Celebrating 50 Years
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. 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 in companies and governments around the globe.
We thank you for your past support and look forward to serving your investment
needs in the years ahead.
Table of Contents
Page
President's Letter 2
Performance Summaries
Franklin Templeton
Conservative Target Fund 3
Franklin Templeton
Moderate Target Fund 5
Franklin Templeton
Growth Target Fund 7
Statement of Investments 9
Financial Statements 13
PRESIDENT'S LETTER
March 17, 1997
Dear Shareholder:
We are pleased to enclose the first semi-annual report for the Franklin
Templeton Fund Allocator Series (Target Funds), covering the period ended
January 31, 1997. Because the Series' inception date was December 31, 1996, this
report covers only a one-month period of operation. Still, we appreciate this
early opportunity to communicate with you.
Each of the three Target Funds comprising the Series is a fund-of-funds,
investing within a selected group of Franklin Templeton funds, which we call the
"underlying funds." The Target Funds employ a disciplined asset allocation
process in determining the mix of underlying funds held. By offering three
separate Target Funds, each corresponding to a different level of risk
tolerance, we permit investors, with the help of their investment
representative, to select the Target Fund (or combination of 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, manager style, and
industrial sectors -- across stock, bond and money markets.*
Performance for the month covered by this report reflected the generally strong
January performance of the underlying funds held and of the securities markets
in which these underlying funds invest. For detailed information on fund
performance and asset allocations as of the end of the fiscal period, please see
the individual fund reports noted in the Table of Contents. Of course, the
Franklin Templeton Fund Allocator Series is designed for long-term investors,
and therefore, we encourage you not to focus on short-term performance, whether
strong or weak.
We thank you for investing with us and trust you will find that the Franklin
Templeton Fund Allocator Series helps to simplify your investment life and meet
your investment goals.
Yours sincerely,
Donald P. Gould
President and Portfolio Manager
*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.
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
Your Fund's Objective:
The Franklin Templeton Conservative Target Fund employs an active asset
allocation process in seeking to achieve the highest level of total return
consistent with a lower level of risk than the other two Target Funds.
Performance Summary
Class I
The Franklin Templeton Conservative Target Fund - Class I reported a total
return of 1.60% for the one-month period beginning December 31, 1996, through
January 31, 1997. Total return measures the change in value of an investment,
and does not include the initial sales charge.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As measured by net asset value, the price of the fund's shares increased by
$0.16, from $10.00 on December 31, 1996, to $10.16 on January 31, 1997. Of
course, past performance cannot guarantee future results.
Class II
The Franklin Templeton Conservative Target Fund - Class II reported a total
return of 1.60% for the one-month period beginning December 31, 1996, through
January 31, 1997. 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 by
$0.16, from $10.00 on December 31, 1996, to $10.16 on January 31, 1997. Of
course, past performance cannot guarantee future results.
Franklin Templeton Conservative Target Fund
Period ended 1/31/97
Class I Class II
Since Since
Inception Inception
(12/31/96) (12/31/96)
Cumulative Total Return1 1.60% 1.60%
Aggregate Total Return2 -2.96% -0.40%
Value of $10,000 Investment3 $9,704 $9,960
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include sales charges. See Note below.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes, for Class I shares, the maximum 4.50% initial
sales charge or, for Class II shares, 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. These figures represent the value of a hypothetical $10,000 investment in the
fund over the period indicated and include all appropriate sales charges. See
Note below.
Note: Investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
FRANKLIN TEMPLETON MODERATE TARGET FUND
Your Fund's Objective:
The Franklin Templeton Moderate Target Fund employs an active asset allocation
process in seeking to achieve the highest level of total return consistent with
more risk than the Conservative Target Fund and less risk than the Growth Target
Fund.
Performance Summary
Class I
The Franklin Templeton Moderate Target Fund - Class I reported a total return of
2.60% for the one-month period beginning December 31, 1996, through January 31,
1997. 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 by
$0.26, from $10.00 on December 31, 1996, to $10.26 on January 31, 1997. Of
course, past performance cannot guarantee future results.
Class II
The Franklin Templeton Moderate Target Fund - Class II reported a total return
of 2.60% for the one-month period beginning December 31, 1996, through January
31, 1997. Total return measures the change in value of an investment, and does
not include sales charges.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As measured by net asset value, the price of the fund's shares increased by
$0.26, from $10.00 on December 31, 1996, to $10.26 on January 31, 1997. Of
course, past performance cannot guarantee future results.
Franklin Templeton Moderate Target Fund
Period ended 1/31/97
Class I Class II
Since Since
Inception Inception
(12/31/96) (12/31/96)
Cumulative Total Return1 2.60% 2.60%
Aggregate Total Return2 -2.01% 0.59%
Value of $10,000 Investment3 $9,799 $10,059
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include sales charges. See Note below.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes, for Class I shares, the maximum 4.50% initial
sales charge or, for Class II shares, 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. These figures represent the value of a hypothetical $10,000 investment in the
fund over the period indicated and include all appropriate sales charges. See
Note below.
Note: Investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
FRANKLIN TEMPLETON GROWTH TARGET FUND
Your Fund's Objective:
The Franklin Templeton Growth Target Fund employs an active asset allocation
process in seeking to achieve the highest level of total return consistent with
a higher level of risk than the other two Target Funds.
Performance Summary
Class I
The Franklin Templeton Growth Target Fund - Class I reported a total return of
3.70% for the one-month period beginning December 31, 1996, through January 31,
1997. 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 by
$0.37, from $10.00 on December 31, 1996, to $10.37 on January 31, 1997. Of
course, past performance cannot guarantee future results.
Class II
The Franklin Templeton Growth Target Fund - Class II reported a total return of
3.60% for the one-month period beginning December 31, 1996, through January 31,
1997. Total return measures the change in value of an investment, and does not
include sales charges.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As measured by net asset value, the price of the fund's shares increased by
$0.36, from $10.00 on December 31, 1996, to $10.36 on January 31, 1997. Of
course, past performance cannot guarantee future results.
Franklin Templeton Growth Target Fund
Period ended 1/31/97
Class I Class II
Since Since
Inception Inception
(12/31/96) (12/31/96)
Cumulative Total Return1 3.70% 3.60%
Aggregate Total Return2 -0.96% 1.58%
Value of $10,000 Investment3 $9,904 $10,158
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include sales charges. See Note below.
2. Aggregate total return measures the change in value of an investment over the
period indicated and includes, for Class I shares, the maximum 4.50% initial
sales charge or, for Class II shares, 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. These figures represent the value of a hypothetical $10,000 investment in the
fund over the period indicated and include all appropriate sales charges. See
Note below.
Note: Investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments in Securities and Net Assets, January 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Value
Shares Franklin Templeton Conservative Target Fund (Note 1)
a Mutual Funds 100.1%
<S> <C> <C>
6,390 Franklin AGE High Income Fund ..................................................... $ 18,594
817 Franklin Growth Fund............................................................... 19,627
197 Franklin Real Estate Securities Fund .............................................. 3,108
220 Franklin Small Cap Growth Fund .................................................... 4,657
356 Franklin Templeton German Government Bond Fund..................................... 4,399
546 Franklin Templeton Hard Currency Fund ............................................. 5,828
286 Franklin Templeton Japan Fund ..................................................... 2,164
3,598 Franklin U.S. Government Securities Fund .......................................... 24,428
1,728 Franklin Utilities Fund............................................................ 16,732
121 Franklin Value Fund ............................................................... 2,374
881 Mutual Discovery Fund ............................................................. 15,858
777 Mutual Shares Fund................................................................. 14,881
193 Templeton Developing Markets Trust ................................................ 3,203
588 Templeton Foreign Fund ............................................................ 6,170
1,203 Templeton Global Bond Fund ........................................................ 12,073
-------------
Total Investments (Cost $152,475)100.1% ........................................... 154,096
Liabilities in Excess of Other Assets(0.1)% ....................................... (103)
-------------
Net Assets100.0% .................................................................. $153,993
=============
At January 31, 1997, the net unrealized appreciation based on
the cost of investments for income tax purposes of $152,475
was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost .................................................... $ 2,358
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value .................................................... (737)
-------------
Net unrealized appreciation ....................................................... $ 1,621
=============
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.
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments in Securities and Net Assets, January 31, 1997 (unaudited)
Value
Shares Franklin Templeton Moderate Target Fund (Note 1)
a Mutual Funds 100.0%
<S> <C> <C>
3,235 Franklin AGE High Income Fund ..................................................... $ 9,415
571 Franklin Equity Fund .............................................................. 5,310
1,409 Franklin Growth Fund............................................................... 33,834
535 Franklin Natural Resources Fund ................................................... 8,131
214 Franklin Real Estate Securities Fund .............................................. 3,377
239 Franklin Small Cap Growth Fund .................................................... 5,053
647 Franklin Templeton German Government Bond Fund .................................... 7,990
50 Franklin Templeton Japan Fund ..................................................... 378
982 Franklin U.S. Government Securities Fund .......................................... 6,671
1,086 Franklin Utilities Fund............................................................ 10,513
131 Franklin Value Fund ............................................................... 2,577
1,912 Mutual Discovery Fund ............................................................. 34,421
444 Mutual Shares Fund ................................................................ 8,505
315 Templeton Developing Markets Trust ................................................ 5,218
798 Templeton Foreign Fund ............................................................ 8,379
1,867 Templeton Global Bond Fund ........................................................ 18,743
-------------
Total Investments (Cost $165,479)100.0% ........................................... 168,515
Other Assets and Liabilities, Net ................................................. 38
-------------
Net Assets100.0% .................................................................. $168,553
=============
At January 31, 1997, the net unrealized appreciation based on
the cost of investments for income tax purposes of $165,479
was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an excess
of value over tax cost ........................................................... $ 3,602
Aggregate gross unrealized depreciation for all investments in which there was an excess
of tax cost over value ........................................................... (566)
-------------
Net unrealized appreciation ....................................................... $ 3,036
=============
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.
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments in Securities and Net Assets, January 31, 1997 (unaudited)
Value
Shares Franklin Templeton Growth Target Fund (Note 1)
<S> <C> <C>
a Mutual Funds97.4%..................................................................
3,998 Franklin Equity Fund .............................................................. $ 37,182
2,439 Franklin Growth Fund............................................................... 58,575
1,415 Franklin Natural Resources Fund ................................................... 21,501
377 Franklin Real Estate Securities Fund............................................... 5,934
420 Franklin Small Cap Growth Fund .................................................... 8,889
1,231 Franklin Templeton German Government Bond Fund .................................... 15,204
1,828 Franklin U.S. Government Securities Fund........................................... 12,415
760 Franklin Utilities Fund............................................................ 7,356
763 Franklin Value Fund ............................................................... 15,030
3,313 Mutual Discovery Fund ............................................................. 59,634
779 Mutual Shares Fund................................................................. 14,917
864 Templeton Developing Markets Trust ................................................ 14,318
1,409 Templeton Foreign Fund ............................................................ 14,800
300 Templeton Global Bond Fund ........................................................ 3,015
641 Templeton Pacific Growth Fund ..................................................... 9,522
-------------
Total Long Term Investments (Cost $293,422) ....................................... 298,292
-------------
Face
Amount
b Receivables from Repurchase Agreements4.6%
$14,263 Joint Repurchase Agreement, 5.496%, 02/03/97 (Maturity Value $14,000) (Cost $13,994)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,512)
Collateral: U.S. Treasury Bills, 06/05/97
U.S. Treasury Notes, 5.125% - 9.125%, 04/30/97 - 05/15/99
B.T. Securities Corp., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 6.00% - 7.125%, 12/31/97 - 10/15/98
Chase Securities, Inc., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 5.25%, 12/31/97
Daiwa Securities America, Inc., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 11/15/98 - 08/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 5.50% - 6.125%, 07/31/97 - 12/31/00
Greenwich Capital Markets, Inc., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 6.00% - 7.75%, 08/31/97 - 12/31/99
SBC Warburg, Inc., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 6.625%, 06/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 07/15/99 - 06/30/01
UBS Securities, L.L.C., (Maturity Value $1,561)
Collateral: U.S. Treasury Notes, 5.875% - 13.375%, 06/30/98 - 08/15/01 ............ $ 13,994
-------------
Total Investments (Cost $307,416)102.0% ........................................... 312,286
Liabilities in Excess of Other Assets(2.0)% ....................................... (6,088U)
-------------
Net Assets100.0% .................................................................. $306,198
=============
At January 31, 1997, the net unrealized appreciation based on
the cost of investments for income tax purposes of $307,416
was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an excess
of value over tax cost ........................................................... $ 5,271
Aggregate gross unrealized depreciation for all investments in which there was an excess
of tax cost over value ........................................................... (401)
-------------
Net unrealized appreciation ....................................................... $ 4,870
=============
</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(h) 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
January 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Franklin TempletonFranklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
---------------- ---------------- ----------------
Assets:
Investments in securities:
<S> <C> <C> <C>
At identified cost...................................... $152,475 $165,479 $293,422
================ ================ ================
At value................................................ 154,096 168,515 298,292
Receivables from repurchase agreements,
at value and cost...................................... -- -- 13,994
Cash................................................... -- -- 2,050
Receivables:
Capital shares sold..................................... -- 149 5,986
Unamortized offering costs............................. 36,736 36,736 36,736
Unamortized organization costs......................... 67,135 67,135 67,135
---------------- ---------------- ----------------
Total assets............................................ 257,967 272,535 424,193
---------------- ---------------- ----------------
Liabilities:
Payables:
Investment securities purchased......................... -- -- 13,985
Asset allocation fees................................... 27 29 34
Distribution fees....................................... 60 62 71
Payable to manager for organization costs............... 36,736 36,736 36,736
Payable to manager for offering costs................... 67,135 67,135 67,135
Accrued expenses and other liabilities................. 16 20 34
---------------- ---------------- ----------------
Total liabilities....................................... 103,974 103,982 117,995
---------------- ---------------- ----------------
Net assets, at value ................................... $153,993 $168,553 $306,198
================ ================ ================
Net assets consist of:
Undistributed net investment income (loss)............. $186 $113 $(38)
Net unrealized appreciation on investments............. 1,621 3,036 4,870
Class I capital shares................................. 102,186 115,404 219,557
Class II capital shares................................ 50,000 50,000 81,809
---------------- ---------------- ----------------
Net assets, at value ................................... $153,993 $168,553 $306,198
================ ================ ================
Class I Shares:
Net assets, at value .................................. $103,213 $117,266 $222,412
================ ================ ================
Shares outstanding..................................... 10,156 11,426 21,447
================ ================ ================
Net asset value per share*............................. $10.16 $10.26 $10.37
================ ================ ================
Class II Shares:
Net assets, at value .................................. $ 50,780 $ 51,287 $ 83,787
================ ================ ================
Shares outstanding..................................... 5,000 5,000 8,088
================ ================ ================
Net asset value per share*............................. $10.16 $10.26 $10.36
================ ================ ================
*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 (cont.)
Statements of Operations
for the period ended January 31, 1997 (unaudited)
Franklin TempletonFranklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
---------------- ---------------- ----------------
Investment income:
<S> <C> <C> <C>
Dividends.............................................. $ 277 $ 191 $ 61
Interest (Note 1)...................................... 23 42 40
---------------- ---------------- ----------------
300 233 101
---------------- ---------------- ----------------
Expenses:
Asset Allocation fees (Note 6) ........................ 27 29 34
Distribution fees - Class I (Note 6)................... 17 18 22
Distribution fees - Class II (Note 6).................. 43 44 49
Shareholder servicing costs (Note 6)................... 20 15 78
Amortization of offering costs ........................ 3,530 3,530 3,530
Amortization of organization costs..................... 1,198 1,198 1,198
Professional fees...................................... 368 403 732
Reports to shareholders ............................... 165 181 329
Other.................................................. 26 29 53
Asset allocation fees waived by manager (Note 6)....... (27) (29) (34)
Other expenses assumed by manager...................... (5,253) (5,298) (5,852)
---------------- ---------------- ----------------
Total expenses.......................................... 114 120 139
---------------- ---------------- ----------------
Net investment income (loss)........................... 186 113 (38)
---------------- ---------------- ----------------
Realized and unrealized gain from investments:
Net unrealized appreciation............................ 1,621 3,036 4,870
---------------- ---------------- ----------------
Net realized and unrealized gain ....................... 1,621 3,036 4,870
---------------- ---------------- ----------------
Net increase in net assets resulting from operations.... $1,807 $3,149 $4,832
================ ================ ================
The accompanying notes are an integral part of these financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements (cont.)
Statements of Changes in Net Assets
for the period ended January 31, 1997 (unaudited)
Franklin TempletonFranklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
---------------- ---------------- ----------------
1997 1997 1997
---------------- ---------------- ----------------
Increase in net assets:
Operations:
<S> <C> <C> <C>
Net investment income (loss)............................ $ 186 $ 113 $ (38)
Net unrealized appreciation on investments.............. 1,621 3,036 4,870
---------------- ---------------- ----------------
Net increase in net assets resulting
from operations........................................ 1,807 3,149 4,832
Increase in net assets from capital share
transactions (Note 4).................................. 112,186 125,404 261,366
---------------- ---------------- ----------------
Net increase in net assets.............................. 113,993 128,553 266,198
Net assets:
Beginning of period.................................... 40,000 40,000 40,000
---------------- ---------------- ----------------
End of period.......................................... $153,993 $168,553 $306,198
================ ================ ================
Undistributed net investment income (loss) included in net assets:
Beginning of period..................................... -- -- --
================ ================ ================
End of period........................................... $ 186 $ 113 $ (38)
================ ================ ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is an open-end,
non-diversified management investment company (mutual fund), registered under
the Investment Company Act of 1940, as amended. The Trust consists of three
separate funds (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.
The Funds became effective December 31, 1996.
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 will 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.
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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
h. 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 January 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 the 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 exchanging into 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 in the amount of
$68,333. In an effort to minimize the Funds' expenses, Advisers agreed in
advance to waive repayment of the current period's amortization of the Funds,
aggregating $10,857.
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. Franklin Advisers, Inc. (Advisers), the Funds'
investment manager, advanced the offering costs of each of the Funds in the
amount of $40,265. In an effort to minimize the Funds' expenses, Advisers agreed
in advance to waive repayment of the current period's amortization of the Funds,
aggregating $3,594.
4. TRUST SHARES
At January 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 period ended January 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
----- ------- ------ ------- ------ --------
Class I Shares:
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ......................................... 8,156 $82,186 9,426 $95,404 19,447 $199,557
Shares issued in reinvestment of distributions....... -- -- -- -- -- --
Shares redeemed...................................... -- -- -- -- -- --
----- ------- ------ ------- ------ --------
Net increase......................................... 8,156 $82,186 9,426 $95,404 19,447 $199,557
===== ======= ====== ======= ====== ========
Class II Shares:
1997
Shares sold ........................................ 3,000 $30,000 3,000 $30,000 6,088 $61,809
Shares issued in reinvestment of distributions...... -- -- -- -- -- --
Shares redeemed .................................... -- -- -- -- -- --
----- ------- ------ ------- ------ --------
Net increase ....................................... 3,000 $30,000 3,000 $30,000 6,088 $61,809
===== ======= ====== ======= ====== ========
5. PURCHASES AND SALES OF SECURITIES
Purchases of the Underlying Funds (excluding purchases and sales of short-term
securities) for the period ended January 31, 1997, were as follows:
Franklin TempletonFranklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
---------------- ---------------- ----------------
<S> <C> <C> <C>
Purchases........................ $152,475 $165,479 $293,422
</TABLE>
There were no sales of the Underlying Funds during the period ended January 31,
1997.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Investment Advisory and Asset Allocation Agreement:
Under the terms of an investment advisory and asset allocation agreement,
Franklin Advisers, Inc. (Advisers), provides asset allocation advice and
receives fees computed monthly at an annualized rate of 0.25% of each Fund's
average daily net assets.
For the period ended January 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 to
each 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 January 31, 1997, aggregated $113, of which $85 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 of 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 $193 for the period ended January 31, 1997.
In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' capital stock. Commissions are
deducted from the gross proceeds received from the sale of the capital stock 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 and the amounts paid to
other dealers for the period ended January 31, 1997, were as follows:
<TABLE>
<CAPTION>
Franklin TempletonFranklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
---------------- ---------------- ----------------
<S> <C> <C> <C>
Total commissions received....... $-- $4 $ 758
Paid to other dealers............ $-- $4 $1,079
</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.
7. 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 of
Expenses to
Average Net Ratio of Net
Net Ratio of Assets (before Investment
Net Asset Net Net Realized Net Asset Assets Expenses fee waiver Income
Year Value at Investment & Unrealized Total From Value at End to Average and expense (Loss) to
Ended Beginning Income Gain on Investment at End Total of Period Net reduction) Average
July 31, of Period (Loss) Securities Operations of Period Return+(in 000's) Assets++ (Note 6) Net Assets*
Franklin Templeton Conservative Target Fund
Class I Shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997** $10.00 $.013 $.147 $.160 $10.16 1.60% $103 .74%* 47.91% 1.94%
Class II Shares:
1997** 10.00 .012 .148 .160 10.16 1.60 51 1.46* 50.05 1.30
Franklin Templeton Moderate Target Fund
Class I Shares:
1997** 10.00 .008 .252 .260 10.26 2.60 118 .72* 44.72 1.21
Class II Shares:
1997** 10.00 .005 .255 .260 10.26 2.60 51 1.47* 46.86 .51
Franklin Templeton Growth Target Fund
Class I Shares:
1997** 10.00 -- .370 .370 10.37 3.70 222 .70* 40.41 (.02)
Class II Shares:
1997** 10.00 (.004) .364 .360 10.36 3.60 84 1.50* 48.41 (.74)
</TABLE>
*Annualized
**For the period December 31, 1996 (effective date) to January 31, 1997.
+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 a portion of
asset allocation fees and made payments of other expenses incurred by the Funds.
Franklin Templeton Fund Allocator Series Semi-Annual Report January 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 fund's securities on
January 31, 1997, based on total net assets.
Franklin U.S. Government 15.9%
Securities Fund
Franklin Growth Fund 12.7%
Franklin's AGE High Income Fund 12.1%
Franklin Utilities Fund 10.9%
Mutual Discovery Fund 10.3%
Mutual Shares Fund 9.7%
Templeton Global Bond Fund 7.8%
Templeton Foreign Fund 4.0%
7 Other Franklin Templeton Funds 16.6%
& Other Net Assets
GRAPHIC MATERIAL (2)
This chart shows in pie format the asset allocation of the fund's securities on
January 31, 1997, based on total net assets.
Mutual Discovery Fund 20.4%
Franklin Utilities Fund 6.2%
Franklin's AGE High Income Fund 5.6%
Franklin Growth Fund 20.1%
Templeton Global Bond Fund 11.1%
Mutual Shares Fund 5.1%
Templeton Foreign Fund 5.0%
Franklin Natural Resources Fund 4.8%
Franklin Templeton German 4.7%
Government Bond Fund
7 Other Franklin Templeton Funds 17.0%
& Other Net Assets
GRAPHIC MATERIAL (3)
This chart shows in pie format the asset allocation of the fund's securities on
January 31, 1997, based on total net assets.
Franklin Equity Fund 12.1%
Franklin Natural Resources Fund 7.0%
Franklin Templeton German Government 5.0%
Bond Fund
Mutual Shares Fund 4.9%
Mutual Discovery Fund 19.5%
Franklin Growth Fund 19.1%
Franklin Value Fund 4.9%
Templeton Foreign Fund 4.8%
Templeton Developing Markets Trust 4.7%
Franklin U.S. Government Securities Fund 4.1%
5 Other Franklin Templeton Funds 13.9%
& Other Net Assets
