Annual
Report
Franklin Templeton
Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
the mutual fund industry has experienced profound changes in technology,
regulations and customer expectations. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest around the globe. We thank you for your past
support and look forward to serving your investment needs in the years ahead.
Donald P. Gould
President and Portfolio Manager
Franklin Templeton
Fund Allocator Series
CONTENTS
Shareholder Letter................................... 1
Fund Reports
Franklin Templeton
Conservative Target Fund............................. 5
Franklin Templeton
Moderate Target Fund................................. 13
Franklin Templeton
Growth Target Fund................................... 21
Statement of Investments............................. 29
Financial Statements................................. 35
Notes to
Financial Statements................................. 39
Report of
Independent Auditors................................. 45
SHAREHOLDER LETTER
Dear Shareholder:
We are pleased to present the first annual report for the Franklin Templeton
Fund Allocator Series, composed of the Conservative Target Fund, the Moderate
Target Fund, and the Growth Target Fund, which covers the period ended July 31,
1997. Because the Series' inception date was December 31, 1996, this report
covers only a seven-month period of operation.
During the reporting period, steady economic growth, low inflation, and strong
increases in corporate earnings propelled U.S. equity markets to record high
levels. Most foreign markets, which previously had lagged the U.S., joined the
party in 1997 as signs of recovery spread among many major foreign economies.
Class I shares of the three funds produced the cumulative total returns listed
below for the seven-month period under review, reflecting this generally strong
market environment. You will find more complete information regarding the
performance of the funds' Class I and Class II shares in their Performance
Summaries beginning on pages 7, 15, and 23.
Total Return*
Class I Shares (12/31/96 - 7/31/97)
Franklin Templeton Conservative Target Fund 9.21%
Franklin Templeton Moderate Target Fund 13.05%
Franklin Templeton Growth Target Fund 13.30%
*Total Return represents the change in value of an investment during the period
indicated, does not include sales charges, and assumes reinvestment of dividends
and capital gains at net asset value.
Each of the three Franklin Templeton Target Funds is a fund-of-funds, investing
in a selected group of Franklin Templeton funds, which we call the "underlying
funds." By offering three separate Target Funds, each corresponding to a
different level of risk tolerance, we permit investors and their investment
representatives to select the Target Fund (or combination of Target Funds) most
closely matching their objectives and risk preferences. The underlying funds
include a broad cross-section of the Franklin Templeton fund family, enabling us
to construct portfolios that are diversified by region, industrial sectors, and
manager style - across stock, bond, and money markets.**
**The Franklin Templeton Target Funds are non-diversified funds because they
invest in the securities of a limited number of mutual funds. The risks of
investing in a non-diversified fund, such as increased susceptibility to adverse
economic or regulatory developments, are described in the attached prospectus.
Asset allocation may be the most important factor in determining the performance
of a portfolio, influencing overall returns more than the selection of
individual securities within each asset class. And asset allocation is not
"optional" -- every investment portfolio has one. Yet, more often than we care
to admit, a portfolio's asset allocation is not arrived at through any
deliberate process, but instead represents the cumulative result of many
individual investment decisions made incrementally over time. At other times,
asset allocation occurs on an ad hoc basis. In contrast, we employ a disciplined
and systematic process in determining each Target Fund's asset allocation.
Asset Allocation Process
We begin our asset allocation process for the Target Funds by examining each of
the 26 underlying Franklin Templeton funds in which we can invest. Before
constructing a portfolio for each of the three Target Funds, it is essential
that we fully understand the "raw material" we have to work with. As an example,
two underlying funds may have very similar names and stated investment
objectives, and may even draw from the same universe of eligible securities. But
upon closer inspection, we may find that one underlying fund invests in large
capitalization stocks having relatively low price-to-earnings (P/E) ratios and
has a significant cash position, while the other invests in smaller
capitalization stocks sporting high P/E ratios and holds almost no cash. This
type of analysis helps us determine how we can best combine different underlying
funds within each of the three Target Funds.
Next, we use this and other market information to establish general expectations
of risk and return for each of the 26 underlying funds. We evaluate the extent
to which the returns of these 26 funds tend to move in tandem. This is called
"correlation." We typically seek to combine funds within each Target Fund whose
total returns exhibit relatively less correlation. This is the core of the
concept of diversification. Diversification, as we all know, is intended to
reduce a portfolio's exposure to the risk that any one asset class or investment
sector might perform poorly in a given time period.
We then implement our asset allocation plan, choosing for each Target Fund the
combination of underlying funds that we believe may offer the most attractive
risk/return characteristics consistent with each fund's objective. Other things
being equal, asset allocations having higher expected returns are generally
accompanied by higher levels of expected risk, and we constantly evaluate the
risk/return trade-offs available to us.
As you can see, a Franklin Templeton Target Fund's asset allocation at any point
in time is based on a multitude of factors, including the portfolio make-up of
each underlying fund, the correlation of their returns, and market conditions.
Because each of these factors varies over time, we continually monitor them and
alter the Funds' asset allocations to reflect ongoing changes in the underlying
funds and the markets in which they invest. So, above all, our investment
process is a dynamic one which enables us to adapt to the ever-changing
financial and economic landscape confronting every investor.
We are pleased with the reception the three Franklin Templeton Target Funds have
received in the past seven months. As of July 31, 1997, total assets exceeded
$30 million. We appreciate your participation in the funds and welcome any
comments or suggestions you may have.
Sincerely,
Donald P. Gould
President and Portfolio Manager
The investment objective of each fund is the highest level of long-term total
return that is consistent with an acceptable level of risk. Each fund will
pursue its investment objective through active asset allocation implemented
primarily with investments in a combination of Franklin Templeton Funds.
The funds all pursue the same investment objective but with different levels of
risk and return. Each fund is designed to be a long-term investment. The
objective of each fund compares the three funds' levels of risk and return
relative to one another and are not intended to imply any particular absolute
level of risk or return for any fund.
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
Your Fund's Objective: The Franklin Templeton Conservative Target Fund seeks the
highest level of long-term total return achievable at a lower level of risk.
The performance of the Conservative Target Fund is affected by both the Fund's
asset allocation decisions and the security selection of the underlying funds.
With respect to asset allocation, we believe the fund benefited from its
relatively large exposure to U.S. and international equities, asset classes
which performed quite well. Our small exposure to cash (short-term obligations &
other net assets), and our lower weighting of bonds relative to stocks, also
helped the performance of the fund. With respect to security selection, the
diversified portfolios of our underlying U.S. equity funds included small-cap
and value stocks, as well as large-cap growth stocks. During the period under
review, large-cap growth stocks generally outperformed other categories within
the U.S. equity market. Had the diversified portfolio included a higher
proportion of large-cap growth stocks relative to the small-cap and value
stocks, the fund's total return would likely have been enhanced. The pie chart
on this page illustrates the approximate portion of the portfolio dedicated to
each of the major asset classes as of July 31, 1997.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Total Return
Performance Comparison
(12/31/96 - 7/31/97)
Conservative Target Fund -
Class I1 9.21%
Conservative Target Fund -
Class II1 8.48%
Standard & Poor's(R)
500 Stock Index2 30.04%
MSCI - Europe Australasia
and Far East Stock Index2 13.01%
Lehman Brothers
Government/Corporate
Bond Index2 5.88%
91-day U.S. Treasury
Bill Index2 2.95%
1. Total return measures the change in value of an investment over the period
indicated, does not include the sales charge, and assumes reinvestment of
dividends and capital gains at net asset value.
2. Indices are unmanaged and include reinvested dividends. Please see
Performance Summaries.
The combination of these factors produced the returns shown in the table to the
left and discussed more fully in the Performance Summaries for Classes I and II.
It is important to remember that we maintain a long-term perspective when
managing the fund, and we encourage shareholders to view their investments in a
similar manner.
This discussion reflects the strategies we employed for the fund during the
period under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions, and decisions regarding portfolio holdings may change
as new circumstances arise. All figures shown are as of July 31, 1997, and the
level of the fund's holdings can be expected to change with market developments
and management of the portfolio. Although past performance of a specific
investment or sector cannot guarantee future performance, such information may
be useful in analyzing securities we purchase or sell for the fund.
Because the assets of some of the underlying funds are largely denominated in
foreign currencies, there is potential for significant gain or loss from
currency exchange rate fluctuations. While short-term volatility can be
disconcerting, declines of as much as 40% to 50% are not unusual in emerging
markets. For example, the Hong Kong market has increased 1,089% in the last 15
years, but has suffered five quarterly declines of more than 20% during that
time.*
*Source: Bloomberg. Based on quarterly percentage change over 15 years ended
June 30, 1997.
PERFORMANCE SUMMARY
Class I
Franklin Templeton Conservative Target Fund - Class I reported a cumulative
total return of 9.21% for the seven-month period beginning December 31, 1996,
through July 31, 1997. Cumulative total return measures the change in value of
an investment, and does not include the initial sales charge.
As measured by net asset value, the price of the fund's shares increased $0.87,
from $10.00 on December 31, 1996, to $10.87 on July 31, 1997. During the
reporting period, shareholders received distributions totaling 4.8 cents
($0.048) per share in income dividends. Distributions will vary depending on
income earned by the fund, any profits realized from the sale of securities in
the fund's portfolio, the level of the fund's operating expenses, and the impact
of these same factors on the underlying funds held in our portfolio.
The graph on the following page compares the performance of Franklin Templeton
Conservative Target Fund - Class I with that of the Standard & Poor's(R) 500
Stock Index (S&P 500(R)),1 the Morgan Stanley Capital International(R) Europe
Australasia and Far East Index (MSCI-EAFE),2 the Lehman Brothers
Government/Corporate Bond Index (LBGC),3 and the 91-day U.S. Treasury Bill
Index4 for the period since inception on December 31, 1996, through July 31,
1997. We believe that these four indices are representative of the major
categories of the fund's allocations. Unmanaged indices have an inherent
performance differential over any fund. They do not pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike indices, mutual funds are
never fully invested because they need to have cash on hand to redeem shares or
pay for upcoming investments. In addition, the fund's performance includes the
maximum initial sales charge, all fund expenses and account fees. If the fund's
costs had been applied to the indices, their performance would have been lower.
Please remember that an index is simply a measure of performance and cannot be
invested in directly.
1. This index includes mainly large-cap U.S. stocks.
2. This index includes large-cap international stocks in 20 developed and
developing countries.
3. This index includes U.S. government bonds, and investment grade debt of U.S.
corporations.
4. This index includes the average yield of the 13 most recent 91-day U.S.
Treasury bills. Source: Micropal.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Templeton Conservative Target Fund - Class I
Period ended 7/31/97
Since Inception
(12/31/96)
Cumulative Total Return1 9.21%
Aggregate Total Return2 4.30%
Value of $10,000 Investment3 $10,430
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the sales charge.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes the maximum 4.50% initial sales charge. Since the
fund has existed for less than one year, average annual total returns are not
provided. See Note below.
3. This figure represents the value of a hypothetical $10,000 investment in the
fund over the period indicated and includes the sales charge.
Note: The fund's manager has agreed in advance to waive or limit the asset
allocation fee and/or make certain payments to reduce the fund's direct
operating expenses so that the fund's direct operating expenses do not exceed
0.75%. Absent this agreement, this fund's direct operating expenses would have
been higher and the aggregate total return would have been lower. The fee waiver
may be discontinued at any time, upon notice to the fund's Board of Trustees,
under conditions noted in the fund's prospectus.
All total returns assume reinvestment of dividends. Investment return and
principal value will fluctuate with market conditions, and you may have a gain
or loss when you sell your shares.
Class II
Franklin Templeton Conservative Target Fund - Class II reported a cumulative
total return of 8.48% for the seven-month period beginning December 31, 1996,
through July 31, 1997. Cumulative total return measures the change in value of
an investment, and does not include sales charges.
As measured by net asset value, the price of the fund's shares increased $0.81,
from $10.00 on December 31, 1996, to $10.81 on July 31, 1997. During the
reporting period, shareholders received distributions totaling 3.55 cents
($0.0355) per share in income dividends. Distributions will vary depending on
income earned by the fund, any profits realized from the sale of securities in
the fund's portfolio, the level of the fund's operating expenses, and the impact
of these same factors on the underlying funds held in our portfolio.
The graph on page 12 compares the performance of Franklin Templeton Conservative
Target Fund - Class II with that of the Standard & Poor's(R) 500 Stock Index
(S&P 500(R)),1 the Morgan Stanley Capital International(R) Europe Australasia
and Far East Index (MSCI-EAFE),2 the Lehman Brothers Government/Corporate Bond
Index (LBGC),3 and the 91-day U.S. Treasury Bill Index4 for the period since
inception on December 31, 1996, through July 31, 1997. We believe that these
four indices are representative of the major categories of the fund's
allocations. Unmanaged indices have an inherent performance differential over
any fund. They do not pay management fees to cover salaries of securities
analysts or portfolio managers, or pay commissions or market spreads to buy and
sell securities. Unlike indices, mutual funds are never fully invested because
they need to have cash on hand to redeem shares or pay for upcoming investments.
In addition, the fund's performance includes all sales charges, all fund
expenses and account fees. If the fund's costs had been applied to the indices,
their performance would have been lower. Please remember that an index is simply
a measure of performance and cannot be invested in directly.
1. This index includes mainly large-cap U.S. stocks.
2. This index includes large-cap international stocks in 20 developed and
developing countries.
3. This index includes U.S. government bonds, and investment grade debt of U.S.
corporations.
4.This index includes the average yield of the 13 most recent 91-day U.S.
Treasury bills. Source: Micropal.
GRAPHIC MATERIAL OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Templeton Conservative Target Fund - Class II
Period ended 7/31/97
Since Inception
(12/31/96)
Cumulative Total Return1 8.48%
Aggregate Total Return2 6.41%
Value of $10,000 Investment3 $10,641
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include sales charges.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes the 1.00% initial sales charge and the 1.00%
contingent deferred sales charge applicable to shares redeemed within 18 months
of purchase. Since the fund has existed for less than one year, average annual
total returns are not provided. See Note below.
3. This figure represents the value of a hypothetical $10,000 investment in the
fund over the period indicated and includes all sales charges.
Note: The fund's manager has agreed in advance to waive or limit the asset
allocation fee and/or make certain payments to reduce the fund's direct
operating expenses so that the fund's direct operating expenses do not exceed
1.50%. Absent this agreement, this fund's direct operating expenses would have
been higher and the aggregate total return would have been lower. The fee waiver
may be discontinued at any time, upon notice to the fund's Board of Trustees,
under conditions noted in the fund's prospectus.
All total returns assume reinvestment of dividends. Investment return and
principal value will fluctuate with market conditions, and you may have a gain
or loss when you sell your shares.
FRANKLIN TEMPLETON
MODERATE TARGET FUND
Your Fund's Objective: The Franklin Templeton Moderate Target Fund seeks the
highest level of long-term total return achievable at an intermediate level of
risk.
The performance of the Moderate Target Fund is affected by both the Fund's asset
allocation decisions and the security selection of the underlying funds. With
respect to asset allocation, we believe the fund benefited from its relatively
large exposure to U.S. and international equities, asset classes which performed
quite well. Our lower weighting of bonds relative to stocks also helped the
performance of the fund. With respect to security selection, the diversified
portfolios of our underlying U.S. equity funds included small-cap and value
stocks, as well as large-cap growth stocks. During the period under review,
large-cap growth stocks generally outperformed other categories within the U.S.
equity market. Had the diversified portfolio included a higher proportion of
large-cap growth stocks relative to the small-cap and value stocks, the total
return would likely have been enhanced. The pie chart on this page illustrates
the approximate portion of the portfolio dedicated to each of the major asset
classes as of July 31, 1997.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Total Return
Performance Comparison
(12/31/96 - 7/31/97)
Moderate Target Fund -
Class I1 13.05%
Moderate Target Fund -
Class II1 11.84%
Standard & Poor's(R)
500 Stock Index2 30.04%
MSCI - Europe Australasia
and Far East Stock Index2 13.01%
Lehman Brothers
Government/Corporate
Bond Index2 5.88%
91-day U.S. Treasury
Bill Index2 2.95%
1. Total return measures the change in value of an investment over the period
indicated, does not include the sales charge, and assumes reinvestment of
dividends and capital gains at net asset value.
2. Indices are unmanaged and include reinvested dividends. Please see
Performance Summaries.
The combination of these factors produced the returns shown in the table to the
left and discussed more fully in the Performance Summaries for Classes I and II.
It is important to remember that we maintain a long-term perspective when
managing the fund, and we encourage shareholders to view their investments in a
similar manner.
This discussion reflects the strategies we employed for the fund during the
period under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions, and decisions regarding portfolio holdings may change
as new circumstances arise. All figures shown are as of July 31, 1997, and the
level of the fund's holdings can be expected to change with market developments
and management of the portfolio. Although past performance of a specific
investment or sector cannot guarantee future performance, such information may
be useful in analyzing securities we purchase or sell for the fund.
Because the assets of some of the underlying funds are largely denominated in
foreign currencies, there is potential for significant gain or loss from
currency exchange rate fluctuations. While short-term volatility can be
disconcerting, declines of as much as 40% to 50% are not unusual in emerging
markets. For example, the Hong Kong market has increased 1,089% in the last 15
years, but has suffered five quarterly declines of more than 20% during that
time.*
*Source: Bloomberg. Based on quarterly percentage change over 15 years ended
June 30, 1997.
PERFORMANCE SUMMARY
Class I
Franklin Templeton Moderate Target Fund - Class I reported a cumulative total
return of 13.05% for the seven-month period beginning December 31, 1996, through
July 31, 1997. Cumulative total return measures the change in value of an
investment, and does not include the initial sales charge.
As measured by net asset value, the price of the fund's shares increased $1.26,
from $10.00 on December 31, 1996, to $11.26 on July 31, 1997. During the
reporting period, shareholders received distributions totaling 4.2 cents
($0.042) per share in income dividends. Distributions will vary depending on
income earned by the fund, any profits realized from the sale of securities in
the fund's portfolio, the level of the fund's operating expenses, and the impact
of these same factors on the underlying funds held in our portfolio.
The graph on the following page compares the performance of Franklin Templeton
Moderate Target Fund - Class I with that of the Standard & Poor's(R) 500 Stock
Index (S&P 500(R)),1 the Morgan Stanley Capital International(R) Europe
Australasia and Far East Index (MSCI-EAFE),2 the Lehman Brothers
Government/Corporate Bond Index (LBGC),3 and the 91-day U.S. Treasury Bill
Index4 for the period since inception on December 31, 1996, through July 31,
1997. We believe that these four indices are representative of the major
categories of the fund's allocations. Unmanaged indices have an inherent
performance differential over any fund. They do not pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike indices, mutual funds are
never fully invested because they need to have cash on hand to redeem shares or
pay for upcoming investments. In addition, the fund's performance includes the
maximum initial sales charge, all fund expenses and account fees. If the fund's
costs had been applied to the indices, their performance would have been lower.
Please remember that an index is simply a measure of performance and cannot be
invested in directly.
1. This index includes mainly large-cap U.S. stocks.
2. This index includes large-cap international stocks in 20 developed and
developing countries.
3. This index includes U.S. government bonds, and investment grade debt of U.S.
corporations.
4. This index includes the average yield of the 13 most recent 91-day U.S.
Treasury bills. Source: Micropal.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Templeton Moderate Target Fund - Class I
Period ended 7/31/97
Since Inception
(12/31/96)
Cumulative Total Return1 13.05%
Aggregate Total Return2 7.98%
Value of $10,000 Investment3 $10,798
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the sales charge.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes the maximum 4.50% initial sales charge. Since the
fund has existed for less than one year, average annual total returns are not
provided. See Note below.
3. This figure represents the value of a hypothetical $10,000 investment in the
fund over the period indicated and includes the sales charge.
Note: The fund's manager has agreed in advance to waive or limit the
asset allocation fee and/or make certain payments to reduce the fund's direct
operating expenses so that the fund's direct operating expenses do not exceed
0.75%. Absent this agreement, this fund's direct operating expenses would have
been higher and the aggregate total return would have been lower. The fee waiver
may be discontinued at any time, upon notice to the fund's Board of Trustees,
under conditions noted in the fund's prospectus.
All total returns assume reinvestment of dividends. Investment return and
principal value will fluctuate with market conditions, and you may have a gain
or loss when you sell your shares.
Class II
Franklin Templeton Moderate Target Fund - Class II reported a
cumulative total return of 11.84% for the seven-month period beginning December
31, 1996, through July 31, 1997. Cumulative total return measures the change in
value of an investment, and does not include sales charges.
As measured by net asset value, the price of the fund's shares increased $1.16,
from $10.00 on December 31, 1996, to $11.16 on July 31, 1997. During the
reporting period, shareholders received distributions totaling 2.3 cents
($0.023) per share in income dividends. Distributions will vary depending on
income earned by the fund, any profits realized from the sale of securities in
the fund's portfolio, the level of the fund's operating expenses, and the impact
of these same factors on the underlying funds held in our portfolio.
The graph on page 20 compares the performance of Franklin Templeton Moderate
Target Fund - Class II with that of the Standard & Poor's(R) 500 Stock Index
(S&P 500(R)),1 the Morgan Stanley Capital International(R) Europe Australasia
and Far East Index (MSCI-EAFE),2 the Lehman Brothers Government/Corporate Bond
Index (LBGC),3 and the 91-day U.S. Treasury Bill Index4 for the period since
inception on December 31, 1996, through July 31, 1997. We believe that these
four indices are representative of the major categories of the fund's
allocations. Unmanaged indices have an inherent performance differential over
any fund. They do not pay management fees to cover salaries of securities
analysts or portfolio managers, or pay commissions or market spreads to buy and
sell securities. Unlike indices, mutual funds are never fully invested because
they need to have cash on hand to redeem shares or pay for upcoming investments.
In addition, the fund's performance includes the maximum initial sales charge,
all fund expenses and account fees. If the fund's costs had been applied to the
indices, their performance would have been lower. Please remember that an index
is simply a measure of performance and cannot be invested in directly.
1. This index includes mainly large-cap U.S. stocks.
2. This index includes large-cap international stocks in 20 developed and
developing countries.
3. This index includes U.S. government bonds, and investment grade debt of U.S.
corporations.
4.This index includes the average yield of the 13 most recent 91-day U.S.
Treasury bills. Source: Micropal.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Templeton Moderate Target Fund - Class II
Period ended 7/31/97
Since Inception
(12/31/96)
Cumulative Total Return1 11.84%
Aggregate Total Return2 9.75%
Value of $10,000 Investment3 $10,975
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include sales charges.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes the 1.00% initial sales charge and the 1.00%
contingent deferred sales charge applicable to shares redeemed within 18 months
of purchase. Since the fund has existed for less than one year, average annual
total returns are not provided. See Note below.
3. This figure represents the value of a hypothetical $10,000 investment in the
fund over the period indicated and includes all sales charges.
Note: The fund's manager has agreed in advance to waive or limit the asset
allocation fee and/or make certain payments to reduce the fund's direct
operating expenses so that the fund's direct operating expenses do not exceed
1.50%. Absent this agreement, this fund's direct operating expenses would have
been higher and the aggregate total return would have been lower. The fee waiver
may be discontinued at any time, upon notice to the fund's Board of Trustees,
under conditions noted in the fund's prospectus.
All total returns assume reinvestment of dividends. Investment return and
principal value will fluctuate with market conditions, and you may have a gain
or loss when you sell your shares.
FRANKLIN TEMPLETON
GROWTH TARGET FUND
Your Fund's Objective: The Franklin Templeton Growth Target Fund seeks the
highest level of long-term total return achievable at a higher level of risk.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The performance of the Growth Target Fund is affected by both the Fund's asset
allocation decisions and the security selection of the underlying funds. With
respect to asset allocation, we believe the fund benefited from its relatively
large exposure to U.S. and international equities, asset classes which performed
quite well. Our small exposure to fixed-income securities also had a positive
effect. However, the low-yielding cash equivalents held by some of the
underlying funds hampered performance. With respect to security selection, the
diversified portfolios of our underlying U.S. equity funds included small-cap
and value stocks, as well as large-cap growth stocks. During the period under
review, large-cap growth stocks generally outperformed other categories within
the U.S. equity market. Had the diversified portfolio included a higher
proportion of large-cap growth stocks relative to the small-cap and value
stocks, the total return would likely have been enhanced. The pie chart on this
page illustrates the approximate portion of the portfolio dedicated to each of
the major asset classes as of July 31, 1997.
Total Return
Performance Comparison
(12/31/96 - 7/31/97)
Growth Target Fund -
Class I1 13.30%
Growth Target Fund -
Class II1 13.00%
Standard & Poor's(R)
500 Stock Index2 30.04%
MSCI - Europe Australasia
and Far East Stock Index2 13.01%
Lehman Brothers
Government/Corporate
Bond Index2 5.88%
91-day U.S. Treasury
Bill Index2 2.95%
1. Total return measures the change in value of an investment over the period
indicated, does not include the sales charge, and assumes reinvestment of
dividends and capital gains at net asset value.
2. Indices are unmanaged and include reinvested dividends. Please see
Performance Summaries.
The combination of these factors produced the returns shown in the table to the
left and discussed more fully in the Performance Summaries for Classes I and II.
It is important to remember that we maintain a long-term perspective when
managing the fund, and we encourage shareholders to view their investments in a
similar manner.
This discussion reflects the strategies we employed for the fund during the
period under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions, and decisions regarding portfolio holdings may change
as new circumstances arise. All figures shown are as of July 31, 1997, and the
level of the fund's holdings can be expected to change with market developments
and management of the portfolio. Although past performance of a specific
investment or sector cannot guarantee future performance, such information may
be useful in analyzing securities we purchase or sell for the fund.
Because the assets of some of the underlying funds are largely denominated in
foreign currencies, there is potential for significant gain or loss from
currency exchange rate fluctuations. While short-term volatility can be
disconcerting, declines of as much as 40% to 50% are not unusual in emerging
markets. For example, the Hong Kong market has increased 1,089% in the last 15
years, but has suffered five quarterly declines of more than 20% during that
time.*
*Source: Bloomberg. Based on quarterly percentage change over 15 years ended
June 30, 1997.
PERFORMANCE SUMMARY
Class I
Franklin Templeton Growth Target Fund - Class I reported a cumulative total
return of 13.30% for the seven-month period beginning December 31, 1996, through
July 31, 1997. Cumulative total return measures the change in value of an
investment, and does not include the initial sales charge.
As measured by net asset value, the price of the fund's shares increased $1.33,
from $10.00 on December 31, 1996, to $11.33 on July 31, 1997. There were no
shareholder distributions during the reporting period. Future distributions, if
any, will vary depending on income earned by the fund, any profits realized from
the sale of securities in the fund's portfolio, the level of the fund's
operating expenses, and the impact of these same factors on the underlying funds
held in our portfolio.
The graph on the following page compares the performance of Franklin Templeton
Growth Target Fund - Class I with that of the Standard & Poor's(R) 500 Stock
Index (S&P 500(R)),1 the Morgan Stanley Capital International(R) Europe
Australasia and Far East Index (MSCI-EAFE),2 the Lehman Brothers
Government/Corporate Bond Index (LBGC),3 and the 91-day U.S. Treasury Bill
Index4 for the period since inception on December 31, 1996, through July 31,
1997. We believe that these four indices are representative of the major
categories of the fund's allocations. Unmanaged indices have an inherent
performance differential over any fund. They do not pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike indices, mutual funds are
never fully invested because they need to have cash on hand to redeem shares or
pay for upcoming investments. In addition, the fund's performance includes the
maximum initial sales charge, all fund expenses and account fees. If the fund's
costs had been applied to the indices, their performance would have been lower.
Please remember that an index is simply a measure of performance and cannot be
invested in directly.
1. This index includes mainly large-cap U.S. stocks.
2. This index includes large-cap international stocks in 20 developed and
developing countries.
3. This index includes U.S. government bonds, and investment grade debt of U.S.
corporations.
4. This index includes the average yield of the 13 most recent 91-day U.S.
Treasury bills. Source: Micropal.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Templeton Growth Target Fund - Class I
Period ended 7/31/97
Since Inception
(12/31/96)
Cumulative Total Return1 13.30%
Aggregate Total Return2 8.21%
Value of $10,000 Investment3 $10,821
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the sales charge.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes the maximum 4.50% initial sales charge. Since the
fund has existed for less than one year, average annual total returns are not
provided. See Note below.
3. This figure represents the value of a hypothetical $10,000 investment in the
fund over the period indicated and includes the sales charge.
Note: The fund's manager has agreed in advance to waive or limit the asset
allocation fee and/or make certain payments to reduce the fund's direct
operating expenses so that the fund's direct operating expenses do not exceed
0.75%. Absent this agreement, this fund's direct operating expenses would have
been higher and the aggregate total return would have been lower. The fee waiver
may be discontinued at any time, upon notice to the fund's Board of Trustees,
under conditions noted in the fund's prospectus.
Investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
Class II
Franklin Templeton Growth Target Fund - Class II reported a cumulative total
return of 13.00% for the seven-month period beginning December 31, 1996, through
July 31, 1997. Cumulative total return measures the change in value of an
investment, and does not include sales charges.
As measured by net asset value, the price of the fund's shares increased $1.30,
from $10.00 on December 31, 1996, to $11.30 on July 31, 1997. There were no
shareholder distributions during the reporting period. Future distributions, if
any, will vary depending on income earned by the fund, any profits realized from
the sale of securities in the fund's portfolio, the level of the fund's
operating expenses, and the impact of these same factors on the underlying funds
held in our portfolio.
The graph on page 28 compares the performance of Franklin Templeton Growth
Target Fund - Class II with that of the Standard & Poor's(R) 500 Stock Index
(S&P 500(R)),1 the Morgan Stanley Capital International(R) Europe Australasia
and Far East Index (MSCI-EAFE),2 the Lehman Brothers Government/CorporateBond
Index (LBGC),3 and the 91-day U.S. Treasury Bill Index4 for the period since
inception on December 31, 1996, through July 31, 1997. We believe that these
four indices are representative of the major categories of the fund's
allocations. Unmanaged indices have an inherent performance differential over
any fund. They do not pay management fees to cover salaries of securities
analysts or portfolio managers, or pay commissions or market spreads to buy and
sell securities. Unlike indices, mutual funds are never fully invested because
they need to have cash on hand to redeem shares or pay for upcoming investments.
In addition, the fund's performance includes the maximum initial sales charge,
all fund expenses and account fees. If the fund's costs had been applied to the
indices, their performance would have been lower. Please remember that an index
is simply a measure of performance and cannot be invested in directly.
1. This index includes mainly large-cap U.S. stocks.
2. This index includes large-cap international stocks in 20 developed and
developing countries.
3. This index includes U.S. government bonds, and investment grade debt of U.S.
corporations.
4. This index includes the average yield of the 13 most recent 91-day U.S.
Treasury bills. Source: Micropal.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Templeton Growth Target Fund - Class II
Period ended 7/31/97
Since Inception
(12/31/96)
Cumulative Total Return1 13.00%
Aggregate Total Return2 10.89%
Value of $10,000 Investment3 $11,089
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include sales charges.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes the 1.00% initial sales charge and the 1.00%
contingent deferred sales charge applicable to shares redeemed within 18 months
of purchase. Since the fund has existed for less than one year, average annual
total returns are not provided. See Note below.
3. This figure represents the value of a hypothetical $10,000 investment in the
fund over the period indicated and includes all sales charges.
Note: The fund's manager has agreed in advance to waive or limit the asset
allocation fee and/or make certain payments to reduce the fund's direct
operating expenses so that the fund's direct operating expenses do not exceed
1.50%. Absent this agreement, this fund's direct operating expenses would have
been higher and the aggregate total return would have been lower. The fee waiver
may be discontinued at any time, upon notice to the fund's Board of Trustees,
under conditions noted in the fund's prospectus.
Investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments in Securities and Net Assets, July 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES Franklin Templeton Conservative Target Fund (NOTE1)
a Mutual Funds 101.1%
<S> <C> <C>
199,614 Franklin AGE High Income Fund .................................................. $ 596,846
18,922 Franklin Growth Fund ........................................................... 514,673
9,379 Franklin Real Estate Securities Fund ........................................... 160,937
5,497 Franklin Small Cap Growth Fund ................................................. 130,498
13,243 Franklin Templeton German Government Bond Fund ................................. 144,613
11,350 Franklin Templeton Hard Currency Fund .......................................... 112,248
58,176 Franklin U.S. Government Securities Fund ....................................... 402,581
24,478 Franklin Utilities Fund ........................................................ 244,533
3,119 Franklin Value Fund ............................................................ 73,582
35,140 Mutual Discovery Fund .......................................................... 704,565
21,787 Mutual Shares Fund ............................................................. 479,751
5,112 Templeton Developing Markets Trust ............................................. 98,198
21,497 Templeton Foreign Fund ......................................................... 255,175
70,207 Templeton Global Bond Fund ..................................................... 692,948
6,034 Templeton Global Smaller Companies Fund ........................................ 57,802
-------------
Total Long Term Investments (Cost $4,458,916) ............................ 4,668,950
-------------
FACE
AMOUNT
b Receivables from Repurchase Agreements 0.3%
$13,289 Joint Repurchase Agreement, 5.753%, 08/01/97, (Maturity Value $12,707) (Cost $12,705)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,137)
Collateral: U.S. Treasury Notes, 5.50% - 6.875%, 05/31/99 - 04/30/01
Bear, Stearns & Co., Inc., (Maturity Value $1,137)
Collateral: U.S. Treasury Notes, 5.625% - 7.875%, 06/30/98 - 05/15/02
Chase Securities, Inc., (Maturity Value $625)
Collateral: U.S. Treasury Notes, 5.75% - 6.00%, 10/31/97 - 05/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $1,137)
Collateral: U.S. Treasury Bills, 09/11/97
U.S. Treasury Notes, 5.25% - 6.125%, 12/31/97 - 04/30/98 Daiwa
Securities America, Inc., (Maturity Value $1,137) Collateral:
U.S. Treasury Notes, 5.50% - 6.375%, 11/15/98 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value
$1,137) Collateral: U.S. Treasury Notes, 6.125% - 8.25%,
02/15/98 - 11/15/01 Dresdner Kleinwort Benson North America,
L.L.C., (Maturity Value $712) Collateral: U.S. Treasury Notes,
4.75% - 5.875%, 08/31/98 - 10/31/98 Fuji Securities, Inc.,
(Maturity Value $1,137) Collateral: U.S. Treasury Notes, 5.50%
- 7.50%, 09/30/97 - 11/15/01 Greenwich Capital Markets, Inc.,
(Maturity Value $1,137) Collateral: U.S. Treasury Notes,
7.25%, 02/15/98
SBC Warburg, Inc., (Maturity Value $1,137)
Collateral: U.S. Treasury Notes, 5.125% - 7.75%, 10/15/98 - 01/31/00
The Nikko Securities Co. International, Inc., (Maturity Value $1,137)
Collateral: U.S. Treasury Notes, 4.75% - 9.125%, 10/15/97 - 07/31/00
UBS Securities, L.L.C., (Maturity Value $1,137)
Collateral: U.S. Treasury Notes, 5.625% - 6.375%, 07/31/98 - 03/31/01 ......... $ 12,705
-------------
Total Investments (Cost $4,471,621) 101.4% .......................... 4,681,655
Liabilities in Excess of Other Assets (1.4)% ........................ (62,824)
-------------
Net Assets 100.0% ................................................... $4,618,831
=============
At July 31, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $4,475,215 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost .............................................. $ 222,939
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value .............................................. (16,499)
-------------
Net unrealized appreciation .................................................. $ 206,440
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aAll investments in the underlying funds are in Advisor Class or Class Z shares
of those funds. Such shares carry no sales charges or distribution fees. bFace
amount for repurchase agreements is for the underlying collateral. See Note 1(g)
regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments in Securities and Net Assets, July 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES Franklin Templeton Moderate Target Fund (NOTE1)
a Mutual Funds 99.2%
<S> <C> <C>
389,652 Franklin AGE High Income Fund .................................................. $ 1,165,061
38,217 Franklin Equity Fund ........................................................... 420,011
98,093 Franklin Growth Fund ........................................................... 2,668,145
33,850 Franklin Natural Resources Fund ................................................ 537,213
20,044 Franklin Real Estate Securities Fund ........................................... 343,967
12,971 Franklin Small Cap Growth Fund ................................................. 307,937
39,065 Franklin Templeton German Government Bond Fund ................................. 426,593
507 Franklin Templeton Hard Currency Fund .......................................... 5,018
68,327 Franklin U.S. Government Securities Fund ....................................... 472,827
22,592 Franklin Utilities Fund ........................................................ 225,700
10,360 Franklin Value Fund ............................................................ 244,394
95,462 Mutual Discovery Fund .......................................................... 1,914,029
40,310 Mutual Shares Fund ............................................................. 887,634
15,167 Templeton Developing Markets Trust ............................................. 291,372
52,745 Templeton Foreign Fund ......................................................... 626,091
23,077 Templeton Global Bond Fund ..................................................... 227,777
35,622 Templeton Global Smaller Companies Fund ........................................ 341,261
-------------
Total Long Term Investments (Cost $10,459,620)............................ 11,105,030
-------------
FACE
AMOUNT
b Receivables from Repurchase Agreements 0.3%
$28,793 Joint Repurchase Agreement, 5.753%, 08/01/97, (Maturity Value $28,566) (Cost $28,562)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,556)
Collateral: U.S. Treasury Notes, 5.50% - 6.875%, 05/31/99 - 04/30/01
Bear, Stearns & Co., Inc., (Maturity Value $2,556)
Collateral: U.S. Treasury Notes, 5.625% - 7.875%, 06/30/98 - 05/15/02
Chase Securities, Inc., (Maturity Value $1,403)
Collateral: U.S. Treasury Notes, 5.75% - 6.00%, 10/31/97 - 05/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $2,556)
Collateral: U.S. Treasury Bills, 09/11/97
U.S. Treasury Notes, 5.25% - 6.125%, 12/31/97 - 04/30/98
Daiwa Securities America, Inc., (Maturity Value $2,556)
Collateral: U.S. Treasury Notes, 5.50% - 6.375%, 11/15/98 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,556)
Collateral: U.S. Treasury Notes, 6.125% - 8.25%, 02/15/98 - 11/15/01
Dresdner Kleinwort Benson North America, L.L.C., (Maturity Value $1,598)
Collateral: U.S. Treasury Notes, 4.75% - 5.875%, 08/31/98 - 10/31/98
Fuji Securities, Inc., (Maturity Value $2,557)
Collateral: U.S. Treasury Notes, 5.50% - 7.50%, 09/30/97 - 11/15/01
Greenwich Capital Markets, Inc., (Maturity Value $2,557)
Collateral: U.S. Treasury Notes, 7.25%, 02/15/98
SBC Warburg, Inc., (Maturity Value $2,557)
Collateral: U.S. Treasury Notes, 5.125% - 7.75%, 10/15/98 - 01/31/00
The Nikko Securities Co. International, Inc., (Maturity Value $2,557)
Collateral: U.S. Treasury Notes, 4.75% - 9.125%, 10/15/97 - 07/31/00
UBS Securities, L.L.C., (Maturity Value $2,557)
Collateral: U.S. Treasury Notes, 5.625% - 6.375%, 07/31/98 - 03/31/01 ......... $ 28,562
-------------
Total Investments (Cost $10,488,182) 99.5%........................... 11,133,592
Other Assets and Liabilities, Net 0.5%............................... 59,362
-------------
Net Assets 100.0%.................................................... $11,192,954
=============
At July 31, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $10,537,609 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................. $ 637,898
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................. (41,915)
-------------
Net unrealized appreciation .................................................. $ 595,983
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aAll investments in the underlying funds are in Advisor Class or Class Z shares
of those funds. Such shares carry no sales charges or distribution fees. bFace
amount for repurchase agreements is for the underlying collateral. See Note 1(g)
regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments in Securities and Net Assets, July 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES Franklin Templeton Growth Target Fund (NOTE1)
a Mutual Funds 99.6%
<S> <C> <C>
153,452 Franklin AGE High Income Fund .................................................. $ 458,821
123,948 Franklin Growth Fund ........................................................... 3,371,378
108,953 Franklin Natural Resources Fund ................................................ 1,729,083
22,479 Franklin Real Estate Securities Fund ........................................... 385,735
20,381 Franklin Small Cap Growth Fund ................................................. 483,839
46,429 Franklin Templeton German Government Bond Fund ................................. 507,008
81,562 Franklin U.S. Government Securities Fund ....................................... 564,406
24,080 Franklin Utilities Fund ........................................................ 240,560
32,186 Franklin Value Fund ............................................................ 759,274
137,473 Mutual Discovery Fund .......................................................... 2,756,336
38,094 Mutual Shares Fund ............................................................. 838,838
22,732 Templeton Developing Markets Trust ............................................. 436,690
103,051 Templeton Foreign Fund ......................................................... 1,223,209
57,329 Templeton Global Smaller Companies Fund ........................................ 549,214
-------------
Total Long Term Investments (Cost $13,534,178)............................ 14,304,391
-------------
FACE
AMOUNT
b Receivables from Repurchase Agreements 0.4%
$62,015 Joint Repurchase Agreement, 5.753%, 08/01/97, (Maturity Value $62,084) (Cost $62,074)
Aubrey G. Lanston & Co., Inc., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 5.50% - 6.875%, 05/31/99 - 04/30/01
Bear, Stearns & Co., Inc., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 5.625% - 7.875%, 06/30/98 - 05/15/02
Chase Securities, Inc., (Maturity Value $3,050)
Collateral: U.S. Treasury Notes, 5.75% - 6.00%, 10/31/97 - 05/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $5,556)
Collateral: U.S. Treasury Bills, 09/11/97
U.S. Treasury Notes, 5.25% - 6.125%, 12/31/97 - 04/30/98
Daiwa Securities America, Inc., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 5.50% - 6.375%, 11/15/98 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 6.125% - 8.25%, 02/15/98 - 11/15/01
Dresdner Kleinwort Benson North America, L.L.C., (Maturity Value $3,474)
Collateral: U.S. Treasury Notes, 4.75% - 5.875%, 08/31/98 - 10/31/98
Fuji Securities, Inc., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 5.50% - 7.50%, 09/30/97 - 11/15/01
Greenwich Capital Markets, Inc., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 7.25%, 02/15/98
SBC Warburg, Inc., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 5.125% - 7.75%, 10/15/98 - 01/31/00
The Nikko Securities Co. International, Inc., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 4.75% - 9.125%, 10/15/97 - 07/31/00
UBS Securities, L.L.C., (Maturity Value $5,556)
Collateral: U.S. Treasury Notes, 5.625% - 6.375%, 07/31/98 - 03/31/01 ......... $ 62,074
-------------
Total Investments (Cost $13,596,252) 100.0% ......................... 14,366,465
Other Assets and Liabilities, Net .................................... 3,959
-------------
Net Assets 100.0% ................................................... $14,370,424
=============
At July 31, 1997, the net unrealized appreciation based on the
cost of investments for income tax purposes of $13,606,373 was
as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................... $ 792,155
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................... (32,063)
-------------
Net unrealized appreciation .................................................. $ 760,092
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aAll investments in the underlying funds are in Advisor Class or Class Z shares
of those funds. Such shares carry no sales charges or distribution fees. bFace
amount for repurchase agreements is for the underlying collateral. See Note 1(g)
regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements
Statements of Assets and Liabilities
July 31, 1997
<TABLE>
<CAPTION>
Franklin TempletonFranklin TempletonFranklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
----------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
At identified cost $4,458,916 $10,459,620 $13,534,178
==========================================================
At value 4,668,950 11,105,030 14,304,391
Receivables from repurchase
agreements, at value and cost 12,705 28,562 62,074
Cash 8,844 76,512 17,621
Receivables:
Capital shares sold 369 29,705 48,199
From affiliates 28,446 17,756 26,608
Unamortized offering costs 9,977 9,977 9,977
Unamortized organization costs 60,361 60,361 60,361
----------------------------------------------------------
Total assets 4,789,652 11,327,903 14,529,231
----------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- 15,998 50,000
Capital shares repurchased 69,820 -- --
Distribution fees 5,935 12,120 10,480
Organization costs 68,333 68,333 68,333
Offering costs 23,946 23,946 23,946
Accrued expenses
and other liabilities 2,787 14,552 6,048
----------------------------------------------------------
Total liabilities 170,821 134,949 158,807
----------------------------------------------------------
Net assets, at value $4,618,831 $11,192,954 $14,370,424
==========================================================
Net assets consist of:
Undistributed net investment income $ 29,104 $ 92,415 $ 55,207
Net unrealized appreciation on investments 210,034 645,410 770,213
Accumulated net realized
gain (loss) from investments 1,422 608,185 (10,238)
Class I capital shares 1,529,464 5,418,048 9,128,579
Class II capital shares 2,848,807 4,428,896 4,426,663
----------------------------------------------------------
Net assets, at value $4,618,831 $11,192,954 $14,370,424
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Franklin TempletonFranklin TempletonFranklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
----------------------------------------------------------
<S> <C> <C> <C>
Class I Shares:
Net assets, at value $1,609,236 $ 6,497,938 $ 9,637,794
==========================================================
Shares outstanding 148,049 577,198 850,786
==========================================================
Net asset value per share* $10.87 $11.26 $11.33
==========================================================
Maximum offering price per share
(100/95.5 of net asset value per share) $11.38 $11.79 $11.86
==========================================================
Class II Shares:
Net assets, at value $3,009,595 $ 4,695,016 $ 4,732,630
==========================================================
Shares outstanding 278,499 420,721 418,893
==========================================================
Net asset value per share* $10.81 $11.16 $11.30
==========================================================
Maximum offering price per share
(100/99 of net asset value per share) $10.92 $11.27 $11.41
==========================================================
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Operations
for the period December 31, 1996 (effective date) to July 31, 1997
Franklin TempletonFranklin TempletonFranklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
----------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends $ 45,999 $ 173,723 $ 76,690
Interest (Note 1) 576 11,424 1,895
----------------------------------------------------------
46,575 185,147 78,585
----------------------------------------------------------
Expenses:
Asset allocation fees (Note 7) 2,583 13,870 5,826
Distribution fees - Class I (Note 7) 302 7,802 3,381
Distribution fees - Class II (Note 7) 6,849 8,925 8,541
Shareholder servicing costs (Note 7) 1,434 3,117 5,120
Amortization of offering costs 13,969 13,969 13,969
Amortization of organization costs 7,972 7,972 7,972
Registration and filing fees 6,575 5,500 4,800
Professional fees 2,558 13,597 5,665
Reports to shareholders 1,009 1,580 1,698
Other 507 598 505
Asset allocation fees
waived by manager (Note 7) (2,583) (13,870) (5,826)
Other expenses assumed by manager (28,871) (18,724) (28,273)
----------------------------------------------------------
Total expenses 12,304 44,336 23,378
----------------------------------------------------------
Net investment income 34,271 140,811 55,207
----------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) 1,422 608,185 (10,238)
Net unrealized appreciation 210,034 645,410 770,213
----------------------------------------------------------
Net realized and unrealized gain on investments 211,456 1,253,595 759,975
----------------------------------------------------------
Net increase in net assets resulting from operations $245,727 $1,394,406 $815,182
==========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
for the period December 31, 1996 (effective date) to July 31, 1997
Franklin TempletonFranklin TempletonFranklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
----------------------------------------------------------
1997 1997 1997
----------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 34,271 $ 140,811 $ 55,207
Net realized gain (loss)
from security transactions 1,422 608,185 (10,238)
Net unrealized appreciation on investments 210,034 645,410 770,213
----------------------------------------------------------
Net increase in net assets
resulting from operations 245,727 1,394,406 815,182
Distributions to shareholders from
undistributed net investment income:
Class I (2,504) (44,458) --
Class II (2,663) (3,938) --
Increase in net assets from
capital share transactions (Note 4) 4,338,271 9,806,944 13,515,242
----------------------------------------------------------
Net increase in net assets 4,578,831 11,152,954 14,330,424
Net assets:
Beginning of period 40,000 40,000 40,000
----------------------------------------------------------
End of period $4,618,831 $11,192,954 $14,370,424
==========================================================
Undistributed net investment income included in net assets:
Beginning of period $-- $-- $--
==========================================================
End of period $ 29,104 $ 92,415 $ 55,207
==========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is an open-end management
investment company (mutual fund), registered under the Investment Company Act of
1940, as amended. The Trust consists of three separate non-diversified series
(the Funds): Franklin Templeton Conservative Target Fund (the Conservative
Target Fund), Franklin Templeton Moderate Target Fund (the Moderate Target
Fund), and Franklin Templeton Growth Target Fund (the Growth Target Fund). Each
of the Funds issues a separate series of the Trust's shares and maintains a
totally separate investment portfolio. The investment objective of each Fund is
to seek the highest level of long-term total return that is consistent with an
acceptable level of risk.
The Funds offer two classes of shares, Class I and Class II. Class I shares are
sold with a higher front-end sales charge than Class II shares. Each class of
shares may be subject to a contingent deferred sales charge and has the same
rights, except with respect to the effect of the respective sales charges, the
distribution fees borne by each class, voting rights on matters affecting a
single class and the exchange privilege of each class.
The Funds invest primarily in open-end investment companies that are members of
the Franklin Templeton Group of Funds (individually, an "Underlying Fund" and
collectively, the "Underlying Funds"). The Underlying Funds include funds
investing in U.S. and foreign stocks, bonds, and money market instruments. At
any point in time, it can be expected that each Fund will invest in a different
combination of Underlying Funds, reflecting the different levels of risk and
return each Fund seeks.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Investments in the Underlying Funds are valued at the closing net asset value
per share of each Underlying Fund on the day of valuation.
b. Income Taxes:
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Funds from income and excise taxes. Each Fund is treated as a separate entity in
the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Investments in the Underlying Funds are accounted for on the date the Underlying
Funds are purchased or sold (trade date). Realized gains and losses on
investments in the Underlying Funds are determined on the basis of specific
identification.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Realized and unrealized gains or losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative portion of net assets of each class.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
e. Accounting Estimates:
The preparation of the financial statements in accordance with generally
accepted accounting principles 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 expense during
the reporting period. Actual results could differ from those estimates.
f. Expense Allocation:
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. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
g. Repurchase Agreements:
The Funds may enter into joint repurchase agreement whereby its uninvested cash
balance is deposited into a joint cash account to be used to invest in one or
more repurchase agreements with government securities dealers recognized by the
Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the joint repurchase agreement are allocated to the
Fund based on its pro-rata interest. A repurchase agreement is accounted for as
a loan by the Fund to the seller, collateralized by underlying U.S. government
securities, which are delivered to the Fund's custodian. The market value,
including accrued interest, of the initial collateralization is required to be
at least 102% of the dollar amount invested by the Funds, with the value of the
underlying securities marked to market daily to maintain coverage of at least
100%. At July 31, 1997, all outstanding repurchase agreements held by the Funds
had been entered into on that date.
2. ORGANIZATION COSTS
The organization costs of the Funds are amortized on a straight-line basis over
a period of five years from the effective date
of registration under the Securities Act of 1933. In the event Franklin
Resources, Inc. (Resources) (which was the sole shareholder prior to effective
date) redeems its initial shares within the five-year period, the pro-rata share
of the then-unamortized deferred organization costs will be deducted from the
redemption price paid to Resources. New investors purchasing shares
of the Fund subsequent to that date bear such costs during the amortization
period only as such charges are accrued daily against investment income.
Franklin Advisers, Inc. (Advisers), the Funds' investment manager, advanced the
organization costs of each of the Funds.
3. OFFERING COSTS
The offering costs of the Funds are amortized on a straight-line basis over a
period of twelve months from the effective date of registration under the
Securities Act of 1933. Advisers advanced the offering costs of each of the
Funds.
4. CAPITAL STOCK
At July 31, 1997, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the seven months ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
Franklin Templeton Franklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
---------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class I Shares:
1997
Shares sold 147,156 $1,521,029 2,285,701 $23,471,335 1,057,498 $11,368,939
Shares issued
in reinvestment
of distributions 237 2,481 4,211 44,361 -- --
Shares redeemed (1,344) (14,046) (1,714,714) (18,117,648) (208,712) (2,260,360)
---------------------------------------------------------------------------------------------------------
Net increase 146,049 $1,509,464 575,198 $ 5,398,048 848,786 $ 9,108,579
=========================================================================================================
Class II Shares:
1997
Shares sold 290,216 $2,972,947 445,681 $ 4,698,104 424,731 $ 4,492,477
Shares issued
in reinvestment
of distributions 254 2,624 369 3,934 -- --
Shares redeemed (13,971) (146,764) (27,329) (293,142) (7,838) (85,814)
---------------------------------------------------------------------------------------------------------
Net increase 276,499 $2,828,807 418,721 $ 4,408,896 416,893 $ 4,406,663
=========================================================================================================
</TABLE>
5. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At July 31, 1997, for tax purposes, the Funds had accumulated net realized
capital gains or capital loss carryovers as follows:
Franklin Franklin
Templeton Templeton
Conservative Moderate
Target Fund Target Fund
Accumulated net realized gains $5,016 $657,612
Franklin
Templeton
Growth
Target Fund
Capital loss carryover expiring in 2005 $117
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower) than for financial reporting purposes at July 31, 1997 by
$3,594 in the Conservative Target Fund, $49,427 in the Moderate Target Fund, and
$10,121 in the Growth Target Fund.
6. PURCHASES AND SALES OF SECURITIES
Purchases and sales of the Underlying Funds for the period ended July 31, 1997,
were as follows:
Franklin Franklin Franklin
Templeton Templeton Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
-----------------------------------------------------
Purchases $5,143,427 $35,153,173 $16,852,402
Sales $ 685,933 $25,301,738 $ 3,307,986
7. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Investment Advisory and Asset Allocation Agreement:
Under the terms of an investment advisory and asset allocation agreement,
Advisers provides asset allocation advice and receives fees computed monthly at
0.25% of each Fund's average daily net assets.
For the period ended July 31, 1997, Advisers agreed in advance to waive asset
allocation fees and assume payment of other expenses as noted in the Statement
of Operations.
b. Administrative Services:
Under the terms of an administration agreement, Franklin Templeton Services,
Inc. (FT Services) provides certain administrative services and facilities for
the Fund at no charge.
c. Shareholder Services Agreement:
Under the terms of a shareholder service agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the period ended July 31, 1997, aggregated $9,671, all of which was paid to
Investor Services.
d. Distribution Plans and Underwriting Agreement:
Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Funds reimburse Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to a maximum of 0.25% per
annum for Class I and 1.00% per annum for Class II, of the average daily net
assets of such class for the Funds, for costs incurred in the promotion,
offering and marketing of the Funds' shares. The Plans do not permit nor require
payments of excess costs after termination. Fees incurred by the Funds under the
Plans aggregated $35,800 for the period ended July 31, 1997.
In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' shares of beneficial interest.
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Funds, and as such are not expenses of the Funds. Distributors may
also make payments, out of its own resources, to the dealers for certain sales
of the Funds' shares. Commissions received by Distributors, the amounts paid to
other dealers and any applicable contingent deferred sales charges (CDSC) for
the period ended July 31, 1997, were as follows:
7. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
d. Distribution Plans and Underwriting Agreement: (cont.)
<TABLE>
<CAPTION>
Franklin Franklin Franklin
Templeton Templeton Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
-----------------------------------------------------
<S> <C> <C> <C>
Total commissions received,
including CDSC $51,508 $100,721 $127,175
Paid to other dealers $61,571 $107,697 $134,929
CDSC $ 1,164 $ 2,377 $ 500
</TABLE>
e. Other Affiliated Parties and Transactions:
Certain officers and directors of the Trust are also officers and/or directors
of Advisers, FT Services, Investor Services, and Distributors, all wholly-owned
subsidiaries of Resources and the Underlying Funds.
8. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period by Fund are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Ratio
Net Distri- Net Net of Net
Net Asset Net Realized & Total butions Asset Assets Ratio of Investment
Year Value at Invest- Unrealized From From Net Total Value at End Expenses Income Portfolio
Ended Beginning ment Gain on Investment Investment Distri- at End Total of Period to Average to Average Turnover
July 31, of Period Income Securities Operations Income butions of Period Return+ (in 000's)Net Assets++ Net Assets Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Templeton Conservative Target Fund
Class I Shares:
1997** $10.00 $.12 $ .80 $ .92 $(.05) $(.05) $10.87 9.21% $1,609 0.59%* 3.93%* 33.30%
Class II Shares:
1997** 10.00 .10 .75 .85 (.04) (.04) 10.81 8.48 3,010 1.48* 3.04* 33.30
Franklin Templeton Moderate Target Fund
Class I Shares:
1997** 10.00 .17 1.13 1.30 (.04) (.04) 11.26 13.05 6,498 0.67* 2.69* 264.78
Class II Shares:
1997** 10.00 .07 1.11 1.18 (.02) (.02) 11.16 11.84 4,695 1.50* 1.86* 264.78
Franklin Templeton Growth Target Fund
Class I Shares:
1997** 10.00 .05 1.28 1.33 -- -- 11.33 13.30 9,638 0.73* 2.65* 65.52
Class II Shares:
1997** 10.00 .04 1.26 1.30 -- -- 11.30 13.00 4,733 1.49* 1.89* 65.52
</TABLE>
*Annualized
**For the period December 31, 1996 (effective date) to July 31, 1997.
8. FINANCIAL HIGHLIGHTS (cont.)
+Total return measures the change in value of an investment over the period
indicated. It is not annualized. It does not include the maximum front-end sales
charge or contingent deferred sales charge, and assumes reinvestment of
dividends and capital gains at net asset value.
++During the periods indicated, Advisers agreed in advance to waive the asset
allocation fees and made payments of other expenses incurred by the Funds. Had
such action not been taken, the ratio of expenses to average net assets would
have been as follows:
Ratio of
Expenses to
Average
Net Assets
Franklin Templeton Conservative Target Fund
Class I Shares:
1997** 3.64%*
Class II Shares:
1997** 4.53*
Franklin Templeton Moderate Target Fund
Class I Shares:
1997** 1.26*
Class II Shares:
1997** 2.09*
Franklin Templeton Growth Target Fund
Class I Shares:
1997** 2.19*
Class II Shares:
1997** 2.95*
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Report of Independent Auditors
To the Shareholders and Board of Trustees
of Franklin Templeton Fund Allocator Series:
We have audited the accompanying statements of assets and liabilities of the
three Funds comprising the Franklin Templeton Fund Allocator Series, including
each Fund's statement of investments in securities and net assets, as of July
31, 1997, and the related statements of operations, the statements of changes in
net assets, and the financial highlights for the period December 31, 1996
(effective date) to July 31, 1997. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of July
31, 1997, through inspection of the underlying Funds' transfer agent records. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds comprising the Franklin Templeton Fund Allocator Series as of July
31, 1997, the results of their operations, the changes in their net assets, and
the financial highlights for the period December 31, 1996 (effective date) to
July 31, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
September 11, 1997
Franklin Templeton Fund Allocator Annual Report July 31, 1997.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304
(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the asset allocation of the Franklin Templeton
Conservative Target Fund's securities on July 31, 1997, based on total net
assets.
Asset Allocation on July 31, 1997
U.S. Equities 32%
International Equities 14%
U.S. Fixed Income Securities 27%
International Fixed Income Securities 13%
Short-Term Obligations and Other Net Assets 14%
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the Franklin
Templeton Conservative Target Fund Class I shares to that of the 91-day U.S.
Treasury Bill Index, the MSCI-EAFE Index, the Lehman Brothers
Government/Corporate Bond Index, and the S&P 500 Stock Index, based on a $10,000
investment from 12/31/96 to 7/31/97.
Period Ending Fund S&P 500 MSCI-EAFE LBGC U.S. T-Bills
MSCI EAFE LB U.S.
FT CONSERVATIVE (NET GOV'T./CORP. TREASURY
DATE TARGET FUND - CLASS I S&P 500 DIVIDENDS) BOND INDEX BILLS
---- -------------- ------- ---------- ---------- -----
12/31/1996 $9,551 $10,000 $10,000 $10,000 $10,000
1/31/1997 $9,704 $10,625 $9,650 $10,012 $10,045
2/28/1997 $9,713 $10,708 $9,808 $10,033 $10,083
3/31/1997 $9,600 $10,268 $9,844 $9,914 $10,126
4/30/1997 $9,629 $10,881 $9,896 $10,058 $10,169
5/31/1997 $9,945 $11,543 $10,540 $10,152 $10,224
6/30/1997 $10,162 $12,061 $11,121 $10,274 $10,272
7/31/1997 $10,430 $13,021 $11,301 $10,588 $10,316
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the Franklin
Templeton Conservative Target Fund Class II shares to that of the 91-day U.S.
Treasury Bill Index, the MSCI-EAFE Index, the Lehman Brothers
Government/Corporate Bond Index, and the S&P 500 Stock Index, based on a $10,000
investment from 12/31/96 to 7/31/97.
Period Ending Fund S&P 500 MSCI-EAFE LBGC U.S. T-Bills
MSCI EAFE LB U.S.
FT CONSERVATIVE (NET GOV'T./CORP. TREASURY
DATE TARGET FUND- CLASS II S&P 500 DIVIDENDS) BOND INDEX BILLS
12/31/1996 $9,901 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,059 $10,625 $9,650 $10,012 $10,045
2/28/1997 $10,050 $10,708 $9,808 $10,033 $10,083
3/31/1997 $9,899 $10,268 $9,844 $9,914 $10,126
4/30/1997 $9,929 $10,881 $9,896 $10,058 $10,169
5/31/1997 $10,257 $11,543 $10,540 $10,152 $10,224
6/30/1997 $10,472 $12,061 $11,121 $10,274 $10,272
7/31/1997 $10,641 $13,021 $11,301 $10,588 $10,316
GRAPHIC MATERIAL (4)
This chart shows in pie format the asset allocation of the Franklin Templeton
Moderate Target Fund's securities on July 31, 1997, based on total net assets.
Asset Allocation on July 31, 1997
U.S. Equities 45%
International Equities 18%
U.S. Fixed Income Securities 15%
International Fixed Income Securities 5%
Short-Term Obligations and Other Net Assets 17%
GRAPHIC MATERIAL (5)
The following line graph hypothetically compares the performance of the Franklin
Templeton Moderate Target Fund Class I shares to that of the 91-day U.S.
Treasury Bill Index, the MSCI-EAFE Index, the Lehman Brothers
Government/Corporate Bond Index, and the S&P 500 Stock Index, based on a $10,000
investment from 12/31/96 to 7/31/97.
Period Ending Fund S&P 500 MSCI-EAFE LBGC U.S. T-Bills
FT MODERATE MSCI EAFE LB U.S.
TARGET FUND- (NET GOV'T./CORP. TREASURY
DATE CLASS I S&P 500 DIVIDENDS) BOND INDEX BILLS
12/31/1996 $9,551 $10,000 $10,000 $10,000 $10,000
1/31/1997 $9,799 $10,625 $9,650 $10,012 $10,045
2/28/1997 $9,799 $10,708 $9,808 $10,033 $10,083
3/31/1997 $9,717 $10,268 $9,844 $9,914 $10,126
4/30/1997 $9,803 $10,881 $9,896 $10,058 $10,169
5/31/1997 $10,196 $11,543 $10,540 $10,152 $10,224
6/30/1997 $10,424 $12,061 $11,121 $10,274 $10,272
7/31/1997 $10,798 $13,021 $11,301 $10,588 $10,316
GRAPHIC MATERIAL (6)
The following line graph hypothetically compares the performance of the Franklin
Templeton Moderate Target Fund Class II shares to that of the 91-day U.S.
Treasury Bill Index, the MSCI-EAFE Index, the Lehman Brothers
Government/Corporate Bond Index, and the S&P 500 Stock Index, based on a $10,000
investment from 12/31/96 to 7/31/97.
Period Ending Fund S&P 500 MSCI-EAFE LBGC U.S. T-Bills
FT MODERATE MSCI EAFE LB U.S.
TARGET FUND (NET GOV'T./CORP. TREASURY
DATE CLASS II S&P 500 DIVIDENDS) BOND INDEX BILLS
12/31/1996 $9,901 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,158 $10,625 $9,650 $10,012 $10,045
2/28/1997 $10,149 $10,708 $9,808 $10,033 $10,083
3/31/1997 $10,001 $10,268 $9,844 $9,914 $10,126
4/30/1997 $10,080 $10,881 $9,896 $10,058 $10,169
5/31/1997 $10,477 $11,543 $10,540 $10,152 $10,224
6/30/1997 $10,707 $12,061 $11,121 $10,274 $10,272
7/31/1997 $10,975 $13,021 $11,301 $10,588 $10,316
GRAPHIC MATERIAL (7)
This chart shows in pie format the asset allocation of the Franklin Templeton
Growth Target Fund's securities on July 31, 1997, based on total net assets.
Asset Allocation on July 31, 1997
U.S. Equities 48%
International Equities 23%
U.S. Fixed Income Securities 8%
International Fixed Income Securities 4%
Short-Term Obligations and Other Net Assets 17%
GRAPHIC MATERIAL (8)
The following line graph hypothetically compares the performance of the Franklin
Templeton Growth Target Fund Class I shares to that of the 91-day U.S. Treasury
Bill Index, the MSCI-EAFE Index, the Lehman Brothers Government/Corporate Bond
Index, and the S&P 500 Stock Index, based on a $10,000 investment from 12/31/96
to 7/31/97.
Period Ending Fund S&P 500 MSCI-EAFE LBGC U.S. T-Bills
MSCI LB U.S.
FT GROWTH TARGET EAFE (NET GOV'T./CORP.TREASURY
DATE FUND - CLASS I S&P 500 DIVIDENDS) BOND INDEX BILLS
12/31/1996 $9,551 $10,000 $10,000 $10,000 $10,000
1/31/1997 $9,904 $10,625 $9,650 $10,012 $10,045
2/28/1997 $9,838 $10,708 $9,808 $10,033 $10,083
3/31/1997 $9,637 $10,268 $9,844 $9,914 $10,126
4/30/1997 $9,713 $10,881 $9,896 $10,058 $10,169
5/31/1997 $10,181 $11,543 $10,540 $10,152 $10,224
6/30/1997 $10,449 $12,061 $11,121 $10,274 $10,272
7/31/1997 $10,821 $13,021 $11,301 $10,588 $10,316
GRAPHIC MATERIAL (9)
The following line graph hypothetically compares the performance of the Franklin
Templeton Growth Target Fund Class II shares to that of the 91-day U.S. Treasury
Bill Index, the MSCI-EAFE Index, the Lehman Brothers Government/Corporate Bond
Index, and the S&P 500 Stock Index, based on a $10,000 investment from 12/31/96
to 7/31/97.
Period Ending Fund S&P 500 MSCI-EAFE LBGC U.S. T-Bills
FT GROWTH MSCI EAFE LB U.S.
TARGET FUND - (NET GOV'T./CORP. TREASURY
DATE CLASS II S&P 500 DIVIDENDS) BOND INDEX BILLS
12/31/1996 $9,901 $10,000 $10,000 $10,000 $10,000
1/31/1997 $10,257 $10,625 $9,650 $10,012 $10,045
2/28/1997 $10,188 $10,708 $9,808 $10,033 $10,083
3/31/1997 $9,990 $10,268 $9,844 $9,914 $10,126
4/30/1997 $10,069 $10,881 $9,896 $10,058 $10,169
5/31/1997 $10,545 $11,543 $10,540 $10,152 $10,224
6/30/1997 $10,802 $12,061 $11,121 $10,274 $10,272
7/31/1997 $11,089 $13,021 $11,301 $10,588 $10,316
