... 427,455 929,902 981,391
Net unrealized appreciation (depreciation) .. (60,250,300) (108,757,391) (107,372,273)
Accumulated net realized gain (loss) ........ 1,535,054 4,259,488 (2,414,618)
------------ ------------- -------------
Net assets, at value ............... $476,464,450 $ 710,327,456 $ 442,293,219
============ ============= =============
The accompanying notes are an integral part of these financial statements.
Annual Report | 53
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2008
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------ ------------
CLASS A:
Net assets, at value ........................ $282,768,792 $476,414,850 $283,110,569
------------ ------------ ------------
Shares outstanding .......................... 25,901,115 44,643,350 27,009,058
------------ ------------ ------------
Net asset value per share(a) ................ $ 10.92 $ 10.67 $ 10.48
------------ ------------ ------------
Maximum offering price per share
(net asset value per share / 94.25%) ..... $ 11.59 $ 11.32 $ 11.12
------------ ------------ ------------
CLASS B:
Net assets, at value ........................ $ 7,149,557 $ 11,059,602 $ 6,260,730
------------ ------------ ------------
Shares outstanding .......................... 656,830 1,039,737 606,719
------------ ------------ ------------
Net asset value and maximum offering
price per share(a) ....................... $ 10.88 $ 10.64 $ 10.32
------------ ------------ ------------
CLASS C:
Net assets, at value ........................ $152,773,026 $164,355,172 $106,378,632
------------ ------------ ------------
Shares outstanding .......................... 14,186,416 15,691,473 10,314,416
------------ ------------ ------------
Net asset value and maximum offering price
per share(a).............................. $ 10.77 $ 10.47 $ 10.31
------------ ------------ ------------
CLASS R:
Net assets, at value ........................ $ 29,465,586 $ 47,008,916 $ 35,484,504
------------ ------------ ------------
Shares outstanding .......................... 2,706,102 4,416,166 3,417,802
------------ ------------ ------------
Net asset value and maximum offering price
per share ................................ $ 10.89 $ 10.64 $ 10.38
------------ ------------ ------------
ADVISOR CLASS:
Net assets, at value ........................ $ 4,307,489 $ 11,488,916 $ 11,058,784
------------ ------------ ------------
Shares outstanding .......................... 394,922 1,076,645 1,054,053
------------ ------------ ------------
Net asset value and maximum offering price
per share ................................ $ 10.91 $ 10.67 $ 10.49
------------ ------------ ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
54 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2008
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------- -------------
Investment income:
Dividends from Underlying Funds (Note 6) ............................. $ 16,682,058 $ 23,333,928 $ 10,315,636
------------ ------------- -------------
Expenses:
Asset allocation fees (Note 3a) ...................................... 903,546 1,611,554 1,267,729
Distribution fees: (Note 3c)
Class A ........................................................... 688,268 1,217,417 869,348
Class B ........................................................... 69,500 115,801 75,045
Class C ........................................................... 1,374,483 1,625,970 1,294,350
Class R ........................................................... 139,027 220,799 187,972
Transfer agent fees (Note 3e) ........................................ 702,096 1,228,898 1,233,983
Reports to shareholders .............................................. 42,341 74,237 72,858
Registration and filing fees ......................................... 108,539 103,636 87,012
Professional fees .................................................... 27,040 33,092 27,907
Trustees' fees and expenses .......................................... 3,071 5,093 4,008
Other ................................................................ 19,764 26,817 22,695
------------ ------------- -------------
Total expenses ................................................. 4,077,675 6,263,314 5,142,907
Expenses waived/paid by affiliates (Note 3f) ................... (645,311) (1,142,869) (1,323,444)
------------ ------------- -------------
Net expenses ................................................ 3,432,364 5,120,445 3,819,463
------------ ------------- -------------
Net investment income .................................... 13,249,694 18,213,483 6,496,173
------------ ------------- -------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ........................... (4,102,645) (6,892,541) (13,083,276)
Realized gain distributions by Underlying Funds ................... 6,944,086 13,692,458 13,260,337
------------ ------------- -------------
Net realized gain (loss) ................................. 2,841,441 6,799,917 177,061
------------ ------------- -------------
Net change in unrealized appreciation (depreciation) on investments in
Underlying Funds .................................................. (94,915,134) (196,772,246) (197,001,270)
------------ ------------- -------------
Net realized and unrealized gain (loss) ................................. (92,073,693) (189,972,329) (196,824,209)
------------ ------------- -------------
Net increase (decrease) in net assets resulting from operations ......... $(78,823,999) $(171,758,846) $(190,328,036)
============ ============= =============
The accompanying notes are an integral part of these financial statements.
Annual Report | 55
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
-------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------
2008 2007 2008 2007
------------ ------------ ------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 13,249,694 $ 11,066,674 $ 18,213,483 $ 17,560,996
Net realized gain (loss) from Underlying Funds .................... 2,841,441 12,679,747 6,799,917 32,240,957
Net change in unrealized appreciation (depreciation)
on investments in Underlying Funds ............................. (94,915,134) 1,298,295 (196,772,246) 5,441,929
------------ ------------ ------------- ------------
Net increase (decrease) in net assets resulting
from operations .......................................... (78,823,999) 25,044,716 (171,758,846) 55,243,882
------------ ------------ ------------- ------------
Distributions to shareholders from:
Net investment income:
Class A ........................................................ (9,093,615) (7,827,189) (14,241,980) (13,678,690)
Class B ........................................................ (175,167) (169,537) (248,537) (266,922)
Class C ........................................................ (3,810,306) (2,738,556) (3,721,764) (3,504,431)
Class R ........................................................ (869,315) (691,739) (1,250,162) (1,047,371)
Advisor Class .................................................. (134,845) (114,381) (346,065) (289,700)
Net realized gains:
Class A ........................................................ (5,215,326) (5,708,542) (14,041,188) (16,900,630)
Class B ........................................................ (122,096) (165,679) (327,683) (444,317)
Class C ........................................................ (2,743,261) (2,453,393) (4,781,082) (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 .................................. (22,773,583) (20,452,881) (40,515,097) (43,583,325)
------------ ------------ ------------- ------------
Capital share transactions: (Note 2)
Class A ........................................................ 92,679,878 53,837,470 128,035,233 81,959,202
Class B ........................................................ 2,232,512 (45,467) 2,045,174 661,569
Class C ........................................................ 73,404,375 33,874,823 52,799,515 23,513,166
Class R ........................................................ 10,284,248 10,789,707 20,814,658 7,788,466
Advisor Class .................................................. 1,455,357 1,808,846 4,642,852 2,488,553
------------ ------------ ------------- ------------
Total capital share transactions ..................................... 180,056,370 100,265,379 208,337,432 116,410,956
------------ ------------ ------------- ------------
Redemption fees ...................................................... 12,809 2,308 4,916 7,689
------------ ------------ ------------- ------------
Net increase (decrease) in net assets ....................... 78,471,597 104,859,522 (3,931,595) 128,079,202
Net assets:
Beginning of year .................................................... 397,992,853 293,133,331 714,259,051 586,179,849
------------ ------------ ------------- ------------
End of year .......................................................... $476,464,450 $397,992,853 $ 710,327,456 $714,259,051
============ ============ ============= ============
Undistributed net investment income included in net assets:
End of year .......................................................... $ 427,455 $ 221,449 $ 929,902 $ 431,170
============ ============ ============= ============
The accompanying notes are an integral part of these financial statements.
56 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON
GROWTH TARGET FUND
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
2008 2007
------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................. $ 6,496,173 $ 9,342,685
Net realized gain (loss) from Underlying Funds .................... 177,061 35,997,986
Net change in unrealized appreciation (depreciation)
on investments in Underlying Funds ............................. (197,001,270) 5,370,351
------------- ------------
Net increase (decrease) in net assets resulting
from operations .......................................... (190,328,036) 50,711,022
------------- ------------
Distributions to shareholders from:
Net investment income and short term gains received from
Underlying Funds:
Class A ........................................................ (5,761,341) (7,570,294)
Class B ........................................................ (72,932) (126,683)
Class C ........................................................ (1,258,031) (2,228,923)
Class R ........................................................ (646,134) (666,373)
Advisor Class .................................................. (257,043) (199,883)
Net realized gains:
Class A ........................................................ (16,500,974) (17,221,275)
Class B ........................................................ (368,168) (393,145)
Class C ........................................................ (6,340,529) (6,480,615)
Class R ........................................................ (1,770,767) (1,546,719)
Advisor Class .................................................. (434,667) (383,485)
------------- ------------
Total distributions to shareholders .................................. (33,410,586) (36,817,395)
------------- ------------
Capital share transactions: (Note 2)
Class A ........................................................ 34,252,033 65,581,672
Class B ........................................................ 1,172,839 (137,062)
Class C ........................................................ 16,176,377 19,702,856
Class R ........................................................ 14,662,480 9,979,926
Advisor Class .................................................. 4,892,287 4,168,665
------------- ------------
Total capital share transactions ..................................... 71,156,016 99,296,057
------------- ------------
Redemption fees ...................................................... 2,223 3,636
------------- ------------
Net increase (decrease) in net assets ....................... (152,580,383) 113,193,320
Net assets:
Beginning of year .................................................... 594,873,602 481,680,282
------------- ------------
End of year .......................................................... $ 442,293,219 $594,873,602
============= ============
Undistributed net investment income included in net assets:
End of year .......................................................... $ 981,391 $ 348,055
============= ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment
company, consisting of ten separate funds, three of which are included in this
report (Funds). 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 December 31, 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.
Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, not
including 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 was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the Funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 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:
Year ended December 31, 2008
Shares sold ......................... 15,568,306 $ 190,953,863 19,698,628 $ 242,960,356
Shares issued in reinvestment
of distributions ................. 1,088,389 13,016,234 2,242,119 27,400,727
Shares redeemed ..................... (9,272,012) (111,290,219) (11,533,860) (142,325,850)
---------- ------------- ----------- -------------
Net increase (decrease) ............. 7,384,683 $ 92,679,878 10,406,887 $ 128,035,233
========== ============= =========== =============
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:
Year ended December 31, 2008
Shares sold ......................... 386,978 $ 4,705,293 439,730 $ 5,372,790
Shares issued in reinvestment
of distributions ................. 21,263 252,962 44,191 537,722
Shares redeemed ..................... (231,042) (2,725,743) (313,835) (3,865,338)
---------- ------------- ----------- -------------
Net increase (decrease) ............. 177,199 $ 2,232,512 170,086 $ 2,045,174
========== ============= =========== =============
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:
Year ended December 31, 2008
Shares sold ......................... 9,143,048 $ 111,410,003 7,246,871 $ 88,052,929
Shares issued in reinvestment
of distributions ................. 485,398 5,720,049 641,662 7,691,753
Shares redeemed ..................... (3,708,346) (43,725,677) (3,579,060) (42,945,167)
---------- ------------- ----------- -------------
Net increase (decrease) ............. 5,920,100 $ 73,404,375 4,309,473 $ 52,799,515
========== ============= =========== =============
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
========== ============= =========== =============
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
CLASS R SHARES:
Year ended December 31, 2008
Shares sold ......................... 1,459,923 $ 18,062,085 2,991,280 $ 37,361,989
Shares issued in reinvestment
of distributions ................. 113,747 1,356,174 202,851 2,464,649
Shares redeemed ..................... (747,198) (9,134,011) (1,577,937) (19,011,980)
--------- ------------ ---------- ------------
Net increase (decrease) ............. 826,472 $ 10,284,248 1,616,194 $ 20,814,658
========= ============ ========== ============
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:
Year ended December 31, 2008
Shares sold ......................... 257,955 $ 2,902,039 495,708 $ 5,839,904
Shares issued in reinvestment
of distributions ................. 16,949 201,287 51,803 626,829
Shares redeemed ..................... (140,537) (1,647,969) (146,513) (1,823,881)
--------- ------------ --------- ------------
Net increase (decrease) ............. 134,367 $ 1,455,357 400,998 $ 4,642,852
========= ============ ========== ============
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:
Year ended December 31, 2008
Shares sold ..................................... 8,614,981 $ 114,733,064
Shares issued in reinvestment of distributions .. 1,667,657 21,595,931
Shares redeemed ................................. (7,689,195) (102,076,962)
---------- -------------
Net increase (decrease) ......................... 2,593,443 $ 34,252,033
========== =============
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
========== =============
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON
GROWTH TARGET FUND
--------------------------
SHARES AMOUNT
----------- ------------
CLASS B SHARES:
Year ended December 31, 2008
Shares sold ..................................... 169,541 $ 2,246,202
Shares issued in reinvestment of distributions .. 32,101 421,308
Shares redeemed ................................. (116,215) (1,494,671)
---------- ------------
Net increase (decrease) ......................... 85,427 $ 1,172,839
========== ============
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:
Year ended December 31, 2008
Shares sold ..................................... 3,113,955 $ 41,358,304
Shares issued in reinvestment of distributions .. 526,370 6,908,111
Shares redeemed ................................. (2,459,694) (32,090,038)
---------- ------------
Net increase (decrease) ......................... 1,180,631 $ 16,176,377
========== ============
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:
Year ended December 31, 2008
Shares sold ..................................... 2,125,306 $ 28,652,652
Shares issued in reinvestment of distributions .. 185,467 2,367,456
Shares redeemed ................................. (1,186,756) (16,357,628)
---------- ------------
Net increase (decrease) ......................... 1,124,017 $ 14,662,480
========== ============
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:
Year ended December 31, 2008
Shares sold ..................................... 529,385 $ 6,071,746
Shares issued in reinvestment of distributions .. 55,379 690,032
Shares redeemed ................................. (143,400) (1,869,491)
---------- ------------
Net increase (decrease) ......................... 441,364 $ 4,892,287
========== ============
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
========== ============
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors/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' Class B, C and R compensation distribution plans,
the Funds pay Distributors for costs incurred in connection with the servicing,
sale and distribution of each fund's shares up to the maximum annual plan rate
for each class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ... 0.25%
Class B ... 1.00%
Class C ... 1.00%
Class R ... 0.50%
Annual Report | 63
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ----------- -----------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................ $282,199 $470,718 $231,198
Contingent deferred sales charges retained ................... $ 57,525 $ 52,000 $ 29,636
E. TRANSFER AGENT FEES
For the year ended December 31, 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 .. $331,000 $577,732 $619,229
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
and Investor Services may discontinue this waiver at any time upon notice to the
Funds' Board of Trustees.
4. INCOME TAXES
The tax character of distributions paid during the years ended December 31, 2008
and 2007, was as follows:
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
-------------------------
2008 2007
----------- -----------
Distributions paid from:
Ordinary income ........... $14,083,248 $11,724,151
Long term capital gain .... 8,690,335 8,728,730
----------- -----------
$22,773,583 $20,452,881
=========== ===========
64 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
FRANKLIN TEMPLETON
MODERATE TARGET FUND
-------------------------
2008 2007
----------- -----------
Distributions paid from:
Ordinary income ........... $19,808,519 $19,429,120
Long term capital gain .... 20,706,578 24,154,205
----------- -----------
$40,515,097 $43,583,325
=========== ===========
FRANKLIN TEMPLETON
GROWTH TARGET FUND
-------------------------
2008 2007
----------- -----------
Distributions paid from:
Ordinary income ........... $ 7,995,480 $10,792,156
Long term capital gain .... 25,415,106 26,025,239
----------- -----------
$33,410,586 $36,817,395
=========== ===========
At December 31, 2008, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------- -------------- --------------
Cost of investments ......................... $ 537,687,675 $ 817,857,223 $ 552,892,593
============= ============= =============
Unrealized appreciation ..................... $ 7,148,985 $ 15,525,617 $ 11,514,029
Unrealized depreciation ..................... (69,872,379) (127,192,176) (121,511,979)
------------- ------------- -------------
Net unrealized appreciation (depreciation) .. $ (62,723,394) $(111,666,559) $(109,997,950)
============= ============= =============
Undistributed ordinary income ............... $ 427,455 $ 929,902 $ 981,391
Undistributed long term capital gains ....... 4,008,148 7,168,654 211,060
------------- ------------- -------------
Distributable earnings ...................... $ 4,435,603 $ 8,098,556 $ 1,192,451
============= ============= =============
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.
Annual Report | 65
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2008, were as follows:
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
------------ ------------ ------------
Purchases ... $177,105,034 $233,211,603 $108,122,786
Sales ....... $ 17,690,000 $ 47,450,000 $ 45,444,000
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 December 31, 2008, the Funds
held the following positions which exceed 5% of the Underlying Funds' shares
outstanding:
NAME OF ISSUER % OF SHARES HELD
- -------------- ----------------
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Franklin Strategic Mortgage Portfolio ..... 9.05%
Franklin Global Real Estate Fund .......... 7.82%
Franklin Small Cap Growth Fund ............ 5.69%
FRANKLIN TEMPLETON MODERATE TARGET FUND
Franklin Global Real Estate Fund .......... 18.06%
Franklin Small Cap Growth Fund ............ 11.64%
Franklin Strategic Mortgage Portfolio ..... 11.38%
Franklin Growth Opportunities Fund ........ 9.49%
FRANKLIN TEMPLETON GROWTH TARGET FUND
Franklin Global Real Estate Fund .......... 15.74%
Franklin Small Cap Growth Fund ............ 11.11%
Franklin Growth Opportunities Fund ........ 8.35%
Franklin MicroCap Value Fund .............. 6.14%
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.
66 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FAIR VALUE MEASUREMENTS
The Funds adopted Financial Accounting Standards Board (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.
At December 31, 2008, all of the Funds' investments in securities carried at
fair value were in Level 1 inputs.
8. SUBSEQUENT EVENT
On January 23, 2009, the Funds entered into, along with certain other funds
managed by Franklin Templeton Investments (individually, "Borrower";
collectively "Borrowers"), a $725 million senior unsecured syndicated global
line of credit ("Global Credit Facility") to provide a source of funds to the
Borrowers for temporary and emergency purposes and to meet future unanticipated
or unusually large redemption requests.
Under the terms of the Global Credit Facility, each Borrower has agreed to pay
its proportionate share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility.
Annual Report | 67
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton Conservative
Target Fund, Franklin Templeton Moderate Target Fund and Franklin Templeton
Growth Target Fund (separate portfolios of Franklin Templeton Allocator Series,
hereafter referred to as the "Funds") at December 31, 2008, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments in the Underlying Funds at December 31, 2008 by
correspondence with the transfer agent of the Underlying Funds, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2009
68 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2008:
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
- ------------ ----------- -----------
$8,690,335 $20,706,578 $25,415,106
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2008.
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
- ------------ ----------- -----------
6.49% 9.12% 21.99%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2008.
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
- ------------ ----------- -----------
$1,803,989 $3,585,392 $3,461,057
Distributions, including qualified dividend income, paid during calendar year
2008 will be reported to shareholders on Form 1099-DIV in January 2009.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Annual Report | 69
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------- ----------- --------------- ---------------------------- ----------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 138 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
ROBERT F. CARLSON (1928) Trustee Since 2005 115 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement
Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
SAM GINN (1937) Trustee Since 2007 115 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global Communications
San Mateo, CA 94403-1906 (Holdings) Limited (satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 1998 138 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution of
titanium), Canadian National Railway
(railroad) and White Mountains Insurance
Group, Ltd. (holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
70 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------- ----------- --------------- ---------------------------- ----------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 115 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
FRANK A. OLSON (1932) Trustee Since 2007 138 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and Sentient
San Mateo, CA 94403-1906 Jet (private jet service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 145 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
JOHN B. WILSON (1959) Lead Trustee since 115 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate
Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm)
(1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------- ----------- --------------- ---------------------------- ----------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 138 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42
of the investment companies in Franklin Templeton Investments.
Annual Report | 71
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------- ----------- --------------- ---------------------------- ----------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 92 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton
Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
JENNIFER J. BOLT (1964) Chief Since December Not Applicable Not Applicable
One Franklin Parkway Executive 2008
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President - Operations and Technology, Franklin Resources, Inc.; Director, Templeton Global Advisors Limited; officer
and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment
companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President - AML
President Compliance since
- AML 2006
Compliance
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable
One Franklin Parkway Chief 2004, Chief
San Mateo, CA 94403-1906 Financial Financial
Officer and Officer and
Chief Chief
Accounting Accounting
Officer Officer since
February 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
JIMMY D. GAMBILL (1947) Vice Since February Not Applicable Not Applicable
500 East Broward Blvd. President 2008
Suite 2100
Fort Lauderdale,
FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
72 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- -------------------------- ----------- --------------- ---------------------------- ----------------------------------------
DAVID P. GOSS (1947) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. President Since 2002 Not Applicable Not Applicable
(1940) and Chief
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
KAREN L. SKIDMORE (1952) Vice Since 2006 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906 and
Secretary
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice Since 2005 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person of
the Fund under the federal securities laws due to his position as an
officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson and Jennifer J. Bolt.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
Annual Report | 73
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
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 (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 (800)
SEC-0330.
74 | Annual Report
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This page intentionally left blank.
Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
(800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD
CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
FRANKLIN TEMPLETON FUNDS
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund(1)
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(3)
Franklin Small Cap Growth Fund(4)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
(4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy
remained the same.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(6.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(7.) The fund invests primarily in insured municipal securities.
(8.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
12/08 Not part of the annual report
(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
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ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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 A2008 02/09
(GRAPHIC)
DECEMBER 31, 2008
Franklin Templeton
Corefolio Allocation Fund
Franklin Templeton
Founding Funds Allocation Fund
Franklin Templeton
Perspectives Allocation Fund
ANNUAL 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
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Templeton Corefolio Allocation Fund .............................. 5
Franklin Templeton Founding Funds Allocation Fund ......................... 14
Franklin Templeton Perspectives Allocation Fund ........................... 23
Financial Highlights and Statements of Investments ........................ 32
Financial Statements ...................................................... 49
Notes to Financial Statements ............................................. 54
Report of Independent Registered Public Accounting Firm ................... 64
Tax Designation ........................................................... 65
Board Members and Officers ................................................ 66
Shareholder Information ................................................... 70
Shareholder Letter
Dear Shareholder:
The year 2008 was an extraordinary and stressful time for investors and those of
us who have worked in financial markets for many years. During this turbulent
period, the U.S. economy slipped into recession, credit markets froze and
housing prices plummeted. Most stocks and bonds suffered major losses as
investors worried about an uncertain future. Although this environment is bound
to provoke great concern, we think it is important to put short-term market
developments in perspective. Keep in mind that as daunting as current conditions
may be, we have navigated through other periods of high market volatility, such
as the stock market crash of 1987. We remain committed to our long-term
perspective and our disciplined investment philosophy. Therefore, we view recent
declines as potential opportunities to find bargains that we believe may be well
positioned to become eventual winners. Although conditions remain challenging,
our experience gives us ample reason to be optimistic about future market
stabilization and recovery.
The enclosed annual report for Franklin Templeton Fund Allocator Series includes
a discussion of market conditions and each Fund's performance during the period
under review. You will also find performance data and financial information.
Please remember that all securities markets fluctuate, as do mutual fund share
prices.
Sign up for EDELIVERY of your Shareholder Report
Shareholders who are registered at franklintempleton.com can receive this report
via email by selecting eDelivery options under "My Profile." Not all accounts
are eligible for eDelivery.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, read timely articles, and
find helpful financial planning tools. We hope you will take advantage of these
online services.
As always, we recommend investors consult their financial advisors and review
their portfolios to design a long-term strategy and portfolio allocation that
meet their individual needs, goals and risk tolerance. We firmly believe that
most people benefit from professional advice, and that advice is invaluable as
investors navigate changing market environments.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Templeton Fund Allocator Series
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 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.
2 | Not part of the annual report
Annual Report
Economic and Market Overview
In 2008, the U.S. economy faltered and The Conference Board's Consumer
Confidence Index fell to an all-time low since it began in 1967. The
government's abrupt conservatorship of Fannie Mae and Freddie Mac and the
failure of several blue-chip banks and financial institutions roiled the equity
markets. Despite government interventions and massive emergency funding, rapidly
weakening manufacturing activity and falling home prices exacerbated the
nation's economic troubles. Jobless claims mounted and the unemployment rate
rose to 7.2% by period-end.(1) In early December, the National Bureau of
Economic Research officially declared the U.S. economy has been in recession
since December 2007.
The weakening U.S. economy negatively impacted growth prospects around the
world. Although growth in the first half of the year was robust in developing
economies, particularly in Asia, signs of a global slowdown surfaced in the
latter half. In an environment of extremely high commodity prices that increased
inflationary pressure, the world's monetary authorities faced the choice of
lowering short-term interest rates to stimulate growth or raising them to fight
rising inflation. Stimulus provided through fiscal and monetary policies
implemented around the globe sought to restore financial market stability and
reignite economic growth.
The U.S. Treasury and the Federal Reserve Board took unprecedented steps,
including lowering short-term rates to near 0% from 4.25%. The European Central
Bank and many of the world's other central banks had raised rates due to
inflationary pressures. Later in the year, the potential for global recession
trumped inflationary concerns, and the world's monetary authorities cut interest
rates aggressively. The U.S. dollar, which had declined earlier in the period
versus many of the world's currencies, regained ground quickly toward period-end
as a flight to the relative safety of U.S. Treasuries prevailed.
(1.) Source: Bureau of Labor Statistics.
Annual Report | 3
In this challenging economic time, volatility came to define global equity
markets. Virtually all local indexes ended the 12-month period with marked
losses. Despite negative economic data and an outlook for decelerating corporate
earnings and profit margins globally, many companies outside the financials
sector retained relatively strong balance sheets.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31,
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 | Not part of the annual report
Franklin Templeton Corefolio Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Corefolio Allocation
Fund seeks capital appreciation through investments in an equally weighted
combination of Franklin Capital Growth Fund, Franklin Growth Fund, Mutual Shares
Fund and Templeton Growth Fund.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin Templeton Corefolio Allocation Fund covers the
fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Corefolio Allocation Fund - Class A had a -38.13% cumulative
total return for the 12 months under review. In comparison, the Fund's
benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley
Capital International (MSCI) World Index, had total returns of -37.00% and
- -40.33%.(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) 2009 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 indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 37.
Annual Report | 5
ASSET ALLOCATION*
Franklin Templeton Corefolio Allocation Fund
Based on Total Net Assets as of 12/31/08
Domestic Equity 74.8%
Foreign Equity 25.1%
Short-Term Investments & Other Net Assets 0.1%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the fiscal year under review, the Fund's performance was hindered by
Templeton Growth Fund - Advisor Class, which underperformed the MSCI World
Index. Franklin Capital Growth Fund - Advisor Class and Mutual Shares Fund -
Class Z performed comparably to the S&P 500, while Franklin Growth Fund -
Advisor Class performed better than the S&P 500.
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 DECEMBER 31, 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 | Annual Report
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCOX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.76 $8.46 $14.22
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1317
Long-Term Capital Gain $0.2896
TOTAL $0.4213
CLASS B (SYMBOL: FBCOX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.68 $8.44 $14.12
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.0386
Long-Term Capital Gain $0.2896
TOTAL $0.3282
CLASS C (SYMBOL: FTCLX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.68 $8.40 $14.08
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.0459
Long-Term Capital Gain $0.2896
TOTAL $0.3355
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$5.74 $8.46 $14.20
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1002
Long-Term Capital Gain $0.2896
TOTAL $0.3898
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$5.78 $8.47 $14.25
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1684
Long-Term Capital Gain $0.2896
TOTAL $0.4580
Annual Report | 7
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
INCEPTION
CLASS A 1-YEAR 5-YEAR (8/15/03)
- ------- ------- ------- ---------
Cumulative Total Return(2) -38.13% -10.68% -0.90%
Average Annual Total Return(3) -41.70% -3.38% -1.26%
Value of $10,000 Investment(4) $ 5,830 $ 8,420 $9,340
Total Annual Operating Expenses(5)
Without Waiver 1.33%
With Waiver 1.18%
INCEPTION
CLASS B 1-YEAR 5-YEAR (8/15/03)
- ------- ------- ------- ---------
Cumulative Total Return(2) -38.53% -13.60% -4.42%
Average Annual Total Return(3) -40.92% -3.23% -1.00%
Value of $10,000 Investment(4) $ 5,908 $ 8,487 $9,474
Total Annual Operating Expenses(5)
Without Waiver 2.03%
With Waiver 1.88%
INCEPTION
CLASS C 1-YEAR 5-YEAR (8/15/03)
- ------- ------- ------- ---------
Cumulative Total Return(2) -38.58% -13.63% -4.53%
Average Annual Total Return(3) -39.18% -2.89% -0.86%
Value of $10,000 Investment(4) $ 6,082 $ 8,637 $9,547
Total Annual Operating Expenses(5)
Without Waiver 2.02%
With Waiver 1.87%
INCEPTION
CLASS R 1-YEAR 5-YEAR (8/15/03)
- ------- -------- -------- ---------
Cumulative Total Return(2) -38.28% -11.53% -1.83%
Average Annual Total Return(3) -38.28% -2.42% -0.34%
Value of $10,000 Investment(4) $ 6,172 $ 8,847 $9,817
Total Annual Operating Expenses(5)
Without Waiver 1.53%
With Waiver 1.38%
INCEPTION
Advisor Class 1-YEAR 5-YEAR (8/15/03)
- ------------- -------- -------- ---------
Cumulative Total Return(2) -37.92% -9.27% +0.73%
Average Annual Total Return(3) -37.92% -1.93% +0.14%
Value of $10,000 Investment(4) $ 6,208 $9,073 $10,073
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 (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 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -41.70%
5-Year -3.38%
Since Inception (8/15/03) -1.26%
CLASS A (8/15/03-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD
DATE ALLOCATION FUND - CLASS A INDEX INDEX
- ------------- ---------------------------- ------- ----------
8/15/2003 $ 9,425 $10,000 $10,000
8/31/2003 $ 9,491 $10,101 $10,113
9/30/2003 $ 9,369 $ 9,993 $10,177
10/31/2003 $ 9,783 $10,559 $10,783
11/30/2003 $ 9,962 $10,652 $10,950
12/31/2003 $10,457 $11,210 $11,639
1/31/2004 $10,600 $11,416 $11,829
2/29/2004 $10,770 $11,575 $12,031
3/31/2004 $10,637 $11,400 $11,956
4/30/2004 $10,533 $11,221 $11,718
5/31/2004 $10,618 $11,375 $11,832
6/30/2004 $10,884 $11,596 $12,080
7/31/2004 $10,448 $11,212 $11,689
8/31/2004 $10,429 $11,258 $11,745
9/30/2004 $10,600 $11,380 $11,971
10/31/2004 $10,770 $11,554 $12,267
11/30/2004 $11,292 $12,021 $12,917
12/31/2004 $11,677 $12,430 $13,414
1/31/2005 $11,333 $12,127 $13,114
2/28/2005 $11,591 $12,382 $13,536
3/31/2005 $11,439 $12,163 $13,279
4/30/2005 $11,237 $11,932 $12,999
5/31/2005 $11,526 $12,312 $13,239
6/30/2005 $11,546 $12,330 $13,360
7/31/2005 $11,951 $12,788 $13,830
8/31/2005 $11,951 $12,671 $13,940
9/30/2005 $12,067 $12,774 $14,306
10/31/2005 $11,845 $12,561 $13,962
11/30/2005 $12,260 $13,036 $14,435
12/31/2005 $12,452 $13,041 $14,758
1/31/2006 $12,756 $13,386 $15,420
2/28/2006 $12,824 $13,422 $15,404
3/31/2006 $13,089 $13,589 $15,749
4/30/2006 $13,268 $13,772 $16,236
5/31/2006 $12,920 $13,375 $15,696
6/30/2006 $12,901 $13,394 $15,698
7/31/2006 $12,851 $13,476 $15,799
8/31/2006 $13,169 $13,797 $16,217
9/30/2006 $13,427 $14,152 $16,415
10/31/2006 $13,875 $14,614 $17,021
11/30/2006 $14,183 $14,891 $17,447
12/31/2006 $14,350 $15,100 $17,806
1/31/2007 $14,625 $15,329 $18,020
2/28/2007 $14,412 $15,029 $17,934
3/31/2007 $14,549 $15,197 $18,270
4/30/2007 $15,130 $15,870 $19,086
5/31/2007 $15,648 $16,424 $19,640
6/30/2007 $15,534 $16,151 $19,495
7/31/2007 $15,078 $15,650 $19,067
8/31/2007 $15,109 $15,885 $19,061
9/30/2007 $15,565 $16,479 $19,974
10/31/2007 $15,969 $16,741 $20,591
11/30/2007 $15,379 $16,041 $19,759
12/31/2007 $15,097 $15,930 $19,510
1/31/2008 $14,089 $14,974 $18,023
2/29/2008 $13,791 $14,488 $17,927
3/31/2008 $13,608 $14,425 $17,764
4/30/2008 $14,206 $15,128 $18,712
5/31/2008 $14,544 $15,324 $19,021
6/30/2008 $13,226 $14,032 $17,511
7/31/2008 $13,259 $13,914 $17,087
8/31/2008 $13,335 $14,115 $16,855
9/30/2008 $11,953 $12,858 $14,858
10/31/2008 $ 9,819 $10,698 $12,044
11/30/2008 $ 9,068 $ 9,931 $11,273
12/31/2008 $ 9,340 $10,036 $11,641
Total Returns -6.60% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08
- ------- --------
1-Year -40.92%
5-Year -3.23%
Since Inception (8/15/03) -1.00%
CLASS B (8/15/03-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD
DATE ALLOCATION FUND - CLASS B INDEX INDEX
- ------------- ---------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,101 $10,113
9/30/2003 $ 9,930 $ 9,993 $10,177
10/31/2003 $10,360 $10,559 $10,783
11/30/2003 $10,550 $10,652 $10,950
12/31/2003 $11,062 $11,210 $11,639
1/31/2004 $11,203 $11,416 $11,829
2/29/2004 $11,374 $11,575 $12,031
3/31/2004 $11,223 $11,400 $11,956
4/30/2004 $11,113 $11,221 $11,718
5/31/2004 $11,193 $11,375 $11,832
6/30/2004 $11,474 $11,596 $12,080
7/31/2004 $11,002 $11,212 $11,689
8/31/2004 $10,982 $11,258 $11,745
9/30/2004 $11,143 $11,380 $11,971
10/31/2004 $11,324 $11,554 $12,267
11/30/2004 $11,866 $12,021 $12,917
12/31/2004 $12,268 $12,430 $13,414
1/31/2005 $11,893 $12,127 $13,114
2/28/2005 $12,156 $12,382 $13,536
3/31/2005 $11,996 $12,163 $13,279
4/30/2005 $11,781 $11,932 $12,999
5/31/2005 $12,077 $12,312 $13,239
6/30/2005 $12,087 $12,330 $13,360
7/31/2005 $12,506 $12,788 $13,830
8/31/2005 $12,496 $12,671 $13,940
9/30/2005 $12,608 $12,774 $14,306
10/31/2005 $12,373 $12,561 $13,962
11/30/2005 $12,802 $13,036 $14,435
12/31/2005 $12,990 $13,041 $14,758
1/31/2006 $13,309 $13,386 $15,420
2/28/2006 $13,360 $13,422 $15,404
3/31/2006 $13,639 $13,589 $15,749
4/30/2006 $13,817 $13,772 $16,236
5/31/2006 $13,441 $13,375 $15,696
6/30/2006 $13,420 $13,394 $15,698
7/31/2006 $13,357 $13,476 $15,799
8/31/2006 $13,681 $13,797 $16,217
9/30/2006 $13,942 $14,152 $16,415
10/31/2006 $14,401 $14,614 $17,021
11/30/2006 $14,715 $14,891 $17,447
12/31/2006 $14,879 $15,100 $17,806
1/31/2007 $15,156 $15,329 $18,020
2/28/2007 $14,922 $15,029 $17,934
3/31/2007 $15,055 $15,197 $18,270
4/30/2007 $15,650 $15,870 $19,086
5/31/2007 $16,181 $16,424 $19,640
6/30/2007 $16,051 $16,151 $19,495
7/31/2007 $15,564 $15,650 $19,067
8/31/2007 $15,596 $15,885 $19,061
9/30/2007 $16,062 $16,479 $19,974
10/31/2007 $16,462 $16,741 $20,591
11/30/2007 $15,845 $16,041 $19,759
12/31/2007 $15,548 $15,930 $19,510
1/31/2008 $14,502 $14,974 $18,023
2/29/2008 $14,183 $14,488 $17,927
3/31/2008 $13,992 $14,425 $17,764
4/30/2008 $14,590 $15,128 $18,712
5/31/2008 $14,929 $15,324 $19,021
6/30/2008 $13,574 $14,032 $17,511
7/31/2008 $13,596 $13,914 $17,087
8/31/2008 $13,664 $14,115 $16,855
9/30/2008 $12,241 $12,858 $14,858
10/31/2008 $10,050 $10,698 $12,044
11/30/2008 $ 9,283 $ 9,931 $11,273
12/31/2008 $ 9,474 $10,036 $11,641
Total Returns -5.26% 0.36% 16.41%
Annual Report | 9
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -39.18%
5-Year -2.89%
Since Inception (8/15/03) -0.86%
CLASS C (8/15/03-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD
DATE ALLOCATION FUND - CLASS C INDEX INDEX
- ------------- ---------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,101 $10,113
9/30/2003 $ 9,930 $ 9,993 $10,177
10/31/2003 $10,360 $10,559 $10,783
11/30/2003 $10,540 $10,652 $10,950
12/31/2003 $11,054 $11,210 $11,639
1/31/2004 $11,194 $11,416 $11,829
2/29/2004 $11,365 $11,575 $12,031
3/31/2004 $11,215 $11,400 $11,956
4/30/2004 $11,104 $11,221 $11,718
5/31/2004 $11,194 $11,375 $11,832
6/30/2004 $11,466 $11,596 $12,080
7/31/2004 $10,993 $11,212 $11,689
8/31/2004 $10,973 $11,258 $11,745
9/30/2004 $11,144 $11,380 $11,971
10/31/2004 $11,315 $11,554 $12,267
11/30/2004 $11,858 $12,021 $12,917
12/31/2004 $12,256 $12,430 $13,414
1/31/2005 $11,892 $12,127 $13,114
2/28/2005 $12,155 $12,382 $13,536
3/31/2005 $11,995 $12,163 $13,279
4/30/2005 $11,770 $11,932 $12,999
5/31/2005 $12,066 $12,312 $13,239
6/30/2005 $12,087 $12,330 $13,360
7/31/2005 $12,495 $12,788 $13,830
8/31/2005 $12,495 $12,671 $13,940
9/30/2005 $12,597 $12,774 $14,306
10/31/2005 $12,362 $12,561 $13,962
11/30/2005 $12,801 $13,036 $14,435
12/31/2005 $12,994 $13,041 $14,758
1/31/2006 $13,303 $13,386 $15,420
2/28/2006 $13,365 $13,422 $15,404
3/31/2006 $13,634 $13,589 $15,749
4/30/2006 $13,811 $13,772 $16,236
5/31/2006 $13,435 $13,375 $15,696
6/30/2006 $13,414 $13,394 $15,698
7/31/2006 $13,351 $13,476 $15,799
8/31/2006 $13,675 $13,797 $16,217
9/30/2006 $13,937 $14,152 $16,415
10/31/2006 $14,397 $14,614 $17,021
11/30/2006 $14,710 $14,891 $17,447
12/31/2006 $14,875 $15,100 $17,806
1/31/2007 $15,152 $15,329 $18,020
2/28/2007 $14,918 $15,029 $17,934
3/31/2007 $15,051 $15,197 $18,270
4/30/2007 $15,648 $15,870 $19,086
5/31/2007 $16,179 $16,424 $19,640
6/30/2007 $16,038 $16,151 $19,495
7/31/2007 $15,561 $15,650 $19,067
8/31/2007 $15,593 $15,885 $19,061
9/30/2007 $16,060 $16,479 $19,974
10/31/2007 $16,461 $16,741 $20,591
11/30/2007 $15,843 $16,041 $19,759
12/31/2007 $15,545 $15,930 $19,510
1/31/2008 $14,496 $14,974 $18,023
2/29/2008 $14,176 $14,488 $17,927
3/31/2008 $13,984 $14,425 $17,764
4/30/2008 $14,596 $15,128 $18,712
5/31/2008 $14,924 $15,324 $19,021
6/30/2008 $13,577 $14,032 $17,511
7/31/2008 $13,588 $13,914 $17,087
8/31/2008 $13,667 $14,115 $16,855
9/30/2008 $12,241 $12,858 $14,858
10/31/2008 $10,055 $10,698 $12,044
11/30/2008 $ 9,274 $ 9,931 $11,273
12/31/2008 $ 9,547 $10,036 $11,641
Total Returns -4.53% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------- --------
1-Year -38.28%
5-Year -2.42%
Since Inception (8/15/03) -0.34%
CLASS R (8/15/03-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD
DATE ALLOCATION FUND - CLASS R INDEX INDEX
- ------------- ---------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,101 $10,113
9/30/2003 $ 9,940 $ 9,993 $10,177
10/31/2003 $10,380 $10,559 $10,783
11/30/2003 $10,570 $10,652 $10,950
12/31/2003 $11,096 $11,210 $11,639
1/31/2004 $11,236 $11,416 $11,829
2/29/2004 $11,417 $11,575 $12,031
3/31/2004 $11,267 $11,400 $11,956
4/30/2004 $11,156 $11,221 $11,718
5/31/2004 $11,246 $11,375 $11,832
6/30/2004 $11,528 $11,596 $12,080
7/31/2004 $11,065 $11,212 $11,689
8/31/2004 $11,045 $11,258 $11,745
9/30/2004 $11,216 $11,380 $11,971
10/31/2004 $11,397 $11,554 $12,267
11/30/2004 $11,951 $12,021 $12,917
12/31/2004 $12,363 $12,430 $13,414
1/31/2005 $11,998 $12,127 $13,114
2/28/2005 $12,262 $12,382 $13,536
3/31/2005 $12,111 $12,163 $13,279
4/30/2005 $11,886 $11,932 $12,999
5/31/2005 $12,193 $12,312 $13,239
6/30/2005 $12,213 $12,330 $13,360
7/31/2005 $12,633 $12,788 $13,830
8/31/2005 $12,633 $12,671 $13,940
9/30/2005 $12,756 $12,774 $14,306
10/31/2005 $12,520 $12,561 $13,962
11/30/2005 $12,971 $13,036 $14,435
12/31/2005 $13,158 $13,041 $14,758
1/31/2006 $13,479 $13,386 $15,420
2/28/2006 $13,552 $13,422 $15,404
3/31/2006 $13,832 $13,589 $15,749
4/30/2006 $14,022 $13,772 $16,236
5/31/2006 $13,643 $13,375 $15,696
6/30/2006 $13,622 $13,394 $15,698
7/31/2006 $13,569 $13,476 $15,799
8/31/2006 $13,906 $13,797 $16,217
9/30/2006 $14,169 $14,152 $16,415
10/31/2006 $14,642 $14,614 $17,021
11/30/2006 $14,969 $14,891 $17,447
12/31/2006 $15,145 $15,100 $17,806
1/31/2007 $15,435 $15,329 $18,020
2/28/2007 $15,199 $15,029 $17,934
3/31/2007 $15,344 $15,197 $18,270
4/30/2007 $15,958 $15,870 $19,086
5/31/2007 $16,505 $16,424 $19,640
6/30/2007 $16,374 $16,151 $19,495
7/31/2007 $15,892 $15,650 $19,067
8/31/2007 $15,925 $15,885 $19,061
9/30/2007 $16,407 $16,479 $19,974
10/31/2007 $16,823 $16,741 $20,591
11/30/2007 $16,199 $16,041 $19,759
12/31/2007 $15,905 $15,930 $19,510
1/31/2008 $14,841 $14,974 $18,023
2/29/2008 $14,516 $14,488 $17,927
3/31/2008 $14,333 $14,425 $17,764
4/30/2008 $14,953 $15,128 $18,712
5/31/2008 $15,298 $15,324 $19,021
6/30/2008 $13,919 $14,032 $17,511
7/31/2008 $13,942 $13,914 $17,087
8/31/2008 $14,023 $14,115 $16,855
9/30/2008 $12,564 $12,858 $14,858
10/31/2008 $10,325 $10,698 $12,044
11/30/2008 $ 9,532 $ 9,931 $11,273
12/31/2008 $ 9,817 $10,036 $11,641
Total Returns -1.83% 0.36% 16.41%
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08
- ------------- --------
1-Year -37.92%
5-Year -1.93%
Since Inception (8/15/03) +0.14%
ADVISOR CLASS (8/15/03-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO
ALLOCATION FUND - ADVISOR S&P 500 MSCI WORLD
DATE CLASS INDEX INDEX
- ------------- ---------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,070 $10,101 $10,113
9/30/2003 $ 9,940 $ 9,993 $10,177
10/31/2003 $10,380 $10,559 $10,783
11/30/2003 $10,580 $10,652 $10,950
12/31/2003 $11,102 $11,210 $11,639
1/31/2004 $11,253 $11,416 $11,829
2/29/2004 $11,434 $11,575 $12,031
3/31/2004 $11,293 $11,400 $11,956
4/30/2004 $11,193 $11,221 $11,718
5/31/2004 $11,273 $11,375 $11,832
6/30/2004 $11,565 $11,596 $12,080
7/31/2004 $11,092 $11,212 $11,689
8/31/2004 $11,082 $11,258 $11,745
9/30/2004 $11,263 $11,380 $11,971
10/31/2004 $11,444 $11,554 $12,267
11/30/2004 $12,008 $12,021 $12,917
12/31/2004 $12,432 $12,430 $13,414
1/31/2005 $12,066 $12,127 $13,114
2/28/2005 $12,341 $12,382 $13,536
3/31/2005 $12,190 $12,163 $13,279
4/30/2005 $11,974 $11,932 $12,999
5/31/2005 $12,282 $12,312 $13,239
6/30/2005 $12,313 $12,330 $13,360
7/31/2005 $12,734 $12,788 $13,830
8/31/2005 $12,744 $12,671 $13,940
9/30/2005 $12,867 $12,774 $14,306
10/31/2005 $12,631 $12,561 $13,962
11/30/2005 $13,083 $13,036 $14,435
12/31/2005 $13,294 $13,041 $14,758
1/31/2006 $13,618 $13,386 $15,420
2/28/2006 $13,691 $13,422 $15,404
3/31/2006 $13,995 $13,589 $15,749
4/30/2006 $14,186 $13,772 $16,236
5/31/2006 $13,804 $13,375 $15,696
6/30/2006 $13,794 $13,394 $15,698
7/31/2006 $13,741 $13,476 $15,799
8/31/2006 $14,090 $13,797 $16,217
9/30/2006 $14,366 $14,152 $16,415
10/31/2006 $14,853 $14,614 $17,021
11/30/2006 $15,192 $14,891 $17,447
12/31/2006 $15,376 $15,100 $17,806
1/31/2007 $15,680 $15,329 $18,020
2/28/2007 $15,452 $15,029 $17,934
3/31/2007 $15,599 $15,197 $18,270
4/30/2007 $16,220 $15,870 $19,086
5/31/2007 $16,796 $16,424 $19,640
6/30/2007 $16,663 $16,151 $19,495
7/31/2007 $16,186 $15,650 $19,067
8/31/2007 $16,220 $15,885 $19,061
9/30/2007 $16,718 $16,479 $19,974
10/31/2007 $17,150 $16,741 $20,591
11/30/2007 $16,519 $16,041 $19,759
12/31/2007 $16,226 $15,930 $19,510
1/31/2008 $15,145 $14,974 $18,023
2/29/2008 $14,826 $14,488 $17,927
3/31/2008 $14,640 $14,425 $17,764
4/30/2008 $15,282 $15,128 $18,712
5/31/2008 $15,644 $15,324 $19,021
6/30/2008 $14,243 $14,032 $17,511
7/31/2008 $14,266 $13,914 $17,087
8/31/2008 $14,360 $14,115 $16,855
9/30/2008 $12,877 $12,858 $14,858
10/31/2008 $10,577 $10,698 $12,044
11/30/2008 $ 9,772 $ 9,931 $11,273
12/31/2008 $10,073 $10,036 $11,641
Total Returns 0.73% 0.36% 16.41%
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 OR SOCIAL INSTABILITY. THESE AND OTHER RISKS, INCLUDING
INVESTMENTS IN SPECIALIZED INDUSTRY SECTORS, SUCH AS THE TECHNOLOGY SECTOR,
WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE SECTORS, INVOLVES SPECIAL
CONSIDERATIONS. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the administrator had not waived fees, the Fund's total returns would
have been lower.
(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for
market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is
one of the most widely used benchmarks of U.S. equity performance. The MSCI
World Index is a free float-adjusted, market capitalization-weighted index
designed to measure equity market performance in global developed markets.
Annual Report | 11
Your Fund's Expenses
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
12 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
CLASS A 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
- ------- ------------- ------------- ---------------- -----------------
Actual $1,000 $ 706.20 $2.06 $5.15
Hypothetical
(5% return before expenses) $1,000 $1,022.72 $2.44 $6.09
CLASS B
Actual $1,000 $ 704.20 $5.05 $8.14
Hypothetical
(5% return before expenses) $1,000 $1,019.20 $5.99 $9.63
CLASS C
Actual $1,000 $ 703.20 $5.01 $8.09
Hypothetical
(5% return before expenses) $1,000 $1,019.25 $5.94 $9.58
CLASS R
Actual $1,000 $ 705.20 $2.91 $6.00
Hypothetical
(5% return before expenses) $1,000 $1,021.72 $3.46 $7.10
ADVISOR CLASS
Actual $1,000 $ 707.20 $0.77 $3.86
Hypothetical
(5% return before expenses) $1,000 $1,024.23 $0.92 $4.57
* 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 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.20%; B: 1.90%; C: 1.89%; R: 1.40%; and
Advisor: 0.90%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
Annual Report | 13
Franklin Templeton Founding Funds Allocation Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton Founding Funds
Allocation Fund's principal investment goal is capital appreciation, with a
secondary goal of income. The Fund invests in an equally weighted combination of
Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin Templeton Founding Funds Allocation Fund covers
the fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Founding Funds Allocation Fund - Class A had a -37.66%
cumulative total return for the 12 months under review. In comparison, the
Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan
Stanley Capital International (MSCI) World Index, had total returns of -37.00%
and -40.33%.(1) You can find other performance data in the Performance Summary
beginning on page 16.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin
Income Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities and, to a
lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
(1.) Source: (C) 2009 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 indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 43.
14 | Annual Report
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the fiscal year under review, Fund performance was hindered by Templeton
Growth Fund - Advisor Class, which underperformed the MSCI World Index. Mutual
Shares Fund - Class Z performed comparably to the S&P 500, while Franklin Income
Fund - Advisor Class performed better than the S&P 500.
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 DECEMBER 31, 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 12/31/08**
Domestic Hybrid 34.0%
Foreign Equity 33.2%
Domestic Equity 33.1%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
** Short-term investments and other net assets equal -0.3%.
Annual Report | 15
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FFALX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.67 $7.83 $13.50
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.3764
Long-Term Capital Gain $0.2835
TOTAL $0.6599
CLASS B (SYMBOL: FFABX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.61 $7.84 $13.45
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2870
Long-Term Capital Gain $0.2835
TOTAL $0.5705
CLASS C (SYMBOL: FFACX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.55 $7.74 $13.29
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.2891
Long-Term Capital Gain $0.2835
TOTAL $0.5726
CLASS R (SYMBOL: FFARX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.66 $7.84 $13.50
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.3525
Long-Term Capital Gain $0.2835
TOTAL $0.6360
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 12/31/08 12/31/07
- ----------------------------- ------ -------- --------
Net Asset Value (NAV) -$5.71 $7.87 $13.58
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.4148
Long-Term Capital Gain $0.2835
TOTAL $0.6983
16 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
INCEPTION
CLASS A 1-YEAR 5-YEAR (8/15/03)
- ------- ------- ------ ---------
Cumulative Total Return(2) -37.66% -7.37% +3.37%
Average Annual Total Return(3) -41.23% -2.69% -0.48%
Value of $10,000 Investment(4) $ 5,877 $8,727 $9,742
Total Annual Operating Expenses(5)
Without Waiver 1.18%
With Waiver 1.13%
INCEPTION
CLASS B 1-YEAR 5-YEAR (8/15/03)
- ------- ------- ------- ---------
Cumulative Total Return(2) -38.05% -10.32% -0.21%
Average Annual Total Return(3) -40.38% -2.47% -0.19%
Value of $10,000 Investment(4) $ 5,962 $ 8,826 $9,901
Total Annual Operating Expenses(5)
Without Waiver 1.88%
With Waiver 1.83%
INCEPTION
CLASS C 1-YEAR 5-YEAR (8/15/03)
- ------- ------- ------- ---------
Cumulative Total Return(2) -38.04% -10.27% -0.14%
Average Annual Total Return(3) -38.62% -2.14% -0.03%
Value of $10,000 Investment(4) $ 6,138 $ 8,973 $9,986
Total Annual Operating Expenses(5)
Without Waiver 1.88%
With Waiver 1.83%
INCEPTION
CLASS R 1-YEAR 5-YEAR (8/15/03)
- ------- ------- ------- ---------
Cumulative Total Return(2) -37.77% -8.14% +2.59%
Average Annual Total Return(3) -37.77% -1.68% +0.48%
Value of $10,000 Investment(4) $ 6,223 $9,186 $10,259
Total Annual Operating Expenses(5)
Without Waiver 1.38%
With Waiver 1.33%
INCEPTION
ADVISOR CLASS 1-YEAR 5-YEAR (8/15/03)
- ------------- ------- ------- ---------
Cumulative Total Return(2) -37.44% -5.74% +5.33%
Average Annual Total Return(3) -37.44% -1.18% +0.97%
Value of $10,000 Investment(4) $ 6,256 $9,426 $10,533
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 (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.
Annual Report | 17
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -41.23%
5-Year -2.69%
Since Inception (8/15/03) -0.48%
CLASS A (8/15/03 - 12/31/08)
(PERFORMANCE GRAPH)
Franklin Templeton
Founding Funds S&P 500 MSCI World
Date Allocation Fund - Class A Index Index
- ---------------- ------------------------- ------- ----------
8/15/2003 $ 9,425 $10,000 $10,000
8/31/2003 $ 9,463 $10,101 $10,113
9/30/2003 $ 9,519 $ 9,993 $10,177
10/31/2003 $ 9,811 $10,559 $10,783
11/30/2003 $10,019 $10,652 $10,950
12/31/2003 $10,517 $11,210 $11,639
1/31/2004 $10,650 $11,416 $11,829
2/29/2004 $10,850 $11,575 $12,031
3/31/2004 $10,774 $11,400 $11,956
4/30/2004 $10,631 $11,221 $11,718
5/31/2004 $10,641 $11,375 $11,832
6/30/2004 $10,802 $11,596 $12,080
7/31/2004 $10,650 $11,212 $11,689
8/31/2004 $10,783 $11,258 $11,745
9/30/2004 $10,954 $11,380 $11,971
10/31/2004 $11,135 $11,554 $12,267
11/30/2004 $11,610 $12,021 $12,917
12/31/2004 $11,945 $12,430 $13,414
1/31/2005 $11,693 $12,127 $13,114
2/28/2005 $12,082 $12,382 $13,536
3/31/2005 $11,903 $12,163 $13,279
4/30/2005 $11,727 $11,932 $12,999
5/31/2005 $11,903 $12,312 $13,239
6/30/2005 $12,119 $12,330 $13,360
7/31/2005 $12,404 $12,788 $13,830
8/31/2005 $12,473 $12,671 $13,940
9/30/2005 $12,601 $12,774 $14,306
10/31/2005 $12,237 $12,561 $13,962
11/30/2005 $12,404 $13,036 $14,435
12/31/2005 $12,700 $13,041 $14,758
1/31/2006 $13,086 $13,386 $15,420
2/28/2006 $13,157 $13,422 $15,404
3/31/2006 $13,379 $13,589 $15,749
4/30/2006 $13,627 $13,772 $16,236
5/31/2006 $13,400 $13,375 $15,696
6/30/2006 $13,431 $13,394 $15,698
7/31/2006 $13,627 $13,476 $15,799
8/31/2006 $13,937 $13,797 $16,217
9/30/2006 $14,103 $14,152 $16,415
10/31/2006 $14,526 $14,614 $17,021
11/30/2006 $14,857 $14,891 $17,447
12/31/2006 $15,156 $15,100 $17,806
1/31/2007 $15,351 $15,329 $18,020
2/28/2007 $15,275 $15,029 $17,934
3/31/2007 $15,502 $15,197 $18,270
4/30/2007 $16,021 $15,870 $19,086
5/31/2007 $16,407 $16,424 $19,640
6/30/2007 $16,241 $16,151 $19,495
7/31/2007 $15,668 $15,650 $19,067
8/31/2007 $15,613 $15,885 $19,061
9/30/2007 $16,021 $16,479 $19,974
10/31/2007 $16,296 $16,741 $20,591
11/30/2007 $15,811 $16,041 $19,759
12/31/2007 $15,628 $15,930 $19,510
1/31/2008 $14,818 $14,974 $18,023
2/29/2008 $14,459 $14,488 $17,927
3/31/2008 $14,228 $14,425 $17,764
4/30/2008 $14,881 $15,128 $18,712
5/31/2008 $15,023 $15,324 $19,021
6/30/2008 $13,777 $14,032 $17,511
7/31/2008 $13,647 $13,914 $17,087
8/31/2008 $13,623 $14,115 $16,855
9/30/2008 $12,080 $12,858 $14,858
10/31/2008 $10,099 $10,698 $12,044
11/30/2008 $ 9,292 $ 9,931 $11,273
12/31/2008 $ 9,742 $10,036 $11,641
Total Returns -2.58% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08
- ------- --------
1-Year -40.38%
5-Year -2.47%
Since Inception (8/15/03) -0.19%
CLASS B (8/15/03 - 12/31/08)
(PERFORMANCE GRAPH)
Franklin Templeton
Founding Funds S&P 500 MSCI World
Date Allocation Fund - Class B Index Index
- ---------------- ------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,090 $ 9,993 $10,177
10/31/2003 $10,400 $10,559 $10,783
11/30/2003 $10,610 $10,652 $10,950
12/31/2003 $11,128 $11,210 $11,639
1/31/2004 $11,279 $11,416 $11,829
2/29/2004 $11,470 $11,575 $12,031
3/31/2004 $11,390 $11,400 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,375 $11,832
6/30/2004 $11,400 $11,596 $12,080
7/31/2004 $11,239 $11,212 $11,689
8/31/2004 $11,360 $11,258 $11,745
9/30/2004 $11,541 $11,380 $11,971
10/31/2004 $11,722 $11,554 $12,267
11/30/2004 $12,216 $12,021 $12,917
12/31/2004 $12,576 $12,430 $13,414
1/31/2005 $12,298 $12,127 $13,114
2/28/2005 $12,689 $12,382 $13,536
3/31/2005 $12,501 $12,163 $13,279
4/30/2005 $12,303 $11,932 $12,999
5/31/2005 $12,490 $12,312 $13,239
6/30/2005 $12,708 $12,330 $13,360
7/31/2005 $12,998 $12,788 $13,830
8/31/2005 $13,061 $12,671 $13,940
9/30/2005 $13,185 $12,774 $14,306
10/31/2005 $12,801 $12,561 $13,962
11/30/2005 $12,967 $13,036 $14,435
12/31/2005 $13,277 $13,041 $14,758
1/31/2006 $13,671 $13,386 $15,420
2/28/2006 $13,735 $13,422 $15,404
3/31/2006 $13,968 $13,589 $15,749
4/30/2006 $14,207 $13,772 $16,236
5/31/2006 $13,968 $13,375 $15,696
6/30/2006 $14,001 $13,394 $15,698
7/31/2006 $14,196 $13,476 $15,799
8/31/2006 $14,500 $13,797 $16,217
9/30/2006 $14,662 $14,152 $16,415
10/31/2006 $15,096 $14,614 $17,021
11/30/2006 $15,443 $14,891 $17,447
12/31/2006 $15,737 $15,100 $17,806
1/31/2007 $15,929 $15,329 $18,020
2/28/2007 $15,850 $15,029 $17,934
3/31/2007 $16,065 $15,197 $18,270
4/30/2007 $16,593 $15,870 $19,086
5/31/2007 $16,996 $16,424 $19,640
6/30/2007 $16,800 $16,151 $19,495
7/31/2007 $16,214 $15,650 $19,067
8/31/2007 $16,145 $15,885 $19,061
9/30/2007 $16,547 $16,479 $19,974
10/31/2007 $16,835 $16,741 $20,591
11/30/2007 $16,318 $16,041 $19,759
12/31/2007 $16,108 $15,930 $19,510
1/31/2008 $15,270 $14,974 $18,023
2/29/2008 $14,887 $14,488 $17,927
3/31/2008 $14,648 $14,425 $17,764
4/30/2008 $15,311 $15,128 $18,712
5/31/2008 $15,446 $15,324 $19,021
6/30/2008 $14,169 $14,032 $17,511
7/31/2008 $14,022 $13,914 $17,087
8/31/2008 $13,985 $14,115 $16,855
9/30/2008 $12,401 $12,858 $14,858
10/31/2008 $10,351 $10,698 $12,044
11/30/2008 $ 9,516 $ 9,931 $11,273
12/31/2008 $ 9,901 $10,036 $11,641
Total Returns -0.99% 0.36% 16.41%
18 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -38.62%
5-Year -2.14%
Since Inception (8/15/03) -0.03%
CLASS C (8/15/03 - 12/31/08)
(PERFORMANCE GRAPH)
Franklin Templeton
Founding Funds S&P 500 MSCI World
Date Allocation Fund - Class C Index Index
- ---------------- ------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,090 $ 9,993 $10,177
10/31/2003 $10,390 $10,559 $10,783
11/30/2003 $10,610 $10,652 $10,950
12/31/2003 $11,129 $11,210 $11,639
1/31/2004 $11,270 $11,416 $11,829
2/29/2004 $11,471 $11,575 $12,031
3/31/2004 $11,391 $11,400 $11,956
4/30/2004 $11,229 $11,221 $11,718
5/31/2004 $11,229 $11,375 $11,832
6/30/2004 $11,401 $11,596 $12,080
7/31/2004 $11,240 $11,212 $11,689
8/31/2004 $11,360 $11,258 $11,745
9/30/2004 $11,542 $11,380 $11,971
10/31/2004 $11,723 $11,554 $12,267
11/30/2004 $12,216 $12,021 $12,917
12/31/2004 $12,565 $12,430 $13,414
1/31/2005 $12,298 $12,127 $13,114
2/28/2005 $12,688 $12,382 $13,536
3/31/2005 $12,500 $12,163 $13,279
4/30/2005 $12,303 $11,932 $12,999
5/31/2005 $12,490 $12,312 $13,239
6/30/2005 $12,697 $12,330 $13,360
7/31/2005 $12,998 $12,788 $13,830
8/31/2005 $13,060 $12,671 $13,940
9/30/2005 $13,185 $12,774 $14,306
10/31/2005 $12,801 $12,561 $13,962
11/30/2005 $12,967 $13,036 $14,435
12/31/2005 $13,272 $13,041 $14,758
1/31/2006 $13,670 $13,386 $15,420
2/28/2006 $13,734 $13,422 $15,404
3/31/2006 $13,969 $13,589 $15,749
4/30/2006 $14,209 $13,772 $16,236
5/31/2006 $13,969 $13,375 $15,696
6/30/2006 $13,991 $13,394 $15,698
7/31/2006 $14,198 $13,476 $15,799
8/31/2006 $14,504 $13,797 $16,217
9/30/2006 $14,668 $14,152 $16,415
10/31/2006 $15,094 $14,614 $17,021
11/30/2006 $15,444 $14,891 $17,447
12/31/2006 $15,728 $15,100 $17,806
1/31/2007 $15,933 $15,329 $18,020
2/28/2007 $15,853 $15,029 $17,934
3/31/2007 $16,070 $15,197 $18,270
4/30/2007 $16,592 $15,870 $19,086
5/31/2007 $16,999 $16,424 $19,640
6/30/2007 $16,801 $16,151 $19,495
7/31/2007 $16,209 $15,650 $19,067
8/31/2007 $16,151 $15,885 $19,061
9/30/2007 $16,546 $16,479 $19,974
10/31/2007 $16,836 $16,741 $20,591
11/30/2007 $16,314 $16,041 $19,759
12/31/2007 $16,116 $15,930 $19,510
1/31/2008 $15,279 $14,974 $18,023
2/29/2008 $14,891 $14,488 $17,927
3/31/2008 $14,650 $14,425 $17,764
4/30/2008 $15,321 $15,128 $18,712
5/31/2008 $15,445 $15,324 $19,021
6/30/2008 $14,165 $14,032 $17,511
7/31/2008 $14,015 $13,914 $17,087
8/31/2008 $13,978 $14,115 $16,855
9/30/2008 $12,399 $12,858 $14,858
10/31/2008 $10,359 $10,698 $12,044
11/30/2008 $ 9,526 $ 9,931 $11,273
12/31/2008 $ 9,986 $10,036 $11,641
Total Returns -0.14% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------- --------
1-Year -37.77%
5-Year -1.68%
Since Inception (8/15/03) +0.48%
CLASS R (8/15/03 - 12/31/08)
(PERFORMANCE GRAPH)
Franklin Templeton
Founding Funds S&P 500 MSCI World
Date Allocation Fund - Class R Index Index
- ---------------- ------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,100 $ 9,993 $10,177
10/31/2003 $10,410 $10,559 $10,783
11/30/2003 $10,630 $10,652 $10,950
12/31/2003 $11,168 $11,210 $11,639
1/31/2004 $11,319 $11,416 $11,829
2/29/2004 $11,521 $11,575 $12,031
3/31/2004 $11,440 $11,400 $11,956
4/30/2004 $11,279 $11,221 $11,718
5/31/2004 $11,289 $11,375 $11,832
6/30/2004 $11,471 $11,596 $12,080
7/31/2004 $11,309 $11,212 $11,689
8/31/2004 $11,440 $11,258 $11,745
9/30/2004 $11,622 $11,380 $11,971
10/31/2004 $11,803 $11,554 $12,267
11/30/2004 $12,307 $12,021 $12,917
12/31/2004 $12,668 $12,430 $13,414
1/31/2005 $12,400 $12,127 $13,114
2/28/2005 $12,803 $12,382 $13,536
3/31/2005 $12,624 $12,163 $13,279
4/30/2005 $12,426 $11,932 $12,999
5/31/2005 $12,614 $12,312 $13,239
6/30/2005 $12,843 $12,330 $13,360
7/31/2005 $13,145 $12,788 $13,830
8/31/2005 $13,207 $12,671 $13,940
9/30/2005 $13,343 $12,774 $14,306
10/31/2005 $12,957 $12,561 $13,962
11/30/2005 $13,134 $13,036 $14,435
12/31/2005 $13,444 $13,041 $14,758
1/31/2006 $13,852 $13,386 $15,420
2/28/2006 $13,928 $13,422 $15,404
3/31/2006 $14,163 $13,589 $15,749
4/30/2006 $14,414 $13,772 $16,236
5/31/2006 $14,174 $13,375 $15,696
6/30/2006 $14,217 $13,394 $15,698
7/31/2006 $14,414 $13,476 $15,799
8/31/2006 $14,743 $13,797 $16,217
9/30/2006 $14,907 $14,152 $16,415
10/31/2006 $15,356 $14,614 $17,021
11/30/2006 $15,717 $14,891 $17,447
12/31/2006 $16,018 $15,100 $17,806
1/31/2007 $16,224 $15,329 $18,020
2/28/2007 $16,144 $15,029 $17,934
3/31/2007 $16,373 $15,197 $18,270
4/30/2007 $16,932 $15,870 $19,086
5/31/2007 $17,340 $16,424 $19,640
6/30/2007 $17,153 $16,151 $19,495
7/31/2007 $16,547 $15,650 $19,067
8/31/2007 $16,489 $15,885 $19,061
9/30/2007 $16,909 $16,479 $19,974
10/31/2007 $17,212 $16,741 $20,591
11/30/2007 $16,687 $16,041 $19,759
12/31/2007 $16,485 $15,930 $19,510
1/31/2008 $15,631 $14,974 $18,023
2/29/2008 $15,240 $14,488 $17,927
3/31/2008 $14,997 $14,425 $17,764
4/30/2008 $15,698 $15,128 $18,712
5/31/2008 $15,835 $15,324 $19,021
6/30/2008 $14,521 $14,032 $17,511
7/31/2008 $14,383 $13,914 $17,087
8/31/2008 $14,346 $14,115 $16,855
9/30/2008 $12,731 $12,858 $14,858
10/31/2008 $10,628 $10,698 $12,044
11/30/2008 $ 9,777 $ 9,931 $11,273
12/31/2008 $10,259 $10,036 $11,641
Total Returns 2.59% 0.36% 16.41%
Annual Report | 19
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08
- ------------- --------
1-Year -37.44%
5-Year -1.18%
Since Inception (8/15/03 +0.97%
ADVISOR CLASS (8/15/03 - 12/31/08)
(PERFORMANCE GRAPH)
Franklin Templeton
Founding Funds Allocation S&P 500 MSCI World
Date Fund - ADVISOR CLASS Index Index
- ---------------- ------------------------- ------- ----------
8/15/2003 $10,000 $10,000 $10,000
8/31/2003 $10,040 $10,101 $10,113
9/30/2003 $10,100 $ 9,993 $10,177
10/31/2003 $10,420 $10,559 $10,783
11/30/2003 $10,640 $10,652 $10,950
12/31/2003 $11,175 $11,210 $11,639
1/31/2004 $11,326 $11,416 $11,829
2/29/2004 $11,538 $11,575 $12,031
3/31/2004 $11,457 $11,400 $11,956
4/30/2004 $11,306 $11,221 $11,718
5/31/2004 $11,326 $11,375 $11,832
6/30/2004 $11,508 $11,596 $12,080
7/31/2004 $11,346 $11,212 $11,689
8/31/2004 $11,477 $11,258 $11,745
9/30/2004 $11,669 $11,380 $11,971
10/31/2004 $11,861 $11,554 $12,267
11/30/2004 $12,375 $12,021 $12,917
12/31/2004 $12,744 $12,430 $13,414
1/31/2005 $12,475 $12,127 $13,114
2/28/2005 $12,889 $12,382 $13,536
3/31/2005 $12,710 $12,163 $13,279
4/30/2005 $12,511 $11,932 $12,999
5/31/2005 $12,710 $12,312 $13,239
6/30/2005 $12,940 $12,330 $13,360
7/31/2005 $13,253 $12,788 $13,830
8/31/2005 $13,326 $12,671 $13,940
9/30/2005 $13,472 $12,774 $14,306
10/31/2005 $13,086 $12,561 $13,962
11/30/2005 $13,263 $13,036 $14,435
12/31/2005 $13,589 $13,041 $14,758
1/31/2006 $14,011 $13,386 $15,420
2/28/2006 $14,087 $13,422 $15,404
3/31/2006 $14,335 $13,589 $15,749
4/30/2006 $14,599 $13,772 $16,236
5/31/2006 $14,357 $13,375 $15,696
6/30/2006 $14,401 $13,394 $15,698
7/31/2006 $14,621 $13,476 $15,799
8/31/2006 $14,952 $13,797 $16,217
9/30/2006 $15,128 $14,152 $16,415
10/31/2006 $15,591 $14,614 $17,021
11/30/2006 $15,955 $14,891 $17,447
12/31/2006 $16,270 $15,100 $17,806
1/31/2007 $16,491 $15,329 $18,020
2/28/2007 $16,421 $15,029 $17,934
3/31/2007 $16,664 $15,197 $18,270
4/30/2007 $17,229 $15,870 $19,086
5/31/2007 $17,653 $16,424 $19,640
6/30/2007 $17,477 $16,151 $19,495
7/31/2007 $16,864 $15,650 $19,067
8/31/2007 $16,817 $15,885 $19,061
9/30/2007 $17,253 $16,479 $19,974
10/31/2007 $17,559 $16,741 $20,591
11/30/2007 $17,029 $16,041 $19,759
12/31/2007 $16,836 $15,930 $19,510
1/31/2008 $15,968 $14,974 $18,023
2/29/2008 $15,584 $14,488 $17,927
3/31/2008 $15,337 $14,425 $17,764
4/30/2008 $16,061 $15,128 $18,712
5/31/2008 $16,201 $15,324 $19,021
6/30/2008 $14,867 $14,032 $17,511
7/31/2008 $14,727 $13,914 $17,087
8/31/2008 $14,702 $14,115 $16,855
9/30/2008 $13,050 $12,858 $14,858
10/31/2008 $10,902 $10,698 $12,044
11/30/2008 $10,038 $ 9,931 $11,273
12/31/2008 $10,533 $10,036 $11,641
Total Returns 5.33% 0.36% 16.41%
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO
THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER
THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. BOND
PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS
PRICES OF BONDS ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY
DECLINE. HIGHER-YIELDING, LOWER-RATED CORPORATE BONDS ENTAIL A GREATER DEGREE OF
CREDIT RISK COMPARED TO INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING HAS
ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND POLITICAL OR SOCIAL
INSTABILITY. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) If the administrator had not waived fees, the Fund's total returns would
have been lower.
(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for
market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is
one of the most widely used benchmarks of U.S. equity performance. The MSCI
World Index is a free float-adjusted, market capitalization-weighted index
designed to measure equity market performance in global developed markets.
20 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 21
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
7/1/07 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
------------- ------------- ---------------- -----------------
CLASS A
Actual $1,000 $ 707.10 $2.02 $4.89
Hypothetical
(5% return before expenses) $1,000 $1,022.77 $2.39 $5.79
CLASS B
Actual $1,000 $ 704.30 $5.01 $7.88
Hypothetical
(5% return before expenses) $1,000 $1,019.25 $5.94 $9.32
CLASS C
Actual $1,000 $ 705.00 $4.89 $7.76
Hypothetical
(5% return before expenses) $1,000 $1,019.41 $5.79 $9.17
CLASS R
Actual $1,000 $ 706.50 $2.92 $5.79
Hypothetical
(5% return before expenses) $1,000 $1,021.72 $3.46 $6.85
ADVISOR CLASS
Actual $1,000 $ 708.50 $0.77 $3.65
Hypothetical
(5% return before expenses) $1,000 $1,024.23 $0.92 $4.32
* 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%; B: 1.17%; C: 1.14%; R: 0.68%; and
Advisor: 0.18%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.14%; B: 1.84%; C: 1.81%; R: 1.35%; and
Advisor: 0.85%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
22 | Annual Report
Franklin Templeton Perspectives Allocation Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Perspectives
Allocation Fund seeks capital appreciation through investments in an equally
weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and
Templeton Growth Fund.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin Templeton Perspectives Allocation Fund covers
the fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton Perspectives Allocation Fund - Class A had a -39.29%
cumulative total return for the 12 months under review. In comparison, the
Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan
Stanley Capital International (MSCI) World Index, had total returns of -37.00%
and -40.33%.(1) You can find other performance data in the Performance Summary
beginning on page 25.
INVESTMENT STRATEGY
The Fund invests its assets in an equally weighted combination of Franklin Flex
Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying
funds, in turn, invest primarily in U.S. and foreign equity securities and, to a
lesser extent, fixed income and money market securities. As market conditions
affect the underlying funds, we rebalance the Fund's allocations to maintain the
predetermined equal weightings of approximately 33 1/3% of total net assets in
each underlying fund whenever the actual allocations exceed plus or minus 3% of
the fixed allocation percentages.
(1.) Source: (C) 2009 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 indexes are unmanaged and include reinvested distributions. One cannot
invest directly in an index, nor is an index representative of the Fund's
portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 48.
Annual Report | 23
ASSET ALLOCATION*
Franklin Templeton Perspectives Allocation Fund
Based on Total Net Assets as of 12/31/08
Domestic Equity 66.1%
Foreign Equity 33.0%
Short-Term Investments & Other Net Assets 0.9%
* The asset allocation is based on the SOI, which classifies each underlying
fund into a broad asset class.
PORTFOLIO REVIEW
The Fund's performance can be attributed largely to maintaining a relatively
static allocation among domestic and foreign equities, fixed income securities,
and short-term investments and other net assets, and by the actual performance
of the selected underlying funds.
During the fiscal year under review, Fund performance was hindered by Templeton
Growth Fund - Advisor Class, which underperformed the MSCI World Index. Mutual
Shares Fund - Class Z and Franklin Flex Cap Growth Fund - Advisor Class
performed comparably to the S&P 500.
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 DECEMBER 31, 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.
24 | Annual Report
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FPAAX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.48 $7.69 $13.17
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1179
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.3781
CLASS C (SYMBOL: FPCAX) CHANGE 12/31/08 12/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$5.42 $7.66 $13.08
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.0369
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.2971
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$5.47 $7.70 $13.17
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.0896
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.3498
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$5.51 $7.71 $13.22
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1511
Short-Term Capital Gain $0.0002
Long-Term Capital Gain $0.2600
TOTAL $0.4113
Annual Report | 25
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------- ------- -------- ------------------
Cumulative Total Return(2) -39.29% -25.64% -9.37%
Average Annual Total Return(3) -42.76% -11.18% -3.51%
Value of $10,000 Investment(4) $ 5,724 $ 7,008 $8,542
Total Annual Operating Expenses(5)
Without Waiver 1.39%
With Waiver 1.21%
CLASS C 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------- ------- -------- ------------------
Cumulative Total Return(2) -39.75% -27.17% -12.02%
Average Annual Total Return(3) -40.33% -10.03% -2.86%
Value of $10,000 Investment(4) $ 5,967 $ 7,283 $ 8,798
Total Annual Operating Expenses(5)
Without Waiver 2.08%
With Waiver 1.90%
CLASS R 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------- ------- -------- ------------------
Cumulative Total Return(2) -39.44% -26.10% -10.08%
Average Annual Total Return(3) -39.44% -9.59% -2.38%
Value of $10,000 Investment(4) $ 6,056 $ 7,390 $ 8,992
Total Annual Operating Expenses(5)
Without Waiver 1.59%
With Waiver 1.41%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/2/04)
- ------------- ------- -------- ------------------
Cumulative Total Return(2) -39.10% -24.84% -8.00%
Average Annual Total Return(3) -39.10% -9.08% -1.87%
Value of $10,000 Investment(4) $6,090 $ 7,516 $9,200
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 (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.
26 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -42.76%
3-Year -11.18%
Since Inception (8/2/04) -3.51%
CLASS A (8/2/04 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES
DATE ALLOCATION FUND- CLASS A S&P 500 INDEX MSCI WORLD INDEX
- ------------- ------------------------------- ------------- ----------------
8/2/2004 $ 9,425 $10,000 $10,000
8/31/2004 $ 9,510 $10,040 $10,048
9/30/2004 $ 9,670 $10,149 $10,241
10/31/2004 $ 9,840 $10,304 $10,494
11/30/2004 $10,311 $10,721 $11,050
12/31/2004 $10,643 $11,086 $11,475
1/31/2005 $10,367 $10,816 $11,219
2/28/2005 $10,681 $11,043 $11,580
3/31/2005 $10,519 $10,848 $11,360
4/30/2005 $10,328 $10,642 $11,120
5/31/2005 $10,566 $10,981 $11,326
6/30/2005 $10,624 $10,996 $11,429
7/31/2005 $10,958 $11,405 $11,831
8/31/2005 $11,006 $11,301 $11,926
9/30/2005 $11,168 $11,393 $12,239
10/31/2005 $10,910 $11,203 $11,944
11/30/2005 $11,273 $11,626 $12,349
12/31/2005 $11,488 $11,631 $12,626
1/31/2006 $11,916 $11,938 $13,192
2/28/2006 $11,945 $11,971 $13,178
3/31/2006 $12,169 $12,120 $13,473
4/30/2006 $12,318 $12,283 $13,890
5/31/2006 $11,903 $11,929 $13,428
6/30/2006 $11,942 $11,945 $13,429
7/31/2006 $11,922 $12,019 $13,516
8/31/2006 $12,189 $12,305 $13,874
9/30/2006 $12,377 $12,622 $14,043
10/31/2006 $12,753 $13,033 $14,562
11/30/2006 $13,030 $13,281 $14,926
12/31/2006 $13,175 $13,467 $15,233
1/31/2007 $13,461 $13,671 $15,416
2/28/2007 $13,257 $13,404 $15,342
3/31/2007 $13,429 $13,554 $15,629
4/30/2007 $13,948 $14,154 $16,328
5/31/2007 $14,353 $14,648 $16,802
6/30/2007 $14,280 $14,405 $16,678
7/31/2007 $13,865 $13,958 $16,312
8/31/2007 $13,928 $14,167 $16,307
9/30/2007 $14,436 $14,697 $17,088
10/31/2007 $14,789 $14,931 $17,616
11/30/2007 $14,249 $14,307 $16,904
12/31/2007 $14,069 $14,207 $16,690
1/31/2008 $12,969 $13,355 $15,419
2/29/2008 $12,616 $12,921 $15,337
3/31/2008 $12,496 $12,866 $15,197
4/30/2008 $13,142 $13,492 $16,008
5/31/2008 $13,437 $13,667 $16,272
6/30/2008 $12,266 $12,515 $14,980
7/31/2008 $12,223 $12,410 $14,618
8/31/2008 $12,255 $12,589 $14,419
9/30/2008 $10,975 $11,467 $12,711
10/31/2008 $ 9,027 $ 9,541 $10,304
11/30/2008 $ 8,327 $ 8,857 $ 9,644
12/31/2008 $ 8,542 $ 8,951 $ 9,958
Total Returns -14.58% -10.49% -0.42%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -40.33%
3-Year -10.03%
Since Inception (8/2/04) -2.86%
CLASS C (8/2/04 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES
DATE ALLOCATION FUND- CLASS C S&P 500 INDEX MSCI WORLD INDEX
- ------------- ------------------------------- ------------- ----------------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,430 $10,304 $10,494
11/30/2004 $10,910 $10,721 $11,050
12/31/2004 $11,266 $11,086 $11,475
1/31/2005 $10,964 $10,816 $11,219
2/28/2005 $11,286 $11,043 $11,580
3/31/2005 $11,115 $10,848 $11,360
4/30/2005 $10,902 $10,642 $11,120
5/31/2005 $11,155 $10,981 $11,326
6/30/2005 $11,206 $10,996 $11,429
7/31/2005 $11,550 $11,405 $11,831
8/31/2005 $11,591 $11,301 $11,926
9/30/2005 $11,763 $11,393 $12,239
10/31/2005 $11,479 $11,203 $11,944
11/30/2005 $11,854 $11,626 $12,349
12/31/2005 $12,080 $11,631 $12,626
1/31/2006 $12,512 $11,938 $13,192
2/28/2006 $12,543 $11,971 $13,178
3/31/2006 $12,769 $12,120 $13,473
4/30/2006 $12,915 $12,283 $13,890
5/31/2006 $12,476 $11,929 $13,428
6/30/2006 $12,518 $11,945 $13,429
7/31/2006 $12,487 $12,019 $13,516
8/31/2006 $12,758 $12,305 $13,874
9/30/2006 $12,946 $12,622 $14,043
10/31/2006 $13,333 $13,033 $14,562
11/30/2006 $13,615 $13,281 $14,926
12/31/2006 $13,761 $13,467 $15,233
1/31/2007 $14,050 $13,671 $15,416
2/28/2007 $13,836 $13,404 $15,342
3/31/2007 $14,006 $13,554 $15,629
4/30/2007 $14,541 $14,154 $16,328
5/31/2007 $14,955 $14,648 $16,802
6/30/2007 $14,868 $14,405 $16,678
7/31/2007 $14,421 $13,958 $16,312
8/31/2007 $14,486 $14,167 $16,307
9/30/2007 $15,010 $14,697 $17,088
10/31/2007 $15,370 $14,931 $17,616
11/30/2007 $14,792 $14,307 $16,904
12/31/2007 $14,602 $14,207 $16,690
1/31/2008 $13,452 $13,355 $15,419
2/29/2008 $13,084 $12,921 $15,337
3/31/2008 $12,947 $12,866 $15,197
4/30/2008 $13,610 $13,492 $16,008
5/31/2008 $13,896 $13,667 $16,272
6/30/2008 $12,684 $12,515 $14,980
7/31/2008 $12,638 $12,410 $14,618
8/31/2008 $12,661 $12,589 $14,419
9/30/2008 $11,334 $11,467 $12,711
10/31/2008 $ 9,321 $ 9,541 $10,304
11/30/2008 $ 8,589 $ 8,857 $ 9,644
12/31/2008 $ 8,798 $ 8,951 $ 9,958
Total Returns -12.02% -10.49% -0.42%
Annual Report | 27
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------- --------
1-Year -39.44%
3-Year -9.59%
Since Inception (8/2/04) -2.38%
CLASS R (8/2/04 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES
DATE ALLOCATION FUND - CLASS R S&P 500 INDEX MSCI WORLD INDEX
- ------------- ------------------------------- ------------- ----------------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,080 $10,040 $10,048
9/30/2004 $10,250 $10,149 $10,241
10/31/2004 $10,440 $10,304 $10,494
11/30/2004 $10,930 $10,721 $11,050
12/31/2004 $11,281 $11,086 $11,475
1/31/2005 $10,989 $10,816 $11,219
2/28/2005 $11,322 $11,043 $11,580
3/31/2005 $11,159 $10,848 $11,360
4/30/2005 $10,946 $10,642 $11,120
5/31/2005 $11,199 $10,981 $11,326
6/30/2005 $11,260 $10,996 $11,429
7/31/2005 $11,605 $11,405 $11,831
8/31/2005 $11,655 $11,301 $11,926
9/30/2005 $11,828 $11,393 $12,239
10/31/2005 $11,554 $11,203 $11,944
11/30/2005 $11,939 $11,626 $12,349
12/31/2005 $12,168 $11,631 $12,626
1/31/2006 $12,612 $11,938 $13,192
2/28/2006 $12,643 $11,971 $13,178
3/31/2006 $12,880 $12,120 $13,473
4/30/2006 $13,037 $12,283 $13,890
5/31/2006 $12,587 $11,929 $13,428
6/30/2006 $12,639 $11,945 $13,429
7/31/2006 $12,608 $12,019 $13,516
8/31/2006 $12,890 $12,305 $13,874
9/30/2006 $13,089 $12,622 $14,043
10/31/2006 $13,487 $13,033 $14,562
11/30/2006 $13,781 $13,281 $14,926
12/31/2006 $13,931 $13,467 $15,233
1/31/2007 $14,223 $13,671 $15,416
2/28/2007 $14,017 $13,404 $15,342
3/31/2007 $14,200 $13,554 $15,629
4/30/2007 $14,738 $14,154 $16,328
5/31/2007 $15,166 $14,648 $16,802
6/30/2007 $15,078 $14,405 $16,678
7/31/2007 $14,639 $13,958 $16,312
8/31/2007 $14,705 $14,167 $16,307
9/30/2007 $15,243 $14,697 $17,088
10/31/2007 $15,616 $14,931 $17,616
11/30/2007 $15,034 $14,307 $16,904
12/31/2007 $14,848 $14,207 $16,690
1/31/2008 $13,687 $13,355 $15,419
2/29/2008 $13,315 $12,921 $15,337
3/31/2008 $13,188 $12,866 $15,197
4/30/2008 $13,869 $13,492 $16,008
5/31/2008 $14,169 $13,667 $16,272
6/30/2008 $12,934 $12,515 $14,980
7/31/2008 $12,888 $12,410 $14,618
8/31/2008 $12,922 $12,589 $14,419
9/30/2008 $11,571 $11,467 $12,711
10/31/2008 $ 9,516 $ 9,541 $10,304
11/30/2008 $ 8,776 $ 8,857 $ 9,644
12/31/2008 $ 8,992 $ 8,951 $ 9,958
Total Returns -10.08% -10.49% -0.42%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08
- ------------- --------
1-Year -39.10%
3-Year -9.08%
Since Inception (8/2/04) -1.87%
Advisor Class (8/2/04 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES
DATE ALLOCATION FUND - ADVISOR CLASS S&P 500 INDEX MSCI WORLD INDEX
- ------------- ------------------------------- ------------- ----------------
8/2/2004 $10,000 $10,000 $10,000
8/31/2004 $10,090 $10,040 $10,048
9/30/2004 $10,260 $10,149 $10,241
10/31/2004 $10,450 $10,304 $10,494
11/30/2004 $10,950 $10,721 $11,050
12/31/2004 $11,301 $11,086 $11,475
1/31/2005 $11,008 $10,816 $11,219
2/28/2005 $11,341 $11,043 $11,580
3/31/2005 $11,178 $10,848 $11,360
4/30/2005 $10,975 $10,642 $11,120
5/31/2005 $11,239 $10,981 $11,326
6/30/2005 $11,300 $10,996 $11,429
7/31/2005 $11,655 $11,405 $11,831
8/31/2005 $11,705 $11,301 $11,926
9/30/2005 $11,888 $11,393 $12,239
10/31/2005 $11,614 $11,203 $11,944
11/30/2005 $12,010 $11,626 $12,349
12/31/2005 $12,241 $11,631 $12,626
1/31/2006 $12,697 $11,938 $13,192
2/28/2006 $12,728 $11,971 $13,178
3/31/2006 $12,977 $12,120 $13,473
4/30/2006 $13,134 $12,283 $13,890
5/31/2006 $12,693 $11,929 $13,428
6/30/2006 $12,745 $11,945 $13,429
7/31/2006 $12,724 $12,019 $13,516
8/31/2006 $13,019 $12,305 $13,874
9/30/2006 $13,218 $12,622 $14,043
10/31/2006 $13,618 $13,033 $14,562
11/30/2006 $13,923 $13,281 $14,926
12/31/2006 $14,085 $13,467 $15,233
1/31/2007 $14,390 $13,671 $15,416
2/28/2007 $14,183 $13,404 $15,342
3/31/2007 $14,367 $13,554 $15,629
4/30/2007 $14,932 $14,154 $16,328
5/31/2007 $15,363 $14,648 $16,802
6/30/2007 $15,286 $14,405 $16,678
7/31/2007 $14,843 $13,958 $16,312
8/31/2007 $14,921 $14,167 $16,307
9/30/2007 $15,496 $14,697 $17,088
10/31/2007 $15,884 $14,931 $17,616
11/30/2007 $15,297 $14,307 $16,904
12/31/2007 $15,107 $14,207 $16,690
1/31/2008 $13,930 $13,355 $15,419
2/29/2008 $13,564 $12,921 $15,337
3/31/2008 $13,436 $12,866 $15,197
4/30/2008 $14,138 $13,492 $16,008
5/31/2008 $14,442 $13,667 $16,272
6/30/2008 $13,190 $12,515 $14,980
7/31/2008 $13,155 $12,410 $14,618
8/31/2008 $13,190 $12,589 $14,419
9/30/2008 $11,821 $11,467 $12,711
10/31/2008 $ 9,726 $9,541 $10,304
11/30/2008 $ 8,965 $8,857 $ 9,644
12/31/2008 $ 9,200 $8,951 $ 9,958
Total Returns -8.00% -10.49% -0.42%
28 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF
INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND IS SUBJECT TO THESE SAME
RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG
TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN
INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND
POLITICAL OR SOCIAL INSTABILITY. THE PORTFOLIO MAY INCLUDE INVESTMENTS IN THE
TECHNOLOGY SECTOR, WHICH HAS BEEN 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.
(4.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(5.) Figures are as stated in the Fund's prospectus current as of the date of
this report.
(6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for
market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is
one of the most widely used benchmarks of U.S. equity performance. The MSCI
World Index is a free float-adjusted, market capitalization-weighted index
designed to measure equity market performance in global developed markets.
Annual Report | 29
Your Fund's Expenses
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
30 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
------------- ------------- ---------------- -----------------
CLASS A
Actual $1,000 $ 696.40 $2.05 $5.20
Hypothetical
(5% return before expenses) $1,000 $1,022.72 $2.44 $6.19
CLASS C
Actual $1,000 $ 693.60 $4.94 $8.09
Hypothetical
(5% return before expenses) $1,000 $1,019.30 $5.89 $9.63
CLASS R
Actual $1,000 $ 695.30 $2.90 $6.05
Hypothetical
(5% return before expenses) $1,000 $1,021.72 $3.46 $7.20
ADVISOR CLASS
Actual $1,000 $ 697.50 $0.77 $3.93
Hypothetical
(5% return before expenses) $1,000 $1,024.23 $0.92 $4.67
* 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: 1.16%; R: 0.68%; and Advisor:
0.18%), multiplied by the average account value over the period, multiplied
by 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.22%; B: 1.90%; R: 1.42%; and Advisor:
0.92%), multiplied by the average account value over the period, multiplied
by 184/366 to reflect the one-half year period.
Annual Report | 31
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- JULY 31,
CLASS A 2008 2007 2006 2005 2004(a) 2004(b)
- ------- -------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.22 $ 14.09 $ 12.71 $ 12.20 $ 11.02 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment operations(c):
Net investment income(d, e) ................. 0.12 0.15 0.11 0.09 0.09 0.01
Net realized and unrealized gains (losses) .. (5.46) 0.57 1.81 0.71 1.21 1.07
-------- -------- -------- -------- -------- --------
Total from investment operations ............... (5.34) 0.72 1.92 0.80 1.30 1.08
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.13) (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 ............................ (0.42) (0.59) (0.54) (0.29) (0.12) (0.06)
-------- -------- -------- -------- -------- --------
Redemption fees(f, g) .......................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of year ................... $ 8.46 $ 14.22 $ 14.09 $ 12.71 $ 12.20 $ 11.02
======== ======== ======== ======== ======== ========
Total return(h) ................................ (38.13)% 5.20% 15.25% 6.63% 11.77% 10.85%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 0.62% 0.64% 0.65% 0.66% 0.68% 0.74%
Expenses net of waiver and payments by
affiliates(j) ............................... 0.48% 0.50% 0.50% 0.58% 0.68% 0.47%
Net investment income(e) ....................... 1.01% 0.99% 0.82% 0.72% 1.86% 0.14%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $278,539 $497,314 $458,460 $353,016 $238,564 $157,792
Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.72% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
32 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------ JULY 31,
CLASS B 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ------- ------- ------- ------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.12 $ 13.99 $ 12.62 $ 12.12 $ 10.95 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations(c):
Net investment income (loss)(d, e) .......... 0.03 0.05 0.01 0.01 0.06 (0.06)
Net realized and unrealized gains (losses) .. (5.38) 0.57 1.81 0.70 1.20 1.06
------- ------- ------- ------- ------- -------
Total from investment operations ............... (5.35) 0.62 1.82 0.71 1.26 1.00
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.04) (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 ............................ (0.33) (0.49) (0.45) (0.21) (0.09) (0.05)
------- ------- ------- ------- ------- -------
Redemption fees(f, g) .......................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Net asset value, end of year ................... $ 8.44 $ 14.12 $ 13.99 $ 12.62 $ 12.12 $ 10.95
======= ======= ======= ======= ======= =======
Total return(h) ................................ (38.53)% 4.49% 14.55% 5.89% 11.50% 10.02%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 1.32% 1.31% 1.30% 1.31% 1.33% 1.39%
Expenses net of waiver and payments by
affiliates(j) ............................... 1.18% 1.16% 1.15% 1.23% 1.33% 1.12%
Net investment income (loss)(e) ................ 0.31% 0.32% 0.17% 0.07% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $35,616 $72,530 $76,408 $71,496 $66,562 $44,297
Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.72% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 33
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------- JULY 31,
CLASS C 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ------- -------- -------- -------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.08 $ 13.96 $ 12.61 $ 12.11 $ 10.94 $ 10.00
------- -------- -------- -------- ------- -------
Income from investment operationsc:
Net investment income (loss)(d, e) .......... 0.03 0.05 0.02 0.01 0.06 (0.05)
Net realized and unrealized gains (losses) .. (5.37) 0.57 1.79 0.71 1.20 1.04
------- -------- -------- -------- ------- -------
Total from investment operations ............... (5.34) 0.62 1.81 0.72 1.26 0.99
------- -------- -------- -------- ------- -------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.05) (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 ............................ (0.34) (0.50) (0.46) (0.22) (0.09) (0.05)
------- -------- -------- -------- ------- -------
Redemption fees(f, g) .......................... -- -- -- -- -- --
------- -------- -------- -------- ------- -------
Net asset value, end of year ................... $ 8.40 $ 14.08 $ 13.96 $ 12.61 $ 12.11 $ 10.94
======= ======== ======== ======== ======= =======
Total return(h) ................................ (38.58)% 4.50% 14.48% 6.02% 11.49% 9.93%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 1.31% 1.30% 1.29% 1.29% 1.33% 1.39%
Expenses net of waiver and payments by
affiliates(j) ............................... 1.17% 1.16% 1.14% 1.21% 1.33% 1.12%
Net investment income (loss)(e) ................ 0.32% 0.33% 0.18% 0.09% 1.21% (0.51)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $99,663 $181,951 $166,688 $132,459 $96,487 $73,272
Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.72% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
34 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------- JULY 31,
CLASS R 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ------- ------ ------ ------ ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.20 $14.07 $12.69 $12.18 $11.00 $10.00
------- ------ ------ ------ ------ ------
Income from investment operations(c):
Net investment income (loss)(d, e) .......... 0.08 0.12 0.09 0.05 0.08 (0.02)
Net realized and unrealized gains (losses)... (5.43) 0.57 1.81 0.73 1.21 1.08
------- ------ ------ ------ ------ ------
Total from investment operations ............... (5.35) 0.69 1.90 0.78 1.29 1.06
------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.10) (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 ............................ (0.39) (0.56) (0.52) (0.27) (0.11) (0.06)
------- ------ ------ ------ ------ ------
Redemption fees(f, g) .......................... -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Net asset value, end of year ................... $ 8.46 $14.20 $14.07 $12.69 $12.18 $11.00
------- ------ ------ ------ ------ ------
Total return(h) ................................ (38.28)% 5.02% 15.10% 6.43% 11.73% 10.65%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 0.82% 0.81% 0.80% 0.81% 0.83% 0.89%
Expenses net of waiver and payments by
affiliates(j) ............................... 0.68% 0.66% 0.65% 0.73% 0.83% 0.62%
Net investment income (loss)(e) ................ 0.81% 0.82% 0.67% 0.57% 1.71% (0.01)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 1,182 $2,602 $2,534 $2,190 $1,944 $1,408
Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.72% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 35
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------- JULY 31,
ADVISOR CLASS 2008 2007 2006 2005 2004(a) 2004(b)
- ------------- ------- ------ ------ ------ ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 14.25 $14.12 $12.73 $12.21 $11.02 $10.00
------- ------ ------ ------ ------ ------
Income from investment operations(c):
Net investment income(d, e) ................. 0.15 0.19 0.15 0.13 0.11 0.04
Net realized and unrealized gains (losses)... (5.47) 0.58 1.83 0.72 1.21 1.05
------- ------ ------ ------ ------ ------
Total from investment operations ............... (5.32) 0.77 1.98 0.85 1.32 1.09
------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.17) (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 ............................ (0.46) (0.64) (0.59) (0.33) (0.13) (0.07)
------- ------ ------ ------ ------ ------
Redemption fees(f, g) .......................... -- -- -- -- -- --
------- ------ ------ ------ ------ ------
Net asset value, end of year ................... $ 8.47 $14.25 $14.12 $12.73 $12.21 $11.02
------- ------ ------ ------ ------ ------
Total return(h) ................................ (37.92)% 5.53% 15.65% 6.93% 12.09% 10.92%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 0.32% 0.31% 0.30% 0.31% 0.33% 0.39%
Expenses net of waiver and payments by
affiliates(j) ............................... 0.18% 0.16% 0.15% 0.23% 0.33% 0.12%
Net investment income(e) ....................... 1.31% 1.32% 1.17% 1.07% 2.21% 0.49%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 1,654 $3,243 $3,073 $2,792 $2,097 $1,181
Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return is not annualized for periods less than one year.
(i) Ratios are annualized for periods less than one year.
(j) Does not include expenses of the Underlying Funds in which the Fund
invests. The annualized weighted average expense ratio of the Underlying
Funds was 0.72% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
36 | Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE
- -------------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS 99.9%(a)
DOMESTIC EQUITY 74.8%
Franklin Capital Growth Fund, Advisor Class ........................... 13,075,595 $102,643,421
Franklin Growth Fund, Advisor Class ................................... 3,626,303 106,105,625
Mutual Shares Fund, Class Z ........................................... 6,714,641 102,868,293
------------
311,617,339
------------
FOREIGN EQUITY 25.1%
Templeton Growth Fund Inc., Advisor Class ............................. 8,021,301 104,597,767
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $567,833,669) ................................................ 416,215,106
------------
SHORT TERM INVESTMENTS (COST $1,052,611) 0.2%(a)
MONEY MARKET FUNDS 0.2%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55%... 1,052,611 1,052,611
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $568,886,280) 100.1% ...... 417,267,717
OTHER ASSETS, LESS LIABILITIES (0.1)% ................................. (613,592)
------------
NET ASSETS 100.0% ..................................................... $416,654,125
============
(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.
Annual Report | 37
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------------------------------------------------- JULY 31,
CLASS A 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ---------- ----------- ---------- ---------- ---------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.21 $ 10.00
---------- ----------- ---------- ---------- ---------- --------
Income from investment operations(c):
Net investment income(d, e) ................. 0.37 0.43 0.40 0.37 0.22 0.23
Net realized and unrealized gains
(losses) ................................. (5.38) --(f) 1.99 0.40 1.14 1.07
---------- ----------- ---------- ---------- ---------- --------
Total from investment operations ............... (5.01) 0.43 2.39 0.77 1.36 1.30
---------- ----------- ---------- ---------- ---------- --------
Less distributions from:
Net investment income and short term
gains received from Underlying Funds ..... (0.38) (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 ............................ (0.66) (0.91) (0.91) (0.55) (0.29) (0.09)
---------- ----------- ---------- ---------- ---------- --------
Redemption fees(f, g) .......................... -- -- -- -- -- --
---------- ----------- ---------- ---------- ---------- --------
Net asset value, end of year ................... $ 7.83 $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.21
========== =========== ========== ========== ========== ========
Total return(h) ................................ (37.66)% 3.12% 19.34% 6.31% 12.16% 13.00%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments
by affiliates(j) ............................ 0.54% 0.55% 0.57% 0.58% 0.60% 0.61%
Expenses net of waiver and payments
by affiliates(j) ............................ 0.48% 0.50% 0.50% 0.54% 0.60% 0.49%
Net investment income(e) ....................... 3.27% 2.99% 3.00% 2.98% 4.48% 2.16%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $5,015,566 $10,161,473 $7,288,143 $4,051,695 $1,640,876 $882,175
Portfolio turnover rate ........................ 4.16% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
38 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------------------------------------- JULY 31,
CLASS B 2008 2007 2006 2005 2004(a) 2004(b)
- ------- -------- -------- -------- -------- -------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.45 $ 13.93 $ 12.46 $ 12.23 $ 11.16 $ 10.00
-------- -------- -------- -------- -------- --------
Income from investment operations(c):
Net investment income(d, e) ................. 0.28 0.35 0.28 0.26 0.19 0.16
Net realized and unrealized gains (losses) .. (5.32) (0.02) 2.00 0.43 1.13 1.08
-------- -------- -------- -------- -------- --------
Total from investment operations ............... (5.04) 0.33 2.28 0.69 1.32 1.24
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.29) (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 ............................ (0.57) (0.81) (0.81) (0.46) (0.25) (0.08)
-------- -------- -------- -------- -------- --------
Redemption fees(f, g) .......................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of year ................... $ 7.84 $ 13.45 $ 13.93 $ 12.46 $ 12.23 $ 11.16
======== ======== ======== ======== ======== ========
Total return(h) ................................ (38.05)% 2.36% 18.53% 5.58% 11.90% 12.39%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 1.24% 1.22% 1.22% 1.23% 1.25% 1.26%
Expenses net of waiver and payments by
affiliates(j) ............................... 1.18% 1.17% 1.15% 1.19% 1.25% 1.14%
Net investment income(e) ....................... 2.57% 2.32% 2.35% 2.33% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $344,396 $722,716 $766,452 $688,590 $612,553 $357,282
Portfolio turnover rate ........................ 4.16% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 39
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------------------------------------- JULY 31,
CLASS C 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ---------- ---------- ---------- ---------- -------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.29 $ 13.78 $ 12.36 $ 12.23 $ 11.16 $ 10.00
---------- ---------- ---------- ---------- -------- --------
Income from investment operations(c):
Net investment income(d, e) ................. 0.28 0.29 0.31 0.29 0.19 0.17
Net realized and unrealized gains
(losses) ................................. (5.26) 0.05 1.95 0.39 1.13 1.07
---------- ---------- ---------- ---------- -------- --------
Total from investment operations ............... (4.98) 0.34 2.26 0.68 1.32 1.24
---------- ---------- ---------- ---------- -------- --------
Less distributions from:
Net investment income and short term
gains received from Underlying
Funds .................................... (0.29) (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 ............................ (0.57) (0.83) (0.84) (0.55) (0.25) (0.08)
---------- ---------- ---------- ---------- -------- --------
Redemption fees(f, g) .......................... -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of year ................... $ 7.74 $ 13.29 $ 13.78 $ 12.36 $ 12.23 $ 11.16
========== ========== ========== ========== ======== ========
Total return(h) ................................ (38.04)% 2.47% 18.50% 5.63% 11.79% 12.40%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments
by affiliates(j) ............................ 1.21% 1.22% 1.22% 1.20% 1.25% 1.26%
Expenses net of waiver and payments
by affiliates(j) ............................ 1.15% 1.17% 1.15% 1.16% 1.25% 1.14%
Net investment income(e) ....................... 2.60% 2.32% 2.35% 2.36% 3.83% 1.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $2,491,516 $5,295,157 $3,692,307 $2,075,041 $927,786 $535,778
Portfolio turnover rate ........................ 4.16% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
40 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------- JULY 31,
CLASS R 2008 2007 2006 2005 2004(a) 2004(b)
- ------- ------- ------- ------- ------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.22 $10.00
------- ------- ------- ------- ------- ------
Income from investment operations(c):
Net investment income (d, e) ................ 0.35 0.42 0.37 0.33 0.22 0.20
Net realized and unrealized gains (losses) .. (5.38) (0.01) 1.99 0.42 1.13 1.11
------- ------- ------- ------- ------- ------
Total from investment operations ............... (5.03) 0.41 2.36 0.75 1.35 1.31
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds .......... (0.35) (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 ........................... (0.63) (0.89) (0.88) (0.53) (0.29) (0.09)
------- ------- ------- ------- ------- ------
Redemption fees(f, g) ......................... -- -- -- -- -- --
------- ------- ------- ------- ------- ------
Net asset value, end of year ................... $ 7.84 $ 13.50 $ 13.98 $ 12.50 $ 12.28 $11.22
======= ======= ======= ======= ======= ======
Total return(h) ................................ (37.77)% 2.92% 19.15% 6.12% 12.02% 13.09%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 0.74% 0.72% 0.72% 0.73% 0.75% 0.76%
Expenses net of waiver and payments by
affiliates(j) ............................... 0.68% 0.67% 0.65% 0.69% 0.75% 0.64%
Net investment income(e) ....................... 3.07% 2.82% 2.85% 2.83% 4.33% 2.01%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $14,300 $29,028 $24,435 $17,247 $12,101 $5,225
Portfolio turnover rate ........................ 4.16% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 41
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
PERIOD
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- JULY 31,
ADVISOR CLASS 2008 2007 2006 2005 2004(a) 2004(b)
- ------------- ------- ------- ------- ------- ------ --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.58 $ 14.05 $ 12.55 $ 12.32 $11.25 $10.00
------- ------- ------- ------- ------ ------
Income from investment operations(c):
Net investment income(d, e) ................. 0.47 0.48 0.47 0.39 0.24 0.25
Net realized and unrealized gains (losses) .. (5.49) 0.01 1.98 0.42 1.14 1.09
------- ------- ------- ------- ------ ------
Total from investment operations ............... (5.02) 0.49 2.45 0.81 1.38 1.34
------- ------- ------- ------- ------ ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.41) (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 ............................ (0.69) (0.96) (0.95) (0.58) (0.31) (0.09)
------- ------- ------- ------- ------ ------
Redemption fees(f, g) .......................... -- -- -- -- -- --
------- ------- ------- ------- ------ ------
Net asset value, end of year ................... $ 7.87 $ 13.58 $ 14.05 $ 12.55 $12.32 $11.25
======= ======= ======= ======= ====== ======
Total return(h) ................................ (37.44)% 3.48% 19.73% 6.63% 12.32% 13.46%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by
affiliates(j) ............................... 0.24% 0.22% 0.22% 0.23% 0.25% 0.26%
Expenses net of waiver and payments by
affiliates(j) ............................... 0.18% 0.17% 0.15% 0.19% 0.25% 0.14%
Net investment income(e) ....................... 3.57% 3.32% 3.35% 3.33% 4.83% 2.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $35,445 $46,866 $25,124 $12,535 $7,792 $4,991
Portfolio turnover rate ........................ 4.16% 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) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return is not annualized for periods less than one year.
(i) Ratios are annualized for periods less than one year.
(j) 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 year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
42 | Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE
- ------------------------------------------------- ------------- --------------
INVESTMENTS IN UNDERLYING FUNDS 100.3%(a)
DOMESTIC EQUITY 33.1%
Mutual Shares Fund, Class Z ..................... 170,820,929 $2,616,976,639
--------------
DOMESTIC HYBRID 34.0%
Franklin Income Fund Inc., Advisor Class ........ 1,619,379,910 2,688,170,651
--------------
FOREIGN EQUITY 33.2%
Templeton Growth Fund Inc., Advisor Class ....... 200,996,173 2,620,990,092
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE
SHORT TERM INVESTMENTS
(COST $12,588,609,277) ....................... 7,926,137,382
--------------
SHORT TERM INVESTMENTS (COST $9,718,488) 0.1%(a)
MONEY MARKET FUNDS 0.1%
(b) Franklin Institutional Fiduciary Trust Money
Market Portfolio, 0.55%....................... 9,718,488 9,718,488
--------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS
(COST $12,598,327,765) 100.4% ............... 7,935,855,870
OTHER ASSETS, LESS LIABILITIES (0.4)% ........... (34,632,621)
--------------
NET ASSETS 100.0% ............................... $7,901,223,249
==============
(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.
Annual Report | 43
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31,
---------------------------------------------------
CLASS A 2008 2007 2006 2005 2004(a)
- ------- -------- -------- -------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.17 $ 12.90 $ 11.79 $ 11.19 $ 10.00
-------- -------- -------- -------- -------
Income from investment operations(b):
Net investment income(c, d) ................. 0.10 0.15 0.17 0.16 0.17
Net realized and unrealized gains (losses) .. (5.20) 0.71 1.55 0.73 1.12
-------- -------- -------- -------- -------
Total from investment operations ............... (5.10) 0.86 1.72 0.89 1.29
-------- -------- -------- -------- -------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.12) (0.16) (0.19) (0.13) (0.07)
Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03)
-------- -------- -------- -------- -------
Total distributions ............................ (0.38) (0.59) (0.61) (0.29) (0.10)
-------- -------- -------- -------- -------
Redemption fees(e, f) .......................... -- -- -- -- --
-------- -------- -------- -------- -------
Net asset value, end of year ................... $ 7.69 $ 13.17 $ 12.90 $ 11.79 $ 11.19
======== ======== ======== ======== =======
Total return(g) ................................ (39.29)% 6.79% 14.69% 7.93% 12.93%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 0.68% 0.68% 0.72% 0.90% 2.31%
Expenses net of waiver and payments by
affiliates(i) ............................... 0.48% 0.50% 0.50% 0.46% 0.39%
Net investment income(d) ....................... 0.95% 1.09% 1.18% 1.41% 3.78%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $132,432 $228,876 $190,189 $103,348 $16,155
Portfolio turnover rate ........................ 9.37% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.74% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
44 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31,
-----------------------------------------------
CLASS C 2008 2007 2006 2005 2004(a)
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.08 $ 12.82 $ 11.74 $ 11.18 $10.00
------- ------- ------- ------- ------
Income from investment operations(b):
Net investment income(c, d) ................. 0.02 0.06 0.08 0.09 0.15
Net realized and unrealized gains (losses) .. (5.14) 0.71 1.54 0.72 1.12
------- ------- ------- ------- ------
Total from investment operations ............... (5.12) 0.77 1.62 0.81 1.27
------- ------- ------- ------- ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.04) (0.08) (0.12) (0.09) (0.06)
Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03)
------- ------- ------- ------- ------
Total distributions ............................ (0.30) (0.51) (0.54) (0.25) (0.09)
------- ------- ------- ------- ------
Redemption fees(e, f) .......................... -- -- -- -- --
------- ------- ------- ------- ------
Net asset value, end of year ................... $ 7.66 $ 13.08 $ 12.82 $ 11.74 $11.18
======= ======= ======= ======= ======
Total return(g) ................................ (39.75)% 6.11% 13.92% 7.22% 12.66%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 1.37% 1.34% 1.36% 1.55% 2.96%
Expenses net of waiver and payments by
affiliates(i) ............................... 1.17% 1.16% 1.14% 1.11% 1.04%
Net investment income(d) ....................... 0.26% 0.43% 0.54% 0.76% 3.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $46,232 $84,173 $68,482 $36,568 $4,558
Portfolio turnover rate ........................ 9.37% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.74% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 45
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31,
--------------------------------------------
CLASS R 2008 2007 2006 2005 2004(a)
- ------- ------- ------ ------ ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.17 $12.90 $11.79 $11.18 $10.00
------- ------ ------ ------ ------
Income from investment operations(b):
Net investment income(c, d) ................. 0.06 0.11 0.14 0.11 0.15
Net realized and unrealized gains (losses) .. (5.18) 0.73 1.55 0.77 1.13
------- ------ ------ ------ ------
Total from investment operations ............... (5.12) 0.84 1.69 0.88 1.28
------- ------ ------ ------ ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.09) (0.14) (0.16) (0.11) (0.07)
Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03)
------- ------ ------ ------ ------
Total distributions ............................ (0.35) (0.57) (0.58) (0.27) (0.10)
------- ------ ------ ------ ------
Redemption fees(e, f) .......................... -- -- -- -- --
------- ------ ------ ------ ------
Net asset value, end of year ................... $ 7.70 $13.17 $12.90 $11.79 $11.18
======= ====== ====== ====== ======
Total return(g) ................................ (39.44)% 6.58% 14.49% 7.86% 12.81%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 0.88% 0.85% 0.87% 1.05% 2.46%
Expenses net of waiver and payments by
affiliates(i) ............................... 0.68% 0.67% 0.65% 0.61% 0.54%
Net investment income(d) ....................... 0.75% 0.92% 1.03% 1.26% 3.63%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 693 $1,433 $1,539 $1,287 $ 260
Portfolio turnover rate ........................ 9.37% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.74% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
46 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31,
---------------------------------------------
ADVISOR CLASS 2008 2007 2006 2005 2004(a)
- ------------- ------- ------ ------ ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 13.22 $12.93 $11.81 $11.19 $10.00
------- ------ ------ ------ ------
Income from investment operations(b):
Net investment income(c, d) ................. 0.19 0.24 0.22 0.11 0.14
Net realized and unrealized gains (losses) .. (5.29) 0.68 1.54 0.82 1.16
------- ------ ------ ------ ------
Total from investment operations ............... (5.10) 0.92 1.76 0.93 1.30
------- ------ ------ ------ ------
Less distributions from:
Net investment income and short term gains
received from Underlying Funds ........... (0.15) (0.20) (0.22) (0.15) (0.08)
Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03)
------- ------ ------ ------ ------
Total distributions ............................ (0.41) (0.63) (0.64) (0.31) (0.11)
------- ------ ------ ------ ------
Redemption fees(e, f) .......................... -- -- -- -- --
------- ------ ------ ------ ------
Net asset value, end of year ................... $ 7.71 $13.22 $12.93 $11.81 $11.19
------- ------ ------ ------ ------
Total return(g) ................................ (39.10)% 7.26% 15.07% 8.31% 13.01%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by
affiliates(i) ............................... 0.38% 0.35% 0.37% 0.55% 1.96%
Expenses net of waiver and payments by
affiliates(i) ............................... 0.18% 0.17% 0.15% 0.11% 0.04%
Net investment income(d) ....................... 1.25% 1.42% 1.53% 1.76% 4.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 2,480 $2,804 $1,931 $1,104 $ 196
Portfolio turnover rate ........................ 9.37% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.74% for the year ended December 31, 2008.
The accompanying notes are an integral part of these financial statements.
Annual Report | 47
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE
- ----------------------------------------------- ---------- ------------
INVESTMENTS IN UNDERLYING FUNDS 99.1%(a)
DOMESTIC EQUITY 66.1%
(b) Franklin Flex Cap Growth Fund, Advisor Class .......................... 1,936,224 $ 60,429,566
Mutual Shares Fund, Class Z ........................................... 3,903,241 59,797,646
------------
120,227,212
------------
FOREIGN EQUITY 33.0%
Templeton Growth Fund Inc., Advisor Class ............................. 4,593,156 59,894,749
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $273,761,479) ................................................ 180,121,961
------------
SHORT TERM INVESTMENTS (COST $2,222,386) 1.2%(a)
MONEY MARKET FUNDS 1.2%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% .. 2,222,386 2,222,386
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $275,983,865) 100.3% ...... 182,344,347
OTHER ASSETS, LESS LIABILITIES (0.3)% ................................. (508,237)
------------
NET ASSETS 100.0% ..................................................... $181,836,110
------------
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 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.
48 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2008
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------- --------------- ---------------
Assets:
Investments in Underlying Funds: (Note 6)
Cost ....................................... $ 568,886,280 $12,598,327,765 $275,983,865
------------- --------------- ------------
Value ...................................... $ 417,267,717 $ 7,935,855,870 $182,344,347
Receivables from capital shares sold .......... 758,390 16,407,923 228,940
------------- --------------- ------------
Total assets ............................ 418,026,107 7,952,263,793 182,573,287
------------- --------------- ------------
Liabilities:
Payables:
Capital shares redeemed .................... 865,189 41,818,524 522,131
Affiliates ................................. 366,604 6,971,851 136,241
Unaffiliated transfer agent fees ........... 83,436 1,629,561 40,830
Accrued expenses and other liabilities ........ 56,753 620,608 37,975
------------- --------------- ------------
Total liabilities ....................... 1,371,982 51,040,544 737,177
------------- --------------- ------------
Net assets, at value ................. $ 416,654,125 $ 7,901,223,249 $181,836,110
------------- --------------- ------------
Net assets consist of:
Paid-in capital ............................... $ 579,354,570 $13,577,670,730 $284,698,562
Undistributed net investment income ........... 1,573,462 82,441,125 533,605
Net unrealized appreciation (depreciation) .... (151,618,563) (4,662,471,895) (93,639,518)
Accumulated net realized gain (loss) .......... (12,655,344) (1,096,416,711) (9,756,539)
------------- --------------- ------------
Net assets, at value ................. $ 416,654,125 $ 7,901,223,249 $181,836,110
------------- --------------- ------------
The accompanying notes are an integral part of these financial statements.
Annual Report | 49
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2008
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------- --------------- ---------------
CLASS A:
Net assets, at value ..................................... $278,539,462 $5,015,566,072 $132,431,545
------------ -------------- ------------
Shares outstanding ....................................... 32,913,059 640,571,301 17,223,960
------------ -------------- ------------
Net asset value per share(a) ............................. $ 8.46 $ 7.83 $ 7.69
------------ -------------- ------------
Maximum offering price per share (net asset value per
share / 94.25%) ....................................... $ 8.98 $ 8.31 $ 8.16
------------ -------------- ------------
CLASS B:
Net assets, at value ..................................... $ 35,615,660 $ 344,395,658 --
------------ -------------- ------------
Shares outstanding ....................................... 4,221,860 43,933,022 --
------------ -------------- ------------
Net asset value and maximum offering price per share(a) .. $ 8.44 $ 7.84 --
------------ -------------- ------------
CLASS C:
Net assets, at value ..................................... $ 99,663,067 $2,491,516,391 $ 46,231,669
------------ -------------- ------------
Shares outstanding ....................................... 11,858,075 322,091,405 6,033,290
------------ -------------- ------------
Net asset value and maximum offering price per share(a) .. $ 8.40 $ 7.74 $ 7.66
------------ -------------- ------------
CLASS R:
Net assets, at value ..................................... $ 1,182,255 $ 14,300,068 $ 693,250
------------ -------------- ------------
Shares outstanding ....................................... 139,671 1,824,017 90,014
------------ -------------- ------------
Net asset value and maximum offering price per share ..... $ 8.46 $ 7.84 $ 7.70
------------ -------------- ------------
ADVISOR CLASS:
Net assets, at value ..................................... $ 1,653,681 $ 35,445,060 $ 2,479,646
------------ -------------- ------------
Shares outstanding ....................................... 195,274 4,505,055 321,680
------------ -------------- ------------
Net asset value and maximum offering price per share ..... $ 8.47 $ 7.87 $ 7.71
------------ -------------- ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
50 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2008
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
--------------- --------------- ---------------
Investment income:
Dividends from Underlying Funds (Note 6) ................. $ 8,945,184 $ 468,603,503 $ 3,709,412
------------- --------------- -------------
Expenses:
Administrative fees (Note 3a) ............................ 600,722 12,517,020 259,202
Distribution fees: (Note 3b)
Class A ............................................... 1,191,253 23,616,894 563,903
Class B ............................................... 549,595 5,440,241 --
Class C ............................................... 1,440,595 39,176,880 672,610
Class R ............................................... 9,531 108,605 5,692
Transfer agent fees (Note 3d) ............................ 1,081,364 14,987,756 566,241
Reports to shareholders .................................. 89,036 1,578,128 47,124
Registration and filing fees ............................. 76,972 519,557 66,907
Professional fees ........................................ 28,281 134,484 25,322
Trustees' fees and expenses .............................. 4,462 77,592 1,677
Other .................................................... 24,422 347,110 11,835
------------- --------------- -------------
Total expenses ..................................... 5,096,233 98,504,267 2,220,513
Expenses waived/paid by affiliates (Note 3e) ....... (826,789) (7,613,028) (505,580)
------------- --------------- -------------
Net expenses .................................... 4,269,444 90,891,239 1,714,933
------------- --------------- -------------
Net investment income ........................ 4,675,740 377,712,264 1,994,479
------------- --------------- -------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds ............... (12,202,490) (1,085,395,157) (9,756,465)
Realized gain distributions by Underlying Funds ....... 1,432,238 40,421,392 838,982
------------- --------------- -------------
Net realized gain (loss) from Underlying
Funds ..................................... (10,770,252) (1,044,973,765) (8,917,483)
------------- --------------- -------------
Net change in unrealized appreciation (depreciation) on
investments in Underlying Funds ....................... (266,649,939) (4,923,135,686) (117,330,528)
------------- --------------- -------------
Net realized and unrealized gain (loss) ..................... (277,420,191) (5,968,109,451) (126,248,011)
------------- --------------- -------------
Net increase (decrease) in net assets resulting from
operations ............................................... $(272,744,451) $(5,590,397,187) $(124,253,532)
------------- --------------- -------------
The accompanying notes are an integral part of these financial statements.
Annual Report | 51
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
---------------------------- ---------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------------
2008 2007 2008 2007
------------- ------------ --------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 4,675,740 $ 5,827,534 $ 377,712,264 $ 411,806,734
Net realized gain (loss) from Underlying Funds .. (10,770,252) 26,678,658 (1,044,973,765) 664,574,182
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ............................. (266,649,939) 2,933,990 (4,923,135,686) (789,793,282)
------------- ------------ --------------- ---------------
Net increase (decrease) in net assets
resulting from operations ................. (272,744,451) 35,440,182 (5,590,397,187) 286,587,634
------------- ------------ --------------- ---------------
Distributions to shareholders from:
Net investment income and short term gains
received from Underlying Funds:
Class A ...................................... (4,306,007) (5,840,602) (232,663,422) (317,349,633)
Class B ...................................... (173,762) (347,605) (12,296,371) (17,434,411)
Class C ...................................... (555,567) (976,333) (91,206,625) (136,416,205)
Class R ...................................... (14,468) (25,991) (613,620) (850,119)
Advisor Class ................................ (33,624) (48,599) (1,808,459) (1,589,342)
Net realized gains:
Class A ...................................... (9,912,353) (14,073,351) (206,963,605) (304,268,073)
Class B ...................................... (1,420,594) (2,191,830) (14,528,676) (24,803,530)
Class C ...................................... (3,696,588) (5,194,889) (108,826,242) (160,810,003)
Class R ...................................... (51,580) (75,541) (581,731) (913,018)
Advisor Class ................................ (65,462) (92,288) (920,311) (1,390,383)
------------- ------------ --------------- ---------------
Total distributions to shareholders ................ (20,230,005) (28,867,029) (670,409,062) (965,824,717)
------------- ------------ --------------- ---------------
Capital share transactions: (Note 2)
Class A ...................................... (25,532,551) 34,638,044 (1,199,297,735) 3,296,660,627
Class B ...................................... (10,233,436) (4,799,240) (106,380,153) (20,839,227)
Class C ...................................... (11,322,678) 13,884,383 (791,796,601) 1,832,949,853
Class R ...................................... (480,559) 42,997 (3,925,755) 5,610,819
Advisor Class ................................ (443,248) 135,731 8,144,816 23,543,435
------------- ------------ --------------- ---------------
Total capital share transactions ................... (48,012,472) 43,901,915 (2,093,255,428) 5,137,925,507
------------- ------------ --------------- ---------------
Redemption fees .................................... 1,576 1,283 44,669 90,601
------------- ------------ --------------- ---------------
Net increase (decrease) in net assets ..... (340,985,352) 50,476,351 (8,354,017,008) 4,458,779,025
Net assets:
Beginning of year .................................. 757,639,477 707,163,126 16,255,240,257 11,796,461,232
------------- ------------ --------------- ---------------
End of year ........................................ $ 416,654,125 $757,639,477 $ 7,901,223,249 $16,255,240,257
------------- ------------ --------------- ---------------
Undistributed net investment income included in
net assets:
End of year ........................................ $ 1,573,462 $ 806,821 $ 82,441,125 $ 9,727,549
------------- ------------ --------------- ---------------
The accompanying notes are an integral part of these financial statements.
52 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON
PERSPECTIVES ALLOCATION FUND
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
2008 2007
------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 1,994,479 $ 2,734,964
Net realized gain (loss) from Underlying Funds .. (8,917,483) 12,232,463
Net change in unrealized appreciation
(depreciation) on investments in Underlying
Fund ......................................... (117,330,528) 2,728,681
------------- ------------
Net increase (decrease) in net assets
resulting from operations .............. (124,253,532) 17,696,108
------------- ------------
Distributions to shareholders from:
Net investment income and short term gains
received from Underlying Funds:
Class A ...................................... (2,005,641) (2,720,323)
Class C ...................................... (220,353) (498,075)
Class R ...................................... (8,254) (14,529)
Advisor Class ................................ (47,054) (41,571)
Net realized gains:
Class A ...................................... (4,521,662) (6,969,461)
Class C ...................................... (1,694,032) (2,547,116)
Class R ...................................... (29,595) (45,646)
Advisor Class ................................ (50,944) (76,998)
------------- ------------
Total distributions to shareholders ................ (8,577,535) (12,913,719)
------------- ------------
Capital share transactions: (Note 2)
Class A ...................................... (223,905) 35,125,183
Class C ...................................... (3,260,020) 14,529,010
Class R ...................................... (182,809) (143,982)
Advisor Class ................................ 1,046,832 852,484
------------- ------------
Total capital share transactions ................... (2,619,902) 50,362,695
------------- ------------
Redemption fees .................................... 378 509
------------- ------------
Net increase (decrease) in net assets ..... (135,450,591) 55,145,593
Net assets:
Beginning of year .................................. 317,286,701 262,141,108
------------- ------------
End of year ........................................ $ 181,836,110 $317,286,701
------------- ------------
Undistributed net investment income included in net
assets:
End of year ........................................ $ 533,605 $ 131,201
------------- ------------
The accompanying notes are an integral part of these financial statements.
Annual Report | 53
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment
company, consisting of ten separate funds, three of which are included in this
report (Funds). The financial statements of the remaining funds in the Trust are
presented separately. The Funds invest primarily in Franklin Templeton mutual
funds (Underlying Funds). The classes of shares offered within each of the funds
are indicated below. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
CLASS A, CLASS B, CLASS C, CLASS R & ADVISOR CLASS CLASS A, CLASS C, CLASS R & ADVISOR CLASS
- -------------------------------------------------- -----------------------------------------------
Franklin Templeton Corefolio Allocation Fund Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Net asset value per share is calculated as of the close of trading of the NYSE.
Investments in the Underlying Funds are valued at their closing net asset value
each trading day.
B. INCOME TAXES
No provision has been made for U.S. income taxes because it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its taxable income
and net realized gains.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of December 31, 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.
54 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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, not
including 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 was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
Annual Report | 55
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 2008, there were an unlimited number of shares authorized
(without par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
-------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ------------ ---------------
CLASS A SHARES:
Year ended December 31, 2008
Shares sold .................... 5,567,019 $ 61,833,850 101,658,440 $ 1,166,213,136
Shares issued in reinvestment
of distributions ............ 1,265,389 13,537,176 45,436,762 415,107,291
Shares redeemed ................ (8,891,290) (100,903,577) (259,459,671) (2,780,618,162)
---------- ------------- ------------ ---------------
Net increase (decrease) ........ (2,058,882) $ (25,532,551) (112,364,469) $(1,199,297,735)
---------- ------------- ------------ ---------------
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:
Year ended December 31, 2008
Shares sold .................... 104,352 $ 1,141,683 986,795 $ 10,589,681
Shares issued in reinvestment
of distributions ............ 129,819 1,507,686 2,649,869 24,917,785
Shares redeemed ................ (1,149,669) (12,882,805) (13,417,606) (141,887,619)
---------- ------------- ------------ ---------------
Net increase (decrease) ........ (915,498) $ (10,233,436) (9,780,942) $ (106,380,153)
---------- ------------- ------------ ---------------
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:
Year ended December 31, 2008
Shares sold .................... 2,048,102 $ 22,152,029 45,290,328 $ 503,556,683
Shares issued in reinvestment
of distributions ............ 344,964 3,952,057 18,821,585 174,787,157
Shares redeemed ................ (3,459,667) (37,426,764) (140,521,755) (1,470,140,441)
---------- ------------- ------------ ---------------
Net increase (decrease) ........ (1,066,601) $ (11,322,678) (76,409,842) $ (791,796,601)
---------- ------------- ------------ ---------------
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
---------- ------------- ------------ ---------------
56 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS
ALLOCATION FUND ALLOCATION FUND
------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ---------- ------------
CLASS R SHARES:
Year ended December 31, 2008
Shares sold .................... 16,325 $ 200,227 370,382 $ 4,119,404
Shares issued in reinvestment
of distributions ............ 5,950 66,049 129,876 1,191,611
Shares redeemed ................ (65,849) (746,835) (826,353) (9,236,770)
------- --------- ---------- ------------
Net increase (decrease) ........ (43,574) $(480,559) (326,095) $ (3,925,755)
------- --------- ---------- ------------
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:
Year ended December 31, 2008
Shares sold .................... 45,547 $ 411,512 2,448,980 $ 23,486,926
Shares issued in reinvestment
of distributions ............ 8,128 84,684 288,863 2,496,414
Shares redeemed ................ (85,974) (939,444) (1,683,911) (17,838,524)
------- --------- ---------- ------------
Net increase (decrease) ........ (32,299) $(443,248) 1,053,932 $ 8,144,816
------- --------- ---------- ------------
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:
Year ended December 31, 2008
Shares sold ..................................... 3,470,298 $ 37,241,720
Shares issued in reinvestment of distributions .. 658,516 6,336,696
Shares redeemed ................................. (4,285,488) (43,802,321)
---------- ------------
Net increase (decrease) ......................... (156,674) $ (223,905)
---------- ------------
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
---------- ------------
Annual Report | 57
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON
PERSPECTIVES
ALLOCATION FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS C SHARES:
Year ended December 31, 2008
Shares sold ..................................... 1,394,980 $ 14,721,259
Shares issued in reinvestment of distributions .. 171,980 1,784,729
Shares redeemed ................................. (1,970,998) (19,766,008)
---------- ------------
Net increase (decrease) ......................... (404,038) $ (3,260,020)
---------- ------------
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:
Year ended December 31, 2008
Shares sold ..................................... 15,267 $ 171,827
Shares issued in reinvestment of distributions .. 3,789 37,849
Shares redeemed ................................. (37,884) (392,485)
---------- ------------
Net increase (decrease) ......................... (18,828) $ (182,809)
---------- ------------
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:
Year ended December 31, 2008
Shares sold ..................................... 193,937 $ 1,925,016
Shares issued in reinvestment of distributions .. 9,626 86,274
Shares redeemed ................................. (93,976) (964,458)
---------- ------------
Net increase (decrease) ......................... 109,587 $ 1,046,832
---------- ------------
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
---------- ------------
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 Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
58 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 set the current rate at 0.30% per year for Class A
shares until further notice and approval by the Board.
C. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------ ------------------ ------------------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers .................... $282,950 $5,865,846 $183,477
Contingent deferred sales charges retained ........ $ 16,107 $1,313,721 $ 11,092
D. TRANSFER AGENT FEES
For the year ended December 31, 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 ............................... $799,403 $8,966,657 $421,682
Annual Report | 59
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. WAIVER AND EXPENSE REIMBURSEMENTS
FT Services and Investor Services have agreed in advance to voluntarily waive
all or a portion of their respective fees through April 30, 2009. Total expenses
waived/paid are not subject to reimbursement by the Funds subsequent to the
Fund's 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
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At December 31, 2008, the capital loss carryforwards were as
follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------ ------------------ ------------------
Capital loss carryforwards expiring in:
2016 ........................................... $6,038,174 $664,345,408 $2,686,864
For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At December 31, 2008, the deferred losses were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------ ------------------ ------------------
Realized capital losses ........................... $1,247,416 $173,997,367 $1,178,252
The tax character of distributions paid during the years ended December 31, 2008
and 2007, was as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO ALLOCATION FUND FOUNDING FUNDS ALLOCATION FUND
------------------------- ------------------------------
2008 2007 2008 2007
----------- ----------- ------------ ---------------
Distributions paid from:
Ordinary income ................ $ 5,083,428 $ 7,797,367 $338,588,497 $475,261,307
Long term capital gain ......... 15,146,577 21,069,662 331,820,565 490,563,410
----------- ----------- ------------ ------------
$20,230,005 $28,867,029 $670,409,062 $965,824,717
----------- ----------- ------------ ------------
FRANKLIN TEMPLETON
PERSPECTIVES
ALLOCATION FUND
------------------------
2008 2007
---------- -----------
Distributions paid from:
Ordinary income ................ $2,286,145 $ 3,440,711
Long term capital gain ......... 6,291,390 9,473,008
---------- -----------
$8,577,535 $12,913,719
---------- -----------
60 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At December 31, 2008, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income 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 ............................... $ 574,256,035 $12,856,401,701 $281,875,288
------------- --------------- ------------
Unrealized appreciation ........................... $ -- $ -- $ --
Unrealized depreciation ........................... (156,988,318) (4,920,545,831) (99,530,941)
------------- --------------- ------------
Net unrealized appreciation (depreciation) ........ $(156,988,318) $(4,920,545,831) $(99,530,941)
------------- --------------- ------------
Distributable earnings - undistributed ordinary
income ......................................... $ 1,573,462 $ 82,441,125 $ 533,605
------------- --------------- ------------
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of short term capital gains distributions from
Underlying Funds.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and short term capital gains
distributions from Underlying Funds.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended December 31, 2008, were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
------------------ ------------------ ------------------
Purchases ......................................... $19,413,607 $ 525,884,714 $24,494,484
Sales ............................................. $81,420,811 $2,837,684,150 $33,672,409
Annual Report | 61
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Franklin
Advisers, Inc. (Advisers), an affiliate of FT Services, or by an affiliate of
Advisers. The Funds do not invest in the Underlying Funds for the purpose of
exercising management or control. At December 31, 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 ...................... 11.70%
Franklin Growth Fund .............................. 5.71%
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
Mutual Shares Fund ................................ 19.16%
Templeton Growth Fund Inc. ........................ 15.84%
Franklin Income Fund Inc. ......................... 7.24%
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) 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)
62 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FAIR VALUE MEASUREMENTS (CONTINUED)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At December 31, 2008, all of the Funds' investments in securities carried at
fair value were in Level 1 inputs.
8. SUBSEQUENT EVENT
On January 23, 2009, the Funds entered into, along with certain other funds
managed by Franklin Templeton Investments (individually, "Borrower";
collectively "Borrowers"), a $725 million senior unsecured syndicated global
line of credit ("Global Credit Facility") to provide a source of funds to the
Borrowers for temporary and emergency purposes and to meet future unanticipated
or unusually large redemption requests.
Under the terms of the Global Credit Facility, each Borrower has agreed to pay
its proportionate share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility.
Annual Report | 63
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton Corefolio
Allocation Fund, Franklin Templeton Founding Funds Allocation Fund and Franklin
Templeton Perspectives Allocation Fund (separate portfolios of Franklin
Templeton Fund Allocator Series, hereafter referred to as the "Funds") at
December 31, 2008, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments in the Underlying Funds at
December 31, 2008 by correspondence with the transfer agent of the Underlying
Funds, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2009
64 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2008:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
- ------------------ ------------------ ------------------
$15,146,577 $331,820,565 $6,291,390
Under Section 871(k)(2)(C) of the Code, Franklin Templeton Perspectives
Allocation Fund designates the maximum amount allowable but no less than $4,843
as short term capital gain dividends for purposes of the tax imposed under
Section 871(a)(1)(A) of the Code for the fiscal year ended December 31, 2008.
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
- ------------------ ------------------ ------------------
100% 43.83% 74.54%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
COREFOLIO FOUNDING FUNDS PERSPECTIVES
ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND
- ------------------ ------------------ ------------------
$9,042,062 $245,407,526 $3,755,414
Distributions, including qualified dividend income, paid during calendar year
2008 will be reported to shareholders on Form 1099-DIV in January 2009.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Annual Report | 65
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of U.S. registered portfolios overseen in
the Franklin Templeton Investments fund complex are shown below. Generally, each
board member serves a three-year term that continues until that person's
successor is appointed and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- -------------- ------------------ ----------------------- -------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 138 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
ROBERT F. CARLSON (1928) Trustee Since 2005 115 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement
Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
SAM GINN (1937) Trustee Since 2007 115 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 1998 138 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution of
titanium), Canadian National Railway
(railroad) and White Mountains
Insurance Group, Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
66 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- -------------- ------------------ ----------------------- -------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 115 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
FRANK A. OLSON (1932) Trustee Since 2007 138 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and Sentient
San Mateo, CA 94403-1906 Jet (private jet service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 145 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
JOHN B. WILSON (1959) Lead Trustee since 2006 115 None
One Franklin Parkway Independent and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate
Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm)
(1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- -------------- ------------------ ----------------------- -------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 138 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42
of the investment companies in Franklin Templeton Investments.
Annual Report | 67
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- -------------- ------------------ ----------------------- -------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 92 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton
Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
JENNIFER J. BOLT (1964) Chief Since December Not Applicable Not Applicable
One Franklin Parkway Executive 2008
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President - Operations and Technology, Franklin Resources, Inc.; Director, Templeton Global Advisors Limited; officer
and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment
companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable
One Franklin Parkway Chief 2004, Chief
San Mateo, CA 94403-1906 Financial Financial Officer
Officer and and Chief
Chief Accounting Officer
Accounting since February
Officer 2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
JIMMY D. GAMBILL (1947) Vice President Since February Not Applicable Not Applicable
500 East Broward Blvd. 2008
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
68 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- -------------- ------------------ ----------------------- -------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. President and Since 2002 Not Applicable Not Applicable
(1940) Chief
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person of
the Fund under the federal securities laws due to his position as an
officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson and Jennifer J. Bolt.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
Annual Report | 69
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
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 (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 (800)
SEC-0330.
70 | Annual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
(800) DIAL BEN/(800) 342-5236 OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD
CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
FRANKLIN TEMPLETON FUNDS
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund(1)
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(3)
Franklin Small Cap Growth Fund(4)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
(4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy
remained the same.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(6.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(7.) The fund invests primarily in insured municipal securities.
(8.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
12/08 Not part of the annual report
(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.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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 A2008 02/09
DECEMBER 31, 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
(GRAPHICS)
ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
(FRANKLIN TEMPLETON INVESTMENTS LOGO)
FRANKLIN - TEMPLETON - MUTUAL SERIES
Annual Report
Economic and Market Overview
In 2008, the U.S. economy faltered and The
Conference Board's Consumer Confidence Index fell to
an all-time low since it began in 1967. The
government's abrupt conservatorship of Fannie Mae
and Freddie Mac and the failure of several blue-chip
banks and financial institutions roiled the equity
markets. Despite government interventions and
massive emergency funding, rapidly weakening
manufacturing activity and falling home prices
exacerbated the nation's economic troubles. Jobless
claims mounted and the unemployment rate rose to
7.2% by period-end.(1) In early December, the National
Bureau of Economic Research officially declared the
U.S. economy has been in recession since December
2007.
The weakening U.S. economy negatively impacted
growth prospects around the world. Although growth
in the first half of the year was robust in
developing economies, particularly in Asia, signs of
a global slowdown surfaced in the latter half. In an
environment of extremely high commodity prices that
increased inflationary pressure, the world's
monetary authorities faced the choice of lowering
short-term interest rates to stimulate growth or
raising them to fight rising inflation. Stimulus
provided through fiscal and monetary policies
implemented around the globe sought to restore
financial market stability and reignite economic
growth.
The U.S. Treasury and the Federal Reserve Board took
unprecedented steps, including lowering short-term
rates to near 0% from 4.25%. The European Central
Bank and many of the world's other central banks had
raised rates due to inflationary pressures. Later in
the year, the potential for global recession trumped
inflationary concerns, and the world's monetary
authorities cut interest rates aggressively. The
U.S. dollar, which had declined earlier in the
period versus many of the world's currencies,
regained ground quickly toward period-end as a
flight to the relative safety of U.S. Treasuries
prevailed.
1. Source: Bureau of Labor Statistics.
Annual Report | 3
In this challenging economic time, volatility came
to define global equity markets. Virtually all local
indexes ended the 12-month period with marked
losses. Despite negative economic data and an
outlook for decelerating corporate earnings and
profit margins globally, many companies outside the
financials sector retained relatively strong balance
sheets.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND
OPINIONS AS OF DECEMBER 31, 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 | Annual Report
Franklin Templeton
2015 Retirement Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2015 Retirement Target
Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund allocates among the broad asset classes of equity, fixed income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), within an
increasing emphasis on income as the target date of 2015 approaches.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
ASSET ALLOCATION*
Franklin Templeton 2015 Retirement Target Fund
Based on Total Net Assets as of 12/31/08
(PIE CHART)
Domestic Equity 43.3%
Foreign Equity 20.1%
Domestic Fixed Income 19.0%
Foreign Fixed Income 10.0%
Short-Term Investments &
Other Net Assets 7.6%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This annual report for Franklin Templeton 2015 Retirement Target Fund covers the
fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2015 Retirement Target Fund - Class A had a -25.55%
cumulative total return for the 12 months ended December 31, 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 Barclays Capital (BC; formerly, Lehman Brothers)
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 49.
Annual Report | 5
TOP 10 FUND HOLDINGS
Franklin Templeton
2015 Retirement Target Fund
12/31/08
% OF TOTAL
NET ASSETS
----------
Franklin Flex Cap Growth Fund
- Advisor Class 15.0%
Mutual Shares Fund
- Class Z 13.2%
Franklin U.S. Government
Securities Fund
- Advisor Class 10.3%
Templeton Global Bond Fund
- Advisor Class 10.0%
Mutual European Fund
- Class Z 7.6%
Franklin Small Cap Growth Fund
- Advisor Class 6.9%
Franklin Total Return Fund
- Advisor Class 6.7%
Templeton Foreign Fund
- Advisor Class 4.1%
Franklin Gold and Precious
Metals Fund - Advisor Class 3.8%
Templeton China World Fund
- Advisor Class 3.2%
U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S.
T-Bill Index for short-term investments and other net assets, had total returns
of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1)
You can find other performance data in the Performance Summary beginning on page
8.
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on
maximizing income appropriate to the Fund's risk profile. In evaluating the risk
level of the underlying funds, we analyze such factors as: (a) relative and
absolute performance, including correlations with other underlying funds as well
as corresponding benchmarks, and (b) their volatility (the variability of
returns from one period to the next). We attempt to invest the assets of each
target fund in the same underlying funds and will vary the underlying funds'
allocation percentages based upon each fund's risk/return level. We change the
Fund's target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, fixed income securities, and short-term investments and other net
assets, and by the actual performance of the selected underlying funds. This
allocation shifts every year, in accordance with the retirement date associated
with the portfolio.
1. Source: (C) 2009 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 BC 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. T-Bill Index is a total return index
based on a constant maturity instrument. Payden & Rygel includes both accrued
interest and change in market price in its monthly total return calculations.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
The indexes are unmanaged and include reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
6 | Annual Report
At period-end, Franklin Templeton 2015 Retirement Target Fund's domestic equity
exposure was 68.3% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2008, we held shares in large-, mid-and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, at 15.0% of the Fund's total net
assets, was our largest equity fund weighting at period-end. On the fixed income
side, domestic exposure was 65.4% 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 10.3% of
total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund -
Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap
Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign
equity holding, Mutual European Fund - Class Z, performed better than the MSCI
EAFE Index. Templeton Foreign Fund - Advisor Class 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 BC
U.S. Aggregate Index. However, Franklin Total Return Fund - Advisor Class
trailed the BC 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
- ----------------------------------------------
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton 2015 Retirement Target Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF DECEMBER 31, 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.
Annual Report | 7
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------- ---------- -------- --------
Net Asset Value (NAV) -$ 3.21 $ 8.14 $ 11.35
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $ 0.1867
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.3556
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------- ---------- -------- --------
Net Asset Value (NAV) -$ 3.20 $ 8.08 $ 11.28
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $ 0.1265
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.2954
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------- ---------- -------- --------
Net Asset Value (NAV) -$ 3.20 $ 8.12 $ 11.32
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $ 0.1649
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.3338
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------- ---------- -------- --------
Net Asset Value (NAV) -$ 3.22 $ 8.15 $ 11.37
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $ 0.2138
Long-Term Capital Gain $ 0.1689
TOTAL $ 0.3827
8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06)
- ------------------------------------ -------- ------------------
Cumulative Total Return (2) -25.55% -11.21%
Average Annual Total Return (3) -29.82% -7.10%
Value of $10,000 Investment (4) $ 7,018 $ 8,369
Total Annual Operating Expenses (5)
Without Waiver 4.39%
With Waiver 1.26%
CLASS C 1-YEAR INCEPTION (8/1/06)
- ------------------------------------ -------- ------------------
Cumulative Total Return (2) -26.09% -12.74%
Average Annual Total Return (3) -26.81% -5.48%
Value of $10,000 Investment (4) $ 7,319 $ 8,726
Total Annual Operating Expenses (5)
Without Waiver 5.09%
With Waiver 1.96%
CLASS R 1-YEAR INCEPTION (8/1/06)
- ------------------------------------ -------- ------------------
Cumulative Total Return (2) -25.70% -11.67%
Average Annual Total Return (3) -25.70% -5.01%
Value of $10,000 Investment (4) $ 7,430 $ 8,833
Total Annual Operating Expenses (5)
Without Waiver 4.59%
With Waiver 1.46%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- ------------------------------------ -------- ------------------
Cumulative Total Return (2) -25.39% -10.57%
Average Annual Total Return (3) -25.39% -4.52%
Value of $10,000 Investment (4) $ 7,461 $ 8,943
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 (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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1)
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ----------------------- --------
1-Year -29.82%
Since Inception (8/1/06) -7.10%
CLASS A (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BARCLAYS
TEMPLETON CAPITAL PAYDEN S&P BarCap US P&R 90 Day
2015 U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury
RETIREMENT AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR
TARGET FUND S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total
- CLASS A INDEX INDEX INDEX INDEX Return) Return) Return) Return)
----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------
8/1/2006 $ 9,425 $ 10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,576 $ 10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $ 9,604 $ 10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $ 9,887 $ 10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $ 10,160 $ 11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $ 10,235 $ 11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $ 10,378 $ 11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $ 10,369 $ 11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $ 10,514 $ 11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $ 10,801 $ 11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $ 11,060 $ 12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $ 11,020 $ 11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $ 10,845 $ 11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $ 10,893 $ 11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $ 11,363 $ 12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $ 11,733 $ 12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $ 11,295 $ 11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $ 11,241 $ 11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $ 10,657 $ 11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $ 10,647 $ 10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $ 10,495 $ 10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $ 10,872 $ 11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $ 11,080 $ 11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $ 10,497 $ 10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $ 10,366 $ 10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $ 10,396 $ 10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,621 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 8,413 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 8,098 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 8,369 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -16.31% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ----------------------- --------
1-Year -26.81%
Since Inception (8/1/06) -5.48%
CLASS C (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BARCLAYS
TEMPLETON CAPITAL PAYDEN S&P BarCap US P&R 90 Day
2015 U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury
RETIREMENT AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR
TARGET FUND S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total
- CLASS C INDEX INDEX INDEX INDEX Return) Return) Return) Return)
----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------
8/1/2006 $10,000 $10,000 $10,000 $ 10,000 $10,000
8/31/2006 $10,150 $10,238 $10,278 $ 10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,180 $10,502 $10,296 $ 10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,480 $10,844 $10,697 $ 10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,760 $11,050 $11,020 $ 10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $10,830 $11,205 $11,366 $ 10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $10,972 $11,375 $11,444 $ 10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $10,952 $11,152 $11,538 $ 10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,096 $11,277 $11,838 $ 10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,401 $11,776 $12,374 $ 10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $11,665 $12,187 $12,608 $ 10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $11,613 $11,985 $12,627 $ 10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,427 $11,613 $12,442 $ 10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,469 $11,787 $12,251 $ 10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $11,961 $12,228 $12,909 $ 10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $12,332 $12,423 $13,417 $ 10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $11,868 $11,903 $12,980 $ 11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $11,807 $11,821 $12,688 $ 11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,190 $11,112 $11,517 $ 11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,169 $10,751 $11,686 $ 11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $11,003 $10,704 $11,569 $ 11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,401 $11,226 $12,211 $ 11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,611 $11,371 $12,354 $ 11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $10,993 $10,412 $11,346 $ 11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,843 $10,325 $10,982 $ 11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,865 $10,474 $10,540 $ 11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $10,057 $ 9,541 $ 9,020 $ 11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 8,787 $ 7,939 $ 7,200 $ 10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 8,445 $ 7,369 $ 6,814 $ 11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 8,726 $ 7,447 $ 7,225 $ 11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -12.74% -25.53% -27.75% 16.73% 9.41%
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ----------------------- --------
1-Year -25.70%
Since Inception (8/1/06) -5.01%
CLASS R (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BARCLAYS
TEMPLETON CAPITAL PAYDEN S&P BarCap US P&R 90 Day
2015 U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury
RETIREMENT AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR
TARGET FUND S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total
- CLASS R INDEX INDEX INDEX INDEX Return) Return) Return) Return)
----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------
8/1/2006 $ 10,000 $ 10,000 $10,000 $10,000 $10,000
8/31/2006 $ 10,160 $ 10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $ 10,190 $ 10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $ 10,490 $ 10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $ 10,770 $ 11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $ 10,848 $ 11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $ 11,001 $ 11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $ 10,990 $ 11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $ 11,145 $ 11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $ 11,449 $ 11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $ 11,714 $ 12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $ 11,678 $ 11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $ 11,493 $ 11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $ 11,534 $ 11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $ 12,030 $ 12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $ 12,413 $ 12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $ 11,948 $ 11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $ 11,888 $ 11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $ 11,279 $ 11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $ 11,258 $ 10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $ 11,093 $ 10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $ 11,503 $ 11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $ 11,714 $ 11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $ 11,098 $ 10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $ 10,958 $ 10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $ 10,980 $ 10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 10,163 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 8,884 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 8,551 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 8,833 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -11.67% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08
- ----------------------- --------
1-Year -25.39%
Since Inception (8/1/06) -4.52%
ADVISOR CLASS (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON BARCLAYS
2015 CAPITAL PAYDEN S&P BarCap US P&R 90 Day
RETIREMENT U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury
TARGET FUND AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR
- ADVISOR S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total
CLASS INDEX INDEX INDEX INDEX Return) Return) Return) Return)
----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------
8/1/2006 $10,000 $ 10,000 $ 10,000 $ 10,000 $10,000
8/31/2006 $10,160 $ 10,238 $ 10,278 $ 10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,200 $ 10,502 $ 10,296 $ 10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,500 $ 10,844 $ 10,697 $ 10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,790 $ 11,050 $ 11,020 $ 10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $10,875 $ 11,205 $ 11,366 $ 10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $11,028 $ 11,375 $ 11,444 $ 10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $11,028 $ 11,152 $ 11,538 $ 10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,182 $ 11,277 $ 11,838 $ 10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,487 $ 11,776 $ 12,374 $ 10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $11,762 $ 12,187 $ 12,608 $ 10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $11,731 $ 11,985 $ 12,627 $ 10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,545 $ 11,613 $ 12,442 $ 10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,597 $ 11,787 $ 12,251 $ 10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $12,105 $ 12,228 $ 12,909 $ 10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $12,499 $ 12,423 $ 13,417 $ 10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $12,043 $ 11,903 $ 12,980 $ 11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $11,986 $ 11,821 $ 12,688 $ 11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,374 $ 11,112 $ 11,517 $ 11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,353 $ 10,751 $ 11,686 $ 11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $11,196 $ 10,704 $ 11,569 $ 11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,608 $ 11,226 $ 12,211 $ 11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,830 $ 11,371 $ 12,354 $ 11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $11,208 $ 10,412 $ 11,346 $ 11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $11,068 $ 10,325 $ 10,982 $ 11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $11,101 $ 10,474 $ 10,540 $ 11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $10,282 $ 9,541 $ 9,020 $ 11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 8,994 $ 7,939 $ 7,200 $ 10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 8,648 $ 7,369 $ 6,814 $ 11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 8,943 $ 7,447 $ 7,225 $ 11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -10.57% -25.53% -27.75% 16.73% 9.41%
Annual Report | 11
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. 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 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. THESE
RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS.
CLASS C: These shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher
annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus.
1. If the manager had not waived fees, the Fund's total returns would have
been lower.
2. Cumulative total return represents the change in value of an investment
over the periods indicated.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report.
6. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 6 for descriptions
of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the
Payden & Rygel 90 Day U.S. T-Bill Index.
12 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
------------- ------------- ---------------- ------------------
CLASS A
Actual $ 1,000 $ 797.20 $ 2.30 $ 5.74
Hypothetical
(5% return before expenses) $ 1,000 $1,022.57 $ 2.59 $ 6.44
CLASS C
Actual $ 1,000 $ 793.80 $ 5.37 $ 8.79
Hypothetical
(5% return before expenses) $ 1,000 $1,019.15 $ 6.04 $ 9.88
CLASS R
Actual $ 1,000 $ 795.90 $ 3.21 $ 6.64
Hypothetical
(5% return before expenses) $ 1,000 $1,021.57 $ 3.61 $ 7.46
ADVISOR CLASS
Actual $ 1,000 $ 797.80 $ 0.95 $ 4.38
Hypothetical
(5% return before expenses) $ 1,000 $1,024.08 $ 1.07 $ 4.93
* 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
184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.27%; C: 1.95%; R: 1.47%; and Advisor: 0.97%),
multiplied by the average account value over the period, multiplied by
184/366 to reflect the one-half year period.
14 | Annual Report
Franklin Templeton
2025 Retirement Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2025 Retirement Target
Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund allocates among the broad asset classes of equity, fixed income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), within an
increasing emphasis on income as the target date of 2025 approaches.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
ASSET ALLOCATION*
Franklin Templeton 2025 Retirement Target Fund
Based on Total Net Assets as of 12/31/08
(PIE CHART)
Domestic Equity 53.7%
Foreign Equity 24.4%
Domestic Fixed Income 11.0%
Foreign Fixed Income 5.9%
Short-Term Investments &
Other Net Assets 5.0%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This annual report for Franklin Templeton 2025 Retirement Target Fund
covers the fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2025 Retirement Target Fund - Class A had a -31.74%
cumulative total return for the 12 months ended December 31, 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 Barclays Capital (BC; formerly, Lehman Brothers)
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 54.
Annual Report | 15
TOP 10 FUND HOLDINGS
Franklin Templeton
2025 Retirement Target Fund
12/31/08
% OF TOTAL
NET ASSETS
----------
Franklin Flex Cap Growth Fund
- Advisor Class 18.2%
Mutual Shares Fund
- Class Z 16.5%
Mutual European Fund
- Class Z 9.5%
Franklin Small Cap Growth Fund
- Advisor Class 8.7%
Franklin U.S. Government Securities
Fund - Advisor Class 5.9%
Templeton Global Bond Fund
- Advisor Class 5.9%
Templeton Foreign Fund
- Advisor Class 4.7%
Franklin Gold and Precious Metals
Fund - Advisor Class 4.6%
Franklin Total Return Fund
- Advisor Class 3.9%
Templeton China World Fund
- Advisor Class 3.9%
U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S.
T-Bill Index for short-term investments and other net assets, had total returns
of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1)
You can find other performance data in the Performance Summary beginning on page
18.
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on
maximizing income appropriate to the Fund's risk profile. In evaluating the risk
level of the underlying funds, we analyze such factors as: (a) relative and
absolute performance, including correlations with other underlying funds as well
as corresponding benchmarks, and (b) their volatility (the variability of
returns from one period to the next). We attempt to invest the assets of each
target fund in the same underlying funds and will vary the underlying funds'
allocation percentages based upon each fund's risk/return level. We change the
Fund's target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, fixed income securities, and short-term investments and other net
assets, and by the actual performance of the selected underlying funds. This
allocation shifts every year, in accordance with the retirement date associated
with the portfolio.
1. Source: (C) 2009 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 BC 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. T-Bill Index is a total return index
based on a constant maturity instrument. Payden & Rygel includes both accrued
interest and change in market price in its monthly total return calculations.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
The indexes are unmanaged and include reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
16 | Annual Report
At period-end, Franklin Templeton 2025 Retirement Target Fund's domestic equity
exposure was 68.7% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2008, we held shares in large-, mid-and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, at 18.2% of the Fund's total net
assets, was our largest equity fund weighting at period-end. On the fixed income
side, domestic exposure was 65.1% 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 5.9% of
total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund -
Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap
Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign
equity holding, Mutual European Fund - Class Z, performed better than the MSCI
EAFE Index. Templeton Foreign Fund - Advisor Class 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 BC
U.S. Aggregate Index. However, Franklin Total Return Fund - Advisor Class
trailed the BC 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 DECEMBER 31, 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.
Annual Report | 17
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$3.98 $7.47 $11.45
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $ 0.1426
Long-Term Capital Gain $ 0.2704
TOTAL $ 0.4130
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$3.97 $7.43 $11.40
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $ 0.0995
Long-Term Capital Gain $ 0.2704
Total $ 0.3699
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$3.97 $7.47 $11.44
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $ 0.1179
Long-Term Capital Gain $ 0.2704
TOTAL $ 0.3883
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$3.98 $7.48 $11.46
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $ 0.1677
Long-Term Capital Gain $ 0.2704
TOTAL $ 0.4381
18 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06)
- ------- --------- ------------------
Cumulative Total Return (2) -31.74% -17.71%
Average Annual Total Return (3) -35.68% -9.98%
Value of $10,000 Investment (4) $ 6,432 $ 7,756
Total Annual Operating Expenses (5)
Without Waiver 4.14%
With Waiver 1.29%
CLASS C 1-YEAR INCEPTION (8/1/06)
- ------- --------- ------------------
Cumulative Total Return (2) -32.16% -18.94%
Average Annual Total Return (3) -32.82% -8.32%
Value of $10,000 Investment (4) $ 6,718 $ 8,106
Total Annual Operating Expenses (5)
Without Waiver 4.84%
With Waiver 1.99%
CLASS R 1-YEAR INCEPTION (8/1/06)
- ------- --------- ------------------
Cumulative Total Return (2) -31.90% -18.03%
Average Annual Total Return (3) -31.90% -7.90%
Value of $10,000 Investment (4) $ 6,810 $ 8,197
Total Annual Operating Expenses (5)
Without Waiver 4.34%
With Waiver 1.49%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- ------------------------------------ --------- ------------------
Cumulative Total Return (2) -31.49% -17.08%
Average Annual Total Return (3) -31.49% -7.46%
Value of $10,000 Investment (4) $ 6,851 $ 8,292
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 (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.
Annual Report | 19
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1)
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -35.68%
Since Inception (8/1/06) -9.98%
CLASS A (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON 2025 BARCLAYS P&R 90- S&P 500 TR MSCI EAFE BarCap US P&R 90 Day US
RETIREMENT CAPITAL U.S. DAY U.S. (IA Extended) GR USD Agg Bond TR TReasury Index
TARGET FUND - S&P 500 MSCI EAFE AGGREGATE TREASURY (%Total (%Total USD (%Total TR (%Total
CLASS A INDEX INDEX INDEX INDEX Return) Return) Return) Return)
------------- ------- --------- ----------- -------- ------------- ---------- ------------ --------------
8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,595 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $ 9,614 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $ 9,934 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,226 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $10,312 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $10,494 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $10,475 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $10,572 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $10,898 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $11,204 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $11,170 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $10,956 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,024 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $11,555 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $11,964 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $11,428 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $11,363 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $10,619 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $10,569 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $10,361 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $10,848 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,116 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $10,402 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,238 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,259 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,341 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 7,873 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 7,495 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 7,756 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -22.44% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -32.82%
Since Inception (8/1/06) -8.32%
CLASS C (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
P&R
FRANKLIN 90 Day US
TEMPLETON 2025 BARCLAYS MSCI EAFE BarCap US Treasury
RETIREMENT CAPITAL P&R 90-DAY S&P 500 TR GR USD Agg Bond TR Index
TARGET FUND- S&P 500 MSCI EAFE U.S. AGGREGATE U.S. TREASURY (IA Extended) (%Total USD (%Total TR (%Total
CLASS C INDEX INDEX INDEX INDEX (%Total Return) Return) Return) Return)
-------------- --------- --------- -------------- ------------- --------------- ----------- ------------- ----------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,170 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,190 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,530 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,830 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $10,920 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $11,102 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $11,082 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,175 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,510 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $11,834 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $11,790 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,553 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,625 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $12,174 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $12,607 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $12,019 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $11,950 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,153 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,101 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $10,880 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,384 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,656 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $10,902 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,719 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,740 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,772 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 8,233 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 7,835 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 8,106 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -18.94% -25.53% -27.75% 16.73% 9.41%
20 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- --------- ----------
1-Year -31.90%
Since Inception (8/1/06) -7.90%
CLASS R (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON 2025 BARCLAYS P&R 90- S&P 500 TR MSCI EAFE BarCap US P&R 90 Day US
RETIREMENT MSCI CAPITAL U.S. DAY U.S. (IA Extended) GR USD Agg Bond TR Treasury Index
TARGET FUND - S&P 500 EAFE AGGREGATE TREASURY (%Total (%Total USD (%Total TR (%Total
CLASS R INDEX INDEX INDEX INDEX Return) Return) Return) Return)
-------------- ------- ------- ------------ --------- ------------- ---------- ----------- --------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,200 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,540 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,840 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $10,931 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $11,124 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $11,103 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,207 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,552 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $11,877 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $11,838 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,601 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,683 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $12,241 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $12,675 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $12,097 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $12,036 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,236 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,184 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $10,960 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,476 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,750 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $11,003 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,819 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,841 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,868 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 8,312 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 7,923 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 8,197 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -18.03% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08
- ------------- --------
1-Year -31.49%
Since Inception (8/1/06) -7.46%
ADVISOR CLASS (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
P&R
FRANKLIN 90 Day US
TEMPLETON 2025 BARCLAYS MSCI EAFE BarCap US Treasury
RETIREMENT CAPITAL U.S. P&R 90-DAY S&P 500 TR (IA GR USD Agg Bond TR Index
TARGET FUND - S&P 500 MSCI EAFE AGGREGATE U.S. TREASURY Extended) (%Total USD (%Total TR (%Total
ADVISOR CLASS INDEX INDEX INDEX INDEX (%Total Return) Return) Return) Return)
-------------- ------- ----------- ------------ ------------- --------------- ------------ ------------ -----------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,550 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,860 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $10,957 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $11,140 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $11,130 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,234 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,579 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $11,914 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $11,880 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,652 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,725 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $12,297 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $12,743 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $12,163 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $12,104 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,301 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,259 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $11,043 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,561 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,847 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $11,096 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,923 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,955 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,967 $ 9,541 $9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 8,404 $ 7,939 $7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 8,013 $ 7,369 $6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 8,292 $ 7,447 $7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -17.08% -25.53% -27.75% 16.73% 9.41%
Annual Report | 21
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. 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 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. THESE
RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. If the manager had not waived fees, the Fund's total returns would have been
lower.
2. Cumulative total return represents the change in value of an investment over
the periods indicated.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 16 for descriptions
of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the
Payden & Rygel 90 Day U.S. T-Bill Index.
22 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 23
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
CLASS A 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08**
- ------- ------------- ------------- ---------------- -----------------
Actual $ 1,000 $ 745.70 $ 2.15 $ 5.70
Hypothetical
(5% return before expenses) $ 1,000 $1,022.67 $ 2.49 $ 6.60
CLASS C
Actual $ 1,000 $ 743.60 $ 5.22 $ 8.77
Hypothetical
(5% return before expenses) $ 1,000 $1,019.15 $ 6.04 $ 10.13
CLASS R
Actual $ 1,000 $ 744.90 $ 3.03 $ 6.58
Hypothetical
(5% return before expenses) $ 1,000 $1,021.67 $ 3.51 $ 7.61
ADVISOR CLASS
Actual $ 1,000 $ 747.30 $ 0.83 $ 4.39
Hypothetical
(5% return before expenses) $ 1,000 $1,024.18 $ 0.97 $ 5.08
* 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
184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.30%; C: 2.00%; R: 1.50%; and Advisor: 1.00%),
multiplied by the average account value over the period, multiplied by
184/366 to reflect the one-half year period.
24 | Annual Report
Franklin Templeton
2035 Retirement Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2035 Retirement Target
Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund allocates among the broad asset classes of equity, fixed income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), within an
increasing emphasis on income as the target date of 2035 approaches.
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE
MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
(800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
ASSET ALLOCATION*
Franklin Templeton 2035 Retirement Target Fund
Based on Total Net Assets as of 12/31/08
(PIE CHART)
Domestic Equity 62.6%
Foreign Equity 28.1%
Domestic Fixed Income 4.0%
Foreign Fixed Income 2.1%
Short-Term Investments &
Other Net Assets 3.2%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This annual report for Franklin Templeton 2035 Retirement Target Fund covers the
fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2035 Retirement Target Fund - Class A had a -35.97%
cumulative total return for the 12 months ended December 31, 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 59.
Annual Report | 25
TOP 10 FUND HOLDINGS
Franklin Templeton
2035 Retirement Target Fund 12/31/08
% OF TOTAL
NET ASSETS
----------
Franklin Flex Cap Growth Fund - Advisor Class 21.2%
Mutual Shares Fund - Class Z 19.7%
Mutual European Fund - Class Z 10.8%
Franklin Small Cap Growth Fund - Advisor Class 9.9%
Franklin Gold and Precious Metals Fund - Advisor Class 5.5%
Templeton Foreign Fund - Advisor Class 5.4%
Templeton China World Fund - Advisor Class 4.4%
Franklin Growth Opportunities Fund - Advisor Class 4.2%
Franklin MicroCap Value Fund - Advisor Class 4.2%
Franklin Natural Resources Fund - Advisor Class 3.5%
(EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers)
U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S.
T-Bill Index for short-term investments and other net assets, had total returns
of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1)
You can find other performance data in the Performance Summary beginning on
page 28.
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
alloca-
1. Source: (C) 2009 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 BC 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. T-Bill Index is a total return index
based on a constant maturity instrument. Payden & Rygel includes both accrued
interest and change in market price in its monthly total return calculations.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
The indexes are unmanaged and include reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
26 | Annual Report
tion shifts every year, in accordance with the retirement date associated with
the portfolio.
At period-end, Franklin Templeton 2035 Retirement Target Fund's domestic equity
exposure was 69.0% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2008, we held shares in large-, mid-and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, at 21.2% of the Fund's total net
assets, was our largest equity fund weighting at period-end. On the fixed income
side, domestic exposure was 65.4% 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 2.2% of
total net assets.
Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund -
Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund -
Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap
Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign
equity holding, Mutual European Fund - Class Z, performed better than the MSCI
EAFE Index. Templeton Foreign Fund - Advisor Class underperformed the MSCI EAFE
Index. On the fixed income side, Franklin U.S. Government Securities Fund -
Advisor Class outperformed the BC 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 DECEMBER 31, 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.
Annual Report | 27
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------------- -------- -------- --------
Net Asset Value (NAV) -$4.49 $7.12 $11.61
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $0.0876
Long-Term Capital Gain $0.3237
TOTAL $0.4113
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------------- -------- -------- --------
Net Asset Value (NAV) -$4.46 $7.06 $11.52
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $0.0432
Long-Term Capital Gain $0.3237
TOTAL $0.3669
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------------- -------- -------- --------
Net Asset Value (NAV) -$4.46 $7.13 $11.59
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $0.0510
Long-Term Capital Gain $0.3237
TOTAL $0.3747
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- --------------------------------- -------- -------- --------
Net Asset Value (NAV) -$4.50 $7.14 $11.64
DISTRIBUTIONS (1/1/08 - 12/31/08)
Dividend Income $0.1092
Long-Term Capital Gain $0.3237
TOTAL $0.4329
28 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06)
- ------------------------------------- -------- ------------------
Cumulative Total Return (2) -35.97% -21.48%
Average Annual Total Return (3) -39.66% -11.71%
Value of $10,000 Investment (4) $6,034 $7,401
Total Annual Operating Expenses (5)
Without Waiver 6.02%
With Waiver 1.34%
CLASS C 1-YEAR INCEPTION (8/1/06)
- ------------------------------------- -------- ------------------
Cumulative Total Return (2) -36.34% -22.79%
Average Annual Total Return (3) -36.96% -10.15%
Value of $10,000 Investment (4) $6,304 $7,721
Total Annual Operating Expenses(5)
Without Waiver 6.72%
With Waiver 2.04%
CLASS R 1-YEAR INCEPTION (8/1/06)
- ------------------------------------- -------- ------------------
Cumulative Total Return (2) -36.05% -21.81%
Average Annual Total Return (3) -36.05% -9.68%
Value of $10,000 Investment (4) $6,395 $7,819
Total Annual Operating Expenses (5)
Without Waiver 6.22%
With Waiver 1.54%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- ------------------------------------- -------- ------------------
Cumulative Total Return (2) -35.72% -20.84%
Average Annual Total Return (3) -35.72% -9.22%
Value of $10,000 Investment (4) $6,428 $7,916
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 (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.
Annual Report | 29
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1)
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------------------------ --------
1-Year -39.66%
Since Inception (8/1/06) -11.71%
CLASS A (8/1/06 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON BARCLAYS PAYDEN & BarCap P&R 90
2035 CAPITAL RYGEL 90- S&P 500 US Agg Day US
RETIREMENT U.S. DAY U.S. TR (IA MSCI EAFE Bond TR USD Treasury Index
TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) GR USD (%Total TR (%Total
- CLASS A INDEX INDEX BOND INDEX INDEX (%Total Return) (%Total Return) Return) Return)
----------- ------- --------- ---------- ---------- --------------- --------------- ----------- --------------
8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709%
9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395%
10/31/2006 $ 9,981 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895%
11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106%
12/31/2006 $10,409 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202%
1/31/2007 $10,610 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594%
2/28/2007 $10,552 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498%
3/31/2007 $10,708 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100%
4/30/2007 $11,062 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004%
5/31/2007 $11,416 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998%
6/30/2007 $11,387 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000%
7/31/2007 $11,094 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000%
8/31/2007 $11,182 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100%
9/30/2007 $11,769 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000%
10/31/2007 $12,268 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500%
11/30/2007 $11,622 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000%
12/31/2007 $11,559 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600%
1/31/2008 $10,654 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000%
2/29/2008 $10,594 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360%
3/31/2008 $10,358 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700%
4/30/2008 $10,915 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400%
5/31/2008 $11,243 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500%
6/30/2008 $10,421 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500%
7/31/2008 $10,216 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000%
8/31/2008 $10,247 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100%
9/30/2008 $ 9,189 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700%
10/31/2008 $ 7,567 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200%
11/30/2008 $ 7,156 $ 7,369 $ 6,814 $11,253 $10,943 7.175460% -5.358220% 3.254990% 0.108500%
12/31/2008 $ 7,401 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500%
Total Returns -25.99% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------------------------ --------
1-Year -36.96%
Since Inception (8/1/06) -10.15%
CLASS C (8/1/06 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON BARCLAYS PAYDEN & MSCI BarCap US P&R 90 Day
2035 CAPITAL RYGEL 90- S&P 500 EAFE GR Agg Bond US Treasury
RETIREMENT U.S. DAY U.S. TR (IA USD TR USD Index TR
TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total
- CLASS C INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return)
----------- ------- --------- ---------- --------- --------------- ----------- ---------- -----------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709%
9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395%
10/31/2006 $10,580 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895%
11/30/2006 $10,910 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106%
12/31/2006 $11,014 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202%
1/31/2007 $11,217 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594%
2/28/2007 $11,146 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498%
3/31/2007 $11,311 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100%
4/30/2007 $11,676 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004%
5/31/2007 $12,051 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998%
6/30/2007 $12,000 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000%
7/31/2007 $11,689 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000%
8/31/2007 $11,782 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100%
9/30/2007 $12,394 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000%
10/31/2007 $12,903 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500%
11/30/2007 $12,208 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000%
12/31/2007 $12,129 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600%
1/31/2008 $11,181 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000%
2/29/2008 $11,108 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360%
3/31/2008 $10,847 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700%
4/30/2008 $11,437 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400%
5/31/2008 $11,763 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500%
6/30/2008 $10,903 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500%
7/31/2008 $10,686 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000%
8/31/2008 $10,708 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100%
9/30/2008 $ 9,610 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700%
10/31/2008 $ 7,903 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200%
11/30/2008 $ 7,468 $ 7,369 $ 6,814 $11,253 $10,943 -7.175460% -5.358220% 3.254990% 0.108500%
12/31/2008 $ 7,721 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500%
Total Returns -22.79% - 25.53% - 27.75% 16.73% 9.41%
30 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------------------------ --------
1-Year -36.05%
Since Inception (8/1/06) -9.68%
CLASS R (8/1/06 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON BARCLAYS PAYDEN & MSCI BarCap US P&R 90 Day
2035 CAPITAL RYGEL 90- S&P 500 EAFE GR Agg Bond US Treasury
RETIREMENT U.S. DAY U.S. TR (IA USD TR USD Index TR
TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total
- CLASS R INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return)
----------- -------- --------- ---------- --------- --------------- ----------- ----------- -----------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709%
9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395%
10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895%
11/30/2006 $10,930 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106%
12/31/2006 $11,040 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202%
1/31/2007 $11,253 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594%
2/28/2007 $11,182 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498%
3/31/2007 $11,337 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100%
4/30/2007 $11,712 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004%
5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998%
6/30/2007 $12,057 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000%
7/31/2007 $11,746 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000%
8/31/2007 $11,839 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100%
9/30/2007 $12,462 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000%
10/31/2007 $12,981 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500%
11/30/2007 $12,296 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000%
12/31/2007 $12,227 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600%
1/31/2008 $11,278 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000%
2/29/2008 $11,204 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360%
3/31/2008 $10,953 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700%
4/30/2008 $11,544 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400%
5/31/2008 $11,882 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500%
6/30/2008 $11,010 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500%
7/31/2008 $10,803 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000%
8/31/2008 $10,825 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100%
9/30/2008 $ 9,714 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700%
10/31/2008 $ 7,993 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200%
11/30/2008 $ 7,558 $ 7,369 $ 6,814 $11,253 $10,943 -7.175460% -5.358220% 3.254990% 0.108500%
12/31/2008 $ 7,819 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500%
Total Returns - 21.81% - 25.53% - 27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08
- ------------------------ ---------
1-Year -35.72%
Since Inception (8/1/06) -9.22%
ADVISOR CLASS (8/1/06 - 12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON P&R 90
2035 BARCLAYS PAYDEN & MSCI BarCap US Day US
RETIREMENT CAPITAL RYGEL 90 S&P 500 EAFE GR Agg Bond Treasury
TARGET U.S. -DAY U.S. TR (IA USD TR USD Index TR
FUND - S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total
ADVISOR CLASS INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return)
------------- ------- --------- ---------- --------- --------------- ----------- ----------- ----------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709%
9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395%
10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895%
11/30/2006 $10,950 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106%
12/31/2006 $11,060 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202%
1/31/2007 $11,284 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594%
2/28/2007 $11,213 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498%
3/31/2007 $11,388 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100%
4/30/2007 $11,764 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004%
5/31/2007 $12,150 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998%
6/30/2007 $12,120 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000%
7/31/2007 $11,808 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000%
8/31/2007 $11,912 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100%
9/30/2007 $12,535 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000%
10/31/2007 $13,065 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500%
11/30/2007 $12,390 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000%
12/31/2007 $12,314 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600%
1/31/2008 $11,362 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000%
2/29/2008 $11,299 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360%
3/31/2008 $11,047 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700%
4/30/2008 $11,650 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400%
5/31/2008 $11,989 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500%
6/30/2008 $11,125 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500%
7/31/2008 $10,907 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000%
8/31/2008 $10,940 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100%
9/30/2008 $ 9,826 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700%
10/31/2008 $ 8,090 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200%
11/30/2008 $ 7,653 $ 7,369 $ 6,814 $11,253 $10,943 -7.175460% -5.358220% 3.254990% 0.108500%
12/31/2008 $ 7,916 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500%
Total Returns - 20.84% - 25.53% - 27.75% 16.73% 9.41%
Annual Report | 31
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. 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 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. THESE
RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. If the manager had not waived fees, the Fund's total returns would have
been lower.
2. Cumulative total return represents the change in value of an investment
over the periods indicated.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report.
6. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 26 for
descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate
Index and the Payden & Rygel 90 Day U.S. T-Bill Index.
32 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 33
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
CLASS A 7/1/08 12/31/08* 7/1/08 - 12/31/08* 7/1/08 - 12/31/08**
- ------------------------------ ------------- ------------- ------------------ -------------------
Actual $1,000 $ 710.20 $2.06 $ 5.72
Hypothetical
(5% return before expenses) $1,000 $1,022.72 $2.44 $ 6.75
CLASS C
Actual $1,000 $ 708.10 $5.07 $ 8.72
Hypothetical
(5% return before expenses) $1,000 $1,019.20 $5.99 $10.28
CLASS R
Actual $1,000 $ 710.20 $2.92 $ 6.58
Hypothetical
(5% return before expenses) $1,000 $1,021.72 $3.46 $ 7.76
ADVISOR CLASS
Actual $1,000 $ 711.50 $0.77 $ 4.43
Hypothetical
(5% return before expenses) $1,000 $1,024.23 $0.92 $ 5.23
* 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: 1.18%; R: 0.68%; and Advisor:
0.18%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.33%; C: 2.03%; R: 1.53%; and Advisor:
1.03%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
34 | Annual Report
Franklin Templeton
2045 Retirement Target Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2045 Retirement Target
Fund seeks the highest level of long-term total return, which consists of
capital appreciation and income, consistent with the Fund's asset allocation.
The Fund allocates among the broad asset classes of equity, fixed income and
short-term (money market) investments by investing in a distinctly weighted
combination of Franklin Templeton mutual funds (underlying funds), 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
(800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
ASSET ALLOCATION*
Franklin Templeton 2045 Retirement Target Fund
Based on Total Net Assets as of 12/31/08
Domestic Equity 66.7%
Foreign Equity 30.7%
Short-Term Investments & Other Net Assets 2.6%
* The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
This annual report for Franklin Templeton 2045 Retirement Target Fund covers the
fiscal year ended December 31, 2008.
PERFORMANCE OVERVIEW
Franklin Templeton 2045 Retirement Target Fund - Class A had a -37.46%
cumulative total return for the 12 months ended December 31, 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 64.
Annual Report | 35
TOP 10 FUND HOLDINGS
Franklin Templeton
2045 Retirement Target Fund 12/31/08
% OF TOTAL
NET ASSETS
-----------
Franklin Flex Cap Growth Fund - Advisor Class 22.3%
Mutual Shares Fund - Class Z 20.4%
Mutual European Fund - Class Z 11.8%
Franklin Small Cap Growth Fund - Advisor Class 10.8%
Franklin Gold and Precious Metals Fund - Advisor Class 6.0%
Templeton Foreign Fund - Advisor Class 5.8%
Templeton China World Fund - Advisor Class 4.9%
Franklin Growth Opportunities Fund - Advisor Class 4.8%
Franklin MicroCap Value Fund - Advisor Class 4.6%
Franklin Natural Resources Fund - Advisor Class 3.9%
(EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers)
U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S.
T-Bill Index for short-term investments and other net assets, had total returns
of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1
)You can find other performance data in the Performance Summary beginning on
page 38.
INVESTMENT STRATEGY
When selecting equity funds, we consider the underlying funds' foreign and
domestic exposure, market capitalization ranges, and investment style (growth
vs. value). When selecting fixed income funds, our primary focus is on obtaining
a maximum amount of current income. In evaluating the risk level of the
underlying funds, we analyze such factors as: (a) relative and absolute
performance, including correlations with other underlying funds as well as
corresponding benchmarks, and (b) their volatility (the variability of returns
from one period to the next). We attempt to invest the assets of each Fund in
the same underlying funds and will vary the underlying funds' allocation
percentages based upon each Fund's risk/return level. We change the Fund's
target asset allocation gradually over time, and it becomes increasingly
conservative as the stated target date draws near.
MANAGER'S DISCUSSION
The Fund's performance can be attributed largely to its allocation among
equities, and short-term investments and other net assets, and by the actual
performance of the selected underlying funds. This allocation shifts every year,
in accordance with the retirement date associated with the portfolio.
1. Source: (C) 2009 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 BC 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. T-Bill Index is a total return index
based on a constant maturity instrument. Payden & Rygel includes both accrued
interest and change in market price in its monthly total return calculations.
The value of Treasuries, if held to maturity, is fixed; principal is guaranteed
and interest is fixed.
The indexes are unmanaged and include reinvestment of any income or
distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
36 | Annual Report
At period-end, Franklin Templeton 2045 Retirement Target Fund's domestic equity
exposure was 68.4% of its total equity weighting, and foreign equity made up the
balance. The portfolio was diversified across capitalization sizes and
investment styles, and on December 31, 2008, we held shares in large-, mid-and
small-capitalization equity funds, representing both growth and value styles.
Franklin Flex Cap Growth Fund - Advisor Class, at 22.3% 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, and our largest domestic value fund holding, Mutual Shares Fund -
Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap
Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign
equity holding, Mutual European Fund - Class Z, performed better than the MSCI
EAFE Index. However, Templeton Foreign Fund - Advisor Class, underperformed the
MSCI EAFE Index.
Thank you for your continued participation in Franklin Templeton 2045 Retirement
Target Fund. We look forward to serving your future investment needs.
(PHOTO 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 DECEMBER 31, 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.
Annual Report | 37
Performance Summary as of 12/31/08
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------------------- ------ -------- --------
Net Asset Value (NAV) -$4.68 $6.89 $11.57
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.0839
Long-Term Capital Gain $0.3700
TOTAL $0.4539
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------------------- ------ -------- --------
Net Asset Value (NAV) -$4.67 $6.81 $11.48
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.0535
Long-Term Capital Gain $0.3700
TOTAL $0.4235
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------------------- ------ -------- --------
Net Asset Value (NAV) -$4.66 $6.88 $11.54
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.0565
Long-Term Capital Gain $0.3700
TOTAL $0.4265
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07
- ---------------------------------------------- ------ -------- --------
Net Asset Value (NAV) -$4.70 $6.89 $11.59
DISTRIBUTIONS (1/1/08-12/31/08)
Dividend Income $0.1042
Long-Term Capital Gain $0.3700
TOTAL $0.4742
38 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE (1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------- -------- ------------------
Cumulative Total Return (2) -37.46% -23.03%
Average Annual Total Return (3) -41.08% -12.44%
Value of $10,000 Investment (4) $ 5,892 $ 7,254
Total Annual Operating Expenses (5)
Without Waiver 7.73%
With Waiver 1.34%
CLASS C 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------- -------- ------------------
Cumulative Total Return (2) -37.95% -24.38%
Average Annual Total Return (3) -38.55% -10.92%
Value of $10,000 Investment (4) $ 6,145 $ 7,562
Total Annual Operating Expenses (5)
Without Waiver 8.43%
With Waiver 2.04%
CLASS R 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------- --------- ------------------
Cumulative Total Return (2) -37.64% -23.46%
Average Annual Total Return (3) -37.64% -10.47%
Value of $10,000 Investment (4) $ 6,236 $ 7,654
Total Annual Operating Expenses (5)
Without Waiver 7.93%
With Waiver 1.54%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06)
- -------------------------------------------- -------- ------------------
Cumulative Total Return (2) -37.39% -22.60%
Average Annual Total Return (3) -37.39% -10.06%
Value of $10,000 Investment (4) $ 6,261 $ 7,740
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 (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.
Annual Report | 39
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1)
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indexes include reinvestment of
any income or distributions. They differ from the Fund in composition and do not
pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08
- ------- --------
1-Year -41.08%
Since Inception (8/1/06) -12.44%
CLASS A (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN P&R 90
TEMPLETON BARCLAYS PAYDEN & BarCap Day US
2045 CAPITAL RYGEL 90- S&P 500 MSCI US Agg Bond Treasury
RETIREMENT U.S. DAY U.S. TR (IA EAFE GR TR USD Index TR
TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) USD (%Total (%Total
- CLASS A INDEX INDEX BOND INDEX INDEX (%Total Return) (%Total Return) Return) Return)
----------- -------- --------- ---------- --------- --------------- --------------- ------------ ----------
8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000
8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.441709%
9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.440395%
10/31/2006 $ 9,991 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.385895%
11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.426106%
12/31/2006 $10,420 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.432202%
1/31/2007 $10,621 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.404594%
2/28/2007 $10,563 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.389498%
3/31/2007 $10,738 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.455100%
4/30/2007 $11,093 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.432004%
5/31/2007 $11,456 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.448998%
6/30/2007 $11,432 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.376000%
7/31/2007 $11,137 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.382000%
8/31/2007 $11,245 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.571100%
9/30/2007 $11,846 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.361000%
10/31/2007 $12,338 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.303500%
11/30/2007 $11,668 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.451000%
12/31/2007 $11,600 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.232600%
1/31/2008 $10,667 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.512000%
2/29/2008 $10,617 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.173360%
3/31/2008 $10,380 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.230700%
4/30/2008 $10,961 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.105400%
5/31/2008 $11,302 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.049500%
6/30/2008 $10,451 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.151500%
7/31/2008 $10,233 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.198000%
8/31/2008 $10,264 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.136100%
9/30/2008 $ 9,163 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.273700%
10/31/2008 $ 7,470 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.153200%
11/30/2008 $ 7,012 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.108500%
12/31/2008 $ 7,254 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.015500%
Total Returns -27.46% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08
- ------- --------
1-Year -38.55%
Since Inception (8/1/06) -10.92%
CLASS C (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON BarCap P&R 90
2045 BARCLAYS PAYDEN & US Agg Day US
RETIREMENT CAPITAL RYGEL 90- S&P 500 MSCI EAFE Bond TR Treasury
TARGET U.S. DAY U.S. TR (IA GR USD USD Index TR
FUND - S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total
CLASS C INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return)
----------- -------- --------- ---------- --------- --------------- --------------- ------------ ------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,920 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $11,030 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $11,243 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $11,172 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,347 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,723 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $12,062 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,749 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,843 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $12,470 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $12,992 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $12,271 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $12,188 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,211 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,137 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $10,886 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,502 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,841 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $10,951 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,719 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,741 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,575 $ 9,541 $9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 7,803 $ 7,939 $7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 7,319 $ 7,369 $6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 7,562 $ 7,447 $7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -24.38% -25.53% -27.75% 16.73% 9.41%
40 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08
- ------- --------
1-Year -37.64%
Since Inception (8/1/06) -10.47%
CLASS R (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BarCap P&R 90
TEMPLETON BARCLAYS PAYDEN & S&P 500 US Agg Day US
2045 CAPITAL RYGEL 90- TR (IA MSCI EAFE Bond Treasury
RETIREMENT U.S. DAY U.S. Extended) GR USD TR USD Index TR
TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY (%Total (%Total (%Total (%Total
- CLASS R INDEX INDEX BOND INDEX INDEX Return) Return) Return) Return)
----------- -------- --------- ---------- --------- --------------- --------------- ------------ ------------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,600 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,940 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $11,044 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $11,268 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $11,207 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,382 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,758 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $12,144 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $12,108 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,805 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,909 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $12,536 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $13,059 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $12,359 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $12,274 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,295 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,231 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $10,979 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,596 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $11,958 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $11,055 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,824 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,846 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,677 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 7,892 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 7,407 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 7,654 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns -23.46% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08
--------
1-Year -37.39%
Since Inception (8/1/06) -10.06%
ADVISOR CLASS (8/1/06-12/31/08)
(PERFORMANCE GRAPH)
FRANKLIN
TEMPLETON P&R 90
2045 BARCLAYS PAYDEN & S&P 500 BarCap US Day US
RETIREMENT CAPITAL RYGEL 90- TR (IA MSCI EAFE Agg Bond Treasury
TARGET FUND U.S. DAY U.S. Extended) GR USD TR USD Index TR
- ADVISOR S&P 500 MSCI EAFE AGGREGATE TREASURY (%Total (%Total (%Total (%Total
CLASS INDEX INDEX BOND INDEX INDEX Return) Return) Return) Return)
----------- -------- --------- ---------- --------- --------------- --------------- ------------ -----------
8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000
8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900%
9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500%
10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500%
11/30/2006 $10,960 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600%
12/31/2006 $11,072 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200%
1/31/2007 $11,285 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400%
2/28/2007 $11,235 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800%
3/31/2007 $11,420 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000%
4/30/2007 $11,796 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400%
5/31/2007 $12,193 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800%
6/30/2007 $12,167 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000%
7/31/2007 $11,864 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000%
8/31/2007 $11,968 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000%
9/30/2007 $12,606 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000%
10/31/2007 $13,139 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000%
11/30/2007 $12,439 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000%
12/31/2007 $12,362 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000%
1/31/2008 $11,370 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000%
2/29/2008 $11,317 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000%
3/31/2008 $11,064 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000%
4/30/2008 $11,694 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000%
5/31/2008 $12,057 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000%
6/30/2008 $11,162 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000%
7/31/2008 $10,930 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000%
8/31/2008 $10,963 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000%
9/30/2008 $ 9,780 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000%
10/31/2008 $ 7,979 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000%
11/30/2008 $ 7,482 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000%
12/31/2008 $ 7,740 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000%
Total Returns - 22.60% -25.53% -27.75% 16.73% 9.41%
Annual Report | 41
Performance Summary (CONTINUED)
ENDNOTES
WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL
VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. 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 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. THESE
RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS.
CLASS C: These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. If the manager had not waived fees, the Fund's total returns would have
been lower.
2. Cumulative total return represents the change in value of an investment
over the periods indicated.
3. Average annual total return represents the average annual change in value
of an investment over the periods indicated.
4. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report.
5. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 36 for
descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate
Index and the P&R 90 Day U.S. T-Bill Index.
42 | Annual Report
Your Fund's Expenses
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
As a Fund shareholder, you can incur two types of costs:
- - 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.
Annual Report | 43
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD
CLASS A 7/1/08 12/31/08* 7/1/08 - 12/31/08* 7/1/08 - 12/31/08**
- ------------------------- ------------- ------------- ------------------ -------------------
Actual $ 1,000 $ 694.10 $ 1.96 $ 5.66
Hypothetical
(5% return before
expenses) $ 1,000 $ 1,022.82 $ 2.34 $ 6.75
Class C
Actual $ 1,000 $ 690.60 $ 4.93 $ 8.63
Hypothetical
(5% return before
expenses) $ 1,000 $ 1,019.30 $ 5.89 $10.28
Class R
Actual $ 1,000 $ 692.40 $ 2.81 $ 6.51
Hypothetical
(5% return before
expenses) $ 1,000 $ 1,021.82 $ 3.35 $ 7.76
Advisor Class
Actual $ 1,000 $ 693.40 $ 0.68 $ 4.38
Hypothetical
(5% return before
expenses) $ 1,000 $ 1,024.33 $ 0.81 $ 5.23
* Expenses are calculated using the most recent six-month expense ratio
excluding expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 0.46%; C: 1.16%; R: 0.66%; and Advisor:
0.16%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
** Expenses are calculated using the most recent six-month expense ratio
including expenses of the underlying funds, net of expense waivers,
annualized for each class (A: 1.33%; C: 2.03%; R: 1.53%; and Advisor:
1.03%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
44 | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
------------------------------
CLASS A 2008 2007 2006 (a)
-------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year........................................ $ 11.35 $ 10.69 $10.00
------- ------- ------
Income from investment operations (b):
Net investment income (c), (d)......................................... 0.23 0.33 0.13
Net realized and unrealized gains (losses)............................. (3.08) 0.72 0.73
------- ------- ------
Total from investment operations.......................................... (2.85) 1.05 0.86
------- ------- ------
Less distributions from:
Net investment income and short term gains received
from Underlying Funds................................................ (0.19) (0.23) (0.15)
Net realized gains..................................................... (0.17) (0.16) (0.02)
------- ------- ------
Total distributions....................................................... (0.36) (0.39) (0.17)
------- ------- ------
Redemption fees (e)....................................................... -- (f) -- (f) --
------- ------- ------
Net asset value, end of year.............................................. $ 8.14 $ 11.35 $10.69
======= ======= ======
Total return (g).......................................................... (25.55)% 9.84% 8.59%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i)..................... 1.36% 3.60% 12.13%
Expenses net of waiver and payments by affiliates (i)..................... 0.51% 0.48% 0.50%
Net investment income (d)................................................. 2.25% 3.11% 2.92%
SUPPLEMENTAL DATA
Net assets, end of year (000's)........................................... $ 9,407 $ 5,269 $1,364
Portfolio turnover rate................................................... 8.69% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.76% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral
part of these financial statements. | 45
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-------------------------------
CLASS C 2008 2007 2006 (a)
-------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year........................................ $ 11.28 $ 10.67 $ 10.00
-------- ------- --------
Income from investment operations(b):
Net investment income (c), (d)......................................... 0.14 0.36 0.14
Net realized and unrealized gains (losses)............................. (3.04) 0.60 0.69
-------- ------- --------
Total from investment operations.......................................... (2.90) 0.96 0.83
-------- ------- --------
Less distributions from:
Net investment income and short term gains received from Underlying
Funds................................................................ (0.13) (0.19) (0.14)
Net realized gains..................................................... (0.17) (0.16) (0.02)
-------- ------- --------
Total distributions....................................................... (0.30) (0.35) (0.16)
-------- ------- --------
Redemption fees (e) -- (f) -- (f) --
-------- ------- --------
Net asset value, end of year.............................................. $ 8.08 $ 11.28 $ 10.67
======== ======= ========
Total return (g).......................................................... (26.09)% 9.02% 8.30%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i)..................... 2.04% 4.28% 12.78%
Expenses net of waiver and payments by affiliates (i) .................... 1.19% 1.16% 1.15%
Net investment income (d)................................................. 1.57% 2.43% 2.27%
SUPPLEMENTAL DATA
Net assets, end of year (000's)........................................... $ 4,621 $ 2,213 $ 63
Portfolio turnover rate................................................... 8.69% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.76% for the year ended December 31, 2008.
46 | The accompanying notes are an integral
part of these financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
------------------------------
CLASS R 2008 2007 2006 (a)
-------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year....................................... $ 11.32 $10.68 $ 10.00
-------- ------ --------
Income from investment operations (b):
Net investment income (c), (d)........................................ 0.18 0.34 0.11
Net realized and unrealized gains (losses)............................ (3.05) 0.68 0.74
-------- ------ --------
Total from investment operations......................................... (2.87) 1.02 0.85
-------- ------ --------
Less distributions from:
Net investment income and short term gains received from Underlying
Funds............................................................... (0.16) (0.22) (0.15)
Net realized gains.................................................... (0.17) (0.16) (0.02)
-------- ------ --------
Total distributions...................................................... (0.33) (0.38) (0.17)
-------- ------ --------
Redemption fees (e)...................................................... -- (f) -- (f) --
-------- ------ --------
Net asset value, end of year............................................. $ 8.12 $11.32 $ 10.68
======== ====== ========
Total return (g)......................................................... (25.70)% 9.59% 8.48%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i).................... 1.56% 3.78% 12.28%
Expenses net of waiver and payments by affiliates (i).................... 0.71% 0.66% 0.65%
Net investment income (d)................................................ 2.05% 2.93% 2.77%
SUPPLEMENTAL DATA
Net assets, end of year (000's).......................................... $ 821 $1,071 $ 11
Portfolio turnover rate.................................................. 8.69% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.76% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral
part of these financial statements. | 47
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-------------------------------
ADVISOR CLASS 2008 2007 2006 (a)
-------- ------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year........................................ $ 11.37 $10.70 $ 10.00
-------- ------ --------
Income from investment operations (b):
Net investment income (c), (d)......................................... 0.25 0.30 0.17
Net realized and unrealized gains (losses)............................. (3.09) 0.79 0.71
-------- ------ --------
Total from investment operations.......................................... (2.84) 1.09 0.88
-------- ------ --------
Less distributions from:
Net investment income and short term gains received from Underlying
Funds................................................................ (0.21) (0.26) (0.16)
Net realized gains..................................................... (0.17) (0.16) (0.02)
-------- ------ --------
Total distributions....................................................... (0.38) (0.42) (0.18)
-------- ------ --------
Redemption fees (e)....................................................... -- (f) -- (f) --
-------- ------ --------
Net asset value, end of year.............................................. $ 8.15 $11.37 $ 10.70
======== ====== ========
Total return (g).......................................................... (25.39)% 10.21% 8.75%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i)..................... 1.06% 3.28% 11.78%
Expenses net of waiver and payments by affiliates (i)..................... 0.21% 0.16% 0.15%
Net investment income (d)................................................. 2.55% 3.43% 3.27%
SUPPLEMENTAL DATA
Net assets, end of year (000's)........................................... $ 164 $ 32 $ 20
Portfolio turnover rate................................................... 8.69% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.76% for the year ended December 31, 2008.
48 | The accompanying notes are an integral
part of these financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND SHARES VALUE
--------- -----------
INVESTMENTS IN UNDERLYING FUNDS 92.4% (a)
DOMESTIC EQUITY 43.3%
(b) Franklin Flex Cap Growth Fund, Advisor Class .................................. 72,075 $ 2,249,448
(b) Franklin Growth Opportunities Fund, Advisor Class ............................. 32,944 434,527
Franklin MicroCap Value Fund, Advisor Class ................................... 20,646 438,735
(b) Franklin Natural Resources Fund, Advisor Class ................................ 17,694 363,966
(b) Franklin Small Cap Growth Fund, Advisor Class ................................. 166,696 1,031,850
Mutual Shares Fund, Class Z ................................................... 129,483 1,983,674
-----------
6,502,200
-----------
DOMESTIC FIXED INCOME 19.0%
Franklin Strategic Mortgage Portfolio ......................................... 36,049 301,370
Franklin Total Return Fund, Advisor Class ..................................... 114,835 1,001,359
Franklin U.S. Government Securities Fund, Advisor Class ....................... 232,734 1,543,027
-----------
2,845,756
-----------
FOREIGN EQUITY 20.1%
Franklin Global Real Estate Fund, Advisor Class ............................... 41,753 217,952
(b) Franklin Gold and Precious Metals Fund, Advisor Class ......................... 22,169 571,748
Mutual European Fund, Class Z ................................................. 66,092 1,140,087
Templeton China World Fund, Advisor Class ..................................... 22,846 483,421
Templeton Foreign Fund, Advisor Class ......................................... 139,100 610,651
-----------
3,023,859
-----------
FOREIGN FIXED INCOME 10.0%
Templeton Global Bond Fund, Advisor Class ..................................... 134,622 1,503,729
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $18,608,573) .......................................................... 13,875,544
-----------
SHORT TERM INVESTMENTS (COST $1,059,967) 7.1% (a)
MONEY MARKET FUNDS 7.1%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% .......... 1,059,967 1,059,967
-----------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $19,668,540) 99.5% ................ 14,935,511
OTHER ASSETS, LESS LIABILITIES 0.5% ........................................... 77,446
-----------
NET ASSETS 100.0% ............................................................. $15,012,957
===========
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
Annual Report | The accompanying notes are an integral
part of these financial statements. | 49
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
CLASS A 2008 2007 2006 (a)
-------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 11.45 $ 10.78 $ 10.00
-------- ---------- --------
Income from investment operations (b):
Net investment income (c), (d) .............................................. 0.14 0.28 0.12
Net realized and unrealized gains (losses) .................................. (3.71) 0.82 0.82
-------- ---------- --------
Total from investment operations ............................................... (3.57) 1.10 0.94
-------- ---------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.14) (0.21) (0.14)
Net realized gains .......................................................... (0.27) (0.22) (0.02)
-------- ---------- --------
Total distributions ............................................................ (0.41) (0.43) (0.16)
-------- ---------- --------
Redemption fees (e), (f) ....................................................... -- -- --
-------- ---------- --------
Net asset value, end of year ................................................... $ 7.47 $ 11.45 $ 10.78
======== ========== ========
Total return (g) ............................................................... (31.74)% 10.19% 9.41%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) .......................... 1.50% 3.31% 10.76%
Expenses net of waiver and payments by affiliates (i) .......................... 0.49% 0.47% 0.50%
Net investment income (d) ...................................................... 1.53% 2.55% 2.78%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 9,918 $ 6,952 $ 1,699
Portfolio turnover rate ........................................................ 6.07% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.81% for the year ended December 31, 2008.
50 | The accompanying notes are an integral
part of these financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
CLASS C 2008 2007 2006 (a)
-------- ---------- ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 11.40 $ 10.77 $ 10.00
-------- ---------- --------
Income from investment operations (b):
Net investment income (c), (d) .............................................. 0.10 0.28 0.10
Net realized and unrealized gains (losses) .................................. (3.70) 0.74 0.82
-------- ---------- --------
Total from investment operations ............................................... (3.60) 1.02 0.92
-------- ---------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.10) (0.17) (0.13)
Net realized gains .......................................................... (0.27) (0.22) (0.02)
-------- ---------- --------
Total distributions ............................................................ (0.37) (0.39) (0.15)
-------- ---------- --------
Redemption fees (e), (f) ....................................................... -- -- --
-------- ---------- --------
Net asset value, end of year ................................................... $ 7.43 $ 11.40 $ 10.77
======== ========== ========
Total return (g) ............................................................... (32.16)% 9.43% 9.20%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) .......................... 2.20% 3.99% 11.41%
Expenses net of waiver and payments by affiliates (i) .......................... 1.19% 1.15% 1.15%
Net investment income (d) ...................................................... 0.83% 1.87% 2.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 2,551 $ 1,104 $ 54
Portfolio turnover rate ........................................................ 6.07% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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
0.81% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral
part of these financial statements. | 51
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
CLASS R 2008 2007 2006 (a)
-------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 11.44 $ 10.77 $ 10.00
-------- ---------- --------
Income from investment operations (b):
Net investment income (c), (d) .............................................. 0.10 0.27 0.11
Net realized and unrealized gains (losses) .................................. (3.68) 0.82 0.82
-------- ---------- --------
Total from investment operations ............................................... (3.58) 1.09 0.93
-------- ---------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.12) (0.20) (0.14)
Net realized gains .......................................................... (0.27) (0.22) (0.02)
-------- ---------- --------
Total distributions ............................................................ (0.39) (0.42) (0.16)
-------- ---------- --------
Redemption fees (e), (f) ....................................................... -- -- --
-------- ---------- --------
Net asset value, end of year ................................................... $ 7.47 $ 11.44 $ 10.77
======== ========== ========
Total return (g) ............................................................... (31.90)% 10.11% 9.31%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) .......................... 1.70% 3.49% 10.91%
Expenses net of waiver and payments by affiliates (i) .......................... 0.69% 0.65% 0.65%
Net investment income (d) ...................................................... 1.33% 2.37% 2.63%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 155 $ 188 $ 19
Portfolio turnover rate ........................................................ 6.07% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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
0.81% for the year ended December 31, 2008.
52 | The accompanying notes are an integral
part of these financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
ADVISOR CLASS 2008 2007 2006 (a)
-------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................. $ 11.46 $ 10.79 $ 10.00
-------- ---------- --------
Income from investment operations (b):
Net investment income (c), (d) .............................................. 0.16 0.46 0.20
Net realized and unrealized gains (losses) .................................. (3.70) 0.67 0.76
-------- ---------- --------
Total from investment operations ............................................... (3.54) 1.13 0.96
-------- ---------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ... (0.17) (0.24) (0.15)
Net realized gains .......................................................... (0.27) (0.22) (0.02)
-------- ---------- --------
Total distributions ............................................................ (0.44) (0.46) (0.17)
-------- ---------- --------
Redemption fees (e), (f) ....................................................... -- -- --
-------- ---------- --------
Net asset value, end of year ................................................... $ 7.48 $ 11.46 $ 10.79
======== ========== ========
Total return (g) ............................................................... (31.49)% 10.46% 9.57%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) .......................... 1.20% 2.99% 10.41%
Expenses net of waiver and payments by affiliates (i) .......................... 0.19% 0.15% 0.15%
Net investment income (d) ...................................................... 1.83% 2.87% 3.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................ $ 322 $ 417 $ 51
Portfolio turnover rate ........................................................ 6.07% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.81% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral
part of these financial statements. | 53
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND SHARES VALUE
------- ------------
INVESTMENTS IN UNDERLYING FUNDS 95.0% (a)
DOMESTIC EQUITY 53.7% .....................................................
(b) Franklin Flex Cap Growth Fund, Advisor Class .............................. 75,636 $ 2,360,598
(b) Franklin Growth Opportunities Fund, Advisor Class ......................... 37,113 489,521
Franklin MicroCap Value Fund, Advisor Class ............................... 21,812 463,508
(b) Franklin Natural Resources Fund, Advisor Class ............................ 18,843 387,607
(b) Franklin Small Cap Growth Fund, Advisor Class ............................. 181,087 1,120,931
Mutual Shares Fund, Class Z................................................ 139,166 2,132,029
------------
6,954,194
------------
DOMESTIC FIXED INCOME 11.0%
Franklin Strategic Mortgage Portfolio ..................................... 17,330 144,878
Franklin Total Return Fund, Advisor Class ................................. 58,268 508,100
Franklin U.S. Government Securities Fund, Advisor Class ................... 115,789 767,680
------------
1,420,658
------------
FOREIGN EQUITY 24.4%
Franklin Global Real Estate Fund, Advisor Class ........................... 43,464 226,883
(b) Franklin Gold and Precious Metals Fund, Advisor Class ..................... 23,220 598,847
Mutual European Fund, Class Z ............................................. 71,091 1,226,321
Templeton China World Fund, Advisor Class ................................. 23,686 501,190
Templeton Foreign Fund, Advisor Class ..................................... 138,795 609,309
------------
3,162,550
------------
FOREIGN FIXED INCOME 5.9%
Templeton Global Bond Fund, Advisor Class ................................. 68,308 762,996
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $17,610,832) ....................................................... 12,300,398
SHORT TERM INVESTMENTS (COST $514,272) 4.0% (a)
MONEY MARKET FUNDS 4.0%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ....... 514,272 514,272
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $18,125,104) 99.0% ............. 12,814,670
OTHER ASSETS, LESS LIABILITIES 1.0% ........................................ 132,738
------------
NET ASSETS 100.0% .......................................................... $ 12,947,408
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
54 | The accompanying notes are an integral
part of these financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
---------------------------------
CLASS A 2008 2007 2006 (a)
-------- --------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................................... $ 11.61 $ 10.88 $ 10.00
-------- --------- --------
Income from investment operations (b):
Net investment income (c), (d) ......................................... 0.08 0.22 0.09
Net realized and unrealized gains (losses) ............................ (4.16) 0.97 0.95
-------- --------- --------
Total from investment operations ......................................... (4.08) 1.19 1.04
-------- --------- --------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds .................................................... (0.09) (0.16) (0.13)
Net realized gains .................................................... (0.32) (0.30) (0.03)
-------- --------- --------
Total distributions ...................................................... (0.41) (0.46) (0.16)
-------- --------- --------
Redemption fees (e) ...................................................... -- (f) -- (f) --
-------- --------- --------
Net asset value, end of year ............................................. $ 7.12 $ 11.61 $ 10.88
======== ========= ========
Total return (g) ......................................................... (35.97)% 11.05% 10.44%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) .................... 2.14% 5.16% 13.47%
Expenses net of waiver and payments by affiliates (i) .................... 0.49% 0.48% 0.50%
Net investment income (d) ................................................ 0.87% 2.07% 2.04%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................................... $ 5,349 $ 3,760 $ 1,171
Portfolio turnover rate .................................................. 7.54% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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
0.85% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral
part of these financial statements. | 55
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
CLASS C 2008 2007 2006 (a)
-------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................... $ 11.52 $ 10.86 $ 10.00
-------- -------- -------
Income from investment operations (b):
Net investment income (c), (d) .................................... 0.03 0.26 0.12
Net realized and unrealized gains (losses) ........................ (4.13) 0.84 0.89
-------- -------- -------
Total from investment operations ..................................... (4.10) 1.10 1.01
-------- -------- -------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ................................................ (0.04) (0.14) (0.12)
Net realized gains ................................................ (0.32) (0.30) (0.03)
-------- -------- -------
Total distributions .................................................. (0.36) (0.44) (0.15)
-------- -------- -------
Redemption fees (e) .................................................. -- (f) -- (f) --
-------- -------- -------
Net asset value, end of year ......................................... $ 7.06 $ 11.52 $ 10.86
======== ======== =======
Total return (g) ..................................................... (36.34)% 10.12% 10.14%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) ................ 2.84% 5.84% 14.12%
Expenses net of waiver and payments by affiliates (i) ................ 1.19% 1.16% 1.15
Net investment income (d) ............................................ 0.17% 1.39% 1.39%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................................... $ 1,522 $ 1,103 $ 57
Portfolio turnover rate .............................................. 7.54% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.85% for the year ended December 31, 2008.
56 | The accompanying notes are an integral
part of these financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
----------------------------------------
CLASS R 2008 2007 2006 (a)
-------- ---------- ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................................... $ 11.59 $ 10.88 $ 10.00
-------- ---------- ---------
Income from investment operations (b):
Net investment income (c), (d) ............................................ 0.03 0.28 0.11
Net realized and unrealized gains (losses) ................................ (4.12) 0.89 0.93
-------- ---------- ---------
Total from investment operations ............................................. (4.09) 1.17 1.04
-------- ---------- ---------
Less distributions from:
Net investment income and short term gains received from
Underlying Funds ........................................................ (0.05) (0.16) (0.13)
Net realized gains ........................................................ (0.32) (0.30) (0.03)
-------- ---------- ---------
Total distributions .......................................................... (0.37) (0.46) (0.16)
-------- ---------- ---------
Redemption fees (e) .......................................................... -- (f) -- (f) --
-------- ---------- ---------
Net asset value, end of year ................................................. $ 7.13 $ 11.59 $ 10.88
======== ========== =========
Total return (g) ............................................................. (36.05)% 10.76% 10.40%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) ........................ 2.34% 5.34% 13.62%
Expenses net of waiver and payments by affiliates (i) ........................ 0.69% 0.66% 0.65%
Net investment income (d) .................................................... 0.67% 1.89% 1.89%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................................. $ 172 $ 314 $ 23
Portfolio turnover rate ...................................................... 7.54% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.85% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral
part of these financial statements. | 57
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
--------------------------------------
ADVISOR CLASS 2008 2007 2006 (a)
-------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................... $ 11.64 $ 10.89 $ 10.00
-------- ---------- --------
Income from investment operations (b):
Net investment income (c), (d) ..................................... 0.11 0.20 0.18
Net realized and unrealized gains (losses) ......................... (4.18) 1.04 0.88
-------- ---------- --------
Total from investment operations ...................................... (4.07) 1.24 1.06
-------- ---------- --------
Less distributions from:
Net investment income and short term gains received from Underlying
Fund.............................................................. (0.11) (0.19) (0.14)
Net realized gains ................................................. (0.32) (0.30) (0.03)
-------- ---------- --------
Total distributions ................................................... (0.43) (0.49) (0.17)
-------- ---------- --------
Redemption fees (e) ................................................... -- (f) -- (f) --
-------- ---------- --------
Net asset value, end of year ......................................... $ 7.14 $ 11.64 $ 10.89
======== ========== ========
Total return (g) ...................................................... (35.72)% 11.34% 10.60%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) ................. 1.84% 4.84% 13.12%
Expenses net of waiver and payments by affiliates (i) ................. 0.19% 0.16% 0.15%
Net investment income (d) ............................................. 1.17% 2.39% 2.39%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................................... $ 213 $ 119 $ 59
Portfolio turnover rate ............................................... 7.54% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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 0.85% for the year ended December 31, 2008.
58 | The accompanying notes are an integral
part of these financial statements. | Annual Report
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND SHARES VALUE
- ----------------------------------------------------------------------------------------- ------- -------------
INVESTMENTS IN UNDERLYING FUNDS 96.8% (a)
DOMESTIC EQUITY 62.6%
(b) Franklin Flex Cap Growth Fund, Advisor Class ........................................ 49,406 $ 1,541,974
(b) Franklin Growth Opportunities Fund, Advisor Class ................................... 23,137 305,179
Franklin MicroCap Value Fund, Advisor Class ......................................... 14,268 303,192
(b) Franklin Natural Resources Fund, Advisor Class ...................................... 12,178 250,501
(b) Franklin Small Cap Growth Fund, Advisor Class ....................................... 115,494 714,908
Mutual Shares Fund, Class Z ......................................................... 93,101 1,426,313
-------------
4,542,067
-------------
DOMESTIC FIXED INCOME 4.0%
Franklin Strategic Mortgage Portfolio ............................................... 3,834 32,056
Franklin Total Return Fund, Advisor Class ........................................... 11,633 101,443
Franklin U.S. Government Securities Fund, Advisor Class ............................. 23,936 158,697
-------------
292,196
-------------
FOREIGN EQUITY 28.1%
Franklin Global Real Estate Fund, Advisor Class ..................................... 27,565 143,888
(b) Franklin Gold and Precious Metals Fund, Advisor Class ............................... 15,503 399,829
Mutual European Fund, Class Z ....................................................... 45,263 780,782
Templeton China World Fund, Advisor Class ........................................... 15,196 321,539
Templeton Foreign Fund, Advisor Class ............................................... 89,662 393,614
-------------
2,039,652
-------------
FOREIGN FIXED INCOME 2.1%
Templeton Global Bond Fund, Advisor Class ........................................... 13,865 154,872
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $10,407,445) ................................................................ 7,028,787
-------------
SHORT TERM INVESTMENTS (COST $149,284) 2.1% (a)
MONEY MARKET FUNDS 2.1%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ................ 149,284 149,284
-------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $10,556,729) 98.9% ...................... 7,178,071
OTHER ASSETS, LESS LIABILITIES 1.1% ................................................. 78,461
-------------
NET ASSETS 100.0% ................................................................... $ 7,256,532
=============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
Annual Report | The accompanying notes are an integral part of these financial
statements. | 59
Franklin Templeton Fund Allocator Series
Financial HIGHLIGHTS
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-------------------------------------
CLASS A 2008 2007 2006 (a)
--------- --------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................ $ 11.57 $ 10.89 $ 10.00
--------- --------- --------
Income from investment operations (b):
Net investment income (c), (d) ................................................. 0.06 0.17 0.08
Net realized and unrealized gains (losses) ..................................... (4.29) 1.06 0.97
--------- --------- --------
Total from investment operations .................................................. (4.23) 1.23 1.05
--------- --------- --------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ...... (0.08) (0.16) (0.13)
Net realized gains ............................................................. (0.37) (0.39) (0.03)
--------- --------- --------
Total distributions ............................................................... (0.45) (0.55) (0.16)
--------- --------- --------
Redemption fees (e) ............................................................... -- (f) -- (f) --
--------- --------- --------
Net asset value, end of year ...................................................... $ 6.89 $ 11.57 $ 10.89
========= ========= ========
Total return (g) .................................................................. (37.46)% 11.32% 10.55%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) ............................. 3.12% 6.86% 13.15%
Expenses net of waiver and payments by affiliates (i) ............................. 0.47% 0.47% 0.50%
Net investment income (d) ......................................................... 0.66% 1.70% 1.97%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................... $ 3,389 $ 2,439 $ 1,169
Portfolio turnover rate ........................................................... 8.09% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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
0.87% for the year ended December 31, 2008.
60 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
CLASS C 2008 2007 2006 (a)
-------- -------- ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................................. $ 11.48 $ 10.87 $ 10.00
-------- -------- ---------
Income from investment operations (b):
Net investment income (c), (d) ................................................... 0.02 0.23 0.16
Net realized and unrealized gains (losses) ....................................... (4.27) 0.91 0.87
-------- -------- ---------
Total from investment operations .................................................... (4.25) 1.14 1.03
-------- -------- ---------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ........ (0.05) (0.14) (0.13)
Net realized gains ............................................................... (0.37) (0.39) (0.03)
-------- -------- ---------
Total distributions ................................................................. (0.42) (0.53) (0.16)
-------- -------- ---------
Redemption fees (e) ................................................................. -- (f) -- (f) --
-------- -------- ---------
Net asset value, end of year ........................................................ $ 6.81 $ 11.48 $ 10.87
======== ======== =========
Total return (g) .................................................................... (37.95)% 10.50% 10.30%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) ............................... 3.82% 7.55% 13.74%
Expenses net of waiver and payments by affiliates (i) ............................... 1.17% 1.16% 1.09%
Net investment income (loss) (d) .................................................... (0.04)% 1.01% 1.38%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................................................... $ 958 $ 487 $ 67
Portfolio turnover rate ............................................................. 8.09% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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
0.87% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral part of these financial
statements. | 61
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
CLASS R 2008 2007 2006 (a)
-------- -------- ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................................. $ 11.54 $ 10.88 $ 10.00
-------- -------- ---------
Income from investment operations (b):
Net investment income(c), (d) .................................................... 0.02 0.24 0.08
Net realized and unrealized gains (losses) ....................................... (4.25) 0.97 0.96
-------- -------- ---------
Total from investment operations .................................................... (4.23) 1.21 1.04
-------- -------- ---------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ........ (0.06) (0.16) (0.13)
Net realized gains ............................................................... (0.37) (0.39) (0.03)
-------- -------- ---------
Total distributions ................................................................. (0.43) (0.55) (0.16)
-------- -------- ---------
Redemption fees (e) ................................................................. -- (f) -- (f) --
-------- -------- ---------
Net asset value, end of year ........................................................ $ 6.88 $ 11.54 $ 10.88
======== ======== =========
Total return (g) .................................................................... (37.64)% 11.13% 10.44%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) ............................... 3.32% 7.04% 13.30%
Expenses net of waiver and payments by affiliates (i) ............................... 0.67% 0.65% 0.65%
Net investment income (d) ........................................................... 0.46% 1.52% 1.82%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................................................... $ 156 $ 160 $ 12
Portfolio turnover rate ............................................................. 8.09% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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
0.87% for the year ended December 31, 2008.
62 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31,
-----------------------------------
ADVISOR CLASS 2008 2007 2006 (a)
-------- -------- ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................................. $ 11.59 $ 10.90 $ 10.00
-------- -------- ---------
Income from investment operations (b):
Net investment income (c), (d) ................................................... 0.06 0.49 0.12
Net realized and unrealized gains (losses) ....................................... (4.29) 0.78 0.95
-------- -------- ---------
Total from investment operations .................................................... (4.23) 1.27 1.07
-------- -------- ---------
Less distributions from:
Net investment income and short term gains received from Underlying Funds ........ (0.10) (0.19) (0.14)
Net realized gains ............................................................... (0.37) (0.39) (0.03)
-------- -------- ---------
Total distributions ................................................................. (0.47) (0.58) (0.17)
-------- -------- ---------
Redemption fees (e) ................................................................. -- (f) -- (f) --
-------- -------- ---------
Net asset value, end of year ........................................................ $ 6.89 $ 11.59 $ 10.90
======== ======== =========
Total return (g) .................................................................... (37.39)% 11.65% 10.72%
RATIOS TO AVERAGE NET ASSETS (h)
Expenses before waiver and payments by affiliates (i) ............................... 2.82% 6.54% 12.80%
Expenses net of waiver and payments by affiliates (i) ............................... 0.17% 0.15% 0.15%
Net investment income (d) ........................................................... 0.96% 2.02% 2.32%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................................................... $ 105 $ 164 $ 17
Portfolio turnover rate ............................................................. 8.09% 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) Effective September 1, 2008, the redemption fee was eliminated.
(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
0.87% for the year ended December 31, 2008.
Annual Report | The accompanying notes are an integral part of these financial
statements. | 63
Franklin Templeton Fund Allocator Series
STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND SHARES VALUE
------ ------------
INVESTMENTS IN UNDERLYING FUNDS 97.4% (a)
DOMESTIC EQUITY 66.7%
(b) Franklin Flex Cap Growth Fund, Advisor Class .............................................. 32,943 $ 1,028,139
(b) Franklin Growth Opportunities Fund, Advisor Class ......................................... 16,671 219,895
Franklin MicroCap Value Fund, Advisor Class ............................................... 9,892 210,195
(b) Franklin Natural Resources Fund, Advisor Class ............................................ 8,627 177,450
(b) Franklin Small Cap Growth Fund, Advisor Class ............................................. 80,462 498,059
Mutual Shares Fund, Class Z ............................................................... 61,272 938,689
------------
3,072,427
------------
FOREIGN EQUITY 30.7%
Franklin Global Real Estate Fund, Advisor Class ........................................... 19,590 102,260
(b) Franklin Gold and Precious Metals Fund, Advisor Class ..................................... 10,746 277,138
Mutual European Fund, Class Z ............................................................. 31,480 543,024
Templeton China World Fund, Advisor Class ................................................. 10,686 226,110
Templeton Foreign Fund, Advisor Class ..................................................... 61,058 268,047
------------
1,416,579
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS
(COST $6,612,453) ....................................................................... 4,489,006
------------
SHORT TERM INVESTMENTS (COST $39,736) 0.9% (a)
MONEY MARKET FUNDS 0.9%
(c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ...................... 39,736 39,736
------------
TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $6,652,189) 98.3% ............................. 4,528,742
OTHER ASSETS, LESS LIABILITIES 1.7% ....................................................... 78,579
------------
NET ASSETS 100.0% ......................................................................... $ 4,607,321
============
(a) See Note 6 regarding investments in Underlying Funds.
(b) Non-income producing for the twelve months ended December 31, 2008.
(c) The rate shown is the annualized seven-day yield at period end.
64 | The accompanying notes are an integral part of these financial
statements. | Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2008
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 ...................................... $ 19,668,540 $ 18,125,104 $ 10,556,729 $ 6,652,189
----------------- ----------------- ----------------- -----------------
Value ..................................... $ 14,935,511 $ 12,814,670 $ 7,178,071 $ 4,528,742
Receivables:
Capital shares sold ....................... 79,452 77,028 12,498 13,186
Affiliates ................................ 78,422 88,444 94,784 100,083
----------------- ----------------- ----------------- -----------------
Total assets ........................... 15,093,385 12,980,142 7,285,353 4,642,011
----------------- ----------------- ----------------- -----------------
Liabilities:
Payables:
Capital shares redeemed ................... 49,245 495 -- 3,958
Reports to shareholders ................... 6,701 7,056 4,556 7,470
Professional fees ......................... 21,648 21,646 20,829 20,898
Unaffiliated transfer agent fees .......... 2,834 3,537 3,436 2,364
----------------- ----------------- ----------------- -----------------
Total liabilities ...................... 80,428 32,734 28,821 34,690
----------------- ----------------- ----------------- -----------------
Net assets, at value ................. $ 15,012,957 $ 12,947,408 $ 7,256,532 $ 4,607,321
----------------- ----------------- ----------------- -----------------
Net assets consist of:
Paid-in capital ............................. $ 19,692,726 $ 18,273,120 $ 10,664,881 $ 6,761,942
Undistributed net investment income ......... 70,075 25,469 17,383 1,970
Net unrealized appreciation (depreciation) .. (4,733,029) (5,310,434) (3,378,658) (2,123,447)
Accumulated net realized gain (loss) ........ (16,815) (40,747) (47,074) (33,144)
----------------- ----------------- ----------------- -----------------
Net assets, at value ................. $ 15,012,957 $ 12,947,408 $ 7,256,532 $ 4,607,321
================= ================= ================= =================
Annual Report | The accompanying notes are an integral part of these financial
statements. | 65
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2008
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 ........................ $ 9,407,389 $ 9,918,413 $ 5,349,446 $ 3,388,928
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 1,155,848 1,327,394 751,677 492,147
------------------ ------------------ ------------------ ------------------
Net asset value per share (a) ............... $ 8.14 $ 7.47 $ 7.12 $ 6.89
------------------ ------------------ ------------------ ------------------
Maximum offering price per share (net asset
value per share / 94.25%) ................... $ 8.64 $ 7.93 $ 7.55 $ 7.31
------------------ ------------------ ------------------ ------------------
CLASS C:
Net assets, at value ........................ $ 4,620,791 $ 2,551,428 $ 1,521,609 $ 957,977
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 571,644 343,534 215,564 140,627
------------------ ------------------ ------------------ ------------------
Net asset value and maximum offering price
per share (a) ............................. $ 8.08 $ 7.43 $ 7.06 $ 6.81
------------------ ------------------ ------------------ ------------------
CLASS R:
Net assets, at value ........................ $ 820,668 $ 155,070 $ 172,144 $ 155,619
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 101,052 20,765 24,149 22,611
------------------ ------------------ ------------------ ------------------
Net asset value and maximum offering price
per share ................................. $ 8.12 $ 7.47 $ 7.13 $ 6.88
------------------ ------------------ ------------------ ------------------
ADVISOR CLASS:
Net assets, at value ........................ $ 164,109 $ 322,497 $ 213,333 $ 104,797
------------------ ------------------ ------------------ ------------------
Shares outstanding .......................... 20,125 43,131 29,884 15,201
------------------ ------------------ ------------------ ------------------
Net asset value and maximum offering price
per share ................................. $ 8.15 $ 7.48 $ 7.14 $ 6.89
------------------ ------------------ ------------------ ------------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
66 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended December 31, 2008
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) ................................. $ 407,370 $ 257,038 $ 97,680 $ 48,950
Interest ................................... 924 190 156 --
----------------- ----------------- ----------------- -----------------
Total investment income ............. 408,294 257,228 97,836 48,950
----------------- ----------------- ----------------- -----------------
Expenses:
Asset allocation fees (Note 3a) ............ 33,987 30,605 17,782 10,744
Distribution fees: (Note 3c)
Class A .................................. 25,150 30,659 15,897 9,851
Class C .................................. 50,945 19,271 14,072 7,050
Class R .................................. 5,177 1,025 1,390 1,057
Transfer agent fees (Note 3e) .............. 21,545 28,660 27,414 25,357
Reports to shareholders .................... 17,853 17,446 12,673 13,287
Registration and filing fees ............... 54,531 48,297 47,374 46,428
Professional fees .......................... 23,927 23,878 22,760 22,499
Trustees' fees and expenses ................ 92 84 48 29
Other ...................................... 4,805 4,746 4,645 4,558
----------------- ----------------- ----------------- -----------------
Total expenses ...................... 238,012 204,671 164,055 140,860
Expenses waived/paid by affiliates
(Note 3f) ........................ (125,449) (129,477) (119,268) (115,654)
----------------- ----------------- ----------------- -----------------
Net expenses ................... 112,563 75,194 44,787 25,206
----------------- ----------------- ----------------- -----------------
Net investment income ....... 295,731 182,034 53,049 23,744
----------------- ----------------- ----------------- -----------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Sale of investments in Underlying Funds .. (312,317) (336,557) (240,793) (154,588)
Realized gain distributions by
Underlying Funds ...................... 354,173 383,259 243,441 167,077
----------------- ----------------- ----------------- -----------------
Net realized gain (loss) .... 41,856 46,702 2,648 12,489
----------------- ----------------- ----------------- -----------------
Net change in unrealized appreciation
(depreciation) on investments in
Underlying Funds ......................... (4,633,652) (5,148,508) (3,303,139) (2,122,749)
----------------- ----------------- ----------------- -----------------
Net realized and unrealized gain (loss) ....... (4,591,796) (5,101,806) (3,300,491) (2,110,260)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) in net assets
resulting from operations .................. $ (4,296,065) $ (4,919,772) $ (3,247,442) $ (2,086,516)
================= ================= ================= =================
Annual Report | The accompanying notes are an integral part of these financial
statements. | 67
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON 2015 FRANKLIN TEMPLETON 2025
RETIREMENT TARGET FUND RETIREMENT TARGET FUND
--------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2008 2007 2008 2007
------------- ----------- ------------ -----------
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 295,731 $ 122,203 $ 182,034 $ 118,086
Net realized gain (loss) from Underlying Funds .............. 41,856 303,497 46,702 391,470
Net change in unrealized appreciation (depreciation) on
investments in Underlying Funds .......................... (4,633,652) (132,654) (5,148,508) (195,462)
------------- ----------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations ................................... (4,296,065) 293,046 (4,919,772) 314,094
------------- ----------- ------------ -----------
Distributions to shareholders from:
Net investment income and short term gains received from
Underlying Funds:
Class A ................................................ (191,755) (89,066) (181,018) (116,293)
Class C ................................................ (71,295) (31,491) (32,675) (15,006)
Class R ................................................ (16,886) (17,779) (2,414) (2,899)
Advisor Class .......................................... (3,962) (736) (6,999) (7,148)
Net realized gains:
Class A ................................................ (143,847) (42,032) (293,606) (81,106)
Class C ................................................ (107,235) (12,628) (51,093) (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 ........................... (557,232) (201,205) (586,351) (236,966)
------------- ----------- ------------ -----------
Capital share transactions: (Note 2)
Class A ................................................ 7,039,466 3,834,014 7,272,636 5,156,687
Class C ................................................ 3,984,119 2,150,974 2,382,415 1,061,155
Class R ................................................ 72,378 1,040,251 49,941 166,698
Advisor Class .......................................... 184,187 10,740 86,251 377,760
------------- ----------- ------------ -----------
Total capital share transactions .............................. 11,280,150 7,035,979 9,791,243 6,762,300
------------- ----------- ------------ -----------
Redemption fees ............................................... 112 41 253 157
------------- ----------- ------------ -----------
Net increase (decrease) in net assets .......... 6,426,965 7,127,861 4,285,373 6,839,585
Net assets:
Beginning of year ............................................. 8,585,992 1,458,131 8,662,035 1,822,450
------------- ----------- ------------ -----------
End of year ................................................... $ 15,012,957 $ 8,585,992 $ 12,947,408 $ 8,662,035
============= =========== ============ ===========
Undistributed net investment income included in net assets:
End of year ................................................... $ 70,075 $ 2,414 $ 25,469 $ 2,524
============= =========== ============ ===========
68 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Templeton Fund Allocator Series
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON 2035 FRANKLIN TEMPLETON 2045
RETIREMENT TARGET FUND RETIREMENT TARGET FUND
--------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2008 2007 2008 2007
------------- ----------- ------------ -----------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 53,049 $ 54,544 $ 23,744 $ 33,275
Net realized gain (loss) from Underlying Funds ............. 2,648 269,980 12,489 177,675
Net change in unrealized appreciation (depreciation) on
investments in Underlying Funds ......................... (3,303,139) (116,810) (2,122,749) (42,627)
------------- ----------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations .................................. (3,247,442) 207,714 (2,086,516) 168,323
------------- ----------- ------------ -----------
Distributions to shareholders from:
Net investment income and short term gains received from
Underlying Funds:
Class A ............................................... (63,814) (50,435) (40,147) (33,285)
Class C ............................................... (9,049) (13,163) (7,185) (5,813)
Class R ............................................... (1,220) (4,205) (1,248) (2,128)
Advisor Class ......................................... (3,175) (1,855) (1,555) (2,578)
Net realized gains:
Class A ............................................... (183,268) (52,659) (124,622) (57,461)
Class C ............................................... (45,620) (10,159) (27,951) (5,731)
Class R ............................................... (10,162) (3,259) (10,661) (2,945)
Advisor Class ......................................... (8,438) (2,845) (6,679) (1,299)
------------- ----------- ------------ -----------
Total distributions to shareholders .......................... (324,746) (138,580) (220,048) (111,240)
------------- ----------- ------------ -----------
Capital share transactions: (Note 2)
Class A ............................................... 4,203,952 2,512,921 2,708,547 1,203,127
Class C ............................................... 1,141,684 1,061,051 841,350 421,465
Class R ............................................... (16,717) 286,076 99,956 148,108
Advisor Class ......................................... 203,645 56,592 14,472 154,787
------------- ----------- ------------ -----------
Total capital share transactions ............................. 5,532,564 3,916,640 3,664,325 1,927,487
------------- ----------- ------------ -----------
Redemption fees .............................................. 105 324 68 4
------------- ----------- ------------ -----------
Net increase (decrease) in net assets .............. 1,960,481 3,986,098 1,357,829 1,984,574
Net assets:
Beginning of year ............................................ 5,296,051 1,309,953 3,249,492 1,264,918
------------- ----------- ------------ -----------
End of year .................................................. $ 7,256,532 $ 5,296,051 $ 4,607,321 $ 3,249,492
============= =========== ============ ===========
Undistributed net investment income included in net assets:
End of year .................................................. $ 17,383 $ 1,418 $ 1,970 $ 1,101
============= =========== ============ ===========
Annual Report | The accompanying notes are an integral part of these financial
statements. | 69
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (Trust) is registered under the
Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment
company, consisting of ten separate funds, four of which are included in this
report (Funds). 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 December 31, 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.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
70 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
The Funds indirectly bear their proportionate share of expenses from the
Underlying Funds. Since the Underlying Funds have varied expense levels and the
Funds may own different proportions of the Underlying Funds at different times,
the amount of expenses incurred indirectly by the Funds will vary.
Realized and unrealized gains and losses and net investment income, not
including 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 was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
Annual Report | 71
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At December 31, 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:
Year ended December 31, 2008
Shares sold .................................... 875,282 $ 8,706,575 961,941 $ 9,374,538
Shares issued in reinvestment of
distributions ................................ 32,398 299,153 49,889 441,620
Shares redeemed ................................ (216,068) (1,966,262) (291,651) (2,543,522)
-------- ------------ -------- ------------
Net increase (decrease) ........................ 691,612 $ 7,039,466 720,179 $ 7,272,636
======== ============ ======== ============
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:
Year ended December 31, 2008
Shares sold .................................... 710,317 $ 7,167,011 273,080 $ 2,613,167
Shares issued in reinvestment of
distributions ................................ 16,315 154,225 8,634 76,524
Shares redeemed ................................ (351,199) (3,337,117) (35,040) (307,276)
-------- ------------ -------- ------------
Net increase (decrease) ........................ 375,433 $ 3,984,119 246,674 $ 2,382,415
======== ============ ======== ============
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:
Year ended December 31, 2008
Shares sold .................................... 27,245 $ 283,010 13,572 $ 137,944
Shares issued in reinvestment of
distributions ................................ 3,756 35,625 897 8,225
Shares redeemed ................................ (24,499) (246,257) (10,175) (96,228)
-------- ------------ -------- ------------
Net increase (decrease) ........................ 6,502 $ 72,378 4,294 $ 49,941
======== ============ ======== ============
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
======== ============ ======== ============
72 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ -------- ------------
ADVISOR CLASS SHARES:
Year ended December 31, 2008
Shares sold .................................... 18,911 $ 201,893 10,079 $ 110,551
Shares issued in reinvestment of
distributions ................................ 750 7,092 2,132 19,170
Shares redeemed ................................ (2,394) (24,798) (5,464) (43,470)
-------- ------------ -------- ------------
Net increase (decrease) ........................ 17,267 $ 184,187 6,747 $ 86,251
======== ============ ======== ============
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:
Year ended December 31, 2008
Shares sold .................................... 539,247 $ 5,181,122 312,283 $ 3,000,890
Shares issued in reinvestment of
distributions ................................ 22,905 206,765 13,716 120,164
Shares redeemed ................................ (134,219) (1,183,935) (44,626) (412,507)
-------- ------------ -------- ------------
Net increase (decrease) ........................ 427,933 $ 4,203,952 281,373 $ 2,708,547
======== ============ ======== ============
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:
Year ended December 31, 2008
Shares sold .................................... 143,566 $ 1,353,699 103,668 $ 882,722
Shares issued in reinvestment of
distributions ................................ 5,241 48,916 3,042 27,321
Shares redeemed ................................ (28,939) (260,931) (8,500) (68,693)
-------- ------------ -------- ------------
Net increase (decrease) ........................ 119,868 $ 1,141,684 98,210 $ 841,350
======== ============ ======== ============
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
======== ============ ======== ============
Annual Report | 73
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMEN
TARGET FUND TARGET FUND
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ -------- ------------
CLASS R SHARES:
Year ended December 31, 2008
Shares sold .................................... 15,557 $ 156,698 19,145 $ 196,091
Shares issued in reinvestment of
distributions ................................ 1,147 11,056 1,208 11,418
Shares redeemed ................................ (19,649) (184,471) (11,585) (107,553)
-------- ------------ -------- ------------
Net increase (decrease) ........................ (2,945) $ (16,717) 8,768 $ 99,956
======== ============ ======== ============
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:
Year ended December 31, 2008
Shares sold .................................... 20,527 $ 212,613 7,432 $ 73,689
Shares issued in reinvestment of
distributions ................................ 1,254 11,287 863 7,870
Shares redeemed ................................ (2,139) (20,255) (7,256) (67,087)
-------- ------------ -------- ------------
Net increase (decrease) ........................ 19,642 $ 203,645 1,039 $ 14,472
======== ============ ======== ============
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
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
74 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. ASSET ALLOCATION FEES
The Funds pay an asset allocation fee to Advisers of 0.25% per year of the
average daily net assets of each of the Funds for investment advisory services,
consisting principally of determining the allocation of assets of the Funds
among the designated Underlying Funds.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
C. DISTRIBUTION FEES
The Trust's Board of 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:
Class A ........................................... 0.35%
Class C ........................................... 1.00%
Class R ........................................... 0.50%
The Board of Trustees has set the current rate at 0.30% per year for Class A
shares until further notice and approval by the Board.
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------- ----------- ----------- -----------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers .................... $ 16,469 $ 22,214 $ 13,248 $ 10,315
Contingent deferred sales charges retained ........ $ 3,509 $ 928 $ 476 $ 181
Annual Report | 75
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
For the year ended December 31, 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 $ 13,197 $ 18,344 $ 18,391 $ 18,292
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
Fund subsequent to the Fund's fiscal year end. After April 30, 2009, Advisers
and Investor Services may discontinue this waiver at any time upon notice to the
Fund's Board of Trustees.
G. OTHER AFFILIATED TRANSACTIONS
At December 31, 2008, Advisers owned a percentage of the Funds' outstanding
shares as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
- ------------------ ------------------
9.50% 14.46%
4. INCOME TAXES
The tax character of distributions paid during the years ended December 31, 2008
and 2007, was as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT
TARGET FUND TARGET FUND
-------------------------- --------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Distributions paid from:
Ordinary income ................................ $ 283,898 $ 139,072 $ 222,191 $ 141,458
Long term capital gain ......................... 273,334 62,133 364,160 95,508
----------- ----------- ----------- -----------
$ 557,232 $ 201,205 $ 586,351 $ 236,966
=========== =========== =========== ===========
76 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND
-------------------------- --------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Distributions paid from:
Ordinary income ................................ $ 77,258 $ 69,862 $ 50,135 $ 43,962
Long term capital gain ......................... 247,488 68,718 169,913 67,278
----------- ----------- ----------- -----------
$ 324,746 $ 138,580 $ 220,048 $ 111,240
=========== =========== =========== ===========
At December 31, 2008, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
2015 2025 2035 2045
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
----------- ----------- ----------- -----------
Cost of investments ............................... $19,794,359 $18,395,256 $10,739,528 $ 6,812,343
=========== =========== =========== ===========
Unrealized appreciation ........................... $ 36,218 $ 20,223 $ 4,391 $ --
Unrealized depreciation ........................... (4,895,066) (5,600,809) $(3,565,848) (2,283,601)
----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) ................................. $(4,858,848) $(5,580,586) $(3,561,457) $(2,283,601)
=========== =========== =========== ===========
Undistributed ordinary income ..................... $ 70,075 $ 25,469 $ 17,383 $ 1,970
Undistributed long term capital gains ............. 109,006 229,405 135,725 127,008
----------- ----------- ----------- -----------
Distributable earnings $ 179,081 $ 254,874 $ 153,108 $ 128,978
=========== =========== =========== ===========
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 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 year ended December 31, 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 ......................................... $12,231,612 $10,245,524 $ 5,998,667 $ 3,972,831
Sales ............................................. $ 1,175,989 $ 740,411 $ 533,688 $ 345,855
Annual Report | 77
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN UNDERLYING FUNDS
The Funds invest primarily in the Underlying Funds which are managed by Advisers
(or an affiliate of Advisers). The Funds do not invest in the Underlying Funds
for the purpose of exercising management or control. At December 31, 2008, the
Funds held no positions which exceed 5% of the Underlying Funds.
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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) 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.
At December 31, 2008, all of the Funds' investments in securities carried at
fair value were in Level 1 inputs.
78 | Annual Report
Franklin Templeton Fund Allocator Series
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENT
On January 23, 2009, the Funds entered into, along with certain other funds
managed by Franklin Templeton Investments (individually, "Borrower";
collectively "Borrowers"), a $725 million senior unsecured syndicated global
line of credit ("Global Credit Facility") to provide a source of funds to the
Borrowers for temporary and emergency purposes and to meet future unanticipated
or unusually large redemption requests.
Under the terms of the Global Credit Facility, each Borrower has agreed to pay
its proportionate share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility.
Annual Report | 79
Franklin Templeton Fund Allocator Series
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN TEMPLETON FUND ALLOCATOR
SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Templeton 2015 Retirement
Target Fund, Franklin Templeton 2025 Retirement Target Fund, Franklin Templeton
2035 Retirement Target Fund and Franklin Templeton 2045 Retirement Target Fund
(separate portfolios of Franklin Templeton Fund Allocator Series, hereafter
referred to as the "Funds") at December 31, 2008, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments in the Underlying Funds at December 31, 2008 by
correspondence with the transfer agent of the Underlying Funds, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2009
80 | Annual Report
Franklin Templeton Fund Allocator Series
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended December 31, 2008:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
- ------------------ ------------------ ------------------ ------------------
$ 273,333 $ 364,160 $ 247,488 $ 169,914
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
- ------------------ ------------------ ------------------ ------------------
16.06% 22.93% 42.63% 43.58%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT
TARGET FUND TARGET FUND TARGET FUND TARGET FUND
- ------------------ ------------------ ------------------ ------------------
$ 90,611 $ 99,303 $ 63,790 $ 43,229
Distributions, including qualified dividend income, paid during calendar year
2008 will be reported to shareholders on Form 1099-DIV in January 2009.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Annual Report | 81
Franklin Templeton Fund Allocator Series
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ---------------------------- -------- ------------- -------------------------- ---------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1995 138 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
ROBERT F. CARLSON (1928) Trustee Since 2005 115 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement
Systems(CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
SAM GINN (1937) Trustee Since 2007 115 Chevron Corporation (global energy company)
One Franklin Parkway and ICO Global Communications (Holdings)
San Mateo, CA 94403-1906 Limited (satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 1998 138 Hess Corporation (exploration and refining
One Franklin Parkway of oil and gas), H.J. Heinz Company
San Mateo, CA 94403-1906 (processed foods and allied products),
RTI International Metals, Inc. (manufacture
and distribution of titanium), Canadian
National Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet(1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
82 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ---------------------------- ----------- -------------- ------------------------ ---------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1995 115 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
FRANK A. OLSON (1932) Trustee Since 2007 138 Hess Corporation (exploration and refining
One Franklin Parkway of oil and gas) and Sentient Jet
San Mateo, CA 94403-1906 (private jet service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive
Officer(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 145 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney
General, U.S. Department of Justice (2001-2003).
JOHN B. WILSON (1959) Lead Trustee since 115 None
One Franklin Parkway Independent 2006 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial
Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President
- - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company
(consulting firm) (1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ---------------------------- ----------- -------------- ------------------------ ---------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1995 138 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 42 of the investment companies in Franklin Templeton Investments.
Annual Report | 83
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ---------------------------- ---------------- ------------------ ------------------------ ----------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 92 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director,
Templeton Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries
of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
JENNIFER J. BOLT (1964) Chief Since December Not Applicable Not Applicable
One Franklin Parkway Executive 2008
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President - Operations and Technology, Franklin Resources, Inc.; Director, Templeton Global Advisors Limited;
officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the
investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources,
Inc. (1994-2001).
LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable
One Franklin Parkway Chief 2004, Chief
San Mateo, CA 94403-1906 Financial Officer Financial Officer
and Chief and Chief
Accounting Accounting Officer
Officer since February
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
JIMMY D. GAMBILL (1947) Vice President Since February Not Applicable Not Applicable
500 East Broward Blvd. 2008
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
84 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ---------------------------- ---------------- ------------------ ------------------------ ----------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) President and Since 2002 Not Applicable Not Applicable
One Franklin Parkway Chief
San Mateo, CA 94403-1906 Executive
Officer -
Investment
Management
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton
Investments fund complex. These portfolios have a common investment
manager or affiliated investment managers.
** Charles B. Johnson is considered to be an interested person of the Fund
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Fund's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person
of the Fund under the federal securities laws due to his position as an
officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Gregory E. Johnson and Jennifer J.
Bolt.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
Annual Report | 85
Franklin Templeton Fund Allocator Series
SHAREHOLDER INFORMATION
FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS
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 (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 (800)
SEC-0330.
86 | Annual Report
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(FRANKLIN TEMPLETON INVESTMENT LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
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franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN TEMPLETON
FUND ALLOCATOR SERIES
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $245,040 for the fiscal year ended December 31, 2008 and $207,774 for the
fiscal year ended December 31, 2007.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $4,000 for the fiscal year ended
December 31, 2008 and $46,000 for the fiscal year ended December 31, 2007. The
services for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $13,083 for the fiscal year ended December 31,
2008 and $0 for the fiscal year ended December 31, 2007. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $270,994 for the fiscal
year ended December 31, 2008 and $0 for the fiscal year ended December 31, 2007.
The services for which these fees were paid included review of materials
provided to the fund Board in connect with the investment management contract
renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $288,077 for the fiscal year ended December 31, 2008 and $46,000
for the fiscal year ended December 31, 2007.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Registrant's filings under the
Securities Exchange Act of 1934 and the Investment Company Act of 1940 is
recorded, processed, summarized and reported within the periods specified in
the rules and forms of the Securities and Exchange Commission. Such
information is accumulated and communicated to the Registrant's management,
including its principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. The
Registrant's management, including the principal executive officer and the
principal financial officer, recognizes that any set of controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision
and with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation,
the Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) Changes in Internal Controls. There have been no significant changes in
the Registrant's internal controls or in other factors that could
significantly affect the internal controls subsequent to the date of their
evaluation in connection with the preparation of this Shareholder Report on
Form N-CSR.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of Jennifer J. Bolt, 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 Jennifer J. Bolt, 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/Jennifer J. Bolt
-------------------
Jennifer J. Bolt
Chief Executive Officer - Finance and Administration
Date February 25, 2009
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/Jennifer J. Bolt
------------------
Jennifer J. Bolt
Chief Executive Officer - Finance and Administration
Date February 25, 2009
By /S/LAURA F. FERGERSON
---------------------
Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date February 25, 2009