SHAREHOLDER LETTER
Dear Shareholder:
We are pleased to bring you this annual report for the Franklin Templeton Fund
Allocator Series (Conservative Target Fund, Moderate Target Fund and Growth
Target Fund) for the year ended July 31, 2000.
ECONOMIC OVERVIEW
During the reporting period, the U.S. economy continued to grow at an impressive
rate while rising productivity helped keep inflation at bay. However, the
Federal Reserve Board (the Fed), concerned about future inflation, raised the
federal funds target rate on five separate occasions. Although short-term rates
increased, a decline in the supply of long-term Treasury securities caused
long-term rates to drop, and the 30-year Treasury bond yield decreased from
6.10% at the beginning of the period to 5.78% at the end.
Despite rising short-term rates, domestic stock markets advanced during most of
the period under review. The Dow Jones(R) Industrial Average was up 0.07%, the
Standard & Poor's 500(R) (S&P 500(R)) Index rose 8.98%, and the technology-laden
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ........................................................ 1
Fund Reports
Franklin Templeton
Conservative Target Fund ................................................. 6
Franklin Templeton
Moderate Target Fund ..................................................... 11
Franklin Templeton
Growth Target Fund ....................................................... 16
Financial Highlights &
Statements of Investments ................................................. 21
Financial Statements ...................................................... 30
Notes to
Financial Statements ...................................................... 33
Independent
Auditors' Report .......................................................... 37
Tax Information ........................................................... 38
</TABLE>
FUND CATEGORY
[PYRAMID GRAPH]
Nasdaq Composite Index returned 43.62%.(1) This positive performance occurred
despite a major stock market correction in March and April, especially in the
technology sector.
The bond market provided mixed results during the fiscal year. After trading
sideways during the first six months, bond performance improved in the second
half of the period. For the 12 months under review, the Lehman Brothers
Aggregate Index posted a return of 5.97%.(2)
Elsewhere, many European economies improved, a number of Asian countries
rebounded from recent economic crises, and most Latin American economies enjoyed
an upswing due to increasing commodity prices. European, Pacific Rim and Latin
American equity markets generally delivered attractive results, although the
first six months of the period were clearly stronger than the second six months.
Latin American and European markets led the way as the Morgan Stanley Capital
International (MSCI) Latin America and European Indexes increased 23.82% and
12.52%, respectively, during the period.(3)
Within this environment, all three Target Funds significantly outperformed their
benchmark equity indexes, the MSCI Europe, Australasia, Far East (EAFE) Index
and S&P 500 Index.(4) This outstanding performance is due largely to the Funds'
exposure to Franklin Aggressive Growth Fund, Franklin Small Cap Growth Fund I
and Mutual European Fund. We are obviously pleased with the performance of these
Funds over the past year. That having been said, all of us must recognize that
the returns reported are historically unusual for each target category. We'll
try our hardest to repeat, and even better, these numbers -- but none of us
should expect, or rely on, the market conditions of the past several months to
continue indefinitely.
1. Source: Standard and Poor's Micropal. The Dow Jones Industrial Average is
price-weighted based on the average market price of 30 blue chip stocks. The
average is found by adding the prices of the 30 stocks and dividing by a
denominator that has been adjusted for stock splits, stock dividends, and
substitutions of stocks. The S&P 500 Composite Index consists of 500 stocks
chosen for market size, liquidity, and industry group representation. It is a
market-value weighted index (stock price times number of shares outstanding),
with each stock's weight in the index proportionate to its market value. The
"500" is one of the most widely used benchmarks of U.S. equity performance. The
Nasdaq Composite Index is a broad-based capitalization-weighted index of all
common stocks traded over the counter that are included in the Nasdaq quotation
system. It excludes those listed on an exchange and those with only one market
maker.
2. Source: Standard and Poor's Micropal. The Lehman Brothers Aggregate Index
includes fixed rate debt issues rated investment grade or higher by Moody's,
S&P, or Fitch, in that order. All issues have at least one year to maturity and
an outstanding par value of at least $100 million for U.S. Government issues and
$50 million for all others. All returns are market-value weighted, inclusive of
accrued interest.
3. Source: Standard and Poor's Micropal. The Morgan Stanley Capital
International (MSCI) Latin America Index includes companies representing these
seven Latin American countries: Argentina, Brazil, Chile, Colombia, Mexico, Peru
and Venezuela. The MSCI European Index includes companies representing these 15
European countries: Austria, Belgium, Denmark, Finland, France, Germany, Italy,
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom.
4. The MSCI Europe, Australasia, Far East Index includes approximately 1,000
companies representing the stock markets of 20 countries. The average company
has a market capitalization of over $3 billion.
INVESTMENT STRATEGY
Throughout the reporting period, we maintained consistent exposure to the three
broad asset classes in which the Funds invest (equity, fixed income, and
short-term investments and other net assets) and focused on actively managing
the selection of the underlying funds. The following asset class allocations are
prescribed for each Target Fund:
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS
& OTHER NET ASSETS EQUITY FIXED INCOME
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Conservative Target Fund 20% 40% 40%
Moderate Target Fund 10% 55% 35%
Growth Target Fund 5% 80% 15%
</TABLE>
Whenever possible, we attempt to hold the same Franklin Templeton funds in each
of the three Target Funds' portfolios. However, underlying Franklin Templeton
fund weightings differ based on each Target Fund's risk level. The broad equity
allocation of all three Target Funds is generally diversified across investment
styles, market capitalization sizes, and countries of investment. Maintaining
similarity in the underlying
Franklin Templeton fund investments across the Allocator Series increased the
consistency and relative predictability of the Target Funds' total returns. We
also improved our ability to determine and interpret the source of the returns.
Looking forward, we expect our portfolio management discipline to generate
consistent investment results. However, security prices are always subject to
volatility, and bad years can be mixed with good. Since no one can predict
exactly how financial markets will perform, we believe it is important for
investors to exercise patience and focus on their long-term investment goals,
rather than on short-term market movements.
Sincerely,
/s/ T. Anthony Coffey
T. Anthony Coffey, CFA
Portfolio Manager
Franklin Templeton Fund Allocator Series
--------------------------------------------------------------------------------
Effective February 1, 2000, T. Anthony Coffey assumed portfolio management
responsibilities for the Franklin Templeton Fund Allocator Series. Mr. Coffey
received a bachelor of arts degree in applied mathematics and economics from
Harvard University and an M.B.A. from the University of California at Los
Angeles. He is a Chartered Financial Analyst (CFA) and a member of the Security
Analysts of San Francisco and the Association for Investment Management and
Research (AIMR). Prior to joining Franklin, Mr. Coffey was an associate for
Analysis Group, Inc., a consulting firm specializing in the use of economic
analysis for litigation.
--------------------------------------------------------------------------------
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
ASSET ALLOCATION
Franklin Templeton Conservative Target Fund
Based on Total Net Assets
7/31/00
[PIE CHART]
<TABLE>
<S> <C>
Fixed Income 39.6%
Domestic Equity 27.5%
Foreign Equity 13.4%
Short-Term Investments & Other Net Assets 19.5%
</TABLE>
--------------------------------------------------------------------------------
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, Franklin Templeton Conservative Target Fund -
Class A provided a +18.77% cumulative total return, as shown in the Performance
Summary on page 8. This performance can be attributed largely to maintaining a
static allocation among equities, fixed income securities and short-term
investments, as well as by the actual performance of the selected underlying
funds.
At the end of the reporting period, Franklin Templeton Conservative Target
Fund's domestic equity exposure was 67.3% of its total equity weighting, with
the balance represented by foreign equity. The portfolio was diversified across
capitalization size and investment style, and on July 31, 2000, we held shares
in large-, mid- and small-capitalization equity funds, representing both value
and growth styles. Mutual Shares Fund, representing 10.8% of the Fund's total
net assets, was our largest equity fund weighting.
During the reporting period, we modified the fixed income portion of the
portfolio by increasing our exposure to Franklin U.S. Government Securities Fund
in an effort to raise the average credit quality of the Fund's fixed income
holdings. The remaining fixed income holdings were represented by shares in
Franklin Strategic Income Fund and Franklin Bond Fund.
Looking forward, we expect to maintain the same relative allocation among the
three primary asset classes. We believe the Fund will continue to benefit from
our careful analysis and selection of underlying funds. We hope to decrease the
volatility of its return by carefully allocating its assets to domestic and
foreign equity fund holdings and various capitalization sizes and investment
styles.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 23.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of July
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
--------------------------------------------------------------------------------
TOP 5 FUND HOLDINGS
Franklin Templeton
Conservative Target Fund
7/31/00
<TABLE>
<CAPTION>
% OF TOTAL
FUND NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Franklin Institutional
Fiduciary Trust
Money Market Portfolio 20.4%
Franklin U.S. Government
Securities Fund 17.8%
Franklin Strategic
Income Fund 13.4%
Mutual Shares Fund 10.8%
Franklin Bond Fund 8.4%
</TABLE>
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ.
CLASS C: 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 reductions by the Fund's manager increased the Fund's total
returns.
--------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY
AS OF 7/31/00
One-year total return represents the change in value of an investment for the
period indicated and does not include sales charges. 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 operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C>
CLASS A
One-Year Total Return +18.77%
Net Asset Value (NAV) $12.13 (7/31/00) $10.73 (7/31/99)
Change in NAV +$1.40
Distributions (8/1/99-7/31/00) Dividend Income $0.5288
Short-Term Capital Gain $0.0187
Long-Term Capital Gain $0.0413
--------------------------------------------
Total $0.5888
CLASS C
One-Year Total Return +17.88%
Net Asset Value (NAV) $12.03 (7/31/00) $10.65 (7/31/99)
Change in NAV +$1.38
Distributions (8/1/99-7/31/00) Dividend Income $0.4458
Short-Term Capital Gain $0.0187
Long-Term Capital Gain $0.0413
--------------------------------------------
Total $0.5058
</TABLE>
Franklin Templeton Conservative Target Fund paid distributions derived from
long-term capital gains of 4.13 cents ($0.0413) per share in December 1999. The
Fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 6/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 3-YEAR (12/31/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +18.29% +32.98% +41.49%
Average Annual Total Return(2) +11.48% +7.81% +8.58%
Value of $10,000 Investment(3) $11,148 $12,529 $13,335
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (12/31/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +17.40% +29.89% +37.38%
Average Annual Total Return(2) +15.22% +8.73% +9.20%
Value of $10,000 Investment(3) $11,522 $12,855 $13,602
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
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 for 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.
--------------------------------------------------------------------------------
FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND
AVERAGE ANNUAL TOTAL RETURN
7/31/00
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
<S> <C>
1-Year +11.98%
3-Year +6.81%
Since Inception (12/31/96) +8.30%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
7/31/00
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
<S> <C>
1-Year +15.69%
3-Year +7.74%
Since Inception (12/31/96) +8.89%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the Fund in composition, do not pay management fees or expenses and
include reinvested dividends and interest. One cannot invest directly in an
index.
CLASS A (12/31/96 - 7/31/00)
The following line graph compares the performance of Franklin Templeton
Conservative Target Fund's Class A shares to that of the Morgan Stanley Capital
International Europe, Australia, Far East Index; Standard & Poor's 500 Index;
Lehman Brothers Government/Credit Bond Index; and U.S. Treasury Bills, based on
a $10,000 investment from 12/31/96 to 7/31/00.
<TABLE>
<CAPTION>
DATE FT CONSERVATIVE TARGET S&P 500 MSCI EAFE LB GOV'T./CREDIT U.S. TREASURY
---- -------
FUND - CLASS A (NET 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 $11,394
08/31/1999 $11,211 $18,575 $13,118 $11,700 $11,438
09/30/1999 $11,196 $18,066 $13,251 $11,805 $11,488
10/31/1999 $11,501 $19,210 $13,748 $11,836 $11,533
11/30/1999 $12,123 $19,600 $14,225 $11,829 $11,579
12/31/1999 $13,021 $20,754 $15,502 $11,757 $11,632
01/31/2000 $12,881 $19,713 $14,518 $11,753 $11,677
02/29/2000 $13,950 $19,340 $14,908 $11,900 $11,730
03/31/2000 $13,756 $21,231 $15,486 $12,073 $11,789
04/30/2000 $13,245 $20,592 $14,672 $12,014 $11,849
05/31/2000 $12,962 $20,170 $14,314 $12,003 $11,913
06/30/2000 $13,335 $20,666 $14,874 $12,248 $11,964
07/31/2000 $13,302 $20,344 $14,250 $12,378 $12,019
</TABLE>
CLASS C (12/31/96 - 7/31/00)
The following line graph compares the performance of Franklin Templeton
Conservative Target Fund's Class C shares to that of the Morgan Stanley Capital
International Europe, Australia, Far East Index; Standard & Poor's 500 Index;
Lehman Brothers Government/Credit Bond Index; and U.S. Treasury Bills, based on
a $10,000 investment from 12/31/96 to 7/31/00.
<TABLE>
<CAPTION>
DATE FT CONSERVATIVE TARGET S&P 500 MSCI EAFE LB GOV'T./CREDIT U.S. TREASURY
---- -------
FUND - CLASS C (NET 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 $11,394
08/31/1999 $11,510 $18,575 $13,118 $11,700 $11,438
09/30/1999 $11,493 $18,066 $13,251 $11,805 $11,488
10/31/1999 $11,798 $19,210 $13,748 $11,836 $11,533
11/30/1999 $12,418 $19,600 $14,225 $11,829 $11,579
12/31/1999 $13,338 $20,754 $15,502 $11,757 $11,632
01/31/2000 $13,182 $19,713 $14,518 $11,753 $11,677
02/29/2000 $14,274 $19,340 $14,908 $11,900 $11,730
03/31/2000 $14,060 $21,231 $15,486 $12,073 $11,789
04/30/2000 $13,534 $20,592 $14,672 $12,014 $11,849
05/31/2000 $13,243 $20,170 $14,314 $12,003 $11,913
06/30/2000 $13,602 $20,666 $14,874 $12,248 $11,964
07/31/2000 $13,568 $20,344 $14,250 $12,378 $12,019
</TABLE>
*Source: Standard and Poor's 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.
Past performance does not guarantee future results.
FRANKLIN TEMPLETON
MODERATE TARGET FUND
--------------------------------------------------------------------------------
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, Franklin Templeton Moderate Target Fund -
Class A provided a +27.79% cumulative total return, as shown in the Performance
Summary on page 13. This performance can be attributed largely to maintaining a
static allocation among equities, fixed income securities and short-term
investments, as well as by the actual performance of the selected underlying
funds.
At the end of the reporting period, Franklin Templeton Moderate Target Fund's
domestic equity exposure was 69.6% of its total equity weighting, with the
balance represented by foreign equity. The portfolio was diversified across
capitalization size and investment style, and on July 31, 2000, we held shares
in large-, mid- and small-capitalization equity funds, representing both value
and growth styles. Franklin Aggressive Growth Fund, representing 14.2% of the
Fund's total net assets, was our largest equity fund weighting.
ASSET ALLOCATION
Franklin Templeton Moderate Target Fund
Based on Total Net Assets
7/31/00
[PIE CHART]
<TABLE>
<S> <C>
Domestic Equity 37.8%
Fixed Income 36.1%
Foreign Equity 16.5%
Short-Term Investments & Other Net Assets 9.6%
</TABLE>
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 26.
TOP 5 FUND HOLDINGS
Franklin Templeton
Moderate Target Fund
7/31/00
<TABLE>
<CAPTION>
% OF TOTAL
FUND NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Franklin U.S. Government
Securities Fund 17.4%
Franklin Aggressive
Growth Fund 14.2%
Franklin Strategic
Income Fund 12.2%
Franklin Small Cap
Growth Fund I 10.4%
Franklin Institutional
Fiduciary Trust
Money Market Portfolio 10.4%
</TABLE>
During the reporting period, we modified the fixed income portion of the
portfolio by increasing our exposure to Franklin U.S. Government Securities Fund
in an effort to raise the average credit quality of the Fund's fixed income
holdings. The remaining fixed income holdings were represented by shares in
Franklin Strategic Income Fund and Franklin Bond Fund.
Looking forward, we expect to maintain the same relative allocation among the
three primary asset classes. We believe the Fund will continue to benefit from
our careful analysis and selection of underlying funds. We hope to decrease the
volatility of its return by carefully allocating its assets to domestic and
foreign equity fund holdings and various capitalization sizes and investment
styles.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of July
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
--------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY
AS OF 7/31/00
One-year total return represents the change in value of an investment for the
period indicated and does not include sales charges. 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 operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return +27.79%
Net Asset Value (NAV) $12.84 (7/31/00) $10.44 (7/31/99)
Change in NAV +$2.40
Distributions (8/1/99-7/31/00) Dividend Income $0.4659
CLASS C
One-Year Total Return +26.84%
Net Asset Value (NAV) $12.67 (7/31/00) $10.31 (7/31/99)
Change in NAV +$2.36
Distributions (8/1/99-7/31/00) Dividend Income $0.3794
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 6/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 3-YEAR (12/31/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +27.86% +41.10% +53.99%
Average Annual Total Return(2) +20.54% +9.98% +11.24%
Value of $10,000 Investment(3) $12,054 $13,303 $14,514
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (12/31/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +27.11% +37.91% +49.13%
Average Annual Total Return(2) +24.79% +10.93% +11.79%
Value of $10,000 Investment(3) $12,479 $13,652 $14,765
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN TEMPLETON
MODERATE TARGET FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ.
CLASS C: 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 reductions by the Fund's manager increased the Fund's total
returns.
--------------------------------------------------------------------------------
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 for 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 does not guarantee future results.
FRANKLIN TEMPLETON
MODERATE TARGET FUND
AVERAGE ANNUAL TOTAL RETURN
7/31/00
<TABLE>
CLASS A
--------------------------------------------------------------------------------
<S> <C>
1-Year +20.41%
3-Year +8.31%
Since Inception (12/31/96) +10.65%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the Fund in composition, do not pay management fees or expenses and
include reinvested dividends and interest. One cannot invest directly in an
index.
CLASS A (12/31/96 - 7/31/00)
The following line graph compares the performance of Franklin Templeton Moderate
Target Fund's Class A shares to that of the Morgan Stanley Capital International
Europe, Australia, Far East Index; Standard & Poor's 500 Index; Lehman Brothers
Government/Credit Bond Index; and U.S. Treasury Bills, based on a $10,000
investment from 12/31/96 to 7/31/00.
<TABLE>
<CAPTION>
DATE FT MODERATE TARGET FUND S&P 500 MSCI EAFE LB GOV'T./CREDIT U.S. TREASURY
---- ----- -------
- CLASS A (NET 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 $11,394
08/31/1999 $11,265 $18,575 $13,118 $11,700 $11,438
09/30/1999 $11,244 $18,066 $13,251 $11,805 $11,488
10/31/1999 $11,667 $19,210 $13,748 $11,836 $11,533
11/30/1999 $12,481 $19,600 $14,225 $11,829 $11,579
12/31/1999 $13,727 $20,754 $15,502 $11,757 $11,632
01/31/2000 $13,561 $19,713 $14,518 $11,753 $11,677
02/29/2000 $15,067 $19,340 $14,908 $11,900 $11,730
03/31/2000 $14,767 $21,231 $15,486 $12,073 $11,789
04/30/2000 $14,055 $20,592 $14,672 $12,014 $11,849
05/31/2000 $13,665 $20,170 $14,314 $12,003 $11,913
06/30/2000 $14,514 $20,666 $14,874 $12,248 $11,964
07/31/2000 $14,369 $20,344 $14,250 $12,378 $12,019
</TABLE>
Past performance does not guarantee future results.
CLASS C (12/31/96 - 7/31/00)
The following line graph compares the performance of Franklin Templeton Moderate
Target Fund's Class C shares to that of the Morgan Stanley Capital International
Europe, Australia, Far East Index; Standard & Poor's 500 Index; Lehman Brothers
Government/Credit Bond Index; and U.S. Treasury Bills, based on a $10,000
investment from 12/31/96 to 7/31/00.
<TABLE>
<CAPTION>
DATE FT MODERATE TARGET FUND S&P 500 MSCI EAFE LB GOV'T./CREDIT U.S. TREASURY
---- ----- -------
- CLASS C (NET 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 $11,394
08/31/1999 $11,516 $18,575 $13,118 $11,700 $11,438
09/30/1999 $11,494 $18,066 $13,251 $11,805 $11,488
10/31/1999 $11,920 $19,210 $13,748 $11,836 $11,533
11/30/1999 $12,740 $19,600 $14,225 $11,829 $11,579
12/31/1999 $14,008 $20,754 $15,502 $11,757 $11,632
01/31/2000 $13,825 $19,713 $14,518 $11,753 $11,677
02/29/2000 $15,346 $19,340 $14,908 $11,900 $11,730
03/31/2000 $15,042 $21,231 $15,486 $12,073 $11,789
04/30/2000 $14,307 $20,592 $14,672 $12,014 $11,849
05/31/2000 $13,894 $20,170 $14,314 $12,003 $11,913
06/30/2000 $14,765 $20,666 $14,874 $12,248 $11,964
07/31/2000 $14,592 $20,344 $14,250 $12,378 $12,019
</TABLE>
*Source: Standard and Poor's Micropal. The value of Treasuries is fixed;
principal is guarantee and interest is fixed. MSCI EAFE includes reinvested
dividends, net of taxes withheld by foreign countries.
AVERAGE ANNUAL TOTAL RETURN
7/31/00
<TABLE>
CLASS C
--------------------------------------------------------------------------------
<S> <C>
1-Year +24.63%
3-Year +9.28%
Since Inception (12/31/96) +11.13%
</TABLE>
Past performance does not guarantee future results.
FRANKLIN TEMPLETON
GROWTH TARGET FUND
ASSET ALLOCATION
Franklin Templeton Growth Target Fund
Based on Total Net Assets
7/31/00
[PIE CHART]
<TABLE>
<S> <C>
Domestic Equity 55.6%
Foreign Equity 25.9%
Fixed Income 16.0%
Short-Term Investments & Other Net Assets 2.5%
</TABLE>
--------------------------------------------------------------------------------
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, Franklin Templeton Growth Target Fund - Class
A provided a +38.55% cumulative total return, as shown in the Performance
Summary on page 18. This performance can be attributed largely to maintaining a
static allocation among equities, fixed income securities and short-term
investments, as well as the actual performance of the selected underlying funds.
At the end of the reporting period, Franklin Templeton Growth Target Fund's
domestic equity exposure was 68.3% of its total equity weighting, with the
balance represented by foreign equity.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 29.
The portfolio was diversified across capitalization size and investment style,
and on July 31, 2000, we held shares in large-, mid- and small-capitalization
equity funds, representing both value and growth styles. Franklin Aggressive
Growth Fund, representing 20.3% of the Fund's total net assets, was our largest
fund weighting.
During the reporting period, we modified the fixed income portion of the
portfolio by increasing our exposure to Franklin U.S. Government Securities Fund
in an effort to raise the average credit quality of the Fund's fixed income
holdings. The remaining fixed income holdings were represented by shares in
Franklin Strategic Income Fund and Franklin Bond Fund.
Looking forward, we expect to maintain the same relative allocation among the
three primary asset classes. We believe the Fund will continue to benefit from
our careful analysis and selection of underlying funds. We hope to decrease the
volatility of its return by carefully allocating its assets to domestic and
foreign equity fund holdings and various capitalization sizes and investment
styles.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of July
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
--------------------------------------------------------------------------------
TOP 5 FUND HOLDINGS
Franklin Templeton
Growth Target Fund
7/31/00
<TABLE>
<CAPTION>
% OF TOTAL
FUND NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Franklin Aggressive
Growth Fund 20.3%
Franklin Small Cap
Growth Fund I 15.2%
Mutual European Fund 13.1%
Franklin Large Cap
Growth Fund 12.4%
Templeton Latin
America Fund 8.0%
</TABLE>
FRANKLIN TEMPLETON
GROWTH TARGET FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ.
CLASS C: 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 reductions by the Fund's manager increased the Fund's total
returns.
--------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY
AS OF 7/31/00
One-year total return represents the change in value of an investment for the
period indicated and does not include sales charges. 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 operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return +38.55%
Net Asset Value (NAV) $14.50 (7/31/00) $11.01 (7/31/99)
Change in NAV +$3.49
Distributions (8/1/99-7/31/00) Dividend Income $0.3925
Long-Term Capital Gain $0.2876
---------------------------------------------
Total $0.6801
CLASS C
One-Year Total Return +37.64%
Net Asset Value (NAV) $14.43 (7/31/00) $10.92 (7/31/99)
Change in NAV +$3.51
Distributions (8/1/99-7/31/00) Dividend Income $0.2635
Long-Term Capital Gain $0.2876
---------------------------------------------
Total $0.5511
</TABLE>
Franklin Templeton Growth Target Fund paid distributions derived from long-term
capital gains of 28.76 cents ($0.2876) per share in December 1999. The Fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 6/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 3-YEAR (12/31/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +39.67% +56.08% +70.75%
Average Annual Total Return(2) +31.63% +13.72% +14.58%
Value of $10,000 Investment(3) $13,163 $14,707 $16,093
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (12/31/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +38.72% +52.82% +66.72%
Average Annual Total Return(2) +36.36% +14.80% +15.42%
Value of $10,000 Investment(3) $13,636 $15,129 $16,507
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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 for 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 does not guarantee future results.
FRANKLIN TEMPLETON
GROWTH TARGET FUND
AVERAGE ANNUAL TOTAL RETURN
7/31/00
<TABLE>
<S> <C>
CLASS A
--------------------------------------------------------------------------------
1-Year +30.60%
3-Year +11.67%
Since Inception (12/31/96) +13.58%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
7/31/00
<TABLE>
<S> <C>
CLASS C
--------------------------------------------------------------------------------
1-Year +35.27%
3-Year +12.70%
Since Inception (12/31/96) +14.36%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the Fund in composition, do not pay management fees or expenses and
include reinvested dividends and interest. One cannot invest directly in an
index.
CLASS A (12/31/96 - 7/31/00)
The following line graph compares the performance of Franklin Templeton Growth
Target Fund's Class A shares to that of the Morgan Stanley Capital International
Europe, Australia, Far East Index; Standard & Poor's 500 Index; Lehman Brothers
Government/Credit Bond Index; and U.S. Treasury Bills, based on a $10,000
investment from 12/31/96 to 7/31/00.
<TABLE>
<CAPTION>
DATE FT GROWTH TARGET FUND S&P 500 MSCI EAFE LB GOV'T./CREDIT U.S. TREASURY
---- ----- -------
- CLASS A (NET 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 $11,394
08/31/1999 $11,450 $18,575 $13,118 $11,700 $11,438
09/30/1999 $11,444 $18,066 $13,251 $11,805 $11,488
10/31/1999 $12,049 $19,210 $13,748 $11,836 $11,533
11/30/1999 $13,133 $19,600 $14,225 $11,829 $11,579
12/31/1999 $15,025 $20,754 $15,502 $11,757 $11,632
01/31/2000 $14,776 $19,713 $14,518 $11,753 $11,677
02/29/2000 $17,097 $19,340 $14,908 $11,900 $11,730
03/31/2000 $16,606 $21,231 $15,486 $12,073 $11,789
04/30/2000 $15,488 $20,592 $14,672 $12,014 $11,849
05/31/2000 $14,869 $20,170 $14,314 $12,003 $11,913
06/30/2000 $16,093 $20,666 $14,874 $12,248 $11,964
07/31/2000 $15,778 $20,344 $14,250 $12,378 $12,019
</TABLE>
CLASS C (12/31/96 - 7/31/00)
The following line graph compares the performance of Franklin Templeton Growth
Target Fund's Class C shares to that of the Morgan Stanley Capital International
Europe, Australia, Far East Index; Standard & Poor's 500 Index; Lehman Brothers
Government/Credit Bond Index; and U.S. Treasury Bills, based on a $10,000
investment from 12/31/96 to 7/31/00.
<TABLE>
<CAPTION>
DATE FT GROWTH TARGET FUND S&P 500 MSCI EAFE LB GOV'T./CREDIT U.S. TREASURY
---- ---- -------
- CLASS C (NET 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 $11,394
08/31/1999 $11,814 $18,575 $13,118 $11,700 $11,438
09/30/1999 $11,799 $18,066 $13,251 $11,805 $11,488
10/31/1999 $12,414 $19,210 $13,748 $11,836 $11,533
11/30/1999 $13,525 $19,600 $14,225 $11,829 $11,579
12/31/1999 $15,462 $20,754 $15,502 $11,757 $11,632
01/31/2000 $15,204 $19,713 $14,518 $11,753 $11,677
02/29/2000 $17,579 $19,340 $14,908 $11,900 $11,730
03/31/2000 $17,055 $21,231 $15,486 $12,073 $11,789
04/30/2000 $15,901 $20,592 $14,672 $12,014 $11,849
05/31/2000 $15,251 $20,170 $14,314 $12,003 $11,913
06/30/2000 $16,507 $20,666 $14,874 $12,248 $11,964
07/31/2000 $16,171 $20,344 $14,250 $12,378 $12,019
</TABLE>
*Source: Standard and Poor's 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.
Past performance does not guarantee future results.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------
2000 1999 1998 1997(c)
------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.73 $ 11.00 $ 10.87 $ 10.00
------------------------------------------------------------
Income from investment operations:
Net investment income(d)........................... .58 .41 .39 .12
Net realized and unrealized gains (losses) ........ 1.41 (.08) .18 .80
------------------------------------------------------------
Total from investment operations ................... 1.99 .33 .57 .92
------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.53) (.41) (.38) (.05)
Net realized gains ................................ (.06) (.19) (.06) --
------------------------------------------------------------
Total distributions ................................ (.59) (.60) (.44) (.05)
------------------------------------------------------------
Net asset value, end of year ....................... $ 12.13 $ 10.73 $ 11.00 $ 10.87
============================================================
Total return(a)..................................... 18.77% 3.23% 5.41% 9.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 18,050 $ 14,850 $ 11,637 $ 1,609
Ratios to average net assets:
Expenses .......................................... .98% .75% .76% .59%(b)
Expenses excluding waiver and payments by affiliate .99% .83% 1.07% 3.64%(b)
Net investment income ............................. 4.95% 3.83% 3.88% 3.93%(b)
Portfolio turnover rate ............................ 103.79% 218.87% 141.96% 33.30%
</TABLE>
(a) Total return does not reflect sales commission or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) For the period December 31, 1996 (effective date) to July 31, 1997.
(d) Based on average shares outstanding effective year ended July 31, 1999.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------------
2000 1999 1998 1997(c)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.65 $ 10.92 $ 10.81 $ 10.00
---------------------------------------------------------------
Income from investment operations:
Net investment income(d) .......................... .50 .33 .33 .10
Net realized and unrealized gains (losses) ........ 1.39 (.08) .15 .75
---------------------------------------------------------------
Total from investment operations ................... 1.89 .25 .48 .85
---------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.45) (.33) (.31) (.04)
Net realized gains ................................ (.06) (.19) (.06) --
---------------------------------------------------------------
Total distributions ................................ (.51) (.52) (.37) (.04)
---------------------------------------------------------------
Net asset value, end of year ....................... $ 12.03 $ 10.65 $ 10.92 $ 10.81
===============================================================
Total return(a)..................................... 17.88% 2.49% 4.56% 8.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 12,548 $ 10,611 $ 10,218 $ 3,010
Ratios to average net assets:
Expenses .......................................... 1.71% 1.50% 1.50% 1.48%(b)
Expenses excluding waiver and payments by affiliate 1.72% 1.58% 1.81% 4.53%(b)
Net investment income ............................. 4.24% 3.13% 3.27% 3.04%(b)
Portfolio turnover rate ............................ 103.79% 218.87% 141.96% 33.30%
</TABLE>
(a) Total return does not reflect sales commission or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) For the period December 31, 1996 (effective date) to July 31, 1997.
(d) Based on average shares outstanding effective year ended July 31, 1999.
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, JULY 31, 2000
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE
-------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (NOTE 3) 100.9%
CASH EQUIVALENTS 20.4%
Franklin Institutional Fiduciary Trust Money Market Portfolio 6,229,507 $ 6,229,507
------------
FIXED INCOME 39.6%
Franklin Bond Fund .......................................... 272,317 2,567,954
Franklin Strategic Income Fund .............................. 415,392 4,099,918
Franklin U.S. Government Securities Fund .................... 833,768 5,461,178
------------
12,129,050
------------
DOMESTIC EQUITY 27.5%
Franklin Aggressive Growth Fund ............................. 10,667 284,164
Franklin Large Cap Growth Fund .............................. 112,544 1,747,812
Franklin Natural Resources Fund ............................. 49,001 786,463
Franklin Small Cap Growth Fund I ............................ 49,400 2,292,164
Mutual Shares Fund .......................................... 168,547 3,296,779
------------
8,407,382
------------
FOREIGN EQUITY 13.4%
Mutual European Fund ........................................ 117,170 2,057,499
Templeton Developing Markets Trust .......................... 56,421 710,905
Templeton Latin American Fund ............................... 117,231 1,325,878
------------
4,094,282
------------
TOTAL INVESTMENTS (COST $29,208,654) 100.9% ................. 30,860,221
OTHER ASSETS, LESS LIABILITIES (.9)% ........................ (262,018)
------------
NET ASSETS 100.0% ........................................... $ 30,598,203
============
</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,
--------------------------------------------------------------
2000 1999 1998 1997(c)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.44 $ 10.77 $ 11.26 $ 10.00
--------------------------------------------------------------
Income from investment operations:
Net investment income(d) .......................... .51 .33 .37 .17
Net realized and unrealized gains (losses) ........ 2.35 (.17) .01 1.13
--------------------------------------------------------------
Total from investment operations ................... 2.86 .16 .38 1.30
--------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.47) (.31) (.38) (.04)
Net realized gains ................................ -- (.18) (.49) --
--------------------------------------------------------------
Total distributions ................................ (.47) (.49) (.87) (.04)
--------------------------------------------------------------
Net asset value, end of year ....................... $ 12.83 $ 10.44 $ 10.77 $ 11.26
==============================================================
Total return(a) .................................... 27.79% 1.74% 3.71% 13.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 41,348 $ 28,694 $ 23,028 $ 6,498
Ratios to average net assets:
Expenses .......................................... .83% .85% .77% .67%(b)
Expenses excluding waiver and payments by affiliate .83% .85% .94% 1.26%(b)
Net investment income ............................. 4.20% 3.23% 3.37% 2.69%(b)
Portfolio turnover rate ............................ 85.78% 202.78% 124.87% 264.78%
</TABLE>
(a) Total return does not reflect sales commission or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) For the period December 31, 1996 (effective date) to July 31, 1997.
(d) Based on average shares outstanding effective year ended July 31, 1998.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------
2000 1999 1998 1997(c)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.31 $ 10.65 $ 11.16 $ 10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income(d) .......................... .41 .25 .30 .07
Net realized and unrealized gains (losses) ........ 2.33 (.17) -- 1.11
-------------------------------------------------------------
Total from investment operations ................... 2.74 .08 .30 1.18
-------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.38) (.24) (.32) (.02)
Net realized gains ................................ -- (.18) (.49) --
-------------------------------------------------------------
Total distributions ................................ (.38) (.42) (.81) (.02)
-------------------------------------------------------------
Net asset value, end of year ....................... $ 12.67 $ 10.31 $ 10.65 $ 11.16
=============================================================
Total return(a) .................................... 26.84% .88% 2.98% 11.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 35,506 $ 24,419 $ 19,501 $ 4,695
Ratios to average net assets:
Expenses .......................................... 1.57% 1.60% 1.50% 1.50%(b)
Expenses excluding waiver and payments by affiliate 1.57% 1.60% 1.68% 2.09%(b)
Net investment income ............................. 3.40% 2.51% 2.75% 1.86%(b)
Portfolio turnover rate ............................ 85.78% 202.78% 124.87% 264.78%
</TABLE>
(a) Total return does not reflect sales commission or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) For the period December 31, 1996 (effective date) to July 31, 1997.
(d) Based on average shares outstanding effective year ended July 31, 1998.
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, JULY 31, 2000
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (NOTE 3) 100.8%
CASH EQUIVALENTS 10.4%
Franklin Institutional Fiduciary Trust Money Market Portfolio 8,031,103 $ 8,031,103
------------
FIXED INCOME 36.1%
Franklin Bond Fund .......................................... 533,707 5,032,857
Franklin Strategic Income Fund .............................. 946,336 9,340,341
Franklin U.S. Government Securities Fund .................... 2,036,285 13,337,665
------------
27,710,863
------------
DOMESTIC EQUITY 37.8%
Franklin Aggressive Growth Fund ............................. 410,722 10,941,643
Franklin Large Cap Growth Fund .............................. 404,611 6,283,602
Franklin Natural Resources Fund ............................. 167,968 2,695,890
Franklin Small Cap Growth Fund I ............................ 173,064 8,030,154
Mutual Shares Fund .......................................... 55,611 1,087,751
------------
29,039,040
------------
FOREIGN EQUITY 16.5%
Mutual European Fund ........................................ 356,179 6,254,511
Templeton Developing Markets Trust .......................... 160,133 2,017,671
Templeton Latin American Fund ............................... 388,722 4,396,443
------------
12,668,625
------------
TOTAL INVESTMENTS (COST $66,836,006) 100.8% ................. 77,449,631
------------
OTHER ASSETS, LESS LIABILITIES (.8)% ........................ (595,644)
------------
NET ASSETS 100.0% ........................................... $ 76,853,987
============
</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,
--------------------------------------------------------------
2000 1999 1998 1997(c)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.01 $ 11.16 $ 11.33 $ 10.00
--------------------------------------------------------------
Income from investment operations:
Net investment income(d) .......................... .40 .28 .33 .05
Net realized and unrealized gains (losses) ........ 3.77 .11 (.05) 1.28
--------------------------------------------------------------
Total from investment operations ................... 4.17 .39 .28 1.33
--------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.39) (.25) (.30) --
Net realized gains ................................ (.29) (.29) (.15) --
--------------------------------------------------------------
Total distributions ................................ (.68) (.54) (.45) --
--------------------------------------------------------------
Net asset value, end of year ....................... $ 14.50 $ 11.01 $ 11.16 $ 11.33
==============================================================
Total return(a) .................................... 38.55% 3.91% 2.63% 13.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 66,445 $ 40,839 $ 27,042 $ 9,638
Ratios to average net assets:
Expenses .......................................... .84% .75% .75% .73%(b)
Expenses excluding waiver and payments by affiliate .85% .86% .98% 2.19%(b)
Net investment income ............................. 2.93% 2.61% 2.80% 2.65%(b)
Portfolio turnover rate ............................ 73.82% 207.65% 118.19% 65.52%
</TABLE>
(a) Total return does not reflect sales commission or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) For the period December 31, 1996 (effective date) to July 31, 1997.
(d) Based on average shares outstanding effective year ended July 31, 1999.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Highlights (continued)
FRANKLIN TEMPLETON GROWTH TARGET FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------
2000 1999 1998 1997(c)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.92 $ 11.08 $ 11.30 $ 10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income(d) .......................... .29 .21 .24 .04
Net realized and unrealized gains (losses) ........ 3.77 .10 (.05) 1.26
-------------------------------------------------------------
Total from investment operations ................... 4.06 .31 .19 1.30
-------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.26) (.18) (.26) --
Net realized gains ................................ (.29) (.29) (.15) --
-------------------------------------------------------------
Total distributions ................................ (.55) (.47) (.41) --
-------------------------------------------------------------
Net asset value, end of year ....................... $ 14.43 $ 10.92 $ 11.08 $ 11.30
=============================================================
Total return(a) .................................... 37.64% 3.12% 1.84% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 38,666 $ 21,902 $ 20,752 $ 4,733
Ratios to average net assets:
Expenses .......................................... 1.59% 1.50% 1.50% 1.49%(b)
Expenses excluding waiver and payments by affiliate 1.60% 1.61% 1.73% 2.95%(b)
Net investment income ............................. 2.16% 2.00% 1.97% 1.89%(b)
Portfolio turnover rate ............................ 73.82% 207.65% 118.19% 65.52%
</TABLE>
(a) Total return does not reflect sales commission or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) For the period December 31, 1996 (effective date) to July 31, 1997.
(d) Based on average shares outstanding effective year ended July 31, 1999.
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS, JULY 31, 2000
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS (NOTE 3) 102.6%
CASH EQUIVALENTS 5.1%
Franklin Institutional Fiduciary Trust Money Market Portfolio 5,341,831 $ 5,341,831
-------------
FIXED INCOME 16.0%
Franklin Bond Fund .......................................... 336,816 3,176,177
Franklin Strategic Income Fund .............................. 605,562 5,976,903
Franklin U.S. Government Securities Fund .................... 1,166,607 7,641,282
-------------
16,794,362
-------------
DOMESTIC EQUITY 55.6%
Franklin Aggressive Growth Fund ............................. 800,284 21,319,571
Franklin Large Cap Growth Fund .............................. 836,995 12,998,543
Franklin Natural Resources Fund ............................. 352,890 5,663,897
Franklin Small Cap Growth Fund I ............................ 345,325 16,023,122
Mutual Shares Fund .......................................... 129,400 2,531,071
-------------
58,536,204
-------------
FOREIGN EQUITY 25.9%
Mutual European Fund ........................................ 784,750 13,780,214
Templeton Developing Markets Fund ........................... 395,299 4,980,768
Templeton Latin America Fund ................................ 747,686 8,456,340
-------------
27,217,322
-------------
TOTAL INVESTMENTS (COST $88,221,694) 102.6% ................. 107,889,719
OTHER ASSETS, LESS LIABILITIES (2.6)% ....................... (2,779,101)
-------------
NET ASSETS 100.0% ........................................... $ 105,110,618
=============
</TABLE>
See notes to financial statements.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 2000
<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 ............................................... $29,208,654 $66,836,006 $ 88,221,694
===========================================================
Value .............................................. 30,860,221 77,449,631 107,889,719
Receivables:
Capital shares sold ................................ 40,868 308,884 209,137
Organization costs .................................. 19,361 19,361 19,361
-----------------------------------------------------------
Total assets .................................... 30,920,450 77,777,876 108,118,217
-----------------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed ............................ 231,658 752,280 2,818,640
Affiliates ......................................... 55,642 116,088 150,218
Shareholders ....................................... 25,755 44,004 29,779
Other liabilities ................................... 9,192 11,517 8,962
-----------------------------------------------------------
Total liabilities ............................... 322,247 923,889 3,007,599
-----------------------------------------------------------
Net assets, at value ....................... $30,598,203 $76,853,987 $ 105,110,618
===========================================================
Net assets consist of:
Undistributed net investment income ................. $ 275,409 $ 533,982 $ 560,129
Net unrealized appreciation ......................... 1,651,567 10,613,625 19,668,025
Accumulated net realized gain (loss) ................ 950,532 8,595 (50,643)
Capital shares ...................................... 27,720,695 65,697,785 84,933,107
-----------------------------------------------------------
Net assets, at value ....................... $30,598,203 $76,853,987 $ 105,110,618
===========================================================
CLASS A:
Net assets, at value ................................ $18,049,726 $41,347,504 $ 66,445,097
===========================================================
Shares outstanding .................................. 1,487,732 3,222,551 4,582,546
===========================================================
Net asset value per share* .......................... $ 12.13 $ 12.83 $ 14.50
===========================================================
Maximum offering price per share (net asset value per
share / 94.25%) .................................... $ 12.87 $ 13.61 $ 15.38
===========================================================
CLASS C:
Net assets, at value ................................ $12,548,477 $35,506,483 $ 38,665,521
===========================================================
Shares outstanding .................................. 1,043,127 2,802,558 2,679,435
===========================================================
Net asset value per share* .......................... $ 12.03 $ 12.67 $ 14.43
===========================================================
Maximum offering price per share (net asset value per
share / 99.00%) .................................... $ 12.15 $ 12.80 $ 14.58
===========================================================
</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, 2000
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends ......................................... $ 1,654,511 $ 3,265,252 $ 3,199,932
Interest .......................................... 2,144 4,610 8,090
----------------------------------------------------------
Total investment income ....................... 1,656,655 3,269,862 3,208,022
----------------------------------------------------------
Expenses:
Asset allocation fees (Note 3) .................... 55,630 146,487 201,780
Distribution fees (Note 3)
Class A .......................................... 40,880 87,697 138,724
Class C .......................................... 112,691 296,629 297,935
Transfer agent fees (Note 3) ...................... 86,780 159,222 221,871
Reports to shareholders ........................... 8,769 15,306 25,335
Registration and filing fees ...................... 27,808 25,472 25,650
Professional fees (Note 3) ........................ 10,391 12,993 14,676
Trustees' fees and expenses ....................... 1,047 2,416 3,104
Amortization of organization costs ................ 13,667 13,667 13,667
Other ............................................. 2,418 4,535 4,079
----------------------------------------------------------
Total expenses ................................ 360,081 764,424 946,821
Expenses waived/paid by affiliate (Note 3) .... (1,534) -- (6,276)
----------------------------------------------------------
Net expenses ............................. 358,547 764,424 940,545
----------------------------------------------------------
Net investment income ................ 1,298,108 2,505,438 2,267,477
----------------------------------------------------------
Realized and unrealized gains:
Net realized gain from:
Investments ...................................... 1,096,906 646,006 768,072
Distributions by underlying funds ................ 223,759 385,633 694,961
----------------------------------------------------------
Net realized gain ........................ 1,320,665 1,031,639 1,463,033
Net unrealized appreciation on investments ........ 1,824,100 10,629,864 19,648,176
----------------------------------------------------------
Net realized and unrealized gain ................... 3,144,765 11,661,503 21,111,209
----------------------------------------------------------
Net increase in net assets resulting from operations $ 4,442,873 $14,166,941 $ 23,378,686
==========================================================
</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, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON
CONSERVATIVE TARGET FUND MODERATE TARGET FUND GROWTH TARGET FUND
----------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 1,298,108 $ 898,863 $ 2,505,438 $ 1,445,031 $ 2,267,477 $ 1,348,425
Net realized gain (loss) from
investments and distributions
by underlying funds ............. 1,320,665 (8,545) 1,031,639 (540,884) 1,463,033 973,605
Net unrealized appreciation
on investments .................. 1,824,100 44,250 10,629,864 431,844 19,648,176 897,958
----------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations ................... 4,442,873 934,568 14,166,941 1,335,991 23,378,686 3,219,988
Distributions to shareholders from:
Net investment income:
Class A .......................... (722,519) (525,036) (1,340,828) (799,593) (1,495,954) (755,529)
Class C .......................... (436,488) (370,036) (898,190) (563,370) (525,026) (393,545)
Net realized gains:
Class A .......................... (79,616) (252,162) -- (450,558) (1,063,719) (925,041)
Class C .......................... (58,278) (226,618) -- (436,761) (571,909) (649,542)
----------------------------------------------------------------------------------------
Total distributions
to shareholders .................... (1,296,901) (1,373,852) (2,239,018) (2,250,282) (3,656,608) (2,723,657)
Capital share transactions (Note 2):
Class A .......................... 1,361,121 3,440,101 6,093,580 6,174,105 12,837,324 13,186,278
Class C .......................... 630,017 605,215 5,719,792 5,323,233 9,810,819 1,263,611
----------------------------------------------------------------------------------------
Total capital share transactions ... 1,991,138 4,045,316 11,813,372 11,497,338 22,648,143 14,449,889
Net increase in
net assets ................... 5,137,110 3,606,032 23,741,295 10,583,047 42,370,221 14,946,220
Net assets
Beginning of year .................. 25,461,093 21,855,061 53,112,692 42,529,645 62,740,397 47,794,177
----------------------------------------------------------------------------------------
End of year ........................ $30,598,203 $25,461,093 $76,853,987 $53,112,692 $105,110,618 $62,740,397
========================================================================================
Undistributed net investment income
included in net assets:
End of year ....................... $ 275,409 $ 136,308 $ 533,982 $ 267,562 $ 560,129 $ 353,170
========================================================================================
</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 a non-diversified, open-end 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. 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, 2000, 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 TARGET FUND MODERATE TARGET FUND GROWTH TARGET FUND
-------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares:
Year ended July 31, 2000
Shares sold ................. 680,043 $ 8,144,164 1,518,765 $ 18,564,807 2,765,280 $ 37,899,437
Shares issued in reinvestment
of distributions ........... 66,004 780,688 109,501 1,323,208 191,549 2,530,225
Shares redeemed ............. (642,559) (7,563,731) (1,153,633) (13,794,435) (2,084,927) (27,592,338)
-------------------------------------------------------------------------------------
Net increase ................ 103,488 $ 1,361,121 474,633 $ 6,093,580 871,902 $ 12,837,324
=====================================================================================
Year ended July 31, 1999
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
=====================================================================================
CLASS C SHARES:
Year ended July 31, 2000
Shares sold ................. 310,985 $ 3,686,265 1,057,669 $ 13,015,733 1,110,295 $ 15,450,202
Shares issued in reinvestment
of distributions ........... 37,469 440,477 69,071 825,358 79,628 1,058,668
Shares redeemed ............. (301,954) (3,496,725) (692,399) (8,121,299) (515,473) (6,698,051)
-------------------------------------------------------------------------------------
Net increase ................ 46,500 $ 630,017 434,341 $ 5,719,792 674,450 $ 9,810,819
=====================================================================================
Year ended July 31, 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
=====================================================================================
</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 may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund) which is 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 Franklin Institutional Fiduciary Trust Money Market Portfolio.
Advisers agreed in advance to waive asset allocation fees for the Franklin
Templeton Conservative Target Fund and the Franklin Templeton Growth Target
Fund, as noted in the Statements of Operations. The agreements were in effect
until August 31, 1999.
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 FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
----------------------------------------
<S> <C> <C> <C>
Net commissions paid .................. $57,059 $160,625 $223,488
Contingent deferred sales charges ..... $ 6,826 $ 9,865 $ 8,331
</TABLE>
The Funds paid transfer agent fees of $467,873 of which $159,544 was paid to
Investor Services.
Included in professional fees are legal fees of $12,666 that were paid to a law
firm in which a partner of that firm was an officer of the fund.
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
At July 31, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------------
<S> <C> <C> <C>
Investments at cost ......... $29,229,407 $66,851,126 $88,272,337
=================================================
Unrealized appreciation ..... 2,203,295 11,609,155 21,313,610
Unrealized depreciation ..... (572,481) (1,010,650) (1,696,228)
-------------------------------------------------
Net unrealized appreciation.. $ 1,630,814 $10,598,505 $19,617,382
=================================================
</TABLE>
Net realized capital gains/losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of Underlying Funds (excluding short term securities) for
the year ended July 31, 2000, were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
TEMPLETON TEMPLETON TEMPLETON
CONSERVATIVE MODERATE GROWTH
TARGET FUND TARGET FUND TARGET FUND
-------------------------------------------
<S> <C> <C> <C>
Purchases ............... $24,238,055 $60,030,704 $81,987,202
Sales ................... $22,915,390 $49,913,738 $58,974,701
</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 included in this
report constituting part of the Franklin Templeton Fund Allocator Series
(hereafter referred to as the "Funds") at July 31, 2000, 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 accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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,
2000 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
September 7, 2000
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, 2000.
<TABLE>
<CAPTION>
CAPITAL GAINS
-------------
20% RATE GAIN
-------------
<S> <C>
Franklin Templeton Conservative Target Fund ............. $206,681
Franklin Templeton Moderate Target Fund ................. 23,716
Franklin Templeton Growth Target Fund ................... 959,991
</TABLE>
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