Semi
Annual
Report
January 31, 1998
Franklin Templeton
Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
GRAPHIC PICTURE OMITTED
Donald P. Gould
President and Portfolio Manager
Franklin Templeton
Fund Allocator Series
CONTENTS
Shareholder Letter................................. 1
Fund Reports
Franklin Templeton
Conservative Target Fund .......................... 4
Franklin Templeton
Moderate Target Fund .............................. 12
Franklin Templeton
Growth Target Fund ................................ 20
Financial Highlights &
Statement of Investments........................... 28
Financial Statements .............................. 37
Notes to
Financial Statements .............................. 40
SHAREHOLDER LETTER
Dear Shareholder:
We are pleased to present the semi-annual report for the Franklin Templeton Fund
Allocator Series, composed of the Conservative Target Fund, the Moderate Target
Fund, and the Growth Target Fund, for the six-month period ended January 31,
1998.
Most financial markets around the world experienced significant turmoil during
the reporting period. In particular, Asian stock and currency markets plunged,
with stock market indices in South Korea, Thailand, Indonesia and Malaysia
falling more than 65% from July 31, 1997 to their January lows.* Other global
markets also felt the effects of the so-called "Asian contagion." Latin American
equities fell sharply, as did natural resources and precious metals stocks
around the world. Not surprisingly, funds investing in emerging market equities
suffered more than others, reminding investors that high risk does indeed
accompany the potentially high returns of many developing markets.
Developed markets outside the U.S. also sustained significant losses. In the
U.S., investors debated whether an economic slowdown in Asia would lead to
slower corporate earnings growth and possibly lower price-earnings multiples. As
a result, the U.S. equity market, as a whole, rose modestly while exhibiting
significant volatility over the period.
*Source: Bloomberg. Price changes measured in U.S. dollars.
"Each Target Fund investment portfolio is carefully diversified with downside
risk protection in mind."
A much clearer consensus emerged regarding the impact of slower growth on the
bond market. Many investors anticipated reduced demand for credit, and increased
their allocations of more conservative assets such as bonds. This resulted in
rising bond prices and declining interest rates throughout most of the period
under review. Consequently, fixed-income investments and interest-rate sensitive
stocks were among the best performing asset categories for the six-month
reporting period.
Within this environment, the three Target Funds performed within our
expectations, although they also suffered some of the ill effects of the Asian
meltdown. Each Target Fund investment portfolio is carefully diversified with
downside risk protection in mind. In light of the substantial volatility and
significant declines in foreign equity markets during the reporting period, we
are pleased with the degree to which each Fund preserved investor capital.
Listed below is the Class I total return for each Fund for the six-months ended
January 31, 1998, excluding sales charges. Complete information on the returns
for both share classes, including sales charges, are shown in the Performance
Summaries beginning on pages 8, 16, and 24.
In the long run, we expect the ranking of the Funds' returns to correspond with
their relative risk levels. That is, we would expect the Growth Target Fund to
have the highest total return among the three funds and the Conservative Target
Fund to have the lowest. However, in shorter periods, that relationship can
easily be reversed, reflecting the higher level of risk we must assume in
seeking higher long-term returns. Such was the case over the reporting period,
as shown in the table above. The sources of each Target Fund's absolute and
relative performance are discussed in detail in the individual fund discussions
following this letter.
Total Return*
Class I Shares (7/31/97-1/31/98)
- -------------------------------------------------------------
Franklin Templeton Conservative Target Fund 2.05%
Franklin Templeton Moderate Target Fund 0.61%
Franklin Templeton Growth Target Fund -0.59%*
*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.
I am pleased to report that the three Target Funds continued their steady
growth, and total net assets for the Fund Allocator Series exceeded $62 million
as of January 31, 1998. We appreciate your participation in the Funds and
welcome any comments or suggestions you may have. Thank you for investing with
us.
Sincerely,
Donald P. Gould
President and Portfolio Manager
Franklin Templeton Fund Allocator Series
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
objectives of each Fund compare 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.
- --------------------------------------------------------------------------------
During the six months under review, the Fund's Class I shares had a +2.05%
cumulative total return, as discussed in the Performance Summary on page 8. This
performance was affected both by its asset allocation and by securities
selection within the various underlying funds in which it was invested.1
Asset Allocation
The Fund benefited from an above average exposure to U.S. equities and a below
average allocation to cash equivalents, such as money market instruments.
Despite their recent volatility, U.S. equities turned in a positive performance
for the six months under review, although at a lower level than in recent
periods. Specifically, the unmanaged Standard & Poor's(R) 500 Stock Index (S&P
500(R)) produced a 3.56% return for the six-month period, compared with 22.55%
for the preceding six months. Also helping the Fund's total return was its
modest allocation to utility and real estate stocks, which performed very well.
1. See Note on page 7.
You may find a complete listing of the Fund's portfolio holdings, including the
number of shares and dollar value, beginning on page 30 of this report.
The Fund's performance was adversely affected by a slight overweighting in
international equities and a somewhat lighter than average exposure to
fixed-income securities. The period was a difficult and volatile one for foreign
markets. The unmanaged Morgan Stanley Capital International (MSCI(R)) Europe,
Australasia and Far East (EAFE) Index, which includes stock markets of
industrialized countries outside the U.S., retreated 5.69%, and the MSCI
Emerging Markets Index, which includes stocks in developing economies, declined
32.83%, reflecting the turmoil in Southeast Asian equity and currency markets,
as well as other emerging markets. U.S. bonds benefited from the anticipated
deflationary effects of the Asian slowdown, with the Lehman Brothers
Government/Corporate Bond Index gaining 5.12% over the period.
Securities Selection2
The Fund's two largest equity fund investments during the period were Mutual
Shares Fund and Mutual Discovery Fund, which together comprised approximately
25% of its average assets. Mutual Shares outperformed the S&P 500 during the six
months under discussion, while Mutual Discovery shares modestly lagged the
index, with returns of 4.55% and 3.49%, respectively. The Fund's next largest
domestic equity position was Franklin Growth Fund, whose shares nearly matched
the S&P 500, as it earned a total return of 3.47%. Hampering the Conservative
Target Fund's performance somewhat was the subpar performance of our holdings in
Templeton Foreign Fund, -6.24%, and Templeton Developing Markets Trust, -33.94%,
which accounted for roughly 5% and 2%, respectively, of assets over the period.3
2. All references to underlying funds refer to Advisor Class or Class Z shares
of such funds.
3. Total returns on all underlying Franklin Templeton Advisor Class and Mutual
Series Class Z shares are based on each fund's net asset value as of the opening
and close of the period. Calculations include reinvested dividends and capital
gains, and the deduction of fees and expenses applicable only to that class.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
On the fixed-income side, the Fund's three largest investments were Templeton
Global Bond Fund, Franklin's AGE High Income Fund, and Franklin U.S. Government
Securities Fund, which together averaged about 38% of the Fund's assets over the
period. The latter two funds' shares returned 4.60% and 3.96%, respectively,
modestly below our U.S. fixed-income benchmark, the Lehman Brothers
Government/Corporate Bond Index, which gained 5.12% for the period. These two
funds exhibit relatively short portfolio durations compared with the benchmark,
which reduces the extent to which they may benefit from declining interest
rates. (Of course, these funds were also less exposed to the potential damage
from rising rates.) The Templeton Global Bond Fund's performance of 1.92% was
dampened somewhat by the strength of the U.S. dollar relative to major foreign
currencies.
Conclusion
On balance, our asset allocation and the security selection of the underlying
funds had a generally neutral impact on the Fund's relative performance over the
period.
Despite recent weakness in foreign equity and currency markets, we firmly
believe that global diversification can enhance the risk/return characteristics
of investment portfolios. The Fund will continue to invest internationally,
allocating assets to both equity and fixed-income funds, although the
allocations to each will vary over time.
Please remember that this discussion reflects our views and opinions as of
January 31, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you better understand our investment and
management philosophy. The Fund may invest a portion of its assets in foreign
securities, including emerging markets. The special risks associated with these
types of investments, as well as other considerations, are discussed in the
Fund's prospectus.
Note: The discussion above provides a general overview of the primary sources of
investment return for the Conservative Target Fund for the six-month period
ended January 31, 1998 and is provided for informational purposes only. It is
important for investors to recognize that the Fund, and the underlying funds in
which the Fund invests, generally seek to achieve their investment objectives
over much longer time horizons than the period under review. Therefore, it is
likely that the performance of the Fund, the underlying funds, and the
associated indexes for any single six-month period will vary considerably from
the long-term objectives and/or expectations of the portfolio managers. Past
performance is not necessarily an indication of future performance and, in
particular, recent short-term performance is not a reliable indicator of future
long-term performance. No conclusions, positive or negative, should be drawn
from the preceding analysis regarding the efficacy of the investment strategy of
either the Fund or the underlying funds in which it invests.
PERFORMANCE SUMMARY
Class I
Franklin Templeton Conservative Target Fund - Class I produced a +2.05%
cumulative total return for the six-month period ended January 31, 1998.
Cumulative total return measures the change in value of an investment, assuming
reinvestment of dividends and capital gains, if any, and does not include the
initial sales charge.
The Fund's share price, as measured by net asset value, decreased $0.15, from
$10.87 on July 31, 1997, to $10.72 on January 31, 1998. During the reporting
period, shareholders received per-share distributions of 30.8 cents ($0.308) in
income dividends, 3.1 cents ($0.031) in short-term capital gains, and 2.9 cents
($0.029) in long-term capital gains. Distributions will vary depending on income
earned by the Fund, any profits realized from the sale of securities in the
portfolio, the level of the Fund's operating expenses, and the impact of these
same factors on the underlying funds held in our portfolio.
Franklin Templeton Conservative Target Fund - Class I
Periods ended 1/31/98
Since
Inception
1-YEAR (12/31/96)
- -----------------------------------------------------------------------
Cumulative Total Return1 9.69% 11.44%
Average Annual Total Return2 4.74% 5.92%
Value of $10,000 Investment3 $10,474 $10,644
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum 4.50% initial
sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include 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 these expenses do not exceed 0.75%. Absent this
agreement, this Fund's direct operating expenses would have been higher and the
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 and capital gains at net
asset value. 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 produced a +1.60%
cumulative total return for the six-month period ended January 31, 1998.
Cumulative total return measures the change in value of an investment, assuming
reinvestment of dividends and capital gains, if any, and does not include sales
charges.
The Fund's share price, as measured by net asset value, decreased $0.16, from
$10.81 on July 31, 1997, to $10.65 on January 31, 1998. During the reporting
period, shareholders received per-share distributions of 26.89 cents ($0.2689)
in income dividends, 3.1 cents ($0.031) in short-term capital gains, and 2.9
cents ($0.029) in long-term capital gains. Distributions will vary depending on
income earned by the Fund, any profits realized from the sale of securities in
the portfolio, the level of the Fund's operating expenses, and the impact of
these same factors on the underlying funds held in our portfolio.
Franklin Templeton Conservative Target Fund - Class II
Periods ended 1/31/98
Since
Inception
1-YEAR (12/31/96)
- -----------------------------------------------------------------------
Cumulative Total Return1 8.47% 10.21%
Average Annual Total Return2 6.43% 7.47%
Value of $10,000 Investment3 $10,643 $10,813
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include 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 these expenses do not exceed 1.50%. Absent this
agreement, this Fund's direct operating expenses would have been higher and the
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 and capital gains at net
asset value. 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 Fund benefited from an above average exposure to U.S. equities."
During the six months under review, the Fund's Class I shares had a +0.61%
cumulative total return, as discussed in the Performance Summary on page 16.
This performance was affected both by its asset allocation and by securities
selection within the various underlying funds in which it was invested.1
Asset Allocation
The Fund benefited from an above average exposure to U.S. equities. Despite
their recent volatility, U.S. equities turned in a positive performance for the
six months under review, although at a lower level than in recent periods.
Specifically, the unmanaged Standard & Poor's(R) 500 Stock Index (S&P 500(R))
produced a 3.56% return for the six-month period, compared with 22.55% for the
preceding six months. Also helping the Fund's total return was its modest
allocation to utility and real estate stocks, which performed very well.
1. See Note on page 15.
You may find a complete listing of the Fund's portfolio holdings, including the
number of shares and dollar value, beginning on page 33 of this report.
The Fund's performance was adversely affected by a slight overweighting in
international equities and a somewhat lighter than average exposure to
fixed-income securities. The period was a difficult and volatile one for foreign
markets. The unmanaged Morgan Stanley Capital International (MSCI(R)) Europe,
Australasia and Far East (EAFE) Index, which includes stock markets of
industrialized countries outside the U.S., retreated 5.69%, and the MSCI
Emerging Markets Index, which includes stocks in developing economies, declined
32.83%, reflecting the turmoil in Southeast Asian equity and currency markets,
as well as other emerging markets. U.S. bonds benefited from the anticipated
deflationary effects of the Asian slowdown, with the Lehman Brothers
Government/Corporate Bond Index gaining 5.12% over the period.
Securities Selection2
The Fund's four largest equity fund investments during the period were Franklin
Growth Fund, Mutual Discovery Fund, Mutual Shares Fund, and Franklin Equity
Fund, which together comprised approximately 50% of the Fund's average assets.
Mutual Shares returned 4.55% in the six-month period, modestly outperforming the
S&P 500, while Mutual Discovery and Franklin Growth slightly lagged the index,
with returns of 3.49% and 3.47%, respectively. Franklin Equity Fund fared worse,
returning 0.34%. Hampering the Moderate Target Fund's performance somewhat was
the subpar performance of our holdings in Templeton Foreign Fund and especially
Templeton Developing Markets Trust, which accounted for roughly 6% and 3%,
respectively, of assets over the period. While the former fund had a total
return of -6.24%, the latter fund was the hardest hit by the market crises in
Asia, with a total return of -33.94% in the six-month period, as compared with
- -32.83% for the MSCI Emerging Markets Index.3
2. All references to underlying funds refer to Advisor Class or Class Z shares
of such funds.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
On the fixed-income side, the Fund's two major positions were Franklin's AGE
High Income Fund and Franklin U.S. Government Securities Fund, which together
averaged about 19% of the Fund's assets over the period. These two funds
returned 4.60% and 3.96%, respectively, modestly below our U.S. fixed-income
benchmark, the Lehman Brothers Government/Corporate Bond Index, which gained
5.12% for the period. These two funds exhibit relatively short portfolio
durations compared with the benchmark, which reduces the extent to which these
funds may benefit from declining interest rates. (Of course, these funds were
also less exposed to the potential damage from rising rates.)
Conclusion
On balance, our asset allocation had a slightly negative impact on the Fund's
relative performance over the period. However, security selection at the
underlying fund level, in aggregate, fell somewhat short of the respective Fund
benchmarks and had a modestly adverse impact on the Fund's overall performance.
Nonetheless, both absolute and relative Fund performance were well within the
ranges we projected and we believe consistent with the Fund's longer-term
objectives.
Despite recent weakness in foreign equity and currency markets, we firmly
believe that global diversification can enhance the risk/return characteristics
of investment portfolios. The Fund will continue to invest internationally,
allocating assets to both equity and fixed-income funds, although the
allocations to each will vary over time.
3. Total returns on all underlying Franklin Templeton Advisor Class and Mutual
Series Class Z shares are based on each fund's net asset value as of the opening
and close of the period. Calculations include reinvested dividends and capital
gains, and the deduction of fees and expenses applicable only to that class.
Please remember that this discussion reflects our views and opinions as of
January 31, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you better understand our investment and
management philosophy. The Fund may invest a portion of its assets in foreign
securities, including emerging markets. The special risks associated with these
types of investments, as well other considerations, are discussed in the Fund's
prospectus.
Note: The discussion above provides a general overview of the primary sources of
investment return for the Moderate Target Fund for the six-month period ended
January 31, 1998 and is provided for informational purposes only. It is
important for investors to recognize that the Fund, and the underlying funds in
which the Fund invests, generally seek to achieve their investment objectives
over much longer time horizons than the period under review. Therefore, it is
likely that the performance of the Fund, the underlying funds, and the
associated indexes for any single six-month period will vary considerably from
the long-term objectives and/or expectations of the portfolio managers. Past
performance is not necessarily an indication of future performance and, in
particular, recent short-term performance is not a reliable indicator of future
long-term performance. No conclusions, positive or negative, should be drawn
from the preceding analysis regarding the efficacy of the investment strategy of
either the Fund or the underlying funds in which it invests.
PERFORMANCE SUMMARY
Class I
Franklin Templeton Moderate Target Fund - Class I produced a +0.61% cumulative
total return for the six-month period ended January 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include the initial sales
charge.
The Fund's share price, as measured by net asset value, decreased $0.77, from
$11.26 on July 31, 1997, to $10.49 on January 31, 1998. During the reporting
period, shareholders received per-share distributions of 34 cents ($0.34) in
income dividends, 43.52 cents ($0.4352) in short-term capital gains, and 5.28
cents ($0.0528) in long-term capital gains. Distributions will vary depending on
income earned by the Fund, any profits realized from the sale of securities in
the portfolio, the level of the Fund's operating expenses, and the impact of
these same factors on the underlying funds held in our portfolio.
Franklin Templeton Moderate Target Fund - Class I
Periods ended 1/31/98
Since
Inception
1-YEAR (12/31/96)
- -----------------------------------------------------------------------
Cumulative Total Return1 10.86% 13.74%
Average Annual Total Return2 5.91% 7.94%
Value of $10,000 Investment3 $10,591 $10,864
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum 4.5% initial
sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include 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 these expenses do not exceed 0.75%. Absent this
agreement, this Fund's direct operating expenses would have been higher and the
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 and capital gains at net
asset value. 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 produced a +0.26% cumulative
total return for the six-month period ended January 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include sales charges.
The Fund's share price, as measured by net asset value, decreased $0.78, from
$11.16 on July 31, 1997, to $10.38 on January 31, 1998. During the reporting
period, shareholders received per-share distributions of 31.08 cents ($0.3108)
in income dividends, 43.52 cents ($0.4352) in short-term capital gains, and 5.28
cents ($0.0528) in long-term capital gains. Distributions will vary depending on
income earned by the Fund, any profits realized from the sale of securities in
the portfolio, the level of the Fund's operating expenses, and the impact of
these same factors on the underlying funds held in our portfolio.
Franklin Templeton Moderate Target Fund - Class II
Periods ended 1/31/98
Since
Inception
1-YEAR (12/31/96)
- ----------------------------------------------------------------
Cumulative Total Return1 9.29% 12.13%
Average Annual Total Return2 7.24% 9.22%
Value of $10,000 Investment3 $10,724 $11,003
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include 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 these expenses do not exceed 1.50%. Absent this
agreement, this Fund's direct operating expenses would have been higher and the
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 and capital gains at net
asset value. 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.
- --------------------------------------------------------------------------------
During the six months under review, the Fund's Class I shares had a -0.59%
cumulative total return, as discussed in the Performance Summary on page 24.
This performance was affected both by its asset allocation and by securities
selection within the various underlying funds in which it was invested.1
Asset Allocation
The Fund benefited from an above average exposure to U.S. equities. Despite
their recent volatility, U.S. equities turned in a positive performance for the
six months under review, although at a lower level than in recent periods.
Specifically, the unmanaged Standard & Poor's(R) 500 Stock Index (S&P 500(R))
produced a 3.56% return for the six-month period, compared with 22.55% for the
preceding six months. Also helping the Fund's total return was its modest
allocation to utility and real estate stocks, which performed very well.
1. See Note on page 23.
You may find a complete listing of the Fund's portfolio holdings, including the
number of shares and dollar value, beginning on page 36 of this report.
The Fund's performance was adversely affected by a slight overweighting in
international equities and a somewhat lighter than average exposure to
fixed-income securities. The period was a difficult and volatile one for foreign
markets. The unmanaged Morgan Stanley Capital International (MSCI(R)) Europe,
Australasia and Far East (EAFE) Index, which includes stock markets of
industrialized countries outside the U.S., retreated 5.69%, and the MSCI
Emerging Markets Index, which includes stocks in developing economies, declined
32.83%, reflecting the turmoil in Southeast Asian equity and currency markets,
as well as other emerging markets. U.S. bonds benefited from the anticipated
deflationary effects of the Asian slowdown, with the Lehman Brothers
Government/Corporate Bond Index gaining 5.69% over the period.
Securities Selection2
The Fund's four largest equity fund investments during the period were Franklin
Equity Fund, Mutual Discovery Fund, Franklin Growth Fund, and Mutual Shares
Fund, which together comprised approximately 58% of its average assets.
Adversely affecting the Fund's performance was the relatively weak performance
of the Franklin Equity Fund, which returned 0.34% over the period. This fund
suffered from the general decline in technology stocks. Mutual Shares returned
4.55% in the six-month period, modestly outperforming the S&P 500, while Mutual
Discovery and Franklin Growth slightly lagged the index, with returns of 3.49%
and 3.47%, respectively. Also hampering the Growth Target Fund's performance
somewhat was the subpar performance of our holdings in Templeton Foreign Fund
and especially Templeton Developing Markets Trust, which accounted for roughly
9% and 3%, respectively, of assets over the period. While the former fund had a
total return of -6.24%, the latter fund was the hardest hit by the market crises
in Asia, with a total return of -33.94% in the six-month period, as compared
with -32.83% for the MSCI Emerging Markets Index.3
2. All references to underlying funds refer to Advisor Class or Class Z shares
of such funds.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Conclusion
On balance, our asset allocation had a small negative impact on the Fund's
relative performance over the period. However, security selection at the
underlying fund level, in aggregate, fell short of the respective Fund
benchmarks and had a meaningful adverse impact on the Fund's overall
performance. Nonetheless, both absolute and relative Fund performance were well
within the ranges we projected and we believe consistent with the Fund's
longer-term objectives.
Despite recent weakness in foreign equity and currency markets, we firmly
believe that global diversification can enhance the risk/ return characteristics
of investment portfolios. The Fund will continue to invest internationally,
allocating assets to both equity and fixed-income funds, although the
allocations to each will vary over time.
Please remember that this discussion reflects our views and opinions as of
January 31, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you better understand our investment and
management philosophy. The Fund may invest a portion of its assets in foreign
securities, including emerging markets. The special risks associated with these
types of investments, as well other considerations, are discussed in the Fund's
prospectus.
3. Total returns on all underlying Franklin Templeton Advisor Class and Mutual
Series Class Z shares are based on each fund's net asset value as of the opening
and close of the period. Calculations include reinvested dividends and capital
gains, and the deduction of fees and expenses applicable only to that class.
Note: The discussion above provides a general overview of the primary sources of
investment return for the Growth Target Fund for the six-month period ended
January 31, 1998 and is provided for informational purposes only. It is
important for investors to recognize that the Fund, and the underlying funds in
which the Fund invests, generally seek to achieve their investment objectives
over much longer time horizons than the period under review. Therefore, it is
likely that the performance of the Fund, the underlying funds, and the
associated indexes for any single six-month period will vary considerably from
the long-term objectives and/or expectations of the portfolio managers. Past
performance is not necessarily an indication of future performance and, in
particular, recent short-term performance is not a reliable indicator of future
long-term performance. No conclusions, positive or negative, should be drawn
from the preceding analysis regarding the efficacy of the investment strategy of
either the Fund or the underlying funds in which it invests.
PERFORMANCE SUMMARY
Class I
Franklin Templeton Growth Target Fund - Class I produced a -0.59% cumulative
total return for the six-month period ended January 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include the initial sales
charge.
The Fund's share price, as measured by net asset value, decreased $0.52, from
$11.33 on July 31, 1997, to $10.81 on January 31, 1998. During the reporting
period, shareholders received per-share distributions of 30.1 cents ($0.301) in
income dividends, 7.9 cents ($0.079) in short-term capital gains, and 6.6 cents
($0.066) in long-term capital gains. Distributions will vary depending on income
earned by the Fund, any profits realized from the sale of securities in the
portfolio, the level of the Fund's operating expenses, and the impact of these
same factors on the underlying funds held in our portfolio.
Franklin Templeton Growth Target Fund - Class I
Periods ended 1/31/98
Since
Inception
1-YEAR (12/31/96)
- ----------------------------------------------------------------
Cumulative Total Return1 8.62% 12.64%
Average Annual Total Return2 3.72% 6.97%
Value of $10,000 Investment3 $10,372 $10,758
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum 4.5% initial
sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include 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 these expenses do not exceed 0.75%. Absent this
agreement, this Fund's direct operating expenses would have been higher and the
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 and capital gains at net
asset value. 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 produced a -0.92% cumulative
total return for the six-month period ended January 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include sales charges.
The Fund's share price, as measured by net asset value, decreased $0.52, from
$11.30 on July 31, 1997, to $10.78 on January 31, 1998. During the reporting
period, shareholders received per-share distributions of 26.38 cents ($0.2638)
in income dividends, 7.9 cents ($0.079) in short-term capital gains, and 6.6
cents ($0.066) in long-term capital gains. Distributions will vary depending on
income earned by the Fund, any profits realized from the sale of securities in
the portfolio, the level of the Fund's operating expenses, and the impact of
these same factors on the underlying funds held in our portfolio.
Franklin Templeton Growth Target Fund - Class II
Periods ended 1/31/98
Since
Inception
1-YEAR (12/31/96)
- ----------------------------------------------------------------
Cumulative Total Return1 8.07% 11.93%
Average Annual Total Return2 6.04% 9.04%
Value of $10,000 Investment3 $10,604 $10,983
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include 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 these expenses do not exceed 1.50%. Absent this
agreement, this Fund's direct operating expenses would have been higher and the
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 and capital gains at net
asset value. 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
Financial Highlights
Franklin Templeton Conservative Target Fund
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------
Six Months Ended
January 31, 1998 PERIOD ENDED JULY 31,
(UNAUDITED) 1997***
-----------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C>
Net asset value, beginning of period $10.87 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income .26 .12
Net realized and unrealized gains (losses) (.04) .80
-----------------------------------------------
Total from investment operations .22 .92
-----------------------------------------------
Less distributions from:
Net investment income (.31) (.05)
Net realized gains (.06) --
Total distributions (.37) (.05)
-----------------------------------------------
Net asset value, end of period $10.72 $10.87
===============================================
Total return* 2.05% 9.21%
Ratios/supplemental data
Net assets, end of period (000's) $4,365 $1,609
Ratios to average net assets:
Expenses** .79% .59%
Expenses excluding waiver and payments by affiliate** 1.62% 3.64%
Net investment income 3.13% 3.93%**
Portfolio turnover rate 93.38% 33.30%
</TABLE>
*Total return does not reflect the contingent deferred sales charges, and is not
annualized.
**Annualized.
***For the period December 31, 1996 (effective date) to July 31, 1997.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights (continued)
Franklin Templeton Conservative Target Fund (cont.)
<TABLE>
<CAPTION>
CLASS II
-----------------------------------------------
Six Months Ended
January 31, 1998 PERIOD ENDED JULY 31,
(UNAUDITED) 1997***
-----------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C>
Net asset value, beginning of period $10.81 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income .23 .10
Net realized and unrealized gains (losses) (.06) .75
-----------------------------------------------
Total from investment operations .17 .85
-----------------------------------------------
Less distributions from:
Net investment income (.27) (.04)
Net realized gains (.06) --
Total distributions (.33) (.04)
-----------------------------------------------
Net asset value, end of period $10.65 $10.81
===============================================
Total return* 1.60% 8.48%
Ratios/supplemental data
Net assets, end of period (000's) $6,133 $3,010
Ratios to average net assets:
Expenses** 1.51% 1.48%
Expenses excluding waiver and payments by affiliate** 2.43% 4.53%
Net investment income 2.64% 3.04%**
Portfolio turnover rate 93.38% 33.30%
</TABLE>
*Total return does not reflect the contingent deferred sales charges, and is not
annualized.
**Annualized.
***For the period December 31, 1996 (effective date) to July 31, 1997.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments, January 31, 1998 (unaudited)
Franklin Templeton Conservative Target Fund SHARES VALUE
- --------------------------------------------------------------------------------------------
aMutual Funds 99.7%
<S> <C> <C>
Franklin AGE High Income Fund 147,424 $ 440,799
Franklin Equity Fund 45,592 444,532
Franklin Growth Fund 57,625 1,577,782
Franklin Real Estate Securities Fund 17,339 310,898
Franklin Small Cap Growth Fund 9,266 211,272
Franklin U.S. Government Securities Fund 549,277 3,817,481
Franklin Utilities Fund 93,590 1,001,414
Franklin Value Fund 8,744 208,374
Mutual Discovery Fund 55,761 1,053,885
Mutual Shares Fund 41,080 868,437
Templeton Developing Markets Trust 13,575 160,061
Templeton Foreign Fund 37,609 376,092
------------
Total Long Term Investments (Cost $10,407,901) 10,471,027
============
PRINCIPAL
AMOUNT
------------
bRepurchase Agreement .4%
Joint Repurchase Agreement, 5.578%, 2/02/98, (Maturity Value $37,858)
(Cost $37,840) $37,840 37,840
------------
BancAmerica Robertson Stephens
Barclays Capital Group, Inc.
Bear, Stearns & Co., Inc.
BT Alex Brown, Inc.
Chase Securities, Inc.
CIBC Wood Gundy Securities Corp.
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America, L.L.C.
Greenwich Capital Markets, Inc.
Lehman Brothers, Inc.
Paribas Corp.
SBC Warburg Dillon Read, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $10,445,741) 100.1% $10,508,867
Other Assets, less Liabilities (.1%) (11,434)
------------
Net Assets 100.0% $10,497,433
============
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.
bInvestment is through participation in a joint account with other Funds managed
by the investment advisor. At January 31, 1998, all repurchase agreements had
been entered into on January 30, 1998.
See notes to financial statements.
</TABLE>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights
Franklin Templeton Moderate Target Fund
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------
Six Months Ended
January 31, 1998 PERIOD ENDED JULY 31,
(UNAUDITED) 1997***
-----------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C>
Net asset value, beginning of period $11.26 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income .28 .17
Net realized and unrealized gains (losses) (.22) 1.13
-----------------------------------------------
Total from investment operations .06 1.30
-----------------------------------------------
Less distributions from:
Net investment income (.34) (.04)
Net realized gains (.49) --
Total distributions (.83) (.04)
-----------------------------------------------
Net asset value, end of period $10.49 $11.26
===============================================
Total return* .61% 13.05%
Ratios/supplemental data
Net assets, end of period (000's) $11,143 $6,498
Ratios to average net assets:
Expenses** .82% .67%
Expenses excluding waiver and payments by affiliate** 1.30% 1.26%
Net investment income 2.93% 2.69%**
Portfolio turnover rate 73.70% 264.78%
</TABLE>
*Total return does not reflect the contingent deferred sales charges, and is not
annualized.
**Annualized.
***For the period December 31, 1996 (effective date) to July 31, 1997.
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights (continued)
Franklin Templeton Moderate Target Fund (cont.)
CLASS II
-----------------------------------------------
Six Months Ended
January 31, 1998 PERIOD ENDED JULY 31,
(UNAUDITED) 1997***
-----------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C>
Net asset value, beginning of period $11.16 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income .27 .07
Net realized and unrealized gains (losses) (.25) 1.11
-----------------------------------------------
Total from investment operations .02 1.18
-----------------------------------------------
Less distributions from:
Net investment income (.27) (.02)
In excess of net investment income (.04) --
Net realized gains (.49) --
-----------------------------------------------
Total distributions (.80) (.02)
-----------------------------------------------
Net asset value, end of period $10.38 $11.16
===============================================
Total return* .26% 11.84%
Ratios/supplemental data
Net assets, end of period (000's) $12,172 $4,695
Ratios to average net assets:
Expenses** 1.50% 1.50%
Expenses excluding waiver and payments by affiliate** 1.99% 2.09%
Net investment income 2.73% 1.86%**
Portfolio turnover rate 73.70% 264.78%
</TABLE>
*Total return does not reflect the contingent deferred sales charges, and is not
annualized.
**Annualized.
***For the period December 31, 1996 (effective date) to July 31, 1997.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments, January 31, 1998 (unaudited)
Franklin Templeton Moderate Target Fund SHARES VALUE
- ---------------------------------------------------------------------------------------------------
aMutual Funds 99.4%
<S> <C> <C>
Franklin AGE High Income Fund 386,395 $ 1,155,323
Franklin Equity Fund 199,523 1,945,354
Franklin Growth Fund 148,878 4,076,285
Franklin Real Estate Securities Fund 38,319 687,073
Franklin Small Cap Growth Fund 35,777 815,718
Franklin U.S. Government Securities Fund 551,650 3,833,972
Franklin Utilities Fund 274,832 2,940,706
Franklin Value Fund 33,882 807,421
Mutual Discovery Fund 124,714 2,357,101
Mutual Shares Fund 102,989 2,177,201
Templeton Developing Markets Trust 44,095 519,891
Templeton Foreign Fund 118,385 1,183,857
Templeton Global Bond Fund 70,859 690,173
--------------
Total Long Term Investments (Cost $23,255,568) 23,190,075
--------------
PRINCIPAL
AMOUNT
--------------
bRepurchase Agreement .4%
Joint Repurchase Agreement, 5.578%, 2/02/98, (Maturity Value $85,088)
(Cost $85,048) $85,048 85,048
--------------
BancAmerica Robertson Stephens
Barclays Capital Group, Inc.
Bear, Stearns & Co., Inc.
BT Alex Brown, Inc.
Chase Securities, Inc.
CIBC Wood Gundy Securities Corp.
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America, L.L.C.
Greenwich Capital Markets, Inc.
Lehman Brothers, Inc.
Paribas Corp.
SBC Warburg Dillon Read, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $23,340,616) 99.8% 23,275,123
Other Assets, less Liabilities .2% 40,633
--------------
Net Assets 100.0% $23,315,756
==============
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.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At January 31, 1998, all repurchase agreements had
been entered into on January 30, 1998.
See notes to financial statements.
</TABLE>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights
Franklin Templeton Growth Target Fund
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------
Six Months Ended
January 31, 1998 PERIOD ENDED JULY 31,
(UNAUDITED) 1997***
-----------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C>
Net asset value, beginning of period $11.33 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income .28 .05
Net realized and unrealized gains (losses) (.35) 1.28
-----------------------------------------------
Total from investment operations (.07) 1.33
-----------------------------------------------
Less distributions from:
Net investment income (.30) --
Net realized gains (.15) --
Total distributions (.45) --
-----------------------------------------------
Net asset value, end of period $10.81 $11.33
===============================================
Total return* (.59%) 13.30%
Ratios/supplemental data
Net assets, end of period (000's) $15,871 $9,638
Ratios to average net assets:
Expenses** .76% .73%
Expenses excluding waiver and payments by affiliate** 1.20% 2.19%
Net investment income 2.79% 2.65%**
Portfolio turnover rate 83.46% 65.52%
</TABLE>
*Total return does not reflect the contingent deferred sales charges, and is not
annualized.
**Annualized.
***For the period December 31, 1996 (effective date) to July 31, 1997.
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights (continued)
Franklin Templeton Growth Target Fund (cont.)
CLASS II
-----------------------------------------------
Six Months Ended
January 31, 1998 PERIOD ENDED JULY 31,
(UNAUDITED) 1997***
-----------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
<S> <C> <C>
Net asset value, beginning of period $11.30 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income .23 .04
Net realized and unrealized gains (losses) (.34) 1.26
-----------------------------------------------
Total from investment operations (.11) 1.30
-----------------------------------------------
Less distributions from:
Net investment income (.26) --
Net realized gains (.15) --
-----------------------------------------------
Total distributions (.41) --
-----------------------------------------------
Net asset value, end of period $10.78 $11.30
===============================================
Total return* (.92%) 13.00%
Ratios/supplemental data
Net assets, end of period (000's) $12,816 $4,733
Ratios to average net assets:
Expenses** 1.51% 1.49%
Expenses excluding waiver and payments by affiliate** 1.90% 2.95%
Net investment income 2.54% 1.89%**
Portfolio turnover rate 83.46% 65.52%
*Total return does not reflect the contingent deferred sales charges, and is not
annualized.
**Annualized.
***For the period December 31, 1996 (effective date) to July 31, 1997.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Statement of Investments, January 31, 1998 (unaudited)
Franklin Templeton Growth Target Fund SHARES VALUE
- ----------------------------------------------------------------------------------------------
aMutual Funds 99.4%
<S> <C> <C>
Franklin AGE High Income Fund 378,823 $ 1,132,682
Franklin Equity Fund 284,226 2,771,209
Franklin Growth Fund 208,507 5,708,938
Franklin Real Estate Securities Fund 46,960 842,005
Franklin Small Cap Growth Fund 62,631 1,428,009
Franklin U.S. Government Securities Fund 122,180 849,161
Franklin Utilities Fund 219,333 2,346,868
Franklin Value Fund 59,319 1,413,579
Mutual Discovery Fund 226,974 4,289,825
Mutual Shares Fund 154,412 3,264,267
Templeton Developing Markets Trust 73,686 868,766
Templeton Foreign Fund 188,809 1,888,099
Templeton Global Bond Fund 116,386 1,133,609
Templeton Global Small Company Growth 71,705 574,361
------------
Total Long Term Investments (Cost $28,953,817) 28,511,378
------------
PRINCIPAL
AMOUNT
-----------
bRepurchase Agreement .5%
Joint Repurchase Agreement, 5.578%, 2/2/98 (Maturity Value $146,010)
(Cost $145,942) $145,942 145,942
----------
BancAmerica Robertson Stephens
Barclays Capital Group, Inc.
Bear, Stearns & Co., Inc.
BT Alex Brown, Inc.
Chase Securities, Inc.
CIBC Wood Gundy Securities Corp.
Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America, L.L.C.
Greenwich Capital Markets, Inc.
Lehman Brothers, Inc.
Paribas Corp.
SBC Warburg Dillon Read, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $29,099,759) 99.9% 28,657,320
Other Assets, less Liabilities .1% 29,566
----------
Net Assets 100.0% $28,686,886
==========
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.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At January 31, 1998, all repurchase agreements had
been entered into on January 30, 1998.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements
Statement of Assets and Liabilities
January 31, 1998
Franklin Templeton Franklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
---------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C>
Cost $10,445,741 $23,340,616 $29,099,759
=====================================================================
Value 10,508,867 23,275,123 28,657,320
Cash -- 75,400 73,459
Receivables:
Capital shares sold 13,671 23,242 68,722
Affiliates 5,826 6,894 47,757
Organization costs 53,528 53,528 53,528
---------------------------------------------------------------------
Total assets 10,581,892 23,434,187 28,900,786
---------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 18,000 70,000 130,000
Capital shares redeemed 27,085 380 25,473
Affiliates 16,527 32,781 40,589
Shareholders 22,847 15,270 17,838
---------------------------------------------------------------------
Total liabilities 84,459 118,431 213,900
---------------------------------------------------------------------
Net assets, at value $10,497,433 $23,315,756 $28,686,886
=====================================================================
Net assets consist of:
Undistributed net investment income $ 4,172 $-- $ 1,659
Accumulated distributions in excess of net investment income -- (3,840) --
Net unrealized appreciation (depreciation) 63,126 (65,493) (442,439)
Accumulated net realized gain 17,924 50,311 78,781
Capital shares 10,412,211 23,334,778 29,048,885
---------------------------------------------------------------------
Net assets, at value $10,497,433 $23,315,756 $28,686,886
=====================================================================
Class I:
Net assets, at value $ 4,364,767 $11,143,363 $15,870,726
=====================================================================
Shares outstanding 407,181 1,062,135 1,468,828
=====================================================================
Net asset value per share* $10.72 $10.49 $10.81
=====================================================================
Maximum offering price per share (net asset value
per share / 95.5%) $11.23 $10.98 $11.32
=====================================================================
Class II:
Net assets, at value $ 6,132,666 $12,172,393 $12,816,160
=====================================================================
Shares outstanding 576,012 1,172,285 1,189,383
=====================================================================
Net asset value per share* $10.65 $10.38 $10.78
=====================================================================
Maximum offering price per share (net asset
value per share / 99%) $10.76 $10.48 $10.89
=====================================================================
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements (continued)
Statement of Operations
for the six months ended January 31, 1998 (unaudited)
Franklin Templeton Franklin Templeton Franklin Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
----------------------------------------------------------------
Investment income:
<S> <C> <C> <C>
Dividends $270,600 $594,671 $ 717,830
Interest 1,759 2,795 3,078
================================================================
Total investment Income 272,359 597,466 720,908
----------------------------------------------------------------
Expenses:
Asset allocation fees (Note 3) 9,913 21,897 28,058
Distribution fees (Note 3)
Class I 4,781 14,640 16,355
Class II 22,716 42,721 47,901
Transfer agent fees (Note 3) 5,285 10,401 18,508
Reports to shareholders 1,405 2,715 5,753
Registration and filing fees 18,172 27,924 25,118
Professional fees 2,809 5,492 8,195
Amortization of offering costs 9,977 9,977 9,977
Amortization of organization costs 6,833 6,833 6,833
Other 335 1,353 572
----------------------------------------------------------------
Total expenses 82,226 143,953 167,270
Expenses waived/paid by affiliate (Note 3) (34,903) (42,972) (46,897)
----------------------------------------------------------------
Net expenses 47,323 100,981 120,373
----------------------------------------------------------------
Net investment income 225,036 496,485 600,535
----------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (107,942) (216,849) (529,530)
Distributions by Underlying Funds 170,009 508,585 929,340
----------------------------------------------------------------
Net realized gain 62,067 291,736 399,810
Net unrealized depreciation on investments (146,908) (710,903) (1,212,652)
----------------------------------------------------------------
Net realized and unrealized loss (84,841) (419,167) (812,842)
----------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $140,195 $ 77,318 $ (212,307)
================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended January 31, 1998 (unaudited)
and the period December 31, 1996 (effective date) to July 31, 1997
Franklin Templeton Franklin Templeton Franklin Templeton
Conservative Target Fund Moderate Target Fund Growth Target Fund
Six Months Period Six Months Period Six Months Period
Ended Ended Ended Ended Ended Ended
1/31/98 7/31/97 1/31/98 7/31/97 1/31/98 7/31/97
--------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 225,036 $ 34,271 $ 496,485 $ 140,811 $ 600,535 $ 55,207
Net realized gain (loss) from
investments 62,067 1,422 291,736 608,185 399,810 (10,238)
Net unrealized appreciation
(depreciation) on
investments (146,908) 210,034 (710,903) 645,410 (1,212,652) 770,213
============================================================================================
Net increase (decrease)
in net assets resulting
from operations 140,195 245,727 77,318 1,394,406 (212,307) 815,182
Distributions to shareholders from:
Net investment income:
Class I (112,575) (2,504) (283,176) (44,458) (374,235) --
Class II (129,550) (2,663) (242,527) (3,938) (262,212) --
In excess of net investment income
Class II -- -- (30,170) -- -- --
Net realized gains:
Class I (24,813) -- (428,939) -- (184,015) --
Class II (31,333) -- (468,355) -- (149,026) --
============================================================================================
Total distributions
to shareholders (298,271) (5,167) (1,453,167) (48,396) (969,488) --
Capital share transactions (Note 2):
Class I 2,817,134 1,509,464 5,312,836 5,398,048 6,878,261 9,108,579
Class II 3,219,544 2,828,807 8,185,815 4,408,896 8,619,996 4,406,663
--------------------------------------------------------------------------------------------
Total capital share transactions 6,036,678 4,338,271 13,498,651 9,806,944 15,498,257 13,515,242
--------------------------------------------------------------------------------------------
Net increase in
net assets 5,878,602 4,578,831 12,122,802 11,152,954 14,316,462 14,330,424
Net assets:
Beginning of period 4,618,831 40,000 11,192,954 40,000 14,370,424 40,000
--------------------------------------------------------------------------------------------
End of period $10,497,433 $4,618,831 $23,315,756 $11,192,954 $28,686,886 $14,370,424
============================================================================================
Undistributed net investment
income (Accumulated distribu-
tions in excess of net investment
income) included in net assets
End of period $ 4,172 $ 21,261 $ (3,840) $ 55,548 $ 1,659 $ 37,571
============================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Fund Allocator Series (the Trust) is registered under the
Investment Company Act of 1940 as an open-end, non-diversified investment
company, consisting of three separate 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). 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 following summarizes the Funds' significant
accounting policies.
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").
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:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
c. Security Transactions, Investment Income, Expenses and Distribution:
Investments in the Underlying Funds are accounted for on trade date. Realized
gains and losses on security transactions are determined on a specific
identification basis. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
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. Other expenses are
charged to each Fund on a specific identification basis.
Distributions received by the Trust from the Underlying Funds may be a return of
capital (ROC). Such distributions reduce the cost basis of the securities, and
any distributions in excess of the cost basis are recognized as capital gains.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
d. Organization Costs:
Organization costs are amortized on a straight line basis over five years.
e. Offering Costs:
Offering costs are amortized on a straight-line basis over twelve months.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. Accounting Estimates:
The preparation of 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.
2. SHARES OF BENEFICIAL INTEREST
The Funds offer two classes of shares: Class I and Class II. The shares have the
same rights except for their initial sales load, distribution fees, voting
rights on matters affecting a single class and the exchange privilege of each
class.
At January 31, 1998, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares 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:
Six months ended January 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 411,034 $4,488,114 608,505 $ 6,738,317 637,591 $ 7,119,871
Shares issued in reinvestment of distributions 12,818 136,308 67,325 700,799 52,028 554,091
Shares redeemed (164,720) (1,807,288) (190,893) (2,126,280) (71,577) (795,701)
----------------------------------------------------------------------------------
Net increase 259,132 $2,817,134 484,937 $ 5,312,836 618,042 $ 6,878,261
==================================================================================
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:
Six months ended January 31, 1998
Shares sold 302,888 $ 3,278,103 725,141 $ 7,944,164 774,013 $ 8,676,145
Shares issued in reinvestment of distributions 14,948 157,896 71,598 736,752 38,131 404,503
Shares redeemed (20,323) (216,455) (45,175) (495,101) (41,654) (460,652)
----------------------------------------------------------------------------------
Net increase 297,513 $ 3,219,544 751,564 $ 8,185,815 770,490 $ 8,619,996
==================================================================================
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
==================================================================================
*For 1997, figures are for the period December 31, 1996 (effective date) to July 31, 1997.
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Investor Services, Inc. (Investor Services),
Franklin/Templeton Distributors, Inc. (Distributors), and the Underlying Funds,
the Funds' investment manager, administrative manager, transfer agent, principal
underwriter, and the Funds in which the Trust invests, respectively.
The Funds pay an investment advisory and asset allocation fee to Advisers of
0.25% per year of the average daily net assets of each Fund.
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
Advisers agreed in advance to waive management fees and assume payment of other
expenses for the Funds through January 31, 1998 as noted in the Statement of
Operations.
The Funds reimburse Distributors up to 0.25% and 1.00% per year of the average
daily net assets of Class I and Class II, respectively, for costs incurred in
marketing the Funds shares.
Distributors received/paid net commissions from/on sales of the Funds shares,
and received contingent deferred sales charges for the period as follows:
Franklin Franklin Franklin
Templeton Templeton Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
------------------------------------------
Net Commissions received (paid) $4,172 $(12,786) $11,379
Contingent deferred sales charges $ 132 $ 778 $ 930
4. INCOME TAXES
At January 31, 1998, the Growth Target Fund had tax basis capital losses of $117
which may be carried over to offset future capital gains. Such losses expire in
2005.
Net realized capital gains/losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
4. INCOME TAXES (cont.)
At January 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes was as follows:
Franklin Franklin Franklin
Templeton Templeton Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
-----------------------------------------
Investment at cost $10,515,622 $23,538,526 $ 29,247,483
=========================================
Unrealized appreciation 141,060 287,678 348,745
Unrealized depreciation (147,815) (551,081) (938,908)
-----------------------------------------
Net unrealized depreciation $ (6,755) $ (263,403) $ (590,163)
=========================================
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds for the period ended January 31, 1998,
were as follows:
Franklin Franklin Franklin
Templeton Templeton Templeton
Conservative Moderate Growth
Target Fund Target Fund Target Fund
-------------------------------------------
Purchases $13,508,435 $25,712,967 $34,279,840
Sales $ 7,449,403 $12,700,172 $18,328,350
Franklin Templeton Fund Allocator Series Semi-Annual Report
January 31, 1998.
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 based on Total Net Assets as of 1/31/98.
U.S. Equities 36%
International Equities 10%
U.S. Fixed Income
Securities 41%
Short-Term Obligations
And Other Net Assets 13%
GRAPHIC MATERIAL (2)
This chart shows in pie format the Asset Allocation of the Franklin Templeton
Moderate Target Fund based on Total Net Assets as of 1/31/98.
U.S. Equities 47%
U.S. Fixed Income
Securities 23%
International Equities 13%
International Fixed
Income Securities 3%
Short-Term Obligations
And Other Net Assets 14%
GRAPHIC MATERIAL (3)
This chart shows in pie format the Asset Allocation of the Franklin Templeton
Growth Target Fund based on Total Net Assets as of 1/31/98.
U.S. Equities 52%
International Equities 19%
U.S. Fixed Income
Securities 9%
International Fixed
Income Securities 3%
Short-Term Obligations
And Other Net Assets 17%
