FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
ANNUAL REPORT
JULY 31, 1999
SHAREHOLDER LETTER
Dear Shareholder:
This annual report for the Franklin Templeton Fund Allocator Series
(Conservative Target Fund, Moderate Target Fund, and Growth Target Fund) covers
the year ended July 31, 1999.
ECONOMIC OVERVIEW
During the reporting period, the U.S. economy grew at an impressive pace, fueled
in part by three Federal Reserve Board (the Fed) interest rate cuts in the fall
of 1998. Throughout most of the period, investors favored large-capitalization,
growth stocks and, on March 16, the Dow Jones(R) Industrial Average broke
through the 10000 barrier for the first time in its history. On July 31, 1999,
it closed at 10655, up 19.95% for the year under review. However, the character
of the market appeared to change in April and May and, after being out of favor,
value investing returned to life, as many investors displayed enthusiastic
interest in small-, mid-, and large-capitalization value stocks. In many
developing countries, equity markets roared back to life, as investors poured
money into South American and Asian stocks. European equities delivered mixed
performances, with Germany, Switzerland and Italy's stock markets falling, while
those of the United Kingdom, France and Sweden rose.
CONTENTS
Shareholder Letter .............................. 1
Fund Reports
Franklin Templeton
Conservative Target Fund ...................... 4
Franklin Templeton
Moderate Target Fund .......................... 10
Franklin Templeton
Growth Target Fund ............................ 16
Financial Highlights &
Statements of Investments ....................... 22
Financial Statements ............................ 31
Notes to
Financial Statements ............................ 34
Independent
Auditors' Report ................................ 38
Tax Information ................................. 39
Regarding fixed-income securities, U.S. bond prices rose during the first half
of the period. However, during the second half, concerns about inflation and
rising interest rates weighed heavily on the U.S. bond market, and on June 30
the Fed increased the federal funds rate by 0.25%. Long-term interest rates, as
measured by the 30-year Treasury bond, rose from 5.72% at the beginning of the
period to 6.11% at the end. Elsewhere, the Salomon Brothers World Government
Bond Index, representative of government bonds in developed countries, produced
a 6.54% total return in U.S. dollar terms, while the J.P. Morgan Emerging
Markets Bond Index Plus, which tracks the bond market performance in emerging
market nations, decreased 6.89% during the year under review.
INVESTMENT STRATEGY
Within this environment, the three Target Funds' Class A shares provided the
following returns: Conservative Target Fund, +3.23%; Moderate Target Fund,
+1.74%; Growth Target Fund, +3.91%. These returns are shown in the individual
Performance Summaries on pages 7, 13, and 19, respectively. Performance of all
three Target Funds for the year ended July 31 began to improve near the end of
the reporting period, partly due to a change in our investment strategy. In
selecting underlying funds, our previous strategy emphasized asset allocation
based on a combination of the expected risk and return of various asset classes.
This strategy correctly indicated a rising level of market risk for domestic and
foreign equities during the early summer of 1998. The markets did, in fact, fall
during that time, but our continued underweighting in such securities also
prevented the Funds from participating in the markets' strong performance from
September through December 1998. In April, we decided to maintain consistent
exposure to the three broad asset classes in which the Funds invest and focus
only on the selection of underlying funds. The following asset class allocations
are prescribed for each Target Fund:
CASH & EQUIVALENTS EQUITY FIXED-INCOME
Conservative Target Fund 20% 40% 40%
Moderate Target Fund 10% 55% 35%
Growth Target Fund 5% 80% 15%
Of course, security prices always have been and always will be subject to
volatility. No one can predict exactly how financial markets will perform, and
since bad years can be mixed with good years, it is important for investors to
exercise patience, and focus not on short-term market movements, but on their
long-term investment goals.
We appreciate your participation in the Funds and welcome your comments and
suggestions.
Sincerely,
/s/ Mark Boyadjian
Mark Boyadjian, CFA
Portfolio Manager
Franklin Templeton Fund Allocator Series
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
[ASSET ALLOCATION PIE CHART]
Franklin Templeton
Conservative Target Fund
Based on Total Net Assets
7/31/99
U.S. Fixed Income Securities 39.9%
U.S. Equities 27.0%
International Equities 13.1%
Short-Term Obligations &
Other Net Assets 20.0%
Your Fund's Goal: Franklin Templeton Conservative Target Fund seeks the highest
level of long-term total return achievable at a lower level of risk.
During the 12 months under review, the Fund's Class A shares provided a +3.23%
cumulative total return, as shown in the Performance Summary on page 7. This was
largely a result of its allocation among the various asset classes, as well as
the actual performance of the underlying funds.
Until April 1999, the Fund's previous investment strategy emphasized asset
allocation based on a combination of the expected risk and return of various
asset classes and underlying funds. As noted previously, this strategy correctly
indicated a rising level of market risk for domestic and foreign equities during
the early summer of 1998. The markets did, in fact, fall during that time, but
an unintentional consequence of that strategy was underexposure to the very
asset classes that rose the most following the stock market's late summer 1998
decline.
As part of our new strategy emphasizing underlying fund selection, Franklin Real
Estate Securities Fund represented the Fund's largest equity investment (9.0% of
total net assets) at the end of the period. Domestic equity exposure was about
two-thirds of our total equity exposure, with the balance represented by foreign
equities. The Fund also was diversified by capitalization and investment style,
and, at the end of the reporting period, held shares in large- and small-cap
growth and mid-cap value equity funds.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 24 of
this report.
To increase the Fund's income-producing potential, the fixed-income portion of
the portfolio included Franklin Bond Fund and Franklin's AGE High Income Fund.
On July 31, these funds represented 39.9% of the Fund's total net assets.
Looking forward, we believe the shift in our investment strategy should reduce
volatility and contribute positively to the Fund's performance. Please remember,
this discussion reflects our views, opinions and portfolio holdings as of July
31, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and the
Fund's portfolio composition. Although past performance is not predictive of
future results, these insights may help you 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 12-month period ended
July 31, 1999, 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 goals over a longer
time horizon than the period under review. Therefore, it is likely that
performance of the Fund, the underlying funds, and the associated indexes for
any single 12-month period will vary considerably from the long-term objective
and/or expectations of the portfolio managers. Past performance is not an
indication of future performance, and recent performance, in particular, may not
be a reliable indicator of future, long-term performance.
TOP 5 FUND HOLDINGS
Franklin Templeton
Conservative Target Fund
7/31/99
% OF TOTAL
FUND NET ASSETS
- -------------------------------------------------
Franklin Institutional
Fiduciary Trust
Money Market Portfolio 20.5%
Franklin Bond Fund 20.1%
Franklin's AGE
High Income Fund 19.8%
Franklin Real Estate
Securities Fund 9.0%
Templeton Foreign Fund 6.6%
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, Fund shares were offered at a lower initial sales charge; thus actual
total returns would have been higher.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
The Fund's manager has agreed in advance to waive or limit the asset allocation
fee and/or make certain payments so that the Fund's direct operating expenses do
not exceed 0.75%, and 1.50% for Class C. Without this agreement, the Fund's
direct operating expenses would have been higher and total returns 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.
PERFORMANCE SUMMARY AS OF 7/31/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class's operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 7/31/99 7/31/98
<S> <C> <C> <C>
Net Asset Value -$0.27 $10.73 $11.00
DISTRIBUTIONS (8/1/98 - 7/31/99)
Dividend Income $0.4073
Long-Term Capital Gain $0.1500
Short-Term Capital Gain $0.0409
TOTAL $0.5982
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 7/31/99 7/31/98
<S> <C> <C> <C>
Net Asset Value -$0.27 $10.65 $10.92
DISTRIBUTIONS (8/1/98 - 7/31/99)
Dividend Income $0.3295
Long-Term Capital Gain $0.1500
Short-Term Capital Gain $0.0409
TOTAL $0.5204
</TABLE>
Franklin Templeton Conservative Target Fund paid distributions derived from
long-term capital gains of 4.09 cents ($0.0409) per share in December 1998. The
Fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3).
Past performance is not predictive of future results.
PERFORMANCE
INCEPTION
CLASS A 1-YEAR (12/31/96)
Cumulative Total Return(1) +3.23% +18.84%
Average Annual Total Return(2) -2.70% +4.49%
Value of $10,000 Investment(3) $9,730 $11,200
INCEPTION
CLASS C 1-YEAR (12/31/96)
Cumulative Total Return(1) +2.49% +16.25%
Average Annual Total Return(2) +0.50% +5.60%
Value of $10,000 Investment(3) $10,050 $11,510
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 current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, 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
CONSERVATIVE TARGET FUND
AVERAGE ANNUAL TOTAL RETURN
7/31/99
CLASS A
1-Year -2.70%
Since Inception (12/31/96) +4.49%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged indexes differ from the Fund in composition, do not pay management
fees or expenses, and include reinvested dividends or interest. One cannot
invest directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the share class's current,
applicable, maximum sales charges, Fund expenses, account fees, and reinvested
distributions.
[TOTAL RETURN INDEX COMPARISON LINE GRAPH]
Franklin Templeton Conservative Target Fund -- Class A
Value of a $10,000 Investment (12/31/96 -- 7/31/99)
The following line graph compares the performance of Franklin Templeton
Conservative Target Fund's Class A shares to that of the Standard and Poor's 500
Composite Index, the Morgan Stanley Capital International Europe, Australasia,
Far East Index, the Lehman Brothers Government/Corporate Bond Index, and U.S.
Treasury Bills based on a $10,000 investment from 12/31/96 to 7/31/99.
<TABLE>
<CAPTION>
DATE FT CONSERVATIVE TARGET S&P 500 MSCI EAFE (NET LB GOV'T./CORP. U.S. TREASURY
FUND - CLASS A DIVIDENDS) BOND INDEX BILLS
<S> <C> <C> <C> <C> <C>
12/31/1996 $9,425 $10,000 $10,000 $10,000 $10,000
01/31/1997 $9,576 $10,625 $9,650 $10,012 $10,045
02/28/1997 $9,585 $10,708 $9,808 $10,033 $10,083
03/31/1997 $9,474 $10,268 $9,844 $9,914 $10,126
04/30/1997 $9,502 $10,881 $9,896 $10,058 $10,169
05/31/1997 $9,814 $11,543 $10,540 $10,152 $10,224
06/30/1997 $10,028 $12,061 $11,121 $10,274 $10,262
07/31/1997 $10,293 $13,021 $11,301 $10,588 $10,306
08/31/1997 $10,189 $12,291 $10,457 $10,470 $10,351
09/30/1997 $10,570 $12,965 $11,042 $10,634 $10,399
10/31/1997 $10,351 $12,532 $10,193 $10,804 $10,438
11/30/1997 $10,408 $13,112 $10,089 $10,861 $10,484
12/31/1997 $10,513 $13,338 $10,177 $10,975 $10,529
01/31/1998 $10,503 $13,486 $10,642 $11,130 $10,582
02/28/1998 $10,797 $14,458 $11,325 $11,108 $10,623
03/31/1998 $11,036 $15,198 $11,674 $11,142 $10,675
04/30/1998 $11,095 $15,352 $11,766 $11,198 $10,724
05/31/1998 $10,987 $15,088 $11,709 $11,318 $10,771
06/30/1998 $10,988 $15,700 $11,798 $11,433 $10,815
07/31/1998 $10,850 $15,532 $11,917 $11,442 $10,862
08/31/1998 $10,219 $13,286 $10,440 $11,666 $10,913
09/30/1998 $10,397 $14,138 $10,120 $11,999 $10,970
10/31/1998 $10,526 $15,287 $11,174 $11,914 $11,013
11/30/1998 $10,715 $16,214 $11,746 $11,985 $11,048
12/31/1998 $10,826 $17,148 $12,209 $12,015 $11,093
01/31/1999 $10,898 $17,865 $12,173 $12,101 $11,137
02/28/1999 $10,754 $17,309 $11,883 $11,813 $11,172
03/31/1999 $10,916 $18,001 $12,378 $11,872 $11,220
04/30/1999 $11,185 $18,698 $12,880 $11,901 $11,262
05/31/1999 $11,092 $18,257 $12,216 $11,779 $11,305
06/30/1999 $11,273 $19,270 $12,693 $11,742 $11,347
07/31/1999 $11,200 $18,669 $13,070 $11,709 $11,395
</TABLE>
Past performance is not predictive of future results.
[TOTAL RETURN INDEX COMPARISON LINE GRAPH]
Franklin Templeton Conservative Target Fund -- Class C
Value of a $10,000 Investment (12/31/96 -- 7/31/99)
The following line graph compares the performance of Franklin Templeton
Conservative Target Fund's Class C shares to that of the Standard and Poor's 500
Composite Index, the Morgan Stanley Capital International Europe Australasia,
Far East Index, the Lehman Brothers Government/Corporate Bond Index, and U.S.
Treasury Bills based on a $10,000 investment from 12/31/96 to 7/31/99.
<TABLE>
<CAPTION>
DATE FT CONSERVATIVE TARGET S&P 500 MSCI EAFE (NET LB GOV'T./CORP. U.S. TREASURY
FUND - CLASS C DIVIDENDS) BOND INDEX BILLS
<S> <C> <C> <C> <C> <C>
12/31/1996 $9,901 $10,000 $10,000 $10,000 $10,000
01/31/1997 $10,059 $10,625 $9,650 $10,012 $10,045
02/28/1997 $10,050 $10,708 $9,808 $10,033 $10,083
03/31/1997 $9,899 $10,268 $9,844 $9,914 $10,126
04/30/1997 $9,929 $10,881 $9,896 $10,058 $10,169
05/31/1997 $10,257 $11,543 $10,540 $10,152 $10,224
06/30/1997 $10,472 $12,061 $11,121 $10,274 $10,262
07/31/1997 $10,740 $13,021 $11,301 $10,588 $10,306
08/31/1997 $10,611 $12,291 $10,457 $10,470 $10,351
09/30/1997 $11,001 $12,965 $11,042 $10,634 $10,399
10/31/1997 $10,771 $12,532 $10,193 $10,804 $10,438
11/30/1997 $10,831 $13,112 $10,089 $10,861 $10,484
12/31/1997 $10,932 $13,338 $10,177 $10,975 $10,529
01/31/1998 $10,912 $13,486 $10,642 $11,130 $10,582
02/28/1998 $11,209 $14,458 $11,325 $11,108 $10,623
03/31/1998 $11,455 $15,198 $11,674 $11,142 $10,675
04/30/1998 $11,506 $15,352 $11,766 $11,198 $10,724
05/31/1998 $11,393 $15,088 $11,709 $11,318 $10,771
06/30/1998 $11,385 $15,700 $11,798 $11,433 $10,815
07/31/1998 $11,231 $15,532 $11,917 $11,442 $10,862
08/31/1998 $10,572 $13,286 $10,440 $11,666 $10,913
09/30/1998 $10,750 $14,138 $10,120 $11,999 $10,970
10/31/1998 $10,874 $15,287 $11,174 $11,914 $11,013
11/30/1998 $11,061 $16,214 $11,746 $11,985 $11,048
12/31/1998 $11,171 $17,148 $12,209 $12,015 $11,093
01/31/1999 $11,235 $17,865 $12,173 $12,101 $11,137
02/28/1999 $11,085 $17,309 $11,883 $11,813 $11,172
03/31/1999 $11,250 $18,001 $12,378 $11,872 $11,220
04/30/1999 $11,508 $18,698 $12,880 $11,901 $11,262
05/31/1999 $11,411 $18,257 $12,216 $11,779 $11,305
06/30/1999 $11,586 $19,270 $12,693 $11,742 $11,347
07/31/1999 $11,510 $18,669 $13,070 $11,709 $11,395
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
7/31/99
CLASS C
1-Year +0.50%
Since Inception (12/31/96) +5.60%
*Source: Standard and Poor's(R) Micropal. The value of Treasuries is fixed;
principal is guaranteed and interest is fixed. MSCI EAFE includes reinvested
dividends, net of taxes withheld by foreign countries. Indexes are unmanaged and
include reinvested dividends. One cannot invest directly in an index.
Past performance is not predictive of future results.
FRANKLIN TEMPLETON
MODERATE TARGET FUND
[ASSET ALLOCATION PIE GRAPH]
Franklin Templeton Moderate Target Fund
Based on Total Net Assets
7/31/99
U.S. Equities 37.2%
U.S. Fixed Income Securities 35.0%
International Equities 18.3%
Short-Term Obligations & Other
Net Assets 9.5%
Your Fund's Goal: Franklin Templeton Moderate Target Fund seeks the highest
level of long-term total return achievable at an intermediate level of risk.
During the 12 months under review, the Fund's Class A shares provided a +1.74%
cumulative total return, as shown in the Performance Summary on page 13. This
was largely a result of its allocation among the various asset classes, as well
as the actual performance of the underlying funds.
Until April 1999, the Fund's previous investment strategy emphasized asset
allocation based on a combination of the expected risk and return of various
asset classes and underlying funds. As noted previously, this strategy correctly
indicated a rising level of market risk for domestic and foreign equities during
the early summer of 1998. The markets did, in fact, fall during that time, but
an unintentional consequence of that strategy was underexposure to the very
asset classes that rose the most following the stock market's late summer 1998
decline.
As part of our new strategy emphasizing underlying fund selection, Franklin Real
Estate Securities Fund represented the Fund's largest equity investment (12.4%
of total net assets) at the end of the period. Domestic equity exposure was
about two-thirds of our total equity exposure, with the balance represented by
foreign equities. The Fund also was diversified by capitalization and investment
style, and, at the end of the reporting period, held shares in large- and
small-cap growth and mid-cap value equity funds.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 27 of
this report.
To increase the Fund's income-producing potential, the fixed-income portion of
the portfolio included Franklin's AGE High Income Fund and Franklin Bond Fund.
On July 31, these funds represented 35.0% of the Fund's total net assets.
Looking forward, we believe the shift in our investment strategy should reduce
volatility and contribute positively to the Fund's performance. Please remember,
this discussion reflects our views, opinions and portfolio holdings as of July
31, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and the
Fund's portfolio composition. Although past performance is not predictive of
future results, these insights may help you 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 Moderate Target Fund for the 12-month period ended
July 31, 1999, 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 goals over a longer
time horizon than the period under review. Therefore, it is likely that
performance of the Fund, the underlying funds, and the associated indexes for
any single 12-month period will vary considerably from the long-term objective
and/or expectations of the portfolio managers. Past performance is not an
indication of future performance, and recent performance, in particular, may not
be a reliable indicator of future, long-term performance.
TOP 5 FUND HOLDINGS
Franklin Templeton
Moderate Target Fund
7/31/99
% OF TOTAL
FUND NET ASSETS
- ---------------------------------------------------
Franklin's AGE
High Income Fund 19.7%
Franklin Bond Fund 15.3%
Franklin Real Estate
Securities Fund 12.4%
Franklin Institutional
Fiduciary Trust
Money Market Portfolio 10.3%
Templeton Foreign Fund 9.2%
FRANKLIN TEMPLETON
MODERATE TARGET FUND
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, Fund shares were offered at a lower initial sales charge; thus actual
total returns would have been higher.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
Past expense waivers by the Fund's manager increased the Fund's total returns.
Without this waiver, the Fund's total returns would have been lower.
PERFORMANCE SUMMARY AS OF 7/31/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class's operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 7/31/99 7/31/98
<S> <C> <C> <C>
Net Asset Value -$0.33 $10.44 $10.77
DISTRIBUTIONS (8/1/98 - 7/31/99)
Dividend Income $0.3134
Long-Term Capital Gain $0.1276
Short-Term Capital Gain $0.0499
TOTAL $0.4909
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 7/31/99 7/31/98
<S> <C> <C> <C>
Net Asset Value -$0.34 $10.31 $10.65
DISTRIBUTIONS (8/1/98 - 7/31/99)
Dividend Income $0.2360
Long-Term Capital Gain $0.1276
Short-Term Capital Gain $0.0499
TOTAL $0.4135
</TABLE>
Franklin Templeton Moderate Target Fund paid distributions from long-term
capital gains of 12.76 cents ($0.1276) per share in December 1998. The Fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3).
Past performance is not predictive of future results.
PERFORMANCE
INCEPTION
CLASS A 1-YEAR (12/31/96)
Cumulative Total Return(1) +1.74% +19.29%
Average Annual Total Return(2) -4.13% +4.65%
Value of $10,000 Investment(3) $9,587 $11,243
INCEPTION
CLASS C 1-YEAR (12/31/96)
Cumulative Total Return(1) +0.88% +16.20%
Average Annual Total Return(2) -1.11% +5.58%
Value of $10,000 Investment(3) $9,889 $11,505
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 current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, 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
AVERAGE ANNUAL TOTAL RETURN
7/31/99
CLASS A
1-Year -4.13%
Since Inception (12/31/96) +4.65%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged indexes differ from the Fund in composition, do not pay management
fees or expenses and include reinvested dividends or interest. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the share class's current,
applicable, maximum sales charges, Fund expenses, account fees, and reinvested
distributions.
[TOTAL RETURN INDEX COMPARISON LINE GRAPH]
Franklin Templeton Moderate Target Fund -- Class A
Value of a $10,000 Investment (12/31/96-7/31/99)
The following line graph compares the performance of Franklin Templeton Moderate
Target Fund's Class A shares to that of the Standard and Poor's 500 Composite
Index, the Morgan Stanley Capital International Europe, Australasia, Far East
Index, the Lehman Brothers Government/Corporate Bond Index, and U.S. Treasury
Bills based on a $10,000 investment from 12/31/96 to 7/31/99.
<TABLE>
<CAPTION>
DATE FT MODERATE TARGET FUND S&P 500 MSCI EAFE (NET LB GOV'T./CORP. U.S. TREASURY
- CLASS A DIVIDENDS) BOND INDEX BILLS
<S> <C> <C> <C> <C> <C>
12/31/1996 $9,425 $10,000 $10,000 $10,000 $10,000
01/31/1997 $9,670 $10,625 $9,650 $10,012 $10,045
02/28/1997 $9,670 $10,708 $9,808 $10,033 $10,083
03/31/1997 $9,589 $10,268 $9,844 $9,914 $10,126
04/30/1997 $9,674 $10,881 $9,896 $10,058 $10,169
05/31/1997 $10,061 $11,543 $10,540 $10,152 $10,224
06/30/1997 $10,286 $12,061 $11,121 $10,274 $10,262
07/31/1997 $10,655 $13,021 $11,301 $10,588 $10,306
08/31/1997 $10,494 $12,291 $10,457 $10,470 $10,351
09/30/1997 $10,966 $12,965 $11,042 $10,634 $10,399
10/31/1997 $10,632 $12,532 $10,193 $10,804 $10,438
11/30/1997 $10,660 $13,112 $10,089 $10,861 $10,484
12/31/1997 $10,771 $13,338 $10,177 $10,975 $10,529
01/31/1998 $10,720 $13,486 $10,642 $11,130 $10,582
02/28/1998 $11,119 $14,458 $11,325 $11,108 $10,623
03/31/1998 $11,451 $15,198 $11,674 $11,142 $10,675
04/30/1998 $11,513 $15,352 $11,766 $11,198 $10,724
05/31/1998 $11,318 $15,088 $11,709 $11,318 $10,771
06/30/1998 $11,318 $15,700 $11,798 $11,433 $10,815
07/31/1998 $11,051 $15,532 $11,917 $11,442 $10,862
08/31/1998 $9,943 $13,286 $10,440 $11,666 $10,913
09/30/1998 $10,164 $14,138 $10,120 $11,999 $10,970
10/31/1998 $10,381 $15,287 $11,174 $11,914 $11,013
11/30/1998 $10,619 $16,214 $11,746 $11,985 $11,048
12/31/1998 $10,788 $17,148 $12,209 $12,015 $11,093
01/31/1999 $10,884 $17,865 $12,173 $12,101 $11,137
02/28/1999 $10,670 $17,309 $11,883 $11,813 $11,172
03/31/1999 $10,909 $18,001 $12,378 $11,872 $11,220
04/30/1999 $11,241 $18,698 $12,880 $11,901 $11,262
05/31/1999 $11,134 $18,257 $12,216 $11,779 $11,305
06/30/1999 $11,351 $19,270 $12,693 $11,742 $11,347
07/31/1999 $11,243 $18,669 $13,070 $11,709 $11,395
</TABLE>
Past performance is not predictive of future results.
[TOTAL RETURN INDEX COMPARISON LINE GRAPH]
Franklin Templeton Moderate Target Fund -- Class C
Value of a $10,000 Investment (12/31/96 -- 7/31/99)
The following line graph compares the performance of Franklin Templeton Moderate
Target Fund's Class C shares to that of the Standard and Poor's 500 Composite
Index, the Morgan Stanley Capital International Europe Australasia, Far East
Index, the Lehman Brothers Government/Corporate Bond Index, and U.S. Treasury
Bills based on a $10,000 investment from 12/31/96 to 7/31/99.
<TABLE>
<CAPTION>
DATE FT MODERATE TARGET FUND S&P 500 MSCI EAFE (NET LB GOV'T./CORP. U.S. TREASURY
- CLASS C DIVIDENDS) BOND INDEX BILLS
<S> <C> <C> <C> <C> <C>
12/31/1996 $9,901 $10,000 $10,000 $10,000 $10,000
01/31/1997 $10,158 $10,625 $9,650 $10,012 $10,045
02/28/1997 $10,149 $10,708 $9,808 $10,033 $10,083
03/31/1997 $10,001 $10,268 $9,844 $9,914 $10,126
04/30/1997 $10,080 $10,881 $9,896 $10,058 $10,169
05/31/1997 $10,477 $11,543 $10,540 $10,152 $10,224
06/30/1997 $10,707 $12,061 $11,121 $10,274 $10,262
07/31/1997 $11,074 $13,021 $11,301 $10,588 $10,306
08/31/1997 $10,905 $12,291 $10,457 $10,470 $10,351
09/30/1997 $11,378 $12,965 $11,042 $10,634 $10,399
10/31/1997 $11,028 $12,532 $10,193 $10,804 $10,438
11/30/1997 $11,058 $13,112 $10,089 $10,861 $10,484
12/31/1997 $11,177 $13,338 $10,177 $10,975 $10,529
01/31/1998 $11,102 $13,486 $10,642 $11,130 $10,582
02/28/1998 $11,519 $14,458 $11,325 $11,108 $10,623
03/31/1998 $11,851 $15,198 $11,674 $11,142 $10,675
04/30/1998 $11,894 $15,352 $11,766 $11,198 $10,724
05/31/1998 $11,701 $15,088 $11,709 $11,318 $10,771
06/30/1998 $11,683 $15,700 $11,798 $11,433 $10,815
07/31/1998 $11,404 $15,532 $11,917 $11,442 $10,862
08/31/1998 $10,248 $13,286 $10,440 $11,666 $10,913
09/30/1998 $10,475 $14,138 $10,120 $11,999 $10,970
10/31/1998 $10,690 $15,287 $11,174 $11,914 $11,013
11/30/1998 $10,916 $16,214 $11,746 $11,985 $11,048
12/31/1998 $11,091 $17,148 $12,209 $12,015 $11,093
01/31/1999 $11,180 $17,865 $12,173 $12,101 $11,137
02/28/1999 $10,958 $17,309 $11,883 $11,813 $11,172
03/31/1999 $11,191 $18,001 $12,378 $11,872 $11,220
04/30/1999 $11,525 $18,698 $12,880 $11,901 $11,262
05/31/1999 $11,403 $18,257 $12,216 $11,779 $11,305
06/30/1999 $11,617 $19,270 $12,693 $11,742 $11,347
07/31/1999 $11,505 $18,669 $13,070 $11,709 $11,395
</TABLE>
*Source: Standard and Poor's(R) Micropal. The value of Treasuries is fixed;
principal is guaranteed and interest is fixed. MSCI EAFE includes reinvested
dividends, net of taxes withheld by foreign countries. Indexes are unmanaged and
include reinvested dividends. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
7/31/99
CLASS C
1-Year -1.11%
Since Inception (12/31/96) +5.58%
Past performance is not predictive of future results.
FRANKLIN TEMPLETON
GROWTH TARGET FUND
[ASSET ALLOCATION PIE CHART]
Franklin Templeton Growth Target Fund
Based on Total Net Assets
7/31/99
U.S. Equities 52.6%
International Equities 26.7%
U.S. Fixed Income Securities 14.9%
Short-Term Obligations & Other
Net Assets 5.8%
Your Fund's Goal: Franklin Templeton Growth Target Fund seeks the highest level
of long-term total return achievable at a higher level of risk.
During the 12 months under review, the Fund's Class A shares provided a +3.91%
cumulative total return, as shown in the Performance Summary on page 19. This
was largely a result of its allocation among the various asset classes, as well
as the actual performance of the underlying funds.
Until April 1999, the Fund's previous investment strategy emphasized asset
allocation based on a combination of the expected risk and return of various
asset classes and underlying funds. As noted previously, this strategy correctly
indicated a rising level of market risk for domestic and foreign equities during
the early summer of 1998. The markets did, in fact, fall during that time, but
an unintentional consequence of that strategy was underexposure to the very
asset classes that rose the most following the stock market's late summer 1998
decline.
As part of our new strategy emphasizing underlying fund selection, Franklin Real
Estate Securities Fund represented the Fund's largest equity investment (17.6%
of total net assets) at the end of the period. Domestic equity exposure was
about two-thirds of our total equity exposure, with the balance represented by
foreign equities. The Fund also was diversified by capitalization and investment
style, and, at the end of the reporting period, held shares in large- and
small-cap growth and mid-cap value equity funds.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 30 of
this report.
To increase the Fund's income-producing potential, the fixed-income portion of
the portfolio included Franklin Bond Fund and Franklin's AGE High Income Fund.
On July 31, these funds represented 14.9% of the Fund's total net assets.
Looking forward, we believe the shift in our investment strategy should reduce
volatility and contribute positively to the Fund's performance. Please remember,
this discussion reflects our views, opinions and portfolio holdings as of July
31, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and the
Fund's portfolio composition. Although past performance is not predictive of
future results, these insights may help you 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 Growth Target Fund for the 12-month period ended July
31, 1999, 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 goals over a longer time
horizon than the period under review. Therefore, it is likely that performance
of the Fund, the underlying funds, and the associated indexes for any single
12-month period will vary considerably from the long-term objective and/or
expectations of the portfolio managers. Past performance is not an indication of
future performance, and recent performance, in particular, may not be a reliable
indicator of future, long-term performance.
TOP 5 FUND HOLDINGS
Franklin Templeton
Growth Target Fund
7/31/99
% OF TOTAL
FUND NET ASSETS
- --------------------------------------------------
Franklin Real Estate
Securities Fund 17.6%
Templeton Foreign Fund 13.4%
Mutual European Fund 13.3%
Franklin Small Cap
Growth Fund 9.9%
Franklin Aggressive
Growth Fund 9.8%
FRANKLIN TEMPLETON GROWTH TARGET FUND
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, Fund shares were offered at a lower initial sales charge; thus actual
total returns would have been higher.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
The Fund's manager has agreed in advance to waive or limit the asset allocation
fee and/or make certain payments so that the Fund's direct operating expenses do
not exceed 0.75%, and 1.50% for Class C. Without this agreement, the Fund's
direct operating expenses would have been higher and total returns 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.
PERFORMANCE SUMMARY AS OF 7/31/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class's operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 7/31/99 7/31/98
<S> <C> <C> <C>
Net Asset Value -$0.15 $11.01 $11.16
DISTRIBUTIONS (8/1/98 - 7/31/99)
Dividend Income $0.2460
Long-Term Capital Gain $0.1796
Short-Term Capital Gain $0.1121
TOTAL $0.5377
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 7/31/99 7/31/98
<S> <C> <C> <C>
Net Asset Value -$0.16 $10.92 $11.08
DISTRIBUTIONS (8/1/98 - 7/31/99)
Dividend Income $0.1774
Long-Term Capital Gain $0.1796
Short-Term Capital Gain $0.1121
TOTAL $0.4691
</TABLE>
Franklin Templeton Growth Target Fund paid distributions derived from long-term
capital gains of 17.96 cents ($0.1796) per share in December 1998. The Fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3).
Past performance is not predictive of future results.
PERFORMANCE
INCEPTION
CLASS A 1-YEAR (12/31/96)
Cumulative Total Return(1) +3.91% +20.83%
Average Annual Total Return(2) -2.06% +5.17%
Value of $10,000 Investment(3) $9,794 $11,388
INCEPTION
CLASS C 1-YEAR (12/31/96)
Cumulative Total Return(1) +3.12% +18.67%
Average Annual Total Return(2) +1.13% +6.45%
Value of $10,000 Investment(3) $10,113 $11,749
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 current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, 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
AVERAGE ANNUAL TOTAL RETURN
7/31/99
CLASS A
- -----------------------------------
1-Year -2.06%
Since Inception (12/31/96) +5.17%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged indexes differ from the Fund in composition, do not pay management
fees or expenses and include reinvested dividends or interest. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the share class's current,
applicable, maximum sales charges, Fund expenses, account fees, and reinvested
distributions.
[TOTAL RETURN INDEX COMPARISON LINE GRAPH]
Franklin Templeton Growth Target Fund - Class A
Value of a $10,000 Investment (12/31/96 - 7/31/99)
The following line graph compares the performance of Franklin Templeton Growth
Target Fund's Class A shares to that of the Standard and Poor's 500 Composite
Index, the Morgan Stanley Capital International Europe, Australasia, Far East
Index, the Lehman Brothers Government/Corporate Bond Index, and U.S. Treasury
Bills, based on a $10,000 investment from 12/31/96 to 7/31/99.
<TABLE>
<CAPTION>
DATE FT GROWTH TARGET FUND S&P 500 MSCI EAFE (NET LB GOV'T./CORP. U.S. TREASURY
- CLASS A DIVIDENDS) BOND INDEX BILLS
<S> <C> <C> <C> <C> <C>
12/31/1996 $9,425 $10,000 $10,000 $10,000 $10,000
01/31/1997 $9,774 $10,625 $9,650 $10,012 $10,045
02/28/1997 $9,708 $10,708 $9,808 $10,033 $10,083
03/31/1997 $9,510 $10,268 $9,844 $9,914 $10,126
04/30/1997 $9,585 $10,881 $9,896 $10,058 $10,169
05/31/1997 $10,047 $11,543 $10,540 $10,152 $10,224
06/30/1997 $10,311 $12,061 $11,121 $10,274 $10,262
07/31/1997 $10,679 $13,021 $11,301 $10,588 $10,306
08/31/1997 $10,490 $12,291 $10,457 $10,470 $10,351
09/30/1997 $11,037 $12,965 $11,042 $10,634 $10,399
10/31/1997 $10,564 $12,532 $10,193 $10,804 $10,438
11/30/1997 $10,573 $13,112 $10,089 $10,861 $10,484
12/31/1997 $10,655 $13,338 $10,177 $10,975 $10,529
01/31/1998 $10,616 $13,486 $10,642 $11,130 $10,582
02/28/1998 $11,107 $14,458 $11,325 $11,108 $10,623
03/31/1998 $11,490 $15,198 $11,674 $11,142 $10,675
04/30/1998 $11,559 $15,352 $11,766 $11,198 $10,724
05/31/1998 $11,294 $15,088 $11,709 $11,318 $10,771
06/30/1998 $11,264 $15,700 $11,798 $11,433 $10,815
07/31/1998 $10,960 $15,532 $11,917 $11,442 $10,862
08/31/1998 $9,614 $13,286 $10,440 $11,666 $10,913
09/30/1998 $9,848 $14,138 $10,120 $11,999 $10,970
10/31/1998 $10,134 $15,287 $11,174 $11,914 $11,013
11/30/1998 $10,420 $16,214 $11,746 $11,985 $11,048
12/31/1998 $10,643 $17,148 $12,209 $12,015 $11,093
01/31/1999 $10,809 $17,865 $12,173 $12,101 $11,137
02/28/1999 $10,581 $17,309 $11,883 $11,813 $11,172
03/31/1999 $10,892 $18,001 $12,378 $11,872 $11,220
04/30/1999 $11,326 $18,698 $12,880 $11,901 $11,262
05/31/1999 $11,192 $18,257 $12,216 $11,779 $11,305
06/30/1999 $11,523 $19,270 $12,693 $11,742 $11,347
07/31/1999 $11,388 $18,669 $13,070 $11,709 $11,395
</TABLE>
Past performance is not predictive of future results.
[TOTAL RETURN INDEX COMPARISON LINE GRAPH]
Franklin Templeton Growth Target Fund - Class C
Value of a $10,000 Investment (12/31/96 - 7/31/99)
The following line graph compares the performance of Franklin Templeton Growth
Target Fund's Class C shares to that of the Standard and Poor's 500 Composite
Index, the Morgan Stanley Capital International Europe, Australasia, Far East
Index, the Lehman Brothers Government/Corporate Bond Index, and U.S. Treasury
Bills, based on a $10,000 investment from 12/31/96 to 7/31/99.
<TABLE>
<CAPTION>
DATE FT GROWTH TARGET FUND S&P 500 MSCI EAFE (NET LB GOV'T./CORP. U.S. TREASURY
- CLASS C DIVIDENDS) BOND INDEX BILLS
<S> <C> <C> <C> <C> <C>
12/31/1996 $9,901 $10,000 $10,000 $10,000 $10,000
01/31/1997 $10,257 $10,625 $9,650 $10,012 $10,045
02/28/1997 $10,188 $10,708 $9,808 $10,033 $10,083
03/31/1997 $9,990 $10,268 $9,844 $9,914 $10,126
04/30/1997 $10,069 $10,881 $9,896 $10,058 $10,169
05/31/1997 $10,545 $11,543 $10,540 $10,152 $10,224
06/30/1997 $10,802 $12,061 $11,121 $10,274 $10,262
07/31/1997 $11,188 $13,021 $11,301 $10,588 $10,306
08/31/1997 $10,980 $12,291 $10,457 $10,470 $10,351
09/30/1997 $11,549 $12,965 $11,042 $10,634 $10,399
10/31/1997 $11,053 $12,532 $10,193 $10,804 $10,438
11/30/1997 $11,063 $13,112 $10,089 $10,861 $10,484
12/31/1997 $11,126 $13,338 $10,177 $10,975 $10,529
01/31/1998 $11,085 $13,486 $10,642 $11,130 $10,582
02/28/1998 $11,589 $14,458 $11,325 $11,108 $10,623
03/31/1998 $11,980 $15,198 $11,674 $11,142 $10,675
04/30/1998 $12,041 $15,352 $11,766 $11,198 $10,724
05/31/1998 $11,753 $15,088 $11,709 $11,318 $10,771
06/30/1998 $11,722 $15,700 $11,798 $11,433 $10,815
07/31/1998 $11,393 $15,532 $11,917 $11,442 $10,862
08/31/1998 $9,985 $13,286 $10,440 $11,666 $10,913
09/30/1998 $10,235 $14,138 $10,120 $11,999 $10,970
10/31/1998 $10,523 $15,287 $11,174 $11,914 $11,013
11/30/1998 $10,812 $16,214 $11,746 $11,985 $11,048
12/31/1998 $11,039 $17,148 $12,209 $12,015 $11,093
01/31/1999 $11,200 $17,865 $12,173 $12,101 $11,137
02/28/1999 $10,964 $17,309 $11,883 $11,813 $11,172
03/31/1999 $11,265 $18,001 $12,378 $11,872 $11,220
04/30/1999 $11,717 $18,698 $12,880 $11,901 $11,262
05/31/1999 $11,566 $18,257 $12,216 $11,779 $11,305
06/30/1999 $11,900 $19,270 $12,693 $11,742 $11,347
07/31/1999 $11,749 $18,669 $13,070 $11,709 $11,395
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
7/31/99
CLASS C
- -------------------------------
1-Year +1.13%
Since Inception(12/31/96) +6.45%
*Source: Standard and Poor's(R) Micropal. The value of Treasuries is fixed;
principal is guaranteed and interest is fixed. MSCI EAFE includes reinvested
dividends, net of taxes withheld by foreign countries. Indexes are unmanaged and
include reinvested dividends. One cannot invest directly in an index.
Past performance is not predictive of future results.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------
YEAR ENDED JULY 31,
---------------------------
1999(1) 1998 1997***
--------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................................... $11.00 $10.87 $10.00
--------------------------
Income from investment operations:
Net investment income ..................................................... .41 .39 .12
Net realized and unrealized gains (losses) ................................ (.08) .18 .80
--------------------------
Total from investment operations ........................................... .33 .57 .92
--------------------------
Less distributions from:
Net investment income ..................................................... (.41) (.38) (.05)
Net realized gains ........................................................ (.19) (.06) --
--------------------------
Total distributions ........................................................ (.60) (.44) (.05)
--------------------------
Net asset value, end of year ............................................... $10.73 $11.00 $10.87
==========================
Total return* .............................................................. 3.23% 5.41% 9.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................ $14,850 $11,637 $1,609
Ratios to average net assets:
Expenses .................................................................. .75% .76% .59%**
Expenses excluding waiver and payments by affiliate ....................... .83% 1.07% 3.64%**
Net investment income ..................................................... 3.83% 3.88% 3.93%**
Portfolio turnover rate .................................................... 218.87% 141.96% 33.30%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
** Annualized
*** For the period December 31, 1996 (effective date) to July 31, 1997.
(1) Based on average shares outstanding.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights (continued)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
--------------------------
YEAR ENDED JULY 31,
--------------------------
1999(1) 1998 1997***
--------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $10.92 $10.81 $10.00
--------------------------
Income from investment operations:
Net investment income .33 .33 .10
Net realized and unrealized gains (losses) (.08) .15 .75
--------------------------
Total from investment operations .25 .48 .85
--------------------------
Less distributions from:
Net investment income (.33) (.31) (.04)
Net realized gains (.19) (.06) --
--------------------------
Total distributions (.52) (.37) (.04)
--------------------------
Net asset value, end of year $10.65 $10.92 $10.81
==========================
Total return* 2.49% 4.56% 8.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $10,611 $10,218 $3,010
Ratios to average net assets:
Expenses 1.50% 1.50% 1.48%**
Expenses excluding waiver and payments by affiliate 1.58% 1.81% 4.53%**
Net investment income 3.13% 3.27% 3.04%**
Portfolio turnover rate 218.87% 141.96% 33.30%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
** Annualized
*** For the period December 31, 1996 (effective date) to July 31, 1997.
(1) Based on average shares outstanding.
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, JULY 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (NOTE 3) 100.5%
CASH EQUIVALENTS 20.5%
Franklin Institutional Fiduciary Trust Money Market Portfolio 5,208,715 $ 5,208,715
------------
FIXED INCOME 39.9%
Franklin AGE High Income Fund .............................. 1,901,105 5,037,928
Franklin Bond Fund ......................................... 530,584 5,120,140
------------
10,158,068
------------
DOMESTIC EQUITY 27.0%
Franklin Aggressive Growth Fund ............................ 107,540 1,281,880
Franklin Large Cap Growth Fund ............................. 122,018 1,265,330
Franklin Real Estate Securities Fund ....................... 158,080 2,288,999
Franklin Small Cap Growth Fund ............................. 48,246 1,281,922
Mutual Shares Fund ......................................... 34,839 759,147
------------
6,877,278
------------
FOREIGN EQUITY 13.1%
Mutual European Fund ....................................... 117,855 1,666,472
Templeton Foreign Fund ..................................... 161,524 1,683,082
------------
3,349,554
------------
TOTAL INVESTMENTS (COST $25,766,148) 100.5% ................ 25,593,615
OTHER ASSETS, LESS LIABILITIES (.5)% ....................... (132,522)
------------
NET ASSETS 100.0% .......................................... $ 25,461,093
============
</TABLE>
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights
FRANKLIN TEMPLETON MODERATE TARGET FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------
YEAR ENDED JULY 31,
----------------------------
1999(1) 1998(1) 1997***
------- ------ -------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................................ $10.77 $11.26 $10.00
--------------------------
Income from investment operations:
Net investment income .................................................... .33 .37 .17
Net realized and unrealized gains (losses) ............................... (.17) .01 1.13
--------------------------
Total from investment operations .......................................... .16 .38 1.30
--------------------------
Less distributions from:
Net investment income .................................................... (.31) (.38) (.04)
Net realized gains ....................................................... (.18) (.49) --
--------------------------
Total distributions ....................................................... (.49) (.87) (.04)
--------------------------
Net asset value, end of year .............................................. $10.44 $10.77 $11.26
==========================
Total return* ............................................................. 1.74% 3.71% 13.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................................... $28,694 $23,028 $6,498
Ratios to average net assets:
Expenses ................................................................. .85% .77% .67%**
Expenses excluding waiver and payments by affiliate ...................... .85% .94% 1.26%**
Net investment income .................................................... 3.23% 3.37% 2.69%**
Portfolio turnover rate ................................................... 202.78% 124.87% 264.78%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
**Annualized
***For the period December 31, 1996 (effective date) to July 31, 1997.
(1) Based on average shares outstanding.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights (continued)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
----------------------------
YEAR ENDED JULY 31,
----------------------------
1999(1) 1998(1) 1997***
------- ------- -------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year....................................... $10.65 $11.16 $10.00
--------------------------
Income from investment operations:
Net investment income................................................... .25 .30 .07
Net realized and unrealized gains (losses).............................. (.17) -- 1.11
--------------------------
Total from investment operations......................................... .08 .30 1.18
--------------------------
Less distributions from:
Net investment income................................................... (.24) (.32) (.02)
Net realized gains...................................................... (.18) (.49) --
--------------------------
Total distributions...................................................... (.42) (.81) (.02)
--------------------------
Net asset value, end of year............................................. $10.31 $10.65 $11.16
==========================
Total return*............................................................ .88% 2.98% 11.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's).......................................... $24,419 $19,501 $4,695
Ratios to average net assets:
Expenses................................................................ 1.60% 1.50% 1.50%**
Expenses excluding waiver and payments by affiliate..................... 1.60% 1.68% 2.09%**
Net investment income................................................... 2.51% 2.75% 1.86%**
Portfolio turnover rate.................................................. 202.78% 124.87% 264.78%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
** Annualized
*** For the period December 31, 1996 (effective date) to July 31, 1997.
(1) Based on average shares outstanding.
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, JULY 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (NOTE 3) 100.8%
CASH EQUIVALENTS 10.3%
Franklin Institutional Fiduciary Trust Money Market Portfolio 5,490,954 $ 5,490,954
-----------
FIXED INCOME 35.0%
Franklin AGE High Income Fund 3,953,765 10,477,477
Franklin Bond Fund 838,619 8,092,671
-----------
18,570,148
-----------
DOMESTIC EQUITY 37.2%
Franklin Aggressive Growth Fund 307,896 3,670,118
Franklin Large Cap Growth Fund 349,684 3,626,226
Franklin Real Estate Securities Fund 453,681 6,569,305
Franklin Small Cap Growth Fund 139,152 3,697,273
Mutual Shares Fund 99,686 2,172,149
-----------
19,735,071
-----------
FOREIGN EQUITY 18.3%
Mutual European Fund 342,247 4,839,373
Templeton Foreign Fund 467,993 4,876,491
-----------
9,715,864
-----------
TOTAL INVESTMENTS (COST $53,528,276) 100.8% 53,512,037
OTHER ASSETS, LESS LIABILITIES (.8)% (399,345)
-----------
NET ASSETS 100.0% $53,112,692
===========
</TABLE>
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights
FRANKLIN TEMPLETON GROWTH TARGET FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------
YEAR ENDED JULY 31,
----------------------------
1999(1) 1998 1997***
----------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C>
Net asset value, beginning of year ......................................... $11.16 $11.33 $10.00
--------------------------
Income from investment operations:
Net investment income ..................................................... .28 .33 .05
Net realized and unrealized gains (losses) ................................ .11 (.05) 1.28
--------------------------
Total from investment operations ........................................... .39 .28 1.33
--------------------------
Less distributions from:
Net investment income ..................................................... (.25) (.30) --
Net realized gains ........................................................ (.29) (.15) --
--------------------------
Total distributions ........................................................ (.54) (.45) --
--------------------------
Net asset value, end of year ............................................... $11.01 $11.16 $11.33
==========================
Total return* .............................................................. 3.91% 2.63% 13.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................ $40,839 $27,042 $9,638
Ratios to average net assets:
Expenses .................................................................. .75% .75% .73%**
Expenses excluding waiver and payments by affiliate ....................... .86% .98% 2.19%**
Net investment income ..................................................... 2.61% 2.80% 2.65%**
Portfolio turnover rate .................................................... 207.65% 118.19% 65.52%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
** Annualized
*** For the period December 31, 1996 (effective date) to July 31, 1997.
(1) Based on average shares outstanding.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights (continued)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
-------
YEAR ENDED JULY 31,
-------------------
1999(1) 1998 1997***
------ ---- ----
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C>
Net asset value, beginning of year $11.08 $11.30 $10.00
--------------------------
Income from investment operations:
Net investment income .21 .24 .04
Net realized and unrealized gains (losses) .10 (.05) 1.26
--------------------------
Total from investment operations .31 .19 1.30
--------------------------
Less distributions from:
Net investment income (.18) (.26) --
Net realized gains (.29) (.15) --
--------------------------
Total distributions (.47) (.41) --
--------------------------
Net asset value, end of year $10.92 $11.08 $11.30
==========================
Total return* 3.12% 1.84% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $21,902 $20,752 $4,733
Ratios to average net assets:
Expenses 1.50% 1.50% 1.49%**
Expenses excluding waiver and payments by affiliate 1.61% 1.73% 2.95%**
Net investment income 2.00% 1.97% 1.89%**
Portfolio turnover rate 207.65% 118.19% 65.52%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
** Annualized
*** For the period December 31, 1996 (effective date) to July 31, 1997.
(1) Based on average shares outstanding.
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, JULY 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (NOTE 3) 100.2%
CASH EQUIVALENTS 6.0%
Franklin Institutional Fiduciary Trust Money Market Portfolio 3,780,444 $ 3,780,444
-----------
FIXED INCOME 14.9%
Franklin AGE High Income Fund ............................... 1,803,950 4,780,469
Franklin Bond Fund .......................................... 472,925 4,563,734
-----------
9,344,203
-----------
DOMESTIC EQUITY 52.6%
Franklin Aggressive Growth Fund ............................. 514,444 6,132,175
Franklin Large Cap Growth Fund .............................. 584,357 6,059,787
Franklin Real Estate Securities Fund ........................ 760,547 11,012,723
Franklin Small Cap Growth Fund .............................. 233,235 6,197,061
Mutual Shares Fund .......................................... 166,858 3,635,845
-----------
33,037,591
-----------
FOREIGN EQUITY 26.7%
Mutual European Fund ........................................ 588,923 8,327,378
Templeton Foreign Fund ...................................... 806,563 8,404,392
-----------
16,731,770
-----------
TOTAL INVESTMENTS (COST $62,874,159) 100.2% ................. 62,894,008
OTHER ASSETS, LESS LIABILITIES (.2)% ........................ (153,611)
-----------
NET ASSETS 100.0% ........................................... $ 62,740,397
============
</TABLE>
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ................................... $ 25,766,148 $ 53,528,276 $ 62,874,159
====================================================
Value .................................. 25,593,615 53,512,037 62,894,008
Receivables for capital shares sold ...... 63,146 493,986 94,742
Organization costs ....................... 33,028 33,028 33,028
----------------------------------------------------
Total assets ....\................... 25,689,789 54,039,051 63,021,778
----------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ................ 139,138 805,447 178,588
Affiliates ............................. 84,294 94,208 83,146
Shareholders ........................... 916 17,013 9,274
Other liabilities ........................ 4,348 9,691 10,373
----------------------------------------------------
Total liabilities ................... 228,696 926,359 281,381
----------------------------------------------------
Net assets, at value .............. $ 25,461,093 $ 53,112,692 $ 62,740,397
====================================================
Net assets consist of:
Undistributed net investment income ...... $ 136,308 $ 267,562 $ 353,170
Net unrealized appreciation (depreciation) (172,533) (16,239) 19,849
Accumulated net realized gain (loss) ..... (232,239) (1,023,044) 82,414
Capital shares ........................... 25,729,557 53,884,413 62,284,964
----------------------------------------------------
Net assets, at value ................ $ 25,461,093 $ 53,112,692 $ 62,740,397
====================================================
CLASS A:
Net assets, at value ..................... $ 14,850,242 $ 28,694,171 $ 40,838,601
====================================================
Shares outstanding ....................... 1,384,244 2,747,918 3,710,644
====================================================
Net asset value per share* ............... $ 10.73 $ 10.44 $ 11.01
====================================================
Maximum offering price per share
(net asset value per share / 94.25%) ..... $ 11.38 $ 11.08 $ 11.68
====================================================
CLASS C:
Net assets, at value ..................... $ 10,610,851 $ 24,418,521 $ 21,901,796
====================================================
Shares outstanding ....................... 996,627 2,368,217 2,004,985
====================================================
Net asset value per share* ............... $ 10.65 $ 10.31 $ 10.92
====================================================
Maximum offering price per share
(net asset value per share / 99.00%) ..... $ 10.76 $ 10.41 $ 11.03
====================================================
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-----------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends $1,018,804 $1,999,223 $1,910,779
Interest 159,248 47,552 27,425
---------------------------------------------
Total investment income 1,178,052 2,046,775 1,938,204
---------------------------------------------
Expenses:
Asset allocation fees (Note 3) 61,676 121,408 140,952
Distribution fees: (Note 3)
Class A 34,736 66,185 87,199
Class C 116,473 235,348 218,927
Transfer agent fees (Note 3) 31,897 89,182 132,470
Reports to shareholders 4,640 26,720 13,224
Registration and filing fees 29,200 37,590 37,014
Professional fees 4,390 9,553 7,927
Trustees' fees and expenses 778 1,523 1,713
Amortization of organization costs 13,666 13,666 13,666
Other 1,509 569 627
---------------------------------------------
Total expenses 298,965 601,744 653,719
Expenses waived/paid by affiliate (Note 3) (19,776) -- (63,940)
---------------------------------------------
Net expenses 279,189 601,744 589,779
---------------------------------------------
Net investment income 898,863 1,445,031 1,348,425
---------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (215,559) (1,116,732) (59,372)
Distributions by underlying funds 207,014 575,848 1,032,977
---------------------------------------------
Net realized gain (loss) (8,545) (540,884) 973,605
Net unrealized appreciation on investments 44,250 431,844 897,958
---------------------------------------------
Net realized and unrealized gain (loss) 35,705 (109,040) 1,871,563
---------------------------------------------
Net increase in net assets resulting from operations $ 934,568 $1,335,991 $3,219,988
============================================
</TABLE>
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND GROWTH TARGET FUND
--------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......... $ 898,863 $ 441,970 $ 1,445,031 $ 765,924 $ 1,348,425 $ 744,848
Net realized gain (loss) from
investments and distributions
by underlying funds ........... (8,545) 299,473 (540,884) 642,901 973,605 1,002,779
Net unrealized appreciation
(depreciation) on
investments ................... 44,250 (426,817) 431,844 (1,093,493) 897,958 (1,648,322)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations ................... 934,568 314,626 1,335,991 315,332 3,219,988 99,305
Distributions to shareholders from:
Net investment income:
Class A ....................... (525,036) (177,143) (799,593) (351,014) (755,529) (373,894)
Class C ....................... (370,036) (162,713) (563,370) (292,695) (393,545) (263,042)
Net realized gains:
Class A ....................... (252,162) (24,813) (450,558) (429,281) (925,041) (184,015)
Class C ....................... (226,618) (31,332) (436,761) (466,577) (649,542) (149,026)
-------------------------------------------------------------------------------------------
Total distributions to
shareholders ..................... (1,373,852) (396,001) (2,250,282) (1,539,567) (2,723,657) (969,977)
Capital share transactions:
(Note 2)
Class A ........................ 3,440,101 10,102,985 6,174,105 17,160,380 13,186,278 17,845,476
Class C ........................ 605,215 7,214,620 5,323,233 15,400,546 1,263,611 16,448,949
-------------------------------------------------------------------------------------------
Total capital share transactions ... 4,045,316 17,317,605 11,497,338 32,560,926 14,449,889 34,294,425
Net increase in net assets .......... 3,606,032 17,236,230 10,583,047 31,336,691 14,946,220 33,423,753
Net assets
Beginning of year ................. 21,855,061 4,618,831 42,529,645 11,192,954 47,794,177 14,370,424
-------------------------------------------------------------------------------------------
End of year ....................... $ 25,461,093 $ 21,855,061 $ 53,112,692 $ 42,529,645 $62,740,397 $47,794,177
===========================================================================================
Undistributed net investment
income included in net assets:
End of year ................... $ 136,308 $ 132,272 $ 267,562 $ 187,741 $ 353,170 $ 155,461
===========================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Notes to Financial Statements
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 series (the Funds). The Funds' investment
objectives are 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.
a. SECURITY VALUATION:
Investments in open-end investment companies (individually, an "Underlying Fund"
and collectively, 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 to
distribute substantially all of its taxable income.
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Securities transactions 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 Funds 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. 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.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST
The Funds offer two classes of shares: Class A and Class C. Effective January 1,
1999, Class I and Class II were renamed Class A and Class C, respectively. Each
class of shares differs by its initial sales load, distribution fees, voting
rights on matters affecting a single class and the exchange privilege.
At July 31, 1999, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Funds' 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 A SHARES:
1999
<S> <C> <C> <C> <C> <C> <C>
Shares sold 871,382 $ 9,271,452 2,105,635 $21,553,554 2,724,621 $28,554,315
Shares issued in reinvestment of distributions 73,079 761,582 123,960 1,240,968 163,538 1,659,277
Shares redeemed (618,028) (6,592,933) (1,619,191) (16,620,417) (1,599,968) (17,027,314)
-----------------------------------------------------------------------------
Net increase 326,433 $ 3,440,101 610,404 $ 6,174,105 1,288,191 $13,186,278
=============================================================================
1998
Shares sold 1,389,033 $15,382,734 1,909,614 $21,081,332 1,871,216 $21,309,441
Shares issued in reinvestment of distributions 18,639 200,360 73,510 768,110 51,996 553,748
Shares redeemed (497,910) (5,480,109) (422,808) (4,689,062) (351,545) (4,017,713)
-----------------------------------------------------------------------------
Net increase 909,762 $10,102,985 1,560,316 $17,160,380 1,571,667 $17,845,476
=============================================================================
CLASS C SHARES:
1999
Shares sold 494,936 $ 5,208,996 1,271,888 $12,802,752 999,720 $10,409,420
Shares issued in reinvestment of distributions 52,583 543,981 95,432 943,487 98,719 999,891
Shares redeemed (486,242) (5,147,762) (830,060) (8,423,006) (965,758) (10,145,700)
------------------------------------------------------------------------------
Net increase 61,277 $ 605,215 537,260 $ 5,323,233 132,681 $ 1,263,611
=============================================================================
1998
Shares sold 734,164 $ 8,072,065 1,492,882 $16,344,701 1,595,204 $18,081,468
Shares issued in reinvestment of distributions 17,910 190,330 73,194 753,971 38,210 405,331
Shares redeemed (95,223) (1,047,775) (155,840) (1,698,126) (180,003) (2,037,850)
------------------------------------------------------------------------------
Net increase 656,851 $ 7,214,620 1,410,236 $15,400,546 1,453,411 $16,448,949
=============================================================================
</TABLE>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
-----------------------------------------------------------------------------------------------------
<S> <C>
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
The Underlying Funds The funds in which the Trust invests
</TABLE>
The Funds invest primarily in the Underlying Funds which are managed by
Advisers.
The Funds pay an asset allocation fee to Advisers of .25% per year of the
average daily net assets of each Fund.
Pursuant to a SEC exemptive order, asset allocation fees were reduced on assets
invested in the Sweep Money Fund.
Advisers agreed in advance to waive asset allocation fees for the Conservative
Target Fund and the Growth Target Fund, as noted in the Statements of
Operations.
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.
The Funds reimburse Distributors up to .25% and 1.00% per year of the average
daily net assets of Class A and Class C, respectively, for costs incurred in
marketing the Funds' shares.
Distributors paid net commissions on sales of the Funds' shares, and received
contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND GROWTH TARGET FUND
----------------------------------------------------------------------
<S> <C> <C> <C>
Net commissions paid $80,766 $219,994 $209,583
Contingent deferred sales charges $10,752 $ 18,508 $ 23,089
</TABLE>
The Funds paid transfer agent fees of $253,549, of which $79,105 was paid to
Investor Services.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Notes to Financial Statements (continued)
4. INCOME TAXES
At July 31, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND GROWTH TARGET FUND
-------------------------------------------------------------------
<S> <C> <C> <C>
Investments at cost $26,136,155 $54,288,239 $64,427,154
=============================================================
Unrealized appreciation 332,168 1,119,562 1,297,484
Unrealized depreciation (874,708) (1,895,764) (2,830,630)
-------------------------------------------------------------
Net unrealized depreciation $ (542,540) $ (776,202) $(1,533,146)
=============================================================
</TABLE>
Net realized capital gains/losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
At July 31, 1999, the Moderate Target Fund had tax basis capital losses of
$43,505 which may be carried over to offset future capital gains. Such losses
expire in 2007.
At July 31, 1999, the Moderate Target Fund has deferred capital losses occurring
subsequent to October 31, 1998 of $219,576. For tax purposes, such losses will
be reflected in the year ending July 31, 2000.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the period ended July 31, 1999, were as follows:
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND GROWTH TARGET FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases ...................... $46,101,539 $102,411,353 $124,995,505
Sales .......................... $45,854,052 $ 95,962,401 $114,449,296
</TABLE>
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES:
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds constituting the
Franklin Templeton Fund Allocator Series (hereafter referred to as the "Funds")
at July 31, 1999, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at July
31, 1999 with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 30, 1999
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Tax Information
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended July 31,1999:
20% RATE GAIN
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Franklin Templeton Conservative Target Fund $ 94,705
Franklin Templeton Growth Target Fund 1,635,409
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