-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IuBIKenro/NTFUt2wcVXyKdblvftD8hALdQORwt4aT2ZC4nSIfIIdSIcnwFEt2mS 2yujB8LiUv/Jwosb9394rA== 0001022804-09-000005.txt : 20090227 0001022804-09-000005.hdr.sgml : 20090227 20090227095552 ACCESSION NUMBER: 0001022804-09-000005 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090227 DATE AS OF CHANGE: 20090227 EFFECTIVENESS DATE: 20090227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TEMPLETON FUND ALLOCATOR SERIES CENTRAL INDEX KEY: 0001022804 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07851 FILM NUMBER: 09640017 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-4018 MAIL ADDRESS: STREET 1: FRANKLIN TEMPLETON FUND ALLOCATOR SERIES STREET 2: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 0001022804 S000007239 FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND C000019839 CLASS B C000019840 ADVISOR CLASS C000019841 CLASS A FTCIX C000019842 CLASS C FTCCX C000019843 CLASS R FTCRX 0001022804 S000007240 FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND C000019844 CLASS A C000019845 CLASS B C000019846 CLASS C FTCOX C000019847 CLASS R FBCOX C000019848 ADVISOR CLASS FTCLX 0001022804 S000007241 FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND C000019849 CLASS A C000019850 CLASS B C000019851 CLASS C FFALX C000019852 CLASS R FFABX C000019853 ADVISOR CLASS FFACX 0001022804 S000007242 FRANKLIN TEMPLETON GROWTH TARGET FUND C000019854 CLASS B C000019855 ADVISOR CLASS C000019856 CLASS A FGTIX C000019857 CLASS C FTGTX C000019858 CLASS R FGTRX 0001022804 S000007243 FRANKLIN TEMPLETON MODERATE TARGET FUND C000019859 CLASS B C000019860 ADVISOR CLASS C000019861 CLASS A FMTIX C000019862 CLASS C FTMTX C000019863 CLASS R FTMRX 0001022804 S000007244 FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND C000019864 CLASS R C000019865 ADVISOR CLASS C000019866 CLASS A FPAAX C000019867 CLASS C FPCAX 0001022804 S000012937 Franklin Templeton 2015 Retirement Target Fund C000034925 A C000034926 C C000034927 R C000034928 ADVISOR 0001022804 S000012938 Franklin Templeton 2025 Retirement Target Fund C000034929 A C000034930 C C000034931 R C000034932 ADVISOR 0001022804 S000012939 Franklin Templeton 2035 Retirement Target Fund C000034933 C C000034934 R C000034935 ADVISOR C000034936 A 0001022804 S000012940 Franklin Templeton 2045 Retirement Target Fund C000034937 A C000034938 C C000034939 R C000034940 ADVISOR N-CSR 1 ftfasarp0209.txt FTFAS PE 12/31/08 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-07851 FRANKLIN TEMPLETON FUND ALLOCATOR SERIES ------------------------------------------ (Exact name of registrant as specified in charter) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ---------------------------------------------- (Address of principal executive offices)(Zip code) CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 -------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code:(650) 312-2000 Date of fiscal year end: 12/31 ---------- Date of reporting period: 12/31/08 ---------- ITEM 1. REPORTS TO STOCKHOLDERS. (GRAPHIC) DECEMBER 31, 2008 Franklin Templeton Conservative Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton Growth Target Fund ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN TEMPLETON FUND ALLOCATOR SERIES ASSET ALLOCATION WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) Franklin - Templeton - Mutual Series Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE(R) Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups-- Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with offices in over 25 countries, Templeton offers investors a truly global perspective. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities. TRUE DIVERSIFICATION Because our management groups work independently and adhere to different investment approaches, Franklin, Templeton and Mutual Series funds typically have distinct portfolios. That's why our funds can be used to build truly diversified allocation plans covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable, accurate and personal service that has helped us become one of the most trusted names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS Not part of the annual report Contents SHAREHOLDER LETTER ........................................................ 1 ANNUAL REPORT Economic and Market Overview .............................................. 3 Franklin Templeton Conservative Target Fund ............................... 5 Franklin Templeton Moderate Target Fund ................................... 15 Franklin Templeton Growth Target Fund ..................................... 25 Financial Highlights and Statements of Investments ........................ 35 Financial Statements ...................................................... 53 Notes to Financial Statements ............................................. 58 Report of Independent Registered Public Accounting Firm ................... 68 Tax Designation ........................................................... 69 Board Members and Officers ................................................ 70 Shareholder Information ................................................... 74
Shareholder Letter Dear Shareholder: The year 2008 was an extraordinary and stressful time for investors and those of us who have worked in financial markets for many years. During this turbulent period, the U.S. economy slipped into recession, credit markets froze and housing prices plummeted. Most stocks and bonds suffered major losses as investors worried about an uncertain future. Although this environment is bound to provoke great concern, we think it is important to put short-term market developments in perspective. Keep in mind that as daunting as current conditions may be, we have navigated through other periods of high market volatility, such as the stock market crash of 1987. We remain committed to our long-term perspective and our disciplined investment philosophy. Therefore, we view recent declines as potential opportunities to find bargains that we believe may be well positioned to become eventual winners. Although conditions remain challenging, our experience gives us ample reason to be optimistic about future market stabilization and recovery. In the enclosed annual report for Franklin Templeton Fund Allocator Series, the portfolio manager discusses market conditions, investment management decisions and Fund performance during the period under review. You will also find performance data and financial information. Please remember that all securities markets fluctuate, as do mutual fund share prices. Sign up for EDELIVERY of your Shareholder Report Shareholders who are registered at franklintempleton.com can receive this report via email by selecting eDelivery options under "My Profile." Not all accounts are eligible for eDelivery. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Not part of the annual report | 1 If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily prices, monthly performance figures, portfolio holdings and other information. You can also access your account, buy and sell shares, read timely articles, and find helpful financial planning tools. We hope you will take advantage of these online services. As always, we recommend investors consult their financial advisors and review their portfolios to design a long-term strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. We firmly believe that most people benefit from professional advice, and that advice is invaluable as investors navigate changing market environments. We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your investment needs in the years ahead. Sincerely, /s/ Charles B. Johnson Charles B. Johnson Chairman Franklin Templeton Fund Allocator Series THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE OBTAINED FROM SOURCES CONSIDERED RELIABLE. 2 | Not part of the annual report Annual Report Economic and Market Overview In 2008, the U.S. economy faltered and The Conference Board's Consumer Confidence Index fell to an all-time low since it began in 1967. The government's abrupt conservatorship of Fannie Mae and Freddie Mac and the failure of several blue-chip banks and financial institutions roiled the equity markets. Despite government interventions and massive emergency funding, rapidly weakening manufacturing activity and falling home prices exacerbated the nation's economic troubles. Jobless claims mounted and the unemployment rate rose to 7.2% by period-end.(1) In early December, the National Bureau of Economic Research officially declared the U.S. economy has been in recession since December 2007. The weakening U.S. economy negatively impacted growth prospects around the world. Although growth in the first half of the year was robust in developing economies, particularly in Asia, signs of a global slowdown surfaced in the latter half. In an environment of extremely high commodity prices that increased inflationary pressure, the world's monetary authorities faced the choice of lowering short-term interest rates to stimulate growth or raising them to fight rising inflation. Stimulus provided through fiscal and monetary policies implemented around the globe sought to restore financial market stability and reignite economic growth. The U.S. Treasury and the Federal Reserve Board took unprecedented steps, including lowering short-term rates to near 0% from 4.25%. The European Central Bank and many of the world's other central banks had raised rates due to inflationary pressures. Later in the year, the potential for global recession trumped inflationary concerns, and the world's monetary authorities cut interest rates aggressively. The U.S. dollar, which had declined earlier in the period versus many of the world's currencies, regained ground quickly toward period-end as a flight to the relative safety of U.S. Treasuries prevailed. (1.) Source: Bureau of Labor Statistics. Annual Report | 3 In this challenging economic time, volatility came to define global equity markets. Virtually all local indexes ended the 12-month period with marked losses. Despite negative economic data and an outlook for decelerating corporate earnings and profit margins globally, many companies outside the financials sector retained relatively strong balance sheets. THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 4 | Annual Report Franklin Templeton Conservative Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Conservative Target Fund seeks the highest level of long-term total return consistent with a lower level of risk.(1) ASSET ALLOCATION* Franklin Templeton Conservative Target Fund Based on Total Net Assets as of 12/31/08 (PIE CHART) Domestic Fixed Income ........................ 27.0% Domestic Equity .............................. 25.9% Foreign Fixed Income ......................... 14.4% Foreign Equity ............................... 11.8% Short-Term Investments & Other Net Assets .... 20.9%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. This annual report for Franklin Templeton Conservative Target Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton Conservative Target Fund - Class A had a -15.41% cumulative total return for the 12 months under review. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, had total returns of -37.00%, (1.) The risk/reward potential is based on the Fund's goal and level of risk. It is not indicative of the Fund's actual or implied performance or portfolio composition, which may change on a continuous basis. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 40. Annual Report | 5 TOP 10 FUND HOLDINGS Franklin Templeton Conservative Target Fund 12/31/08 % OF TOTAL NET ASSETS ---------- Franklin U.S. Government Securities Fund - Advisor Class 14.6% Templeton Global Bond Fund - Advisor Class 14.4% Franklin Total Return Fund - Advisor Class 9.6% Franklin Flex Cap Growth Fund - Advisor Class 8.8% Mutual Shares Fund - Class Z 8.0% Mutual European Fund - Class Z 4.3% Franklin Small Cap Growth Fund - Advisor Class 4.0% Franklin Strategic Mortgage Portfolio 2.8% Templeton Foreign Fund - Advisor Class 2.5% Franklin Gold and Precious Metals Fund - Advisor Class 2.4%
- -43.06%, +5.24% and +2.10%, respectively, during the same time.(2) You can find the Fund's long-term performance data in the Performance Summary beginning on page 8. INVESTMENT STRATEGY Whenever possible, we attempt to hold the same underlying Franklin Templeton funds in each Target Fund's portfolio. We generally diversify the Target Funds' broad equity allocations across investment styles, market capitalization sizes and countries of origin. Maintaining similarity of the underlying Franklin Templeton fund investments across the Allocator Series is intended to increase the consistency of the Target Funds' results relative to one another. For your reference, Franklin Templeton Conservative Target Fund seeks to maintain the following asset class allocations: 40% equity funds, 40% fixed income funds, and 20% short-term investments and other net assets. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to maintaining a static allocation among equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. At period-end, Franklin Templeton Conservative Target Fund's domestic equity exposure was 68.6% of its total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2008, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, representing 8.8% of the Fund's total net assets, was our largest equity fund weighting at period-end. (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond markets, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. Source: Payden & Rygel. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 6 | Annual Report On the fixed income side, domestic exposure was 65.2% of the Fund's total income weighting, with the balance represented by foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 14.6% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, performed comparably to the S&P 500 during the 12-month reporting period. However, Franklin Small Cap Growth Fund - Advisor Class lagged the S&P 500. Our largest foreign equity fund holding, Mutual European Fund - Class Z, performed better than the MSCI EAFE Index. In contrast, Templeton Foreign Fund - Advisor Class underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor Class and Templeton Global Bond Fund - Advisor Class outperformed the BC U.S. Aggregate Index, while Franklin Strategic Mortgage Portfolio underperformed. Thank you for your continued participation in Franklin Templeton Conservative Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton Conservative Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 7 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCIX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$2.67 $10.92 $13.59 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.3831 Long-Term Capital Gain $0.2407 TOTAL $0.6238
CLASS B (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------- ------ -------- -------- Net Asset Value (NAV) -$2.67 $10.88 $13.55 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2918 Long-Term Capital Gain $0.2407 TOTAL $0.5325
CLASS C (SYMBOL: FTCCX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$2.65 $10.77 $13.42 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2992 Long-Term Capital Gain $0.2407 TOTAL $0.5399
CLASS R (SYMBOL: FTCRX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$2.66 $10.89 $13.55 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.3539 Long-Term Capital Gain $0.2407 TOTAL $0.5946
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------- ------ -------- -------- Net Asset Value (NAV) -$2.66 $10.91 $13.57 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.4131 Long-Term Capital Gain $0.2407 TOTAL $0.6538
8 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- --------- Cumulative Total Return(2) -15.41% +13.83% +57.83% Average Annual Total Return(3) -20.28% +1.41% +4.05% Value of $10,000 Investment(4) $ 7,972 $10,726 $14,875 Total Annual Operating Expenses(5) Without Waiver 1.41% With Waiver 1.18%
INCEPTION CLASS B 1-YEAR 5-YEAR (12/1/03) - ------- ------- ------- --------- Cumulative Total Return(2) -16.02% +9.58% +11.45% Average Annual Total Return(3) -19.24% +1.50% +1.99% Value of $10,000 Investment(4) $ 8,076 $10,773 $11,052 Total Annual Operating Expenses(5) Without Waiver 2.16% With Waiver 1.93%
CLASS C 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- --------- Cumulative Total Return(2) -16.04% +9.63% +46.46% Average Annual Total Return(3) -16.84% +1.86% +3.89% Value of $10,000 Investment(4) $ 8,316 $10,963 $14,646 Total Annual Operating Expenses(5) Without Waiver 2.16% With Waiver 1.93%
INCEPTION CLASS R 1-YEAR 5-YEAR (1/1/02) - ------- ------- ------- --------- Cumulative Total Return(2) -15.58% +12.40% +26.21% Average Annual Total Return(3) -15.58% +2.37% +3.38% Value of $10,000 Investment(4) $ 8,442 $11,240 $12,621 Total Annual Operating Expenses(5) Without Waiver 1.66% With Waiver 1.43%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR - ---------------- ------- ------- --------- Cumulative Total Return(2) -15.15% +14.67% +59.00% Average Annual Total Return(3) -15.15% +2.78% +4.75% Value of $10,000 Investment(4) $ 8,485 $11,467 $15,900 Total Annual Operating Expenses(5) Without Waiver 1.16% With Waiver 0.93%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES), DO NOT EXCEED 0.93% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 9 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -20.28% 5-Year +1.41% 10-Year +4.05%
CLASS A (1/1/99-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. P&R 90-DAY U.S. DATE TARGET FUND - CLASS A INDEX INDEX AGGREGATE INDEX TREASURY BILL INDEX - ---------- ------------------------------- ------- --------- --------------------- ------------------- 1/1/1999 $ 9,424 $10,000 $10,000 $10,000 $10,000 1/31/1999 $ 9,487 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,362 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $ 9,503 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $ 9,737 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $ 9,656 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $ 9,814 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $ 9,750 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $ 9,759 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $ 9,746 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $10,012 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $10,553 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $11,335 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $11,213 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $12,144 $11,278 $12,231 $10,005 $10,574 3/31/2000 $11,975 $12,382 $12,722 $10,137 $10,627 4/30/2000 $11,530 $12,009 $12,062 $10,108 $10,681 5/31/2000 $11,284 $11,763 $11,788 $10,103 $10,738 6/30/2000 $11,609 $12,053 $12,257 $10,313 $10,785 7/31/2000 $11,580 $11,864 $11,740 $10,407 $10,834 8/31/2000 $12,029 $12,601 $11,847 $10,558 $10,891 9/30/2000 $11,905 $11,936 $11,271 $10,624 $10,950 10/31/2000 $11,741 $11,886 $10,999 $10,694 $11,006 11/30/2000 $11,316 $10,949 $10,582 $10,869 $11,066 12/31/2000 $11,681 $11,002 $10,953 $11,071 $11,130 1/31/2001 $11,997 $11,392 $10,948 $11,252 $11,202 2/28/2001 $11,620 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,321 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $11,679 $10,451 $10,121 $11,360 $11,351 5/31/2001 $11,751 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $11,699 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $11,647 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,503 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $10,875 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $11,177 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $11,448 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $11,574 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $11,563 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $11,553 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $11,791 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $11,823 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $11,780 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $11,440 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $10,979 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $11,054 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $10,712 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $10,917 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $11,209 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $11,136 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $11,092 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $11,059 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $11,044 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $11,449 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $11,886 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $11,955 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $11,965 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $12,229 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $12,311 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $12,609 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $12,807 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $13,068 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $13,168 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $13,290 $10,034 $10,513 $14,042 $11,980 3/31/2004 $13,308 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $12,974 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $13,052 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $13,208 $10,053 $10,623 $13,801 $12,012 7/31/2004 $13,029 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $13,130 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $13,345 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $13,536 $10,016 $10,961 $14,362 $12,063 11/30/2004 $13,883 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,111 $10,776 $12,227 $14,379 $12,098 1/31/2005 $13,930 $10,513 $12,003 $14,469 $12,115 2/28/2005 $14,145 $10,734 $12,525 $14,384 $12,134 3/31/2005 $13,953 $10,544 $12,215 $14,310 $12,162 4/30/2005 $13,805 $10,344 $11,941 $14,503 $12,188 5/31/2005 $14,010 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,136 $10,689 $12,123 $14,740 $12,243 7/31/2005 $14,352 $11,086 $12,496 $14,606 $12,270 8/31/2005 $14,409 $10,985 $12,815 $14,793 $12,304 9/30/2005 $14,515 $11,074 $13,388 $14,641 $12,339 10/31/2005 $14,298 $10,889 $12,998 $14,525 $12,367 11/30/2005 $14,595 $11,301 $13,320 $14,589 $12,408 12/31/2005 $14,774 $11,305 $13,940 $14,728 $12,447 1/31/2006 $15,226 $11,604 $14,797 $14,729 $12,483 2/28/2006 $15,226 $11,636 $14,767 $14,778 $12,523 3/31/2006 $15,388 $11,781 $15,261 $14,633 $12,572 4/30/2006 $15,551 $11,939 $16,001 $14,606 $12,617 5/31/2006 $15,236 $11,595 $15,399 $14,591 $12,666 6/30/2006 $15,247 $11,611 $15,404 $14,621 $12,714 7/31/2006 $15,247 $11,683 $15,559 $14,819 $12,766 8/31/2006 $15,459 $11,961 $15,991 $15,046 $12,822 9/30/2006 $15,518 $12,269 $16,019 $15,178 $12,879 10/31/2006 $15,851 $12,669 $16,643 $15,278 $12,928 11/30/2006 $16,172 $12,909 $17,145 $15,456 $12,983 12/31/2006 $16,239 $13,091 $17,684 $15,366 $13,039 1/31/2007 $16,385 $13,289 $17,805 $15,360 $13,092 2/28/2007 $16,422 $13,029 $17,952 $15,597 $13,143 3/31/2007 $16,584 $13,174 $18,418 $15,597 $13,203 4/30/2007 $16,903 $13,758 $19,252 $15,681 $13,260 5/31/2007 $17,147 $14,238 $19,616 $15,562 $13,320 6/30/2007 $17,100 $14,001 $19,646 $15,516 $13,370 7/31/2007 $16,975 $13,567 $19,359 $15,646 $13,421 8/31/2007 $17,025 $13,771 $19,061 $15,838 $13,497 9/30/2007 $17,577 $14,286 $20,084 $15,958 $13,546 10/31/2007 $17,968 $14,513 $20,876 $16,101 $13,587 11/30/2007 $17,602 $13,906 $20,195 $16,391 $13,648 12/31/2007 $17,585 $13,810 $19,741 $16,437 $13,680 1/31/2008 $17,145 $12,981 $17,920 $16,713 $13,750 2/29/2008 $17,171 $12,560 $18,182 $16,736 $13,774 3/31/2008 $17,030 $12,505 $17,999 $16,793 $13,806 4/30/2008 $17,394 $13,115 $18,999 $16,758 $13,820 5/31/2008 $17,576 $13,284 $19,220 $16,635 $13,827 6/30/2008 $16,943 $12,164 $17,652 $16,622 $13,848 7/31/2008 $16,823 $12,062 $17,087 $16,608 $13,876 8/31/2008 $16,850 $12,237 $16,399 $16,766 $13,895 9/30/2008 $16,069 $11,146 $14,034 $16,541 $13,933 10/31/2008 $14,730 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $14,462 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $14,875 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 48.75% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08 - ------- -------- 1-Year -19.24% 5-Year +1.50% Since Inception (12/1/03) +1.99%
CLASS B (12/1/03-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. P&R 90-DAY U.S. DATE TARGET FUND - CLASS B INDEX INDEX AGGREGATE INDEX TREASURY BILL INDEX - ---------- ------------------------------- ------- --------- --------------------- ------------------- 12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/2003 $10,170 $10,524 $10,782 $10,102 $10,008 1/31/2004 $10,239 $10,718 $10,935 $10,183 $10,016 2/29/2004 $10,326 $10,867 $11,189 $10,293 $10,023 3/31/2004 $10,337 $10,703 $11,257 $10,370 $10,031 4/30/2004 $10,068 $10,535 $11,012 $10,101 $10,038 5/31/2004 $10,129 $10,679 $11,059 $10,060 $10,045 6/30/2004 $10,237 $10,887 $11,306 $10,117 $10,050 7/31/2004 $10,098 $10,527 $10,941 $10,217 $10,059 8/31/2004 $10,168 $10,569 $10,991 $10,412 $10,069 9/30/2004 $10,329 $10,684 $11,280 $10,440 $10,080 10/31/2004 $10,468 $10,847 $11,666 $10,528 $10,092 11/30/2004 $10,738 $11,286 $12,466 $10,444 $10,102 12/31/2004 $10,908 $11,670 $13,013 $10,540 $10,122 1/31/2005 $10,751 $11,385 $12,775 $10,606 $10,136 2/28/2005 $10,917 $11,625 $13,330 $10,544 $10,151 3/31/2005 $10,757 $11,419 $13,001 $10,490 $10,175 4/30/2005 $10,643 $11,202 $12,710 $10,632 $10,196 5/31/2005 $10,792 $11,559 $12,729 $10,747 $10,220 6/30/2005 $10,878 $11,575 $12,903 $10,805 $10,243 7/31/2005 $11,045 $12,006 $13,299 $10,707 $10,265 8/31/2005 $11,080 $11,896 $13,639 $10,844 $10,293 9/30/2005 $11,150 $11,993 $14,250 $10,732 $10,323 10/31/2005 $10,982 $11,793 $13,834 $10,647 $10,347 11/30/2005 $11,194 $12,239 $14,177 $10,695 $10,381 12/31/2005 $11,330 $12,243 $14,837 $10,796 $10,414 1/31/2006 $11,669 $12,567 $15,749 $10,797 $10,443 2/28/2006 $11,669 $12,601 $15,717 $10,833 $10,477 3/31/2006 $11,779 $12,758 $16,243 $10,726 $10,518 4/30/2006 $11,886 $12,929 $17,030 $10,707 $10,555 5/31/2006 $11,645 $12,557 $16,389 $10,695 $10,597 6/30/2006 $11,650 $12,574 $16,395 $10,718 $10,637 7/31/2006 $11,632 $12,652 $16,560 $10,863 $10,680 8/31/2006 $11,795 $12,953 $17,019 $11,029 $10,727 9/30/2006 $11,835 $13,287 $17,049 $11,126 $10,774 10/31/2006 $12,071 $13,720 $17,714 $11,200 $10,816 11/30/2006 $12,316 $13,981 $18,248 $11,330 $10,862 12/31/2006 $12,355 $14,177 $18,822 $11,264 $10,909 1/31/2007 $12,457 $14,391 $18,951 $11,259 $10,953 2/28/2007 $12,485 $14,110 $19,106 $11,433 $10,996 3/31/2007 $12,593 $14,267 $19,603 $11,433 $11,046 4/30/2007 $12,836 $14,899 $20,491 $11,495 $11,094 5/31/2007 $13,013 $15,419 $20,878 $11,408 $11,143 6/30/2007 $12,962 $15,163 $20,910 $11,374 $11,185 7/31/2007 $12,857 $14,693 $20,604 $11,469 $11,228 8/31/2007 $12,886 $14,913 $20,287 $11,610 $11,292 9/30/2007 $13,299 $15,471 $21,376 $11,698 $11,333 10/31/2007 $13,587 $15,717 $22,219 $11,803 $11,367 11/30/2007 $13,299 $15,060 $21,494 $12,015 $11,419 12/31/2007 $13,272 $14,955 $21,011 $12,049 $11,445 1/31/2008 $12,948 $14,058 $19,072 $12,251 $11,504 2/29/2008 $12,948 $13,602 $19,352 $12,268 $11,524 3/31/2008 $12,836 $13,543 $19,157 $12,310 $11,550 4/30/2008 $13,111 $14,203 $20,222 $12,284 $11,562 5/31/2008 $13,229 $14,387 $20,457 $12,194 $11,568 6/30/2008 $12,748 $13,174 $18,788 $12,184 $11,586 7/31/2008 $12,647 $13,063 $18,187 $12,174 $11,609 8/31/2008 $12,667 $13,252 $17,454 $12,290 $11,624 9/30/2008 $12,066 $12,071 $14,937 $12,125 $11,656 10/31/2008 $11,058 $10,044 $11,923 $11,839 $11,674 11/30/2008 $10,846 $ 9,323 $11,285 $12,224 $11,687 12/31/2008 $11,052 $ 9,422 $11,964 $12,680 $11,685 ------- ------- ------- ------- ------- Total Returns 10.52% -5.78% 19.64% 26.80% 16.85% ======= ======= ======= ======= =======
10 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -16.84% 5-Year +1.86% 10-Year +3.89%
CLASS C (1/1/99-12/31/08) (PERFORMANCE GRAPH)
P&R 90-DAY FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. U.S. TREASURY DATE TARGET FUND - CLASS C INDEX INDEX AGGREGATE INDEX BILL INDEX - ---------- ------------------------------- ------- --------- --------------------- ------------- 1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/1999 $10,058 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,923 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $10,071 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $10,302 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $10,215 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $10,371 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $10,304 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $10,304 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $10,288 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $10,561 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $11,117 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $11,940 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $11,801 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $12,778 $11,278 $12,231 $10,005 $10,574 3/31/2000 $12,587 $12,382 $12,722 $10,137 $10,627 4/30/2000 $12,115 $12,009 $12,062 $10,108 $10,681 5/31/2000 $11,855 $11,763 $11,788 $10,103 $10,738 6/30/2000 $12,176 $12,053 $12,257 $10,313 $10,785 7/31/2000 $12,146 $11,864 $11,740 $10,407 $10,834 8/31/2000 $12,600 $12,601 $11,847 $10,558 $10,891 9/30/2000 $12,467 $11,936 $11,271 $10,624 $10,950 10/31/2000 $12,294 $11,886 $10,999 $10,694 $11,006 11/30/2000 $11,835 $10,949 $10,582 $10,869 $11,066 12/31/2000 $12,211 $11,002 $10,953 $11,071 $11,130 1/31/2001 $12,533 $11,392 $10,948 $11,252 $11,202 2/28/2001 $12,136 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,815 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $12,181 $10,451 $10,121 $11,360 $11,351 5/31/2001 $12,246 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $12,181 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $12,127 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,964 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $11,305 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $11,611 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $11,884 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $12,018 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $11,985 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $11,963 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $12,209 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $12,231 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $12,176 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $11,822 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $11,341 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $11,419 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $11,057 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $11,259 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $11,551 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $11,472 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $11,415 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $11,381 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $11,359 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $11,756 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $12,210 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $12,271 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $12,271 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $12,532 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $12,609 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $12,905 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $13,098 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $13,360 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $13,451 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $13,566 $10,034 $10,513 $14,042 $11,980 3/31/2004 $13,582 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $13,226 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $13,306 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $13,441 $10,053 $10,623 $13,801 $12,012 7/31/2004 $13,257 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $13,349 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $13,569 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $13,753 $10,016 $10,961 $14,362 $12,063 11/30/2004 $14,099 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,321 $10,776 $12,227 $14,379 $12,098 1/31/2005 $14,113 $10,513 $12,003 $14,469 $12,115 2/28/2005 $14,333 $10,734 $12,525 $14,384 $12,134 3/31/2005 $14,131 $10,544 $12,215 $14,310 $12,162 4/30/2005 $13,980 $10,344 $11,941 $14,503 $12,188 5/31/2005 $14,166 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,291 $10,689 $12,123 $14,740 $12,243 7/31/2005 $14,501 $11,086 $12,496 $14,606 $12,270 8/31/2005 $14,547 $10,985 $12,815 $14,793 $12,304 9/30/2005 $14,641 $11,074 $13,388 $14,641 $12,339 10/31/2005 $14,419 $10,889 $12,998 $14,525 $12,367 11/30/2005 $14,700 $11,301 $13,320 $14,589 $12,408 12/31/2005 $14,869 $11,305 $13,940 $14,728 $12,447 1/31/2006 $15,330 $11,604 $14,797 $14,729 $12,483 2/28/2006 $15,318 $11,636 $14,767 $14,778 $12,523 3/31/2006 $15,476 $11,781 $15,261 $14,633 $12,572 4/30/2006 $15,618 $11,939 $16,001 $14,606 $12,617 5/31/2006 $15,287 $11,595 $15,399 $14,591 $12,666 6/30/2006 $15,304 $11,611 $15,404 $14,621 $12,714 7/31/2006 $15,280 $11,683 $15,559 $14,819 $12,766 8/31/2006 $15,484 $11,961 $15,991 $15,046 $12,822 9/30/2006 $15,539 $12,269 $16,019 $15,178 $12,879 10/31/2006 $15,864 $12,669 $16,643 $15,278 $12,928 11/30/2006 $16,177 $12,909 $17,145 $15,456 $12,983 12/31/2006 $16,231 $13,091 $17,684 $15,366 $13,039 1/31/2007 $16,366 $13,289 $17,805 $15,360 $13,092 2/28/2007 $16,391 $13,029 $17,952 $15,597 $13,143 3/31/2007 $16,548 $13,174 $18,418 $15,597 $13,203 4/30/2007 $16,857 $13,758 $19,252 $15,681 $13,260 5/31/2007 $17,092 $14,238 $19,616 $15,562 $13,320 6/30/2007 $17,026 $14,001 $19,646 $15,516 $13,370 7/31/2007 $16,887 $13,567 $19,359 $15,646 $13,421 8/31/2007 $16,938 $13,771 $19,061 $15,838 $13,497 9/30/2007 $17,463 $14,286 $20,084 $15,958 $13,546 10/31/2007 $17,856 $14,513 $20,876 $16,101 $13,587 11/30/2007 $17,476 $13,906 $20,195 $16,391 $13,648 12/31/2007 $17,444 $13,810 $19,741 $16,437 $13,680 1/31/2008 $17,002 $12,981 $17,920 $16,713 $13,750 2/29/2008 $17,002 $12,560 $18,182 $16,736 $13,774 3/31/2008 $16,856 $12,505 $17,999 $16,793 $13,806 4/30/2008 $17,221 $13,115 $18,999 $16,758 $13,820 5/31/2008 $17,377 $13,284 $19,220 $16,635 $13,827 6/30/2008 $16,744 $12,164 $17,652 $16,622 $13,848 7/31/2008 $16,611 $12,062 $17,087 $16,608 $13,876 8/31/2008 $16,638 $12,237 $16,399 $16,766 $13,895 9/30/2008 $15,853 $11,146 $14,034 $16,541 $13,933 10/31/2008 $14,514 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $14,246 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $14,646 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 46.46% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------- -------- 1-Year -15.58% 5-Year +2.37% Since Inception (1/1/02) +3.38%
CLASS R (1/1/02-12/31/08) (PERFORMANCE GRAPH)
P&R 90-DAY FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. U.S. TREASURY DATE TARGET FUND - CLASS R INDEX INDEX AGGREGATE INDEX BILL INDEX - ---------- ------------------------------- ------- --------- --------------------- ------------- 1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2002 $ 9,982 $ 9,854 $ 9,469 $10,081 $10,014 2/28/2002 $ 9,972 $ 9,664 $ 9,536 $10,179 $10,027 3/31/2002 $10,178 $10,027 $10,057 $10,009 $10,042 4/30/2002 $10,196 $ 9,420 $10,130 $10,204 $10,057 5/31/2002 $10,159 $ 9,350 $10,267 $10,290 $10,073 6/30/2002 $ 9,869 $ 8,684 $ 9,862 $10,379 $10,088 7/31/2002 $ 9,461 $ 8,007 $ 8,889 $10,505 $10,102 8/31/2002 $ 9,526 $ 8,060 $ 8,871 $10,682 $10,117 9/30/2002 $ 9,232 $ 7,184 $ 7,921 $10,855 $10,133 10/31/2002 $ 9,409 $ 7,816 $ 8,347 $10,806 $10,149 11/30/2002 $ 9,650 $ 8,276 $ 8,727 $10,803 $10,165 12/31/2002 $ 9,591 $ 7,790 $ 8,434 $11,026 $10,175 1/31/2003 $ 9,554 $ 7,586 $ 8,083 $11,035 $10,186 2/28/2003 $ 9,516 $ 7,472 $ 7,898 $11,188 $10,195 3/31/2003 $ 9,510 $ 7,545 $ 7,749 $11,179 $10,207 4/30/2003 $ 9,850 $ 8,166 $ 8,517 $11,272 $10,217 5/31/2003 $10,228 $ 8,596 $ 9,041 $11,482 $10,227 6/30/2003 $10,284 $ 8,706 $ 9,265 $11,459 $10,240 7/31/2003 $10,293 $ 8,859 $ 9,491 $11,074 $10,247 8/31/2003 $10,511 $ 9,032 $ 9,721 $11,147 $10,255 9/30/2003 $10,584 $ 8,936 $10,023 $11,442 $10,263 10/31/2003 $10,831 $ 9,442 $10,648 $11,336 $10,272 11/30/2003 $11,002 $ 9,525 $10,887 $11,363 $10,280 12/31/2003 $11,228 $10,024 $11,738 $11,478 $10,288 1/31/2004 $11,314 $10,208 $11,904 $11,571 $10,297 2/29/2004 $11,410 $10,350 $12,181 $11,696 $10,303 3/31/2004 $11,431 $10,194 $12,255 $11,784 $10,312 4/30/2004 $11,134 $10,034 $11,988 $11,477 $10,319 5/31/2004 $11,210 $10,172 $12,040 $11,431 $10,326 6/30/2004 $11,328 $10,370 $12,308 $11,496 $10,331 7/31/2004 $11,174 $10,026 $11,911 $11,610 $10,341 8/31/2004 $11,260 $10,067 $11,966 $11,831 $10,351 9/30/2004 $11,449 $10,176 $12,280 $11,863 $10,363 10/31/2004 $11,604 $10,332 $12,700 $11,963 $10,375 11/30/2004 $11,902 $10,750 $13,571 $11,867 $10,385 12/31/2004 $12,098 $11,115 $14,167 $11,976 $10,405 1/31/2005 $11,932 $10,844 $13,908 $12,052 $10,420 2/28/2005 $12,117 $11,073 $14,512 $11,981 $10,436 3/31/2005 $11,948 $10,877 $14,153 $11,919 $10,460 4/30/2005 $11,821 $10,670 $13,837 $12,080 $10,482 5/31/2005 $11,996 $11,010 $13,858 $12,211 $10,506 6/30/2005 $12,097 $11,025 $14,047 $12,278 $10,530 7/31/2005 $12,283 $11,435 $14,479 $12,166 $10,553 8/31/2005 $12,332 $11,331 $14,849 $12,322 $10,582 9/30/2005 $12,415 $11,423 $15,513 $12,195 $10,612 10/31/2005 $12,228 $11,232 $15,061 $12,098 $10,636 11/30/2005 $12,474 $11,657 $15,433 $12,152 $10,672 12/31/2005 $12,627 $11,661 $16,153 $12,267 $10,705 1/31/2006 $13,013 $11,970 $17,145 $12,268 $10,736 2/28/2006 $13,013 $12,003 $17,110 $12,309 $10,770 3/31/2006 $13,155 $12,152 $17,683 $12,188 $10,812 4/30/2006 $13,284 $12,315 $18,540 $12,166 $10,851 5/31/2006 $13,005 $11,961 $17,843 $12,153 $10,893 6/30/2006 $13,025 $11,977 $17,849 $12,179 $10,934 7/31/2006 $13,015 $12,051 $18,028 $12,343 $10,979 8/31/2006 $13,197 $12,338 $18,528 $12,532 $11,028 9/30/2006 $13,239 $12,655 $18,561 $12,642 $11,076 10/31/2006 $13,524 $13,068 $19,284 $12,726 $11,119 11/30/2006 $13,798 $13,316 $19,866 $12,874 $11,166 12/31/2006 $13,855 $13,503 $20,491 $12,799 $11,215 1/31/2007 $13,969 $13,707 $20,631 $12,794 $11,260 2/28/2007 $14,000 $13,439 $20,800 $12,991 $11,304 3/31/2007 $14,134 $13,590 $21,340 $12,991 $11,355 4/30/2007 $14,406 $14,192 $22,308 $13,061 $11,404 5/31/2007 $14,615 $14,687 $22,729 $12,962 $11,455 6/30/2007 $14,565 $14,443 $22,764 $12,924 $11,499 7/31/2007 $14,458 $13,995 $22,431 $13,032 $11,542 8/31/2007 $14,501 $14,205 $22,086 $13,192 $11,608 9/30/2007 $14,953 $14,736 $23,272 $13,292 $11,650 10/31/2007 $15,297 $14,970 $24,189 $13,411 $11,686 11/30/2007 $14,974 $14,345 $23,399 $13,652 $11,738 12/31/2007 $14,951 $14,245 $22,874 $13,691 $11,766 1/31/2008 $14,587 $13,391 $20,763 $13,921 $11,826 2/29/2008 $14,598 $12,956 $21,067 $13,940 $11,846 3/31/2008 $14,472 $12,900 $20,856 $13,987 $11,874 4/30/2008 $14,794 $13,528 $22,015 $13,958 $11,886 5/31/2008 $14,938 $13,703 $22,271 $13,856 $11,892 6/30/2008 $14,399 $12,548 $20,454 $13,845 $11,910 7/31/2008 $14,285 $12,442 $19,799 $13,833 $11,934 8/31/2008 $14,308 $12,622 $19,002 $13,965 $11,950 9/30/2008 $13,646 $11,498 $16,261 $13,777 $11,983 10/31/2008 $12,506 $ 9,567 $12,981 $13,452 $12,001 11/30/2008 $12,278 $ 8,880 $12,285 $13,890 $12,014 12/31/2008 $12,621 $ 8,975 $13,025 $14,408 $12,012 ------- ------- ------- ------- ------- Total Returns 26.21% -10.25% 30.25% 44.08% 20.12% ======= ======= ======= ======= =======
Annual Report | 11 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/08 - ---------------- -------- 1-Year -15.15% 5-Year +2.78% 10-Year +4.75%
ADVISOR CLASS (1/1/99-12/31/08) (PERFORMANCE GRAPH)
P&R 90-DAY FRANKLIN TEMPLETON CONSERVATIVE S&P 500 MSCI EAFE BARCLAYS CAPITAL U.S. U.S. TREASURY DATE TARGET FUND - ADVISOR CLASS INDEX INDEX AGGREGATE INDEX BILL INDEX - ---------- ------------------------------- ------- --------- --------------------- ------------- 1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/1999 $10,067 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $9,933 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $10,083 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $10,332 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $10,246 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $10,413 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $10,346 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $10,355 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $10,341 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $10,624 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $11,198 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $12,028 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $11,898 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $12,886 $11,278 $12,231 $10,005 $10,574 3/31/2000 $12,706 $12,382 $12,722 $10,137 $10,627 4/30/2000 $12,234 $12,009 $12,062 $10,108 $10,681 5/31/2000 $11,973 $11,763 $11,788 $10,103 $10,738 6/30/2000 $12,318 $12,053 $12,257 $10,313 $10,785 7/31/2000 $12,287 $11,864 $11,740 $10,407 $10,834 8/31/2000 $12,764 $12,601 $11,847 $10,558 $10,891 9/30/2000 $12,632 $11,936 $11,271 $10,624 $10,950 10/31/2000 $12,458 $11,886 $10,999 $10,694 $11,006 11/30/2000 $12,007 $10,949 $10,582 $10,869 $11,066 12/31/2000 $12,395 $11,002 $10,953 $11,071 $11,130 1/31/2001 $12,730 $11,392 $10,948 $11,252 $11,202 2/28/2001 $12,330 $10,354 $10,128 $11,350 $11,248 3/31/2001 $12,012 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $12,392 $10,451 $10,121 $11,360 $11,351 5/31/2001 $12,468 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $12,413 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $12,359 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $12,206 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $11,539 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $11,860 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $12,147 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $12,281 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $12,270 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $12,258 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $12,511 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $12,545 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $12,500 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $12,138 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $11,649 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $11,729 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $11,367 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $11,584 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $11,893 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $11,816 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $11,769 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $11,735 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $11,719 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $12,148 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $12,612 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $12,685 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $12,696 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $12,975 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $13,063 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $13,379 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $13,589 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $13,866 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $13,972 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $14,101 $10,034 $10,513 $14,042 $11,980 3/31/2004 $14,121 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $13,767 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $13,849 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $14,014 $10,053 $10,623 $13,801 $12,012 7/31/2004 $13,825 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $13,931 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $14,160 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $14,362 $10,016 $10,961 $14,362 $12,063 11/30/2004 $14,731 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,972 $10,776 $12,227 $14,379 $12,098 1/31/2005 $14,780 $10,513 $12,003 $14,469 $12,115 2/28/2005 $15,008 $10,734 $12,525 $14,384 $12,134 3/31/2005 $14,805 $10,544 $12,215 $14,310 $12,162 4/30/2005 $14,649 $10,344 $11,941 $14,503 $12,188 5/31/2005 $14,865 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,999 $10,689 $12,123 $14,740 $12,243 7/31/2005 $15,229 $11,086 $12,496 $14,606 $12,270 8/31/2005 $15,289 $10,985 $12,815 $14,793 $12,304 9/30/2005 $15,401 $11,074 $13,388 $14,641 $12,339 10/31/2005 $15,171 $10,889 $12,998 $14,525 $12,367 11/30/2005 $15,487 $11,301 $13,320 $14,589 $12,408 12/31/2005 $15,664 $11,305 $13,940 $14,728 $12,447 1/31/2006 $16,157 $11,604 $14,797 $14,729 $12,483 2/28/2006 $16,157 $11,636 $14,767 $14,778 $12,523 3/31/2006 $16,335 $11,781 $15,261 $14,633 $12,572 4/30/2006 $16,508 $11,939 $16,001 $14,606 $12,617 5/31/2006 $16,174 $11,595 $15,399 $14,591 $12,666 6/30/2006 $16,196 $11,611 $15,404 $14,621 $12,714 7/31/2006 $16,196 $11,683 $15,559 $14,819 $12,766 8/31/2006 $16,421 $11,961 $15,991 $15,046 $12,822 9/30/2006 $16,494 $12,269 $16,019 $15,178 $12,879 10/31/2006 $16,848 $12,669 $16,643 $15,278 $12,928 11/30/2006 $17,189 $12,909 $17,145 $15,456 $12,983 12/31/2006 $17,275 $13,091 $17,684 $15,366 $13,039 1/31/2007 $17,431 $13,289 $17,805 $15,360 $13,092 2/28/2007 $17,470 $13,029 $17,952 $15,597 $13,143 3/31/2007 $17,650 $13,174 $18,418 $15,597 $13,203 4/30/2007 $17,989 $13,758 $19,252 $15,681 $13,260 5/31/2007 $18,262 $14,238 $19,616 $15,562 $13,320 6/30/2007 $18,210 $14,001 $19,646 $15,516 $13,370 7/31/2007 $18,076 $13,567 $19,359 $15,646 $13,421 8/31/2007 $18,130 $13,771 $19,061 $15,838 $13,497 9/30/2007 $18,716 $14,286 $20,084 $15,958 $13,546 10/31/2007 $19,146 $14,513 $20,876 $16,101 $13,587 11/30/2007 $18,757 $13,906 $20,195 $16,391 $13,648 12/31/2007 $18,739 $13,810 $19,741 $16,437 $13,680 1/31/2008 $18,283 $12,981 $17,920 $16,713 $13,750 2/29/2008 $18,311 $12,560 $18,182 $16,736 $13,774 3/31/2008 $18,168 $12,505 $17,999 $16,793 $13,806 4/30/2008 $18,570 $13,115 $18,999 $16,758 $13,820 5/31/2008 $18,751 $13,284 $19,220 $16,635 $13,827 6/30/2008 $18,090 $12,164 $17,652 $16,622 $13,848 7/31/2008 $17,961 $12,062 $17,087 $16,608 $13,876 8/31/2008 $17,990 $12,237 $16,399 $16,766 $13,895 9/30/2008 $17,167 $11,146 $14,034 $16,541 $13,933 10/31/2008 $15,735 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $15,449 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $15,900 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 59.00% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN A FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. (6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 12/1/05, a restated figure is used based upon the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 11/30/05, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 12/1/05 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +2.19% and +0.70%. (7.) Sources: (C) 2009 Morningstar; Payden & Rygel. See page 6 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the Payden & Rygel 90 Day U.S. T-Bill Index. 12 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 13 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** ------------- ------------- ---------------- ----------------- CLASS A Actual $1,000 $ 877.90 $2.36 $5.52 Hypothetical (5% return before expenses) $1,000 $1,022.62 $2.54 $5.94 CLASS B Actual $1,000 $ 874.30 $5.89 $9.05 Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.34 $9.73 CLASS C Actual $1,000 $ 874.70 $5.84 $9.00 Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.29 $9.68 CLASS R Actual $1,000 $ 876.50 $3.54 $6.70 Hypothetical (5% return before expenses) $1,000 $1,021.37 $3.81 $7.20 ADVISOR CLASS Actual $1,000 $ 878.90 $1.18 $4.35 Hypothetical (5% return before expenses) $1,000 $1,023.88 $1.27 $4.67
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.50%; B: 1.25%; C: 1.24%; R: 0.75%; and Advisor: 0.25%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.17%; B: 1.92%; C: 1.91%; R: 1.42%; and Advisor: 0.92%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 14 | Annual Report Franklin Templeton Moderate Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Moderate Target Fund seeks the highest level of long-term total return consistent with a moderate level of risk.(1) PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. (PIE CHART) ASSET ALLOCATION* Franklin Templeton Moderate Target Fund Based on Total Net Assets as of 12/31/08 Domestic Equity............................. 35.5% Domestic Fixed Income....................... 23.1% Foreign Equity.............................. 16.5% Foreign Fixed Income........................ 12.5% Short-Term Investments & Other Net Assets... 12.4%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton Moderate Target Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton Moderate Target Fund - Class A had a -21.22% cumulative total return for the 12 months under review. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, had total returns of (1.) The risk/reward potential is based on the Fund's goal and level of risk. It is not indicative of the Fund's actual or implied performance or portfolio composition, which may change on a continuous basis. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 46. Annual Report | 15 TOP 10 FUND HOLDINGS Franklin Templeton Moderate Target Fund 12/31/08
% OF TOTAL NET ASSETS -------------- Templeton Global Bond Fund - Advisor Class 12.5% Franklin U.S. Government Securities Fund - Advisor Class 12.4% Franklin Flex Cap Growth Fund - Advisor Class 12.0% Mutual Shares Fund - Class Z 10.7% Franklin Total Return Fund - Advisor Class 8.4% Mutual European Fund - Class Z 6.1% Franklin Small Cap Growth Fund - Advisor Class 5.6% Franklin Gold and Precious Metals Fund - Advisor Class 3.3% Templeton Foreign Fund - Advisor Class 3.2% Franklin Growth Opportunities Fund - Advisor Class 2.9%
- -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(2) You can find the Fund's long-term performance data in the Performance Summary beginning on page 18. INVESTMENT STRATEGY Whenever possible, we attempt to hold the same underlying Franklin Templeton funds in each Target Fund's portfolio. We generally diversify the Target Funds' broad equity allocations across investment styles, market capitalization sizes and countries of origin. Maintaining similarity of the underlying Franklin Templeton fund investments across the Allocator Series is intended to increase the consistency of the Target Funds' results relative to one another. For your reference, Franklin Templeton Moderate Target Fund seeks to maintain the following asset class allocations: 55% equity funds, 35% fixed income funds, and 10% short-term investments and other net assets. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to maintaining a static allocation among equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. At period-end, Franklin Templeton Moderate Target Fund's domestic equity exposure was 68.3% of its total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2008, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, representing 12.0% of the (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond markets, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. Source: Payden & Rygel. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 16 | Annual Report Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 64.9% of the Fund's total income weighting, with the balance represented by foreign fixed income. Templeton Global Bond Fund - Advisor Class was our largest fixed income fund weighting at 12.5% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, performed comparably to the S&P 500 during the 12-month reporting period. However, Franklin Small Cap Growth Fund - Advisor Class lagged the S&P 500. Our largest foreign equity fund holding, Mutual European Fund - Class Z, performed better than the MSCI EAFE Index. In contrast, Templeton Foreign Fund - Advisor Class underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor Class and Templeton Global Bond Fund - Advisor Class outperformed the BC U.S. Aggregate Index. Thank you for your continued participation in Franklin Templeton Moderate Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton Moderate Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 17 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON MODERATE TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FMTIX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$3.68 $10.67 $14.35 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.3485 Long-Term Capital Gain $0.3712 TOTAL $0.7197
CLASS B (SYMBOL: FBMTX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$3.67 $10.64 $14.31 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2545 Long-Term Capital Gain $0.3712 TOTAL $0.6257
CLASS C (SYMBOL: FTMTX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$3.64 $10.47 $14.11 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2592 Long-Term Capital Gain $0.3712 TOTAL $0.6304
CLASS R (SYMBOL: FTMRX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$3.68 $10.64 $14.32 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.3188 Long-Term Capital Gain $0.3712 TOTAL $0.6900
ADVISOR CLASS (SYMBOL: FMTZX) CHANGE 12/31/08 12/31/07 - ----------------------------- ------ -------- -------- Net Asset Value (NAV) -$3.68 $10.67 $14.35 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.3795 Long-Term Capital Gain $0.3712 TOTAL $0.7507
18 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR - ------- -------- ------- ------- Cumulative Total Return(2) -21.22% +11.69% +52.43% Average Annual Total Return(3) -25.77% +1.03% +3.69% Value of $10,000 Investment(4) $ 7,423 $10,524 $14,361 Total Annual Operating Expenses(5) Without Waiver 1.46% With Waiver 1.25%
CLASS B 1-YEAR 5-YEAR INCEPTION (12/1/03) - ------- -------- ------- ------------------- Cumulative Total Return(2) -21.80% +7.72% +9.76% Average Annual Total Return(3) -24.77% +1.15% +1.68% Value of $10,000 Investment(4) $ 7,523 $10,591 $10,884 Total Annual Operating Expenses(5) Without Waiver 2.21% With Waiver 2.00%
CLASS C 1-YEAR 5-YEAR 10-YEAR - ------- -------- ------- ------- Cumulative Total Return(2) -21.87% +7.52% +41.36% Average Annual Total Return(3) -22.61% +1.46% +3.52% Value of $10,000 Investment(4) $ 7,739 $10,752 $14,136 Total Annual Operating Expenses(5) Without Waiver 2.21% With Waiver 2.00%
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02) - ------- -------- ------- ------------------ Cumulative Total Return(2) -21.45% +10.26% +24.10% Average Annual Total Return(3) -21.45% +1.97% +3.13% Value of $10,000 Investment(4) $ 7,855 $11,026 $12,410 Total Annual Operating Expenses(5) Without Waiver 1.71% With Waiver 1.50%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR - ---------------- -------- ------- ------- Cumulative Total Return(2) -21.02% +12.61% +53.68% Average Annual Total Return(3) -21.02% +2.40% +4.39% Value of $10,000 Investment(4) $ 7,898 $11,261 $15,368 Total Annual Operating Expenses(5) Without Waiver 1.21% With Waiver 1.00%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES), DO NOT EXCEED 1.00% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 19 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -25.77% 5-Year +1.03% 10-Year +3.69%
CLASS A (1/1/99-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY U.S. MODERATE TARGET S&P 500 EAFE U.S. AGGREGATE TREASURY BILL DATE FUND - CLASS A INDEX INDEX INDEX INDEX - ---------- --------------- ------- ------- ---------------- --------------- 1/1/1999 $ 9,421 $10,000 $10,000 $10,000 $10,000 1/31/1999 $ 9,505 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,318 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $ 9,527 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $ 9,817 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $ 9,724 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $ 9,913 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $ 9,819 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $ 9,838 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $ 9,820 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $10,189 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $10,900 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $11,988 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $11,843 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $13,159 $11,278 $12,231 $10,005 $10,574 3/31/2000 $12,896 $12,382 $12,722 $10,137 $10,627 4/30/2000 $12,274 $12,009 $12,062 $10,108 $10,681 5/31/2000 $11,934 $11,763 $11,788 $10,103 $10,738 6/30/2000 $12,675 $12,053 $12,257 $10,313 $10,785 7/31/2000 $12,548 $11,864 $11,740 $10,407 $10,834 8/31/2000 $13,242 $12,601 $11,847 $10,558 $10,891 9/30/2000 $12,950 $11,936 $11,271 $10,624 $10,950 10/31/2000 $12,477 $11,886 $10,999 $10,694 $11,006 11/30/2000 $11,462 $10,949 $10,582 $10,869 $11,066 12/31/2000 $11,857 $11,002 $10,953 $11,071 $11,130 1/31/2001 $12,281 $11,392 $10,948 $11,252 $11,202 2/28/2001 $11,624 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,174 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $11,733 $10,451 $10,121 $11,360 $11,351 5/31/2001 $11,793 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $11,681 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $11,538 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,273 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $10,441 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $10,811 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $11,181 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $11,361 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $11,319 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $11,245 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $11,580 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $11,549 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $11,475 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $11,046 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $10,420 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $10,494 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $10,002 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $10,300 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $10,663 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $10,506 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $10,430 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $10,366 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $10,332 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $10,818 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $11,347 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $11,436 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $11,512 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $11,858 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $11,896 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $12,308 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $12,558 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $12,857 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $12,978 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $13,120 $10,034 $10,513 $14,042 $11,980 3/31/2004 $13,152 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $12,746 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $12,877 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $13,063 $10,053 $10,623 $13,801 $12,012 7/31/2004 $12,799 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $12,898 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $13,177 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $13,386 $10,016 $10,961 $14,362 $12,063 11/30/2004 $13,817 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,097 $10,776 $12,227 $14,379 $12,098 1/31/2005 $13,841 $10,513 $12,003 $14,469 $12,115 2/28/2005 $14,130 $10,734 $12,525 $14,384 $12,134 3/31/2005 $13,896 $10,544 $12,215 $14,310 $12,162 4/30/2005 $13,673 $10,344 $11,941 $14,503 $12,188 5/31/2005 $13,940 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,116 $10,689 $12,123 $14,740 $12,243 7/31/2005 $14,429 $11,086 $12,496 $14,606 $12,270 8/31/2005 $14,484 $10,985 $12,815 $14,793 $12,304 9/30/2005 $14,630 $11,074 $13,388 $14,641 $12,339 10/31/2005 $14,349 $10,889 $12,998 $14,525 $12,367 11/30/2005 $14,731 $11,301 $13,320 $14,589 $12,408 12/31/2005 $14,935 $11,305 $13,940 $14,728 $12,447 1/31/2006 $15,514 $11,604 $14,797 $14,729 $12,483 2/28/2006 $15,503 $11,636 $14,767 $14,778 $12,523 3/31/2006 $15,741 $11,781 $15,261 $14,633 $12,572 4/30/2006 $15,912 $11,939 $16,001 $14,606 $12,617 5/31/2006 $15,479 $11,595 $15,399 $14,591 $12,666 6/30/2006 $15,507 $11,611 $15,404 $14,621 $12,714 7/31/2006 $15,449 $11,683 $15,559 $14,819 $12,766 8/31/2006 $15,702 $11,961 $15,991 $15,046 $12,822 9/30/2006 $15,763 $12,269 $16,019 $15,178 $12,879 10/31/2006 $16,168 $12,669 $16,643 $15,278 $12,928 11/30/2006 $16,572 $12,909 $17,145 $15,456 $12,983 12/31/2006 $16,662 $13,091 $17,684 $15,366 $13,039 1/31/2007 $16,852 $13,289 $17,805 $15,360 $13,092 2/28/2007 $16,864 $13,029 $17,952 $15,597 $13,143 3/31/2007 $17,073 $13,174 $18,418 $15,597 $13,203 4/30/2007 $17,490 $13,758 $19,252 $15,681 $13,260 5/31/2007 $17,835 $14,238 $19,616 $15,562 $13,320 6/30/2007 $17,769 $14,001 $19,646 $15,516 $13,370 7/31/2007 $17,561 $13,567 $19,359 $15,646 $13,421 8/31/2007 $17,634 $13,771 $19,061 $15,838 $13,497 9/30/2007 $18,323 $14,286 $20,084 $15,958 $13,546 10/31/2007 $18,840 $14,513 $20,876 $16,101 $13,587 11/30/2007 $18,274 $13,906 $20,195 $16,391 $13,648 12/31/2007 $18,228 $13,810 $19,741 $16,437 $13,680 1/31/2008 $17,555 $12,981 $17,920 $16,713 $13,750 2/29/2008 $17,529 $12,560 $18,182 $16,736 $13,774 3/31/2008 $17,333 $12,505 $17,999 $16,793 $13,806 4/30/2008 $17,856 $13,115 $18,999 $16,758 $13,820 5/31/2008 $18,123 $13,284 $19,220 $16,635 $13,827 6/30/2008 $17,281 $12,164 $17,652 $16,622 $13,848 7/31/2008 $17,097 $12,062 $17,087 $16,608 $13,876 8/31/2008 $17,137 $12,237 $16,399 $16,766 $13,895 9/30/2008 $16,062 $11,146 $14,034 $16,541 $13,933 10/31/2008 $14,329 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $13,918 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $14,361 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 43.61% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08 - ------- -------- 1-Year -24.77% 5-Year +1.15% Since Inception (12/1/03) +1.68%
CLASS B (12/1/03-12/31/08) (PERFORMANCE GRAPH)
BARCLAYS FRANKLIN TEMPLETON MSCI CAPITAL U.S. P&R 90-DAY MODERATE TARGET S&P 500 EAFE AGGREGATE U.S. Treasury DATE FUND - CLASS B INDEX INDEX INDEX BILL INDEX - ------------- ------------------ ------- ------- ------------ ------------- 12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/2003 $10,189 $10,524 $10,782 $10,102 $10,008 1/31/2004 $10,284 $10,718 $10,935 $10,183 $10,016 2/29/2004 $10,389 $10,867 $11,189 $10,293 $10,023 3/31/2004 $10,410 $10,703 $11,257 $10,370 $10,031 4/30/2004 $10,088 $10,535 $11,012 $10,101 $10,038 5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045 6/30/2004 $10,327 $10,887 $11,306 $10,117 $10,050 7/31/2004 $10,110 $10,527 $10,941 $10,217 $10,059 8/31/2004 $10,188 $10,569 $10,991 $10,412 $10,069 9/30/2004 $10,393 $10,684 $11,280 $10,440 $10,080 10/31/2004 $10,550 $10,847 $11,666 $10,528 $10,092 11/30/2004 $10,890 $11,286 $12,466 $10,444 $10,102 12/31/2004 $11,098 $11,670 $13,013 $10,540 $10,122 1/31/2005 $10,896 $11,385 $12,775 $10,606 $10,136 2/28/2005 $11,115 $11,625 $13,330 $10,544 $10,151 3/31/2005 $10,917 $11,419 $13,001 $10,490 $10,175 4/30/2005 $10,742 $11,202 $12,710 $10,632 $10,196 5/31/2005 $10,944 $11,559 $12,729 $10,747 $10,220 6/30/2005 $11,079 $11,575 $12,903 $10,805 $10,243 7/31/2005 $11,317 $12,006 $13,299 $10,707 $10,265 8/31/2005 $11,352 $11,896 $13,639 $10,844 $10,293 9/30/2005 $11,454 $11,993 $14,250 $10,732 $10,323 10/31/2005 $11,225 $11,793 $13,834 $10,647 $10,347 11/30/2005 $11,516 $12,239 $14,177 $10,695 $10,381 12/31/2005 $11,672 $12,243 $14,837 $10,796 $10,414 1/31/2006 $12,118 $12,567 $15,749 $10,797 $10,443 2/28/2006 $12,100 $12,601 $15,717 $10,833 $10,477 3/31/2006 $12,274 $12,758 $16,243 $10,726 $10,518 4/30/2006 $12,408 $12,929 $17,030 $10,707 $10,555 5/31/2006 $12,060 $12,557 $16,389 $10,695 $10,597 6/30/2006 $12,075 $12,574 $16,395 $10,718 $10,637 7/31/2006 $12,021 $12,652 $16,560 $10,863 $10,680 8/31/2006 $12,209 $12,953 $17,019 $11,029 $10,727 9/30/2006 $12,252 $13,287 $17,049 $11,126 $10,774 10/31/2006 $12,559 $13,720 $17,714 $11,200 $10,816 11/30/2006 $12,856 $13,981 $18,248 $11,330 $10,862 12/31/2006 $12,922 $14,177 $18,822 $11,264 $10,909 1/31/2007 $13,060 $14,391 $18,951 $11,259 $10,953 2/28/2007 $13,070 $14,110 $19,106 $11,433 $10,996 3/31/2007 $13,216 $14,267 $19,603 $11,433 $11,046 4/30/2007 $13,530 $14,899 $20,491 $11,495 $11,094 5/31/2007 $13,789 $15,419 $20,878 $11,408 $11,143 6/30/2007 $13,729 $15,163 $20,910 $11,374 $11,185 7/31/2007 $13,559 $14,693 $20,604 $11,469 $11,228 8/31/2007 $13,606 $14,913 $20,287 $11,610 $11,292 9/30/2007 $14,133 $15,471 $21,376 $11,698 $11,333 10/31/2007 $14,523 $15,717 $22,219 $11,803 $11,367 11/30/2007 $14,076 $15,060 $21,494 $12,015 $11,419 12/31/2007 $14,034 $14,955 $21,011 $12,049 $11,445 1/31/2008 $13,495 $14,058 $19,072 $12,251 $11,504 2/29/2008 $13,475 $13,602 $19,352 $12,268 $11,524 3/31/2008 $13,317 $13,543 $19,157 $12,310 $11,550 4/30/2008 $13,710 $14,203 $20,222 $12,284 $11,562 5/31/2008 $13,907 $14,387 $20,457 $12,194 $11,568 6/30/2008 $13,244 $13,174 $18,788 $12,184 $11,586 7/31/2008 $13,103 $13,063 $18,187 $12,174 $11,609 8/31/2008 $13,123 $13,252 $17,454 $12,290 $11,624 9/30/2008 $12,292 $12,071 $14,937 $12,125 $11,656 10/31/2008 $10,961 $10,044 $11,923 $11,839 $11,674 11/30/2008 $10,636 $ 9,323 $11,285 $12,224 $11,687 12/31/2008 $10,884 $ 9,422 $11,964 $12,680 $11,685 ------- ------- ------- ------- ------- Total Returns 8.84% -5.78% 19.64% 26.80% 16.85% ======= ======= ======= ======= =======
20 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -22.61% 5-Year +1.46% 10-Year +3.52%
CLASS C (1/1/99-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN BARCLAYS TEMPLETON MODERATE CAPITAL U.S. P&R 90-DAY TARGET FUND - S&P 500 MSCI EAFE U.S. AGGREGATE TREASURY DATE CLASS C INDEX INDEX INDEX BILL INDEX - ------------- ------------------ -------- --------- -------------- ----------- 1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/1999 $10,080 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,880 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $10,091 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $10,391 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $10,281 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $10,474 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $10,373 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $10,383 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $10,363 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $10,748 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $11,487 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $12,630 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $12,465 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $13,836 $11,278 $12,231 $10,005 $10,574 3/31/2000 $13,562 $12,382 $12,722 $10,137 $10,627 4/30/2000 $12,900 $12,009 $12,062 $10,108 $10,681 5/31/2000 $12,528 $11,763 $11,788 $10,103 $10,738 6/30/2000 $13,313 $12,053 $12,257 $10,313 $10,785 7/31/2000 $13,157 $11,864 $11,740 $10,407 $10,834 8/31/2000 $13,884 $12,601 $11,847 $10,558 $10,891 9/30/2000 $13,569 $11,936 $11,271 $10,624 $10,950 10/31/2000 $13,056 $11,886 $10,999 $10,694 $11,006 11/30/2000 $11,990 $10,949 $10,582 $10,869 $11,066 12/31/2000 $12,399 $11,002 $10,953 $11,071 $11,130 1/31/2001 $12,837 $11,392 $10,948 $11,252 $11,202 2/28/2001 $12,142 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,662 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $12,241 $10,451 $10,121 $11,360 $11,351 5/31/2001 $12,295 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $12,165 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $12,014 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,734 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $10,857 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $11,236 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $11,604 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $11,786 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $11,731 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $11,653 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $12,004 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $11,959 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $11,870 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $11,420 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $10,776 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $10,831 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $10,328 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $10,618 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $10,997 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $10,819 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $10,729 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $10,662 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $10,623 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $11,107 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $11,647 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $11,732 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $11,799 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $12,148 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $12,189 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $12,595 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $12,843 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $13,147 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $13,261 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $13,397 $10,034 $10,513 $14,042 $11,980 3/31/2004 $13,414 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $13,005 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $13,119 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $13,310 $10,053 $10,623 $13,801 $12,012 7/31/2004 $13,025 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $13,116 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $13,391 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $13,596 $10,016 $10,961 $14,362 $12,063 11/30/2004 $14,029 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,295 $10,776 $12,227 $14,379 $12,098 1/31/2005 $14,032 $10,513 $12,003 $14,469 $12,115 2/28/2005 $14,318 $10,734 $12,525 $14,384 $12,134 3/31/2005 $14,071 $10,544 $12,215 $14,310 $12,162 4/30/2005 $13,842 $10,344 $11,941 $14,503 $12,188 5/31/2005 $14,105 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,271 $10,689 $12,123 $14,740 $12,243 7/31/2005 $14,581 $11,086 $12,496 $14,606 $12,270 8/31/2005 $14,627 $10,985 $12,815 $14,793 $12,304 9/30/2005 $14,760 $11,074 $13,388 $14,641 $12,339 10/31/2005 $14,461 $10,889 $12,998 $14,525 $12,367 11/30/2005 $14,841 $11,301 $13,320 $14,589 $12,408 12/31/2005 $15,046 $11,305 $13,940 $14,728 $12,447 1/31/2006 $15,616 $11,604 $14,797 $14,729 $12,483 2/28/2006 $15,593 $11,636 $14,767 $14,778 $12,523 3/31/2006 $15,820 $11,781 $15,261 $14,633 $12,572 4/30/2006 $15,995 $11,939 $16,001 $14,606 $12,617 5/31/2006 $15,541 $11,595 $15,399 $14,591 $12,666 6/30/2006 $15,563 $11,611 $15,404 $14,621 $12,714 7/31/2006 $15,492 $11,683 $15,559 $14,819 $12,766 8/31/2006 $15,739 $11,961 $15,991 $15,046 $12,822 9/30/2006 $15,784 $12,269 $16,019 $15,178 $12,879 10/31/2006 $16,184 $12,669 $16,643 $15,278 $12,928 11/30/2006 $16,572 $12,909 $17,145 $15,456 $12,983 12/31/2006 $16,658 $13,091 $17,684 $15,366 $13,039 1/31/2007 $16,839 $13,289 $17,805 $15,360 $13,092 2/28/2007 $16,839 $13,029 $17,952 $15,597 $13,143 3/31/2007 $17,031 $13,174 $18,418 $15,597 $13,203 4/30/2007 $17,442 $13,758 $19,252 $15,681 $13,260 5/31/2007 $17,768 $14,238 $19,616 $15,562 $13,320 6/30/2007 $17,704 $14,001 $19,646 $15,516 $13,370 7/31/2007 $17,481 $13,567 $19,359 $15,646 $13,421 8/31/2007 $17,530 $13,771 $19,061 $15,838 $13,497 9/30/2007 $18,207 $14,286 $20,084 $15,958 $13,546 10/31/2007 $18,717 $14,513 $20,876 $16,101 $13,587 11/30/2007 $18,145 $13,906 $20,195 $16,391 $13,648 12/31/2007 $18,092 $13,810 $19,741 $16,437 $13,680 1/31/2008 $17,400 $12,981 $17,920 $16,713 $13,750 2/29/2008 $17,374 $12,560 $18,182 $16,736 $13,774 3/31/2008 $17,155 $12,505 $17,999 $16,793 $13,806 4/30/2008 $17,669 $13,115 $18,999 $16,758 $13,820 5/31/2008 $17,926 $13,284 $19,220 $16,635 $13,827 6/30/2008 $17,076 $12,164 $17,652 $16,622 $13,848 7/31/2008 $16,891 $12,062 $17,087 $16,608 $13,876 8/31/2008 $16,917 $12,237 $16,399 $16,766 $13,895 9/30/2008 $15,844 $11,146 $14,034 $16,541 $13,933 10/31/2008 $14,129 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $13,704 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $14,136 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 41.36% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------- -------- 1-Year -21.45% 5-Year +1.97% Since Inception (1/1/02) +3.13%
CLASS R (1/1/02-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MSCI BARCLAYS CAPITAL P&R 90-DAY MODERATE TARGET S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY DATE FUND - CLASS R INDEX INDEX INDEX BILL INDEX - ------------- ------------------ ------- ------- ---------------- -------------- 1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2002 $ 9,954 $ 9,854 $ 9,469 $10,081 $10,014 2/28/2002 $ 9,889 $ 9,664 $ 9,536 $10,179 $10,027 3/31/2002 $10,182 $10,027 $10,057 $10,009 $10,042 4/30/2002 $10,154 $ 9,420 $10,130 $10,204 $10,057 5/31/2002 $10,089 $ 9,350 $10,267 $10,290 $10,073 6/30/2002 $ 9,703 $ 8,684 $ 9,862 $10,379 $10,088 7/31/2002 $ 9,162 $ 8,007 $ 8,889 $10,505 $10,102 8/31/2002 $ 9,218 $ 8,060 $ 8,871 $10,682 $10,117 9/30/2002 $ 8,787 $ 7,184 $ 7,921 $10,855 $10,133 10/31/2002 $ 9,040 $ 7,816 $ 8,347 $10,806 $10,149 11/30/2002 $ 9,360 $ 8,276 $ 8,727 $10,803 $10,165 12/31/2002 $ 9,212 $ 7,790 $ 8,434 $11,026 $10,175 1/31/2003 $ 9,146 $ 7,586 $ 8,083 $11,035 $10,186 2/28/2003 $ 9,089 $ 7,472 $ 7,898 $11,188 $10,195 3/31/2003 $ 9,066 $ 7,545 $ 7,749 $11,179 $10,207 4/30/2003 $ 9,483 $ 8,166 $ 8,517 $11,272 $10,217 5/31/2003 $ 9,948 $ 8,596 $ 9,041 $11,482 $10,227 6/30/2003 $10,021 $ 8,706 $ 9,265 $11,459 $10,240 7/31/2003 $10,088 $ 8,859 $ 9,491 $11,074 $10,247 8/31/2003 $10,383 $ 9,032 $ 9,721 $11,147 $10,255 9/30/2003 $10,420 $ 8,936 $10,023 $11,442 $10,263 10/31/2003 $10,772 $ 9,442 $10,648 $11,336 $10,272 11/30/2003 $10,991 $ 9,525 $10,887 $11,363 $10,280 12/31/2003 $11,256 $10,024 $11,738 $11,478 $10,288 1/31/2004 $11,361 $10,208 $11,904 $11,571 $10,297 2/29/2004 $11,477 $10,350 $12,181 $11,696 $10,303 3/31/2004 $11,500 $10,194 $12,255 $11,784 $10,312 4/30/2004 $11,153 $10,034 $11,988 $11,477 $10,319 5/31/2004 $11,259 $10,172 $12,040 $11,431 $10,326 6/30/2004 $11,424 $10,370 $12,308 $11,496 $10,331 7/31/2004 $11,193 $10,026 $11,911 $11,610 $10,341 8/31/2004 $11,270 $10,067 $11,966 $11,831 $10,351 9/30/2004 $11,507 $10,176 $12,280 $11,863 $10,363 10/31/2004 $11,690 $10,332 $12,700 $11,963 $10,375 11/30/2004 $12,067 $10,750 $13,571 $11,867 $10,385 12/31/2004 $12,303 $11,115 $14,167 $11,976 $10,405 1/31/2005 $12,079 $10,844 $13,908 $12,052 $10,420 2/28/2005 $12,332 $11,073 $14,512 $11,981 $10,436 3/31/2005 $12,122 $10,877 $14,153 $11,919 $10,460 4/30/2005 $11,927 $10,670 $13,837 $12,080 $10,482 5/31/2005 $12,161 $11,010 $13,858 $12,211 $10,506 6/30/2005 $12,317 $11,025 $14,047 $12,278 $10,530 7/31/2005 $12,581 $11,435 $14,479 $12,166 $10,553 8/31/2005 $12,630 $11,331 $14,849 $12,322 $10,582 9/30/2005 $12,748 $11,423 $15,513 $12,195 $10,612 10/31/2005 $12,504 $11,232 $15,061 $12,098 $10,636 11/30/2005 $12,836 $11,657 $15,433 $12,152 $10,672 12/31/2005 $13,007 $11,661 $16,153 $12,267 $10,705 1/31/2006 $13,513 $11,970 $17,145 $12,268 $10,736 2/28/2006 $13,503 $12,003 $17,110 $12,309 $10,770 3/31/2006 $13,700 $12,152 $17,683 $12,188 $10,812 4/30/2006 $13,849 $12,315 $18,540 $12,166 $10,851 5/31/2006 $13,472 $11,961 $17,843 $12,153 $10,893 6/30/2006 $13,496 $11,977 $17,849 $12,179 $10,934 7/31/2006 $13,436 $12,051 $18,028 $12,343 $10,979 8/31/2006 $13,657 $12,338 $18,528 $12,532 $11,028 9/30/2006 $13,702 $12,655 $18,561 $12,642 $11,076 10/31/2006 $14,053 $13,068 $19,284 $12,726 $11,119 11/30/2006 $14,396 $13,316 $19,866 $12,874 $11,166 12/31/2006 $14,473 $13,503 $20,491 $12,799 $11,215 1/31/2007 $14,639 $13,707 $20,631 $12,794 $11,260 2/28/2007 $14,649 $13,439 $20,800 $12,991 $11,304 3/31/2007 $14,826 $13,590 $21,340 $12,991 $11,355 4/30/2007 $15,178 $14,192 $22,308 $13,061 $11,404 5/31/2007 $15,478 $14,687 $22,729 $12,962 $11,455 6/30/2007 $15,421 $14,443 $22,764 $12,924 $11,499 7/31/2007 $15,240 $13,995 $22,431 $13,032 $11,542 8/31/2007 $15,293 $14,205 $22,086 $13,192 $11,608 9/30/2007 $15,894 $14,736 $23,272 $13,292 $11,650 10/31/2007 $16,343 $14,970 $24,189 $13,411 $11,686 11/30/2007 $15,840 $14,345 $23,399 $13,652 $11,738 12/31/2007 $15,799 $14,245 $22,874 $13,691 $11,766 1/31/2008 $15,203 $13,391 $20,763 $13,921 $11,826 2/29/2008 $15,192 $12,956 $21,067 $13,940 $11,846 3/31/2008 $15,004 $12,900 $20,856 $13,987 $11,874 4/30/2008 $15,458 $13,528 $22,015 $13,958 $11,886 5/31/2008 $15,691 $13,703 $22,271 $13,856 $11,892 6/30/2008 $14,948 $12,548 $20,454 $13,845 $11,910 7/31/2008 $14,789 $12,442 $19,799 $13,833 $11,934 8/31/2008 $14,823 $12,622 $19,002 $13,965 $11,950 9/30/2008 $13,893 $11,498 $16,261 $13,777 $11,983 10/31/2008 $12,390 $ 9,567 $12,981 $13,452 $12,001 11/30/2008 $12,034 $ 8,880 $12,285 $13,890 $12,014 12/31/2008 $12,410 $ 8,975 $13,025 $14,408 $12,012 ------- ------- ------- ------- ------- Total Returns 24.10% -10.25% 30.25% 44.08% 20.12% ======= ======= ======= ======= =======
Annual Report | 21 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/08 - ---------------- -------- 1-Year -21.02% 5-Year +2.40% 10-Year +4.39%
ADVISOR CLASS (1/1/99-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON MODERATE TARGET MSCI BARCLAYS CAPITAL P&R 90-DAY FUND - ADVISOR S&P 500 EAFE U.S. AGGREGATE U.S. TREASURY DATE CLASS INDEX INDEX INDEX BILL INDEX - ------------- ------------------ -------- -------- ---------------- ------------- 1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/1999 $10,089 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,891 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $10,112 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $10,420 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $10,321 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $10,522 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $10,423 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $10,442 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $10,423 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $10,815 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $11,570 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $12,725 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $12,571 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $13,967 $11,278 $12,231 $10,005 $10,574 3/31/2000 $13,689 $12,382 $12,722 $10,137 $10,627 4/30/2000 $13,028 $12,009 $12,062 $10,108 $10,681 5/31/2000 $12,667 $11,763 $11,788 $10,103 $10,738 6/30/2000 $13,454 $12,053 $12,257 $10,313 $10,785 7/31/2000 $13,319 $11,864 $11,740 $10,407 $10,834 8/31/2000 $14,056 $12,601 $11,847 $10,558 $10,891 9/30/2000 $13,745 $11,936 $11,271 $10,624 $10,950 10/31/2000 $13,243 $11,886 $10,999 $10,694 $11,006 11/30/2000 $12,166 $10,949 $10,582 $10,869 $11,066 12/31/2000 $12,585 $11,002 $10,953 $11,071 $11,130 1/31/2001 $13,036 $11,392 $10,948 $11,252 $11,202 2/28/2001 $12,339 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,861 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $12,453 $10,451 $10,121 $11,360 $11,351 5/31/2001 $12,518 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $12,399 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $12,247 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,966 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $11,083 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $11,476 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $11,868 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $12,059 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $12,014 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $11,936 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $12,292 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $12,258 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $12,180 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $11,725 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $11,060 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $11,139 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $10,616 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $10,933 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $11,318 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $11,151 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $11,071 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $11,003 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $10,967 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $11,483 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $12,044 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $12,139 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $12,219 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $12,587 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $12,626 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $13,064 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $13,329 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $13,647 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $13,775 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $13,926 $10,034 $10,513 $14,042 $11,980 3/31/2004 $13,960 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $13,529 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $13,669 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $13,866 $10,053 $10,623 $13,801 $12,012 7/31/2004 $13,586 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $13,691 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $13,986 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $14,209 $10,016 $10,961 $14,362 $12,063 11/30/2004 $14,666 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,963 $10,776 $12,227 $14,379 $12,098 1/31/2005 $14,692 $10,513 $12,003 $14,469 $12,115 2/28/2005 $14,999 $10,734 $12,525 $14,384 $12,134 3/31/2005 $14,749 $10,544 $12,215 $14,310 $12,162 4/30/2005 $14,513 $10,344 $11,941 $14,503 $12,188 5/31/2005 $14,797 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,983 $10,689 $12,123 $14,740 $12,243 7/31/2005 $15,315 $11,086 $12,496 $14,606 $12,270 8/31/2005 $15,374 $10,985 $12,815 $14,793 $12,304 9/30/2005 $15,529 $11,074 $13,388 $14,641 $12,339 10/31/2005 $15,231 $10,889 $12,998 $14,525 $12,367 11/30/2005 $15,636 $11,301 $13,320 $14,589 $12,408 12/31/2005 $15,862 $11,305 $13,940 $14,728 $12,447 1/31/2006 $16,490 $11,604 $14,797 $14,729 $12,483 2/28/2006 $16,477 $11,636 $14,767 $14,778 $12,523 3/31/2006 $16,729 $11,781 $15,261 $14,633 $12,572 4/30/2006 $16,922 $11,939 $16,001 $14,606 $12,617 5/31/2006 $16,462 $11,595 $15,399 $14,591 $12,666 6/30/2006 $16,502 $11,611 $15,404 $14,621 $12,714 7/31/2006 $16,441 $11,683 $15,559 $14,819 $12,766 8/31/2006 $16,710 $11,961 $15,991 $15,046 $12,822 9/30/2006 $16,773 $12,269 $16,019 $15,178 $12,879 10/31/2006 $17,216 $12,669 $16,643 $15,278 $12,928 11/30/2006 $17,646 $12,909 $17,145 $15,456 $12,983 12/31/2006 $17,744 $13,091 $17,684 $15,366 $13,039 1/31/2007 $17,959 $13,289 $17,805 $15,360 $13,092 2/28/2007 $17,972 $13,029 $17,952 $15,597 $13,143 3/31/2007 $18,189 $13,174 $18,418 $15,597 $13,203 4/30/2007 $18,633 $13,758 $19,252 $15,681 $13,260 5/31/2007 $19,014 $14,238 $19,616 $15,562 $13,320 6/30/2007 $18,955 $14,001 $19,646 $15,516 $13,370 7/31/2007 $18,733 $13,567 $19,359 $15,646 $13,421 8/31/2007 $18,798 $13,771 $19,061 $15,838 $13,497 9/30/2007 $19,544 $14,286 $20,084 $15,958 $13,546 10/31/2007 $20,108 $14,513 $20,876 $16,101 $13,587 11/30/2007 $19,505 $13,906 $20,195 $16,391 $13,648 12/31/2007 $19,458 $13,810 $19,741 $16,437 $13,680 1/31/2008 $18,740 $12,981 $17,920 $16,713 $13,750 2/29/2008 $18,726 $12,560 $18,182 $16,736 $13,774 3/31/2008 $18,511 $12,505 $17,999 $16,793 $13,806 4/30/2008 $19,082 $13,115 $18,999 $16,758 $13,820 5/31/2008 $19,368 $13,284 $19,220 $16,635 $13,827 6/30/2008 $18,470 $12,164 $17,652 $16,622 $13,848 7/31/2008 $18,273 $12,062 $17,087 $16,608 $13,876 8/31/2008 $18,330 $12,237 $16,399 $16,766 $13,895 9/30/2008 $17,178 $11,146 $14,034 $16,541 $13,933 10/31/2008 $15,324 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $14,886 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $15,368 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 53.68% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN A FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR Shares are available to certain eligible investors as described in CLASS: the prospectus.
(1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. (6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 12/1/05, a restated figure is used based upon the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 11/30/05, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 12/1/05 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were -2.46% and -0.80%. (7.) Sources: (C) 2009 Morningstar; Payden & Rygel. See page 16 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the Payden & Rygel 90 Day U.S. T-Bill Index. 22 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON MODERATE TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 23 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** ------------- ------------- ---------------- ----------------- CLASS A Actual $1,000 $ 831.00 $2.39 $ 5.75 Hypothetical (5% return before expenses) $1,000 $1,022.52 $2.64 $ 6.34 CLASS B Actual $1,000 $ 828.70 $5.84 $ 9.19 Hypothetical (5% return before expenses) $1,000 $1,018.75 $6.44 $10.13 CLASS C Actual $1,000 $ 827.80 $5.83 $ 9.19 Hypothetical (5% return before expenses) $1,000 $1,018.75 $6.44 $10.13 CLASS R Actual $1,000 $ 830.20 $3.54 $ 6.90 Hypothetical (5% return before expenses) $1,000 $1,021.27 $3.91 $ 7.61 ADVISOR CLASS Actual $1,000 $ 832.00 $1.24 $ 4.61 Hypothetical (5% return before expenses) $1,000 $1,023.78 $1.37 $ 5.08
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.52%; B: 1.27%; C: 1.27%; R: 0.77%; and Advisor: 0.27%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.25%; B: 2.00%; C: 2.00%; R: 1.50%; and Advisor: 1.00%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 24 | Annual Report Franklin Templeton Growth Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Growth Target Fund seeks the highest level of long-term total return consistent with a higher level of risk.(1) ASSET ALLOCATION* Franklin Templeton Growth Target Fund Based on Total Net Assets as of 12/31/08 (PIE CHART) Domestic Equity ........... 53.7% Foreign Equity ............ 24.2% Domestic Fixed Income ..... 11.0% Foreign Fixed Income ...... 5.9% Short-Term Investments & Other Net Assets ....... 5.2%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. This annual report for Franklin Templeton Growth Target Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton Growth Target Fund - Class A had a -30.75% cumulative total return for the 12 months under review. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, had total returns of (1.) The risk/reward potential is based on the Fund's goal and level of risk. It is not indicative of the Fund's actual or implied performance or portfolio composition, which may change on a continuous basis. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 52. Annual Report | 25 TOP 10 FUND HOLDINGS Franklin Templeton Growth Target Fund 12/31/08
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - Advisor Class 18.1% Mutual Shares Fund - Class Z 16.3% Mutual European Fund - Class Z 8.9% Franklin Small Cap Growth Fund - Advisor Class 8.5% Franklin U.S. Government Securities Fund - Advisor Class 5.9% Templeton Global Bond Fund - Advisor Class 5.9% Templeton Foreign Fund - Advisor Class 4.9% Franklin Gold and Precious Metals Fund - Advisor Class 4.8% Franklin Growth Opportunities Fund - Advisor Class 4.1% Franklin Total Return Fund - Advisor Class 3.9%
- -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(2) You can find the Fund's long-term performance data in the Performance Summary beginning on page 28. INVESTMENT STRATEGY Whenever possible, we attempt to hold the same underlying Franklin Templeton funds in each Target Fund's portfolio. We generally diversify the Target Funds' broad equity allocations across investment styles, market capitalization sizes and countries of origin. Maintaining similarity of the underlying Franklin Templeton fund investments across the Allocator Series is intended to increase the consistency of the Target Funds' results relative to one another. For your reference, Franklin Templeton Growth Target Fund seeks to maintain the following asset class allocations: 80% equity funds, 15% fixed income funds, and 5% short-term investments and other net assets. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to maintaining a static allocation among equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. At period-end, Franklin Templeton Growth Target Fund's domestic equity exposure was 68.9% of its total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2008, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, representing 18.1% of the Fund's total net assets, was our largest equity fund weighting at period-end. (2.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond markets, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. Source: Payden & Rygel. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 26 | Annual Report On the fixed income side, domestic exposure was 65.1% of the Fund's total income weighting, with the balance represented by foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class and Templeton Global Bond Fund - Advisor Class were our largest fixed income fund weightings at 5.9% of total net assets each. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, performed comparably to the S&P 500 during the 12-month reporting period. However, Franklin Small Cap Growth Fund - Advisor Class lagged the S&P 500. Our largest foreign equity fund holding, Mutual European Fund - Class Z, performed better than the MSCI EAFE Index. In contrast, Templeton Foreign Fund - Advisor Class underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor Class and Templeton Global Bond Fund - Advisor Class outperformed the BC U.S. Aggregate Index. Thank you for your continued participation in Franklin Templeton Growth Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton Growth Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 27 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON GROWTH TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FGTIX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.69 $10.48 $16.17 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2182 Long-Term Capital Gain $0.6580 TOTAL $0.8762
CLASS B (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------- ------ -------- -------- Net Asset Value (NAV) -$5.59 $10.32 $15.91 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1242 Long-Term Capital Gain $0.6580 TOTAL $0.7822
CLASS C (SYMBOL: FTGTX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.59 $10.31 $15.90 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1241 Long-Term Capital Gain $0.6580 TOTAL $0.7821
CLASS R (SYMBOL: FGTRX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.64 $10.38 $16.02 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1948 Long-Term Capital Gain $0.6580 TOTAL $0.8528
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------- ------ -------- -------- Net Asset Value (NAV) -$5.70 $10.49 $16.19 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2511 Long-Term Capital Gain $0.6580 TOTAL $0.9091
28 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR - -------- ------- ------ ------- Cumulative Total Return(2) -30.75% +5.28% +38.84% Average Annual Total Return(3) -34.75% -0.16% +2.72% Value of $10,000 Investment(4) $ 6,525 $9,920 $13,083 Total Annual Operating Expenses(5) Without Waiver 1.58% With Waiver 1.33%
INCEPTION CLASS B 1-YEAR 5-YEAR (12/1/03) - ------- ------- ------ --------- Cumulative Total Return(2) -31.24% +1.43% +3.21% Average Annual Total Return(3) -33.84% -0.06% +0.46% Value of $10,000 Investment(4) $ 6,616 $9,970 $10,234 Total Annual Operating Expenses(5) Without Waiver 2.33% With Waiver 2.08%
CLASS C 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ------- Cumulative Total Return(2) -31.26% +1.39% +28.78% Average Annual Total Return(3) -31.91% +0.28% +2.56% Value of $10,000 Investment(4) $ 6,809 $10,139 $12,878 Total Annual Operating Expenses(5) Without Waiver 2.33% With Waiver 2.08%
INCEPTION CLASS R 1-YEAR 5-YEAR (1/1/02) - ------- ------- ------- --------- Cumulative Total Return(2) -30.92% +3.95% +14.73% Average Annual Total Return(3) -30.92% +0.78% +1.98% Value of $10,000 Investment(4) $ 6,908 $10,395 $11,473 Total Annual Operating Expenses(5) Without Waiver 1.83% With Waiver 1.58%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR - ---------------- ------- ------- ------- Cumulative Total Return(2) -30.56% +6.12% +39.94% Average Annual Total Return(3) -30.56% +1.19% +3.42% Value of $10,000 Investment(4) $ 6,944 $10,612 $13,994 Total Annual Operating Expenses(5) Without Waiver 1.33% With Waiver 1.08%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES), DO NOT EXCEED 1.07% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 29 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -34.75% 5-Year -0.16% 10-Year +2.72%
CLASS A (1/1/99-12/31/08) (PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY DATE TARGET FUND - CLASS A INDEX INDEX AGGREGATE INDEX INDEX - ------------- ------------------------- ------- --------- ------------------ ------------- 1/1/1999 $ 9,423 $10,000 $10,000 $10,000 $10,000 1/31/1999 $ 9,570 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,368 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $ 9,643 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $10,027 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $ 9,908 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $10,201 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $10,082 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $10,137 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $10,132 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $10,667 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $11,627 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $13,302 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $13,081 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $15,137 $11,278 $12,231 $10,005 $10,574 3/31/2000 $14,702 $12,382 $12,722 $10,137 $10,627 4/30/2000 $13,712 $12,009 $12,062 $10,108 $10,681 5/31/2000 $13,164 $11,763 $11,788 $10,103 $10,738 6/30/2000 $14,248 $12,053 $12,257 $10,313 $10,785 7/31/2000 $13,969 $11,864 $11,740 $10,407 $10,834 8/31/2000 $15,067 $12,601 $11,847 $10,558 $10,891 9/30/2000 $14,583 $11,936 $11,271 $10,624 $10,950 10/31/2000 $13,818 $11,886 $10,999 $10,694 $11,006 11/30/2000 $12,151 $10,949 $10,582 $10,869 $11,066 12/31/2000 $12,620 $11,002 $10,953 $11,071 $11,130 1/31/2001 $13,196 $11,392 $10,948 $11,252 $11,202 2/28/2001 $12,003 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,288 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $12,073 $10,451 $10,121 $11,360 $11,351 5/31/2001 $12,113 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $11,892 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $11,603 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,134 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $ 9,928 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $10,408 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $10,928 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $11,190 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $11,087 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $10,934 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $11,446 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $11,282 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $11,159 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $10,565 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $ 9,695 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $ 9,726 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $ 9,030 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $ 9,408 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $ 9,869 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $ 9,550 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $ 9,416 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $ 9,292 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $ 9,261 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $ 9,850 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $10,482 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $10,595 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $10,823 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $11,268 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $11,206 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $11,796 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $12,116 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $12,426 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $12,583 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $12,739 $10,034 $10,513 $14,042 $11,980 3/31/2004 $12,760 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $12,312 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $12,478 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $12,739 $10,053 $10,623 $13,801 $12,012 7/31/2004 $12,343 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $12,385 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $12,718 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $12,948 $10,016 $10,961 $14,362 $12,063 11/30/2004 $13,501 $10,421 $11,712 $14,248 $12,075 12/31/2004 $13,829 $10,776 $12,227 $14,379 $12,098 1/31/2005 $13,482 $10,513 $12,003 $14,469 $12,115 2/28/2005 $13,871 $10,734 $12,525 $14,384 $12,134 3/31/2005 $13,577 $10,544 $12,215 $14,310 $12,162 4/30/2005 $13,251 $10,344 $11,941 $14,503 $12,188 5/31/2005 $13,619 $10,673 $11,960 $14,660 $12,216 6/30/2005 $13,861 $10,689 $12,123 $14,740 $12,243 7/31/2005 $14,313 $11,086 $12,496 $14,606 $12,270 8/31/2005 $14,345 $10,985 $12,815 $14,793 $12,304 9/30/2005 $14,604 $11,074 $13,388 $14,641 $12,339 10/31/2005 $14,226 $10,889 $12,998 $14,525 $12,367 11/30/2005 $14,752 $11,301 $13,320 $14,589 $12,408 12/31/2005 $14,999 $11,305 $13,940 $14,728 $12,447 1/31/2006 $15,765 $11,604 $14,797 $14,729 $12,483 2/28/2006 $15,733 $11,636 $14,767 $14,778 $12,523 3/31/2006 $16,116 $11,781 $15,261 $14,633 $12,572 4/30/2006 $16,307 $11,939 $16,001 $14,606 $12,617 5/31/2006 $15,668 $11,595 $15,399 $14,591 $12,666 6/30/2006 $15,732 $11,611 $15,404 $14,621 $12,714 7/31/2006 $15,561 $11,683 $15,559 $14,819 $12,766 8/31/2006 $15,870 $11,961 $15,991 $15,046 $12,822 9/30/2006 $15,922 $12,269 $16,019 $15,178 $12,879 10/31/2006 $16,457 $12,669 $16,643 $15,278 $12,928 11/30/2006 $16,949 $12,909 $17,145 $15,456 $12,983 12/31/2006 $17,084 $13,091 $17,684 $15,366 $13,039 1/31/2007 $17,379 $13,289 $17,805 $15,360 $13,092 2/28/2007 $17,325 $13,029 $17,952 $15,597 $13,143 3/31/2007 $17,580 $13,174 $18,418 $15,597 $13,203 4/30/2007 $18,105 $13,758 $19,252 $15,681 $13,260 5/31/2007 $18,608 $14,238 $19,616 $15,562 $13,320 6/30/2007 $18,539 $14,001 $19,646 $15,516 $13,370 7/31/2007 $18,178 $13,567 $19,359 $15,646 $13,421 8/31/2007 $18,279 $13,771 $19,061 $15,838 $13,497 9/30/2007 $19,165 $14,286 $20,084 $15,958 $13,546 10/31/2007 $19,856 $14,513 $20,876 $16,101 $13,587 11/30/2007 $18,973 $13,906 $20,195 $16,391 $13,648 12/31/2007 $18,892 $13,810 $19,741 $16,437 $13,680 1/31/2008 $17,712 $12,981 $17,920 $16,713 $13,750 2/29/2008 $17,642 $12,560 $18,182 $16,736 $13,774 3/31/2008 $17,326 $12,505 $17,999 $16,793 $13,806 4/30/2008 $18,097 $13,115 $18,999 $16,758 $13,820 5/31/2008 $18,530 $13,284 $19,220 $16,635 $13,827 6/30/2008 $17,358 $12,164 $17,652 $16,622 $13,848 7/31/2008 $17,077 $12,062 $17,087 $16,608 $13,876 8/31/2008 $17,138 $12,237 $16,399 $16,766 $13,895 9/30/2008 $15,609 $11,146 $14,034 $16,541 $13,933 10/31/2008 $13,260 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $12,661 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $13,083 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 30.83% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08 - ------- -------- 1-Year -33.84% 5-Year -0.06% Since Inception (12/1/03) +0.46%
CLASS B (12/1/03-12/31/08) (PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY DATE TARGET FUND - CLASS B INDEX INDEX AGGREGATE INDEX INDEX - ------------- ------------------------- ------- --------- --------------- ------------- 12/1/2003 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/2003 $10,175 $10,524 $10,782 $10,102 $10,008 1/31/2004 $10,295 $10,718 $10,935 $10,183 $10,016 2/29/2004 $10,415 $10,867 $11,189 $10,293 $10,023 3/31/2004 $10,424 $10,703 $11,257 $10,370 $10,031 4/30/2004 $10,047 $10,535 $11,012 $10,101 $10,038 5/31/2004 $10,184 $10,679 $11,059 $10,060 $10,045 6/30/2004 $10,389 $10,887 $11,306 $10,117 $10,050 7/31/2004 $10,056 $10,527 $10,941 $10,217 $10,059 8/31/2004 $10,090 $10,569 $10,991 $10,412 $10,069 9/30/2004 $10,355 $10,684 $11,280 $10,440 $10,080 10/31/2004 $10,535 $10,847 $11,666 $10,528 $10,092 11/30/2004 $10,971 $11,286 $12,466 $10,444 $10,102 12/31/2004 $11,238 $11,670 $13,013 $10,540 $10,122 1/31/2005 $10,946 $11,385 $12,775 $10,606 $10,136 2/28/2005 $11,255 $11,625 $13,330 $10,544 $10,151 3/31/2005 $11,012 $11,419 $13,001 $10,490 $10,175 4/30/2005 $10,737 $11,202 $12,710 $10,632 $10,196 5/31/2005 $11,029 $11,559 $12,729 $10,747 $10,220 6/30/2005 $11,218 $11,575 $12,903 $10,805 $10,243 7/31/2005 $11,578 $12,006 $13,299 $10,707 $10,265 8/31/2005 $11,596 $11,896 $13,639 $10,844 $10,293 9/30/2005 $11,793 $11,993 $14,250 $10,732 $10,323 10/31/2005 $11,484 $11,793 $13,834 $10,647 $10,347 11/30/2005 $11,913 $12,239 $14,177 $10,695 $10,381 12/31/2005 $12,096 $12,243 $14,837 $10,796 $10,414 1/31/2006 $12,711 $12,567 $15,749 $10,797 $10,443 2/28/2006 $12,676 $12,601 $15,717 $10,833 $10,477 3/31/2006 $12,973 $12,758 $16,243 $10,726 $10,518 4/30/2006 $13,129 $12,929 $17,030 $10,707 $10,555 5/31/2006 $12,608 $12,557 $16,389 $10,695 $10,597 6/30/2006 $12,643 $12,574 $16,395 $10,718 $10,637 7/31/2006 $12,495 $12,652 $16,560 $10,863 $10,680 8/31/2006 $12,738 $12,953 $17,019 $11,029 $10,727 9/30/2006 $12,765 $13,287 $17,049 $11,126 $10,774 10/31/2006 $13,191 $13,720 $17,714 $11,200 $10,816 11/30/2006 $13,574 $13,981 $18,248 $11,330 $10,862 12/31/2006 $13,676 $14,177 $18,822 $11,264 $10,909 1/31/2007 $13,906 $14,391 $18,951 $11,259 $10,953 2/28/2007 $13,853 $14,110 $19,106 $11,433 $10,996 3/31/2007 $14,052 $14,267 $19,603 $11,433 $11,046 4/30/2007 $14,459 $14,899 $20,491 $11,495 $11,094 5/31/2007 $14,849 $15,419 $20,878 $11,408 $11,143 6/30/2007 $14,793 $15,163 $20,910 $11,374 $11,185 7/31/2007 $14,491 $14,693 $20,604 $11,469 $11,228 8/31/2007 $14,564 $14,913 $20,287 $11,610 $11,292 9/30/2007 $15,262 $15,471 $21,376 $11,698 $11,333 10/31/2007 $15,802 $15,717 $22,219 $11,803 $11,367 11/30/2007 $15,088 $15,060 $21,494 $12,015 $11,419 12/31/2007 $15,011 $14,955 $21,011 $12,049 $11,445 1/31/2008 $14,068 $14,058 $19,072 $12,251 $11,504 2/29/2008 $14,002 $13,602 $19,352 $12,268 $11,524 3/31/2008 $13,746 $13,543 $19,157 $12,310 $11,550 4/30/2008 $14,350 $14,203 $20,222 $12,284 $11,562 5/31/2008 $14,681 $14,387 $20,457 $12,194 $11,568 6/30/2008 $13,744 $13,174 $18,788 $12,184 $11,586 7/31/2008 $13,507 $13,063 $18,187 $12,174 $11,609 8/31/2008 $13,546 $13,252 $17,454 $12,290 $11,624 9/30/2008 $12,330 $12,071 $14,937 $12,125 $11,656 10/31/2008 $10,471 $10,044 $11,923 $11,839 $11,674 11/30/2008 $ 9,987 $ 9,323 $11,285 $12,224 $11,687 12/31/2008 $10,234 $ 9,422 $11,964 $12,680 $11,685 ------- ------- ------- ------- ------- Total Returns 2.34% -5.78% 19.64% 26.80% 16.85% ======= ======= ======= ======= =======
30 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -31.91% 5-Year +0.28% 10-Year +2.56%
CLASS C (1/1/99-12/31/08) (PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY DATE TARGET FUND - CLASS C INDEX INDEX AGGREGATE INDEX INDEX - ------------- ------------------------- ------- --------- --------------- ------------- 1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/1999 $10,146 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,932 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $10,205 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $10,614 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $10,478 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $10,780 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $10,643 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $10,702 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $10,689 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $11,245 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $12,252 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $14,006 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $13,773 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $15,925 $11,278 $12,231 $10,005 $10,574 3/31/2000 $15,449 $12,382 $12,722 $10,137 $10,627 4/30/2000 $14,404 $12,009 $12,062 $10,108 $10,681 5/31/2000 $13,815 $11,763 $11,788 $10,103 $10,738 6/30/2000 $14,953 $12,053 $12,257 $10,313 $10,785 7/31/2000 $14,649 $11,864 $11,740 $10,407 $10,834 8/31/2000 $15,796 $12,601 $11,847 $10,558 $10,891 9/30/2000 $15,281 $11,936 $11,271 $10,624 $10,950 10/31/2000 $14,465 $11,886 $10,999 $10,694 $11,006 11/30/2000 $12,712 $10,949 $10,582 $10,869 $11,066 12/31/2000 $13,190 $11,002 $10,953 $11,071 $11,130 1/31/2001 $13,795 $11,392 $10,948 $11,252 $11,202 2/28/2001 $12,533 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,772 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $12,596 $10,451 $10,121 $11,360 $11,351 5/31/2001 $12,627 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $12,388 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $12,075 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,585 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $10,332 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $10,812 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $11,344 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $11,611 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $11,493 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $11,334 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $11,856 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $11,685 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $11,547 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $10,928 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $10,022 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $10,043 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $ 9,318 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $ 9,702 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $10,171 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $ 9,848 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $ 9,698 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $ 9,570 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $ 9,516 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $10,115 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $10,757 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $10,874 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $11,099 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $11,548 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $11,484 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $12,072 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $12,393 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $12,701 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $12,851 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $13,012 $10,034 $10,513 $14,042 $11,980 3/31/2004 $13,012 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $12,551 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $12,723 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $12,969 $10,053 $10,623 $13,801 $12,012 7/31/2004 $12,562 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $12,605 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $12,926 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $13,152 $10,016 $10,961 $14,362 $12,063 11/30/2004 $13,698 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,030 $10,776 $12,227 $14,379 $12,098 1/31/2005 $13,666 $10,513 $12,003 $14,469 $12,115 2/28/2005 $14,052 $10,734 $12,525 $14,384 $12,134 3/31/2005 $13,747 $10,544 $12,215 $14,310 $12,162 4/30/2005 $13,404 $10,344 $11,941 $14,503 $12,188 5/31/2005 $13,769 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,004 $10,689 $12,123 $14,740 $12,243 7/31/2005 $14,455 $11,086 $12,496 $14,606 $12,270 8/31/2005 $14,487 $10,985 $12,815 $14,793 $12,304 9/30/2005 $14,723 $11,074 $13,388 $14,641 $12,339 10/31/2005 $14,337 $10,889 $12,998 $14,525 $12,367 11/30/2005 $14,862 $11,301 $13,320 $14,589 $12,408 12/31/2005 $15,101 $11,305 $13,940 $14,728 $12,447 1/31/2006 $15,857 $11,604 $14,797 $14,729 $12,483 2/28/2006 $15,825 $11,636 $14,767 $14,778 $12,523 3/31/2006 $16,195 $11,781 $15,261 $14,633 $12,572 4/30/2006 $16,379 $11,939 $16,001 $14,606 $12,617 5/31/2006 $15,729 $11,595 $15,399 $14,591 $12,666 6/30/2006 $15,783 $11,611 $15,404 $14,621 $12,714 7/31/2006 $15,599 $11,683 $15,559 $14,819 $12,766 8/31/2006 $15,902 $11,961 $15,991 $15,046 $12,822 9/30/2006 $15,936 $12,269 $16,019 $15,178 $12,879 10/31/2006 $16,468 $12,669 $16,643 $15,278 $12,928 11/30/2006 $16,945 $12,909 $17,145 $15,456 $12,983 12/31/2006 $17,076 $13,091 $17,684 $15,366 $13,039 1/31/2007 $17,363 $13,289 $17,805 $15,360 $13,092 2/28/2007 $17,297 $13,029 $17,952 $15,597 $13,143 3/31/2007 $17,534 $13,174 $18,418 $15,597 $13,203 4/30/2007 $18,054 $13,758 $19,252 $15,681 $13,260 5/31/2007 $18,540 $14,238 $19,616 $15,562 $13,320 6/30/2007 $18,459 $14,001 $19,646 $15,516 $13,370 7/31/2007 $18,093 $13,567 $19,359 $15,646 $13,421 8/31/2007 $18,184 $13,771 $19,061 $15,838 $13,497 9/30/2007 $19,045 $14,286 $20,084 $15,958 $13,546 10/31/2007 $19,720 $14,513 $20,876 $16,101 $13,587 11/30/2007 $18,828 $13,906 $20,195 $16,391 $13,648 12/31/2007 $18,735 $13,810 $19,741 $16,437 $13,680 1/31/2008 $17,557 $12,981 $17,920 $16,713 $13,750 2/29/2008 $17,475 $12,560 $18,182 $16,736 $13,774 3/31/2008 $17,155 $12,505 $17,999 $16,793 $13,806 4/30/2008 $17,910 $13,115 $18,999 $16,758 $13,820 5/31/2008 $18,323 $13,284 $19,220 $16,635 $13,827 6/30/2008 $17,153 $12,164 $17,652 $16,622 $13,848 7/31/2008 $16,869 $12,062 $17,087 $16,608 $13,876 8/31/2008 $16,906 $12,237 $16,399 $16,766 $13,895 9/30/2008 $15,400 $11,146 $14,034 $16,541 $13,933 10/31/2008 $13,078 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $12,473 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $12,878 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 28.78% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------- -------- 1-Year -30.92% 5-Year +0.78% Since Inception (1/1/02) +1.98%
CLASS R (1/1/02-12/31/08) (PERFORMANCE GRAPH)
BARCLAYS P&R 90-DAY FRANKLIN TEMPLETON GROWTH S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY DATE TARGET FUND - CLASS R INDEX INDEX AGGREGATE INDEX INDEX - ------------- ------------------------- ------- --------- --------------- ------------- 1/1/2002 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/2002 $ 9,908 $ 9,854 $ 9,469 $10,081 $10,014 2/28/2002 $ 9,771 $ 9,664 $ 9,536 $10,179 $10,027 3/31/2002 $10,219 $10,027 $10,057 $10,009 $10,042 4/30/2002 $10,082 $ 9,420 $10,130 $10,204 $10,057 5/31/2002 $ 9,963 $ 9,350 $10,267 $10,290 $10,073 6/30/2002 $ 9,442 $ 8,684 $ 9,862 $10,379 $10,088 7/31/2002 $ 8,664 $ 8,007 $ 8,889 $10,505 $10,102 8/31/2002 $ 8,682 $ 8,060 $ 8,871 $10,682 $10,117 9/30/2002 $ 8,051 $ 7,184 $ 7,921 $10,855 $10,133 10/31/2002 $ 8,390 $ 7,816 $ 8,347 $10,806 $10,149 11/30/2002 $ 8,792 $ 8,276 $ 8,727 $10,803 $10,165 12/31/2002 $ 8,516 $ 7,790 $ 8,434 $11,026 $10,175 1/31/2003 $ 8,395 $ 7,586 $ 8,083 $11,035 $10,186 2/28/2003 $ 8,284 $ 7,472 $ 7,898 $11,188 $10,195 3/31/2003 $ 8,247 $ 7,545 $ 7,749 $11,179 $10,207 4/30/2003 $ 8,775 $ 8,166 $ 8,517 $11,272 $10,217 5/31/2003 $ 9,330 $ 8,596 $ 9,041 $11,482 $10,227 6/30/2003 $ 9,432 $ 8,706 $ 9,265 $11,459 $10,240 7/31/2003 $ 9,626 $ 8,859 $ 9,491 $11,074 $10,247 8/31/2003 $10,034 $ 9,032 $ 9,721 $11,147 $10,255 9/30/2003 $ 9,969 $ 8,936 $10,023 $11,442 $10,263 10/31/2003 $10,487 $ 9,442 $10,648 $11,336 $10,272 11/30/2003 $10,774 $ 9,525 $10,887 $11,363 $10,280 12/31/2003 $11,057 $10,024 $11,738 $11,478 $10,288 1/31/2004 $11,187 $10,208 $11,904 $11,571 $10,297 2/29/2004 $11,327 $10,350 $12,181 $11,696 $10,303 3/31/2004 $11,336 $10,194 $12,255 $11,784 $10,312 4/30/2004 $10,935 $10,034 $11,988 $11,477 $10,319 5/31/2004 $11,094 $10,172 $12,040 $11,431 $10,326 6/30/2004 $11,318 $10,370 $12,308 $11,496 $10,331 7/31/2004 $10,963 $10,026 $11,911 $11,610 $10,341 8/31/2004 $11,001 $10,067 $11,966 $11,831 $10,351 9/30/2004 $11,299 $10,176 $12,280 $11,863 $10,363 10/31/2004 $11,495 $10,332 $12,700 $11,963 $10,375 11/30/2004 $11,979 $10,750 $13,571 $11,867 $10,385 12/31/2004 $12,278 $11,115 $14,167 $11,976 $10,405 1/31/2005 $11,960 $10,844 $13,908 $12,052 $10,420 2/28/2005 $12,297 $11,073 $14,512 $11,981 $10,436 3/31/2005 $12,040 $10,877 $14,153 $11,919 $10,460 4/30/2005 $11,740 $10,670 $13,837 $12,080 $10,482 5/31/2005 $12,068 $11,010 $13,858 $12,211 $10,506 6/30/2005 $12,284 $11,025 $14,047 $12,278 $10,530 7/31/2005 $12,678 $11,435 $14,479 $12,166 $10,553 8/31/2005 $12,706 $11,331 $14,849 $12,322 $10,582 9/30/2005 $12,931 $11,423 $15,513 $12,195 $10,612 10/31/2005 $12,594 $11,232 $15,061 $12,098 $10,636 11/30/2005 $13,062 $11,657 $15,433 $12,152 $10,672 12/31/2005 $13,273 $11,661 $16,153 $12,267 $10,705 1/31/2006 $13,945 $11,970 $17,145 $12,268 $10,736 2/28/2006 $13,916 $12,003 $17,110 $12,309 $10,770 3/31/2006 $14,252 $12,152 $17,683 $12,188 $10,812 4/30/2006 $14,422 $12,315 $18,540 $12,166 $10,851 5/31/2006 $13,862 $11,961 $17,843 $12,153 $10,893 6/30/2006 $13,910 $11,977 $17,849 $12,179 $10,934 7/31/2006 $13,748 $12,051 $18,028 $12,343 $10,979 8/31/2006 $14,024 $12,338 $18,528 $12,532 $11,028 9/30/2006 $14,061 $12,655 $18,561 $12,642 $11,076 10/31/2006 $14,537 $13,068 $19,284 $12,726 $11,119 11/30/2006 $14,966 $13,316 $19,866 $12,874 $11,166 12/31/2006 $15,084 $13,503 $20,491 $12,799 $11,215 1/31/2007 $15,337 $13,707 $20,631 $12,794 $11,260 2/28/2007 $15,288 $13,439 $20,800 $12,991 $11,304 3/31/2007 $15,515 $13,590 $21,340 $12,991 $11,355 4/30/2007 $15,972 $14,192 $22,308 $13,061 $11,404 5/31/2007 $16,410 $14,687 $22,729 $12,962 $11,455 6/30/2007 $16,348 $14,443 $22,764 $12,924 $11,499 7/31/2007 $16,027 $13,995 $22,431 $13,032 $11,542 8/31/2007 $16,117 $14,205 $22,086 $13,192 $11,608 9/30/2007 $16,885 $14,736 $23,272 $13,292 $11,650 10/31/2007 $17,498 $14,970 $24,189 $13,411 $11,686 11/30/2007 $16,714 $14,345 $23,399 $13,652 $11,738 12/31/2007 $16,639 $14,245 $22,874 $13,691 $11,766 1/31/2008 $15,601 $13,391 $20,763 $13,921 $11,826 2/29/2008 $15,529 $12,956 $21,067 $13,940 $11,846 3/31/2008 $15,248 $12,900 $20,856 $13,987 $11,874 4/30/2008 $15,933 $13,528 $22,015 $13,958 $11,886 5/31/2008 $16,307 $13,703 $22,271 $13,856 $11,892 6/30/2008 $15,277 $12,548 $20,454 $13,845 $11,910 7/31/2008 $15,016 $12,442 $19,799 $13,833 $11,934 8/31/2008 $15,059 $12,622 $19,002 $13,965 $11,950 9/30/2008 $13,722 $11,498 $16,261 $13,777 $11,983 10/31/2008 $11,656 $ 9,567 $12,981 $13,452 $12,001 11/30/2008 $11,123 $ 8,880 $12,285 $13,890 $12,014 12/31/2008 $11,473 $ 8,975 $13,025 $14,408 $12,012 ------- ------- ------- ------- ------- Total Returns 14.73% -10.25% 30.25% 44.08% 20.12% ======= ======= ======= ======= =======
Annual Report | 31 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 12/31/08 - ---------------- -------- 1-Year -30.56% 5-Year +1.19% 10-Year +3.42%
ADVISOR CLASS (1/1/99-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BARCLAYS P&R 90-DAY GROWTH TARGET S&P 500 MSCI EAFE CAPITAL U.S. U.S. TREASURY DATE FUND - ADVISOR CLASS INDEX INDEX AGGREGATE INDEX INDEX - ------------- ------------------------- ------- --------- --------------- ------------- 1/1/1999 $10,000 $10,000 $10,000 $10,000 $10,000 1/31/1999 $10,155 $10,418 $ 9,957 $10,071 $10,039 2/28/1999 $ 9,942 $10,094 $ 9,714 $ 9,896 $10,071 3/31/1999 $10,233 $10,498 $10,139 $ 9,950 $10,114 4/30/1999 $10,641 $10,905 $10,556 $ 9,982 $10,152 5/31/1999 $10,515 $10,647 $10,033 $ 9,894 $10,190 6/30/1999 $10,826 $11,238 $10,437 $ 9,863 $10,228 7/31/1999 $10,700 $10,887 $10,744 $ 9,821 $10,272 8/31/1999 $10,758 $10,833 $10,789 $ 9,816 $10,310 9/30/1999 $10,752 $10,536 $10,899 $ 9,930 $10,355 10/31/1999 $11,320 $11,203 $11,299 $ 9,967 $10,396 11/30/1999 $12,339 $11,431 $11,687 $ 9,966 $10,437 12/31/1999 $14,117 $12,104 $12,730 $ 9,918 $10,485 1/31/2000 $13,882 $11,496 $11,913 $ 9,885 $10,526 2/29/2000 $16,064 $11,278 $12,231 $10,005 $10,574 3/31/2000 $15,603 $12,382 $12,722 $10,137 $10,627 4/30/2000 $14,551 $12,009 $12,062 $10,108 $10,681 5/31/2000 $13,970 $11,763 $11,788 $10,103 $10,738 6/30/2000 $15,120 $12,053 $12,257 $10,313 $10,785 7/31/2000 $14,824 $11,864 $11,740 $10,407 $10,834 8/31/2000 $15,989 $12,601 $11,847 $10,558 $10,891 9/30/2000 $15,476 $11,936 $11,271 $10,624 $10,950 10/31/2000 $14,664 $11,886 $10,999 $10,694 $11,006 11/30/2000 $12,895 $10,949 $10,582 $10,869 $11,066 12/31/2000 $13,392 $11,002 $10,953 $11,071 $11,130 1/31/2001 $14,004 $11,392 $10,948 $11,252 $11,202 2/28/2001 $12,738 $10,354 $10,128 $11,350 $11,248 3/31/2001 $11,979 $ 9,698 $ 9,457 $11,407 $11,304 4/30/2001 $12,812 $10,451 $10,121 $11,360 $11,351 5/31/2001 $12,854 $10,521 $ 9,771 $11,428 $11,395 6/30/2001 $12,620 $10,265 $ 9,375 $11,471 $11,428 7/31/2001 $12,313 $10,164 $ 9,206 $11,728 $11,466 8/31/2001 $11,816 $ 9,528 $ 8,974 $11,862 $11,504 9/30/2001 $10,536 $ 8,759 $ 8,067 $12,000 $11,554 10/31/2001 $11,045 $ 8,926 $ 8,274 $12,251 $11,584 11/30/2001 $11,597 $ 9,610 $ 8,579 $12,082 $11,609 12/31/2001 $11,875 $ 9,694 $ 8,630 $12,006 $11,627 1/31/2002 $11,766 $ 9,553 $ 8,172 $12,103 $11,644 2/28/2002 $11,603 $ 9,369 $ 8,230 $12,220 $11,659 3/31/2002 $12,146 $ 9,721 $ 8,679 $12,017 $11,676 4/30/2002 $11,973 $ 9,132 $ 8,742 $12,250 $11,694 5/31/2002 $11,842 $ 9,064 $ 8,861 $12,354 $11,712 6/30/2002 $11,212 $ 8,419 $ 8,512 $12,461 $11,730 7/31/2002 $10,289 $ 7,763 $ 7,672 $12,612 $11,746 8/31/2002 $10,321 $ 7,813 $ 7,656 $12,825 $11,764 9/30/2002 $ 9,582 $ 6,964 $ 6,836 $13,032 $11,782 10/31/2002 $ 9,984 $ 7,577 $ 7,204 $12,973 $11,800 11/30/2002 $10,473 $ 8,023 $ 7,532 $12,969 $11,819 12/31/2002 $10,135 $ 7,552 $ 7,279 $13,237 $11,831 1/31/2003 $ 9,992 $ 7,354 $ 6,976 $13,249 $11,844 2/28/2003 $ 9,861 $ 7,244 $ 6,816 $13,432 $11,854 3/31/2003 $ 9,828 $ 7,314 $ 6,687 $13,422 $11,868 4/30/2003 $10,454 $ 7,917 $ 7,351 $13,532 $11,879 5/31/2003 $11,123 $ 8,334 $ 7,803 $13,785 $11,891 6/30/2003 $11,244 $ 8,440 $ 7,996 $13,757 $11,906 7/31/2003 $11,486 $ 8,589 $ 8,191 $13,295 $11,914 8/31/2003 $11,958 $ 8,756 $ 8,390 $13,383 $11,923 9/30/2003 $11,892 $ 8,663 $ 8,650 $13,737 $11,934 10/31/2003 $12,518 $ 9,153 $ 9,190 $13,609 $11,943 11/30/2003 $12,858 $ 9,234 $ 9,396 $13,642 $11,953 12/31/2003 $13,187 $ 9,718 $10,130 $13,781 $11,962 1/31/2004 $13,353 $ 9,897 $10,274 $13,892 $11,972 2/29/2004 $13,519 $10,034 $10,513 $14,042 $11,980 3/31/2004 $13,541 $ 9,883 $10,576 $14,147 $11,990 4/30/2004 $13,065 $ 9,728 $10,346 $13,779 $11,999 5/31/2004 $13,242 $ 9,861 $10,391 $13,724 $12,007 6/30/2004 $13,519 $10,053 $10,623 $13,801 $12,012 7/31/2004 $13,099 $ 9,720 $10,279 $13,938 $12,024 8/31/2004 $13,143 $ 9,759 $10,327 $14,204 $12,035 9/30/2004 $13,497 $ 9,865 $10,598 $14,243 $12,049 10/31/2004 $13,741 $10,016 $10,961 $14,362 $12,063 11/30/2004 $14,328 $10,421 $11,712 $14,248 $12,075 12/31/2004 $14,675 $10,776 $12,227 $14,379 $12,098 1/31/2005 $14,307 $10,513 $12,003 $14,469 $12,115 2/28/2005 $14,720 $10,734 $12,525 $14,384 $12,134 3/31/2005 $14,408 $10,544 $12,215 $14,310 $12,162 4/30/2005 $14,062 $10,344 $11,941 $14,503 $12,188 5/31/2005 $14,453 $10,673 $11,960 $14,660 $12,216 6/30/2005 $14,710 $10,689 $12,123 $14,740 $12,243 7/31/2005 $15,190 $11,086 $12,496 $14,606 $12,270 8/31/2005 $15,223 $10,985 $12,815 $14,793 $12,304 9/30/2005 $15,499 $11,074 $13,388 $14,641 $12,339 10/31/2005 $15,097 $10,889 $12,998 $14,525 $12,367 11/30/2005 $15,655 $11,301 $13,320 $14,589 $12,408 12/31/2005 $15,919 $11,305 $13,940 $14,728 $12,447 1/31/2006 $16,732 $11,604 $14,797 $14,729 $12,483 2/28/2006 $16,710 $11,636 $14,767 $14,778 $12,523 3/31/2006 $17,111 $11,781 $15,261 $14,633 $12,572 4/30/2006 $17,327 $11,939 $16,001 $14,606 $12,617 5/31/2006 $16,658 $11,595 $15,399 $14,591 $12,666 6/30/2006 $16,726 $11,611 $15,404 $14,621 $12,714 7/31/2006 $16,533 $11,683 $15,559 $14,819 $12,766 8/31/2006 $16,873 $11,961 $15,991 $15,046 $12,822 9/30/2006 $16,927 $12,269 $16,019 $15,178 $12,879 10/31/2006 $17,507 $12,669 $16,643 $15,278 $12,928 11/30/2006 $18,030 $12,909 $17,145 $15,456 $12,983 12/31/2006 $18,189 $13,091 $17,684 $15,366 $13,039 1/31/2007 $18,503 $13,289 $17,805 $15,360 $13,092 2/28/2007 $18,445 $13,029 $17,952 $15,597 $13,143 3/31/2007 $18,717 $13,174 $18,418 $15,597 $13,203 4/30/2007 $19,287 $13,758 $19,252 $15,681 $13,260 5/31/2007 $19,822 $14,238 $19,616 $15,562 $13,320 6/30/2007 $19,760 $14,001 $19,646 $15,516 $13,370 7/31/2007 $19,376 $13,567 $19,359 $15,646 $13,421 8/31/2007 $19,484 $13,771 $19,061 $15,838 $13,497 9/30/2007 $20,427 $14,286 $20,084 $15,958 $13,546 10/31/2007 $21,174 $14,513 $20,876 $16,101 $13,587 11/30/2007 $20,234 $13,906 $20,195 $16,391 $13,648 12/31/2007 $20,153 $13,810 $19,741 $16,437 $13,680 1/31/2008 $18,908 $12,981 $17,920 $16,713 $13,750 2/29/2008 $18,833 $12,560 $18,182 $16,736 $13,774 3/31/2008 $18,496 $12,505 $17,999 $16,793 $13,806 4/30/2008 $19,331 $13,115 $18,999 $16,758 $13,820 5/31/2008 $19,792 $13,284 $19,220 $16,635 $13,827 6/30/2008 $18,544 $12,164 $17,652 $16,622 $13,848 7/31/2008 $18,244 $12,062 $17,087 $16,608 $13,876 8/31/2008 $18,309 $12,237 $16,399 $16,766 $13,895 9/30/2008 $16,680 $11,146 $14,034 $16,541 $13,933 10/31/2008 $14,178 $ 9,274 $11,203 $16,150 $13,954 11/30/2008 $13,540 $ 8,609 $10,602 $16,676 $13,969 12/31/2008 $13,994 $ 8,700 $11,241 $17,298 $13,967 ------- ------- ------- ------- ------- Total Returns 39.94% -13.00% 12.41% 72.98% 39.67% ======= ======= ======= ======= =======
ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. TYPICALLY, THE MORE AGGRESSIVE THE INVESTMENT, OR THE GREATER THE POTENTIAL RETURN, THE MORE RISK INVOLVED. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS THE PRICES OF BONDS IN A FUND ADJUST TO A RISE IN INTEREST RATES, THAT FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the manager had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. (6.) Effective 12/1/05, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 12/1/05, a restated figure is used based upon the Fund's Class A performance, excluding the effect of Class A's maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 11/30/05, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 12/1/05 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were -11.62% and -3.93%. (7.) Sources: (C) 2009 Morningstar; Payden & Rygel. See page 26 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the Payden & Rygel 90 Day U.S. T-Bill Index. 32 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON GROWTH TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 33 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** ------------- ------------- ---------------- ----------------- CLASS A Actual $1,000 $ 753.70 $2.20 $ 5.73 Hypothetical (5% return before expenses) $1,000 $1,022.62 $2.54 $ 6.60 CLASS B Actual $1,000 $ 750.90 $5.50 $ 9.02 Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.34 $10.38 CLASS C Actual $1,000 $ 750.80 $5.50 $ 9.02 Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.34 $10.38 CLASS R Actual $1,000 $ 752.40 $3.30 $ 6.83 Hypothetical (5% return before expenses) $1,000 $1,021.37 $3.81 $ 7.86 ADVISOR CLASS Actual $1,000 $ 754.60 $1.10 $ 4.63 Hypothetical (5% return before expenses) $1,000 $1,023.88 $1.27 $ 5.33
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.50%; B: 1.25%; C: 1.25%; R: 0.75%; and Advisor: 0.25%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.30%; B: 2.05%; C: 2.05%; R: 1.55%; and Advisor: 1.05%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 34 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------------- JULY 31, CLASS A 2008 2007 2006 2005 2004(A) 2004 - ------- -------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................. $ 13.59 $ 13.33 $ 12.74 $ 12.48 $ 11.66 $ 10.91 -------- -------- -------- -------- -------- -------- Income from investment operations(b): Net investment income(c, d) ...................... 0.39 0.48 0.41 0.29 0.12 0.23 Net realized and unrealized gains (losses) ....... (2.44) 0.60 0.84 0.29 0.84 0.74 -------- -------- -------- -------- -------- -------- Total from investment operations .................... (2.05) 1.08 1.25 0.58 0.96 0.97 -------- -------- -------- -------- -------- -------- Less distributions from: Net investment income ........................... (0.38) (0.47) (0.42) (0.32) (0.14) (0.22) Net realized gains .............................. (0.24) (0.35) (0.24) -- -- -- -------- -------- -------- -------- -------- -------- Total distributions ................................ (0.62) (0.82) (0.66) (0.32) (0.14) (0.22) -------- -------- -------- -------- -------- -------- Redemption fees(e, f) .............................. -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net asset value, end of year ....................... $ 10.92 $ 13.59 $ 13.33 $ 12.74 $ 12.48 $ 11.66 ======== ======== ======== ======== ======== ======== Total return(g) .................................... (15.41)% 8.29% 9.92% 4.70% 8.30% 8.89% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i)..................................... 0.65% 0.68% 0.69% 0.73% 0.82% 0.85% Expenses net of waiver and payments by affiliates(i)..................................... 0.51% 0.49% 0.50% 0.69% 0.82% 0.85% Net investment income(d) ............................ 3.18% 3.52% 3.09% 2.31% 2.40% 2.00% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................... $282,769 $251,570 $194,477 $162,079 $139,153 $117,013 Portfolio turnover rate ............................. 4.84% 8.11% 11.08% 8.16% 2.63% 3.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 35 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED -------------------------------------------- JULY 31, CLASS B 2008 2007 2006 2005 2004(a) 2004(b) - ------- ------- ------ ------ ------ ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............... $ 13.55 $13.29 $12.71 $12.46 $11.63 $11.67 ------- ------ ------ ------ ------ ------ Income from investment operations(c): Net investment income(d, e) ................... 0.30 0.36 0.30 0.19 0.09 0.07 Net realized and unrealized gains (losses) .... (2.44) 0.61 0.84 0.29 0.84 0.04 ------- ------ ------ ------ ------ ------ Total from investment operations ................. (2.14) 0.97 1.14 0.48 0.93 0.11 ------- ------ ------ ------ ------ ------ Less distributions from: Net investment income ......................... (0.29) (0.36) (0.32) (0.23) (0.10) (0.15) Net realized gains ............................ (0.24) (0.35) (0.24) -- -- -- ------- ------ ------ ------ ------ ------ Total distributions .............................. (0.53) (0.71) (0.56) (0.23) (0.10) (0.15) ------- ------ ------ ------ ------ ------ Redemption fees(f, g) ............................ -- -- -- -- -- -- ------- ------ ------ ------ ------ ------ Net asset value, end of year ..................... $ 10.88 $13.55 $13.29 $12.71 $12.46 $11.63 ======= ====== ====== ====== ====== ====== Total return(h) .................................. (16.02)% 7.42% 9.05% 3.87% 8.02% 0.98% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ................................. 1.40% 1.43% 1.44% 1.48% 1.57% 1.60% Expenses net of waiver and payments by affiliates(j) ................................. 1.26% 1.24% 1.25% 1.44% 1.57% 1.60% Net investment income(e) ......................... 2.43% 2.77% 2.34% 1.56% 1.65% 1.25% SUPPLEMENTAL DATA Net assets, end of year (000's) .................. $ 7,150 $6,497 $6,422 $6,202 $5,223 $3,567 Portfolio turnover rate .......................... 4.84% 8.11% 11.08% 8.16% 2.63% 3.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period December 1, 2003 (effective date) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 36 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR YEAR ENDED DECEMBER 31, ENDED ------------------------------------------------- JULY 31, CLASS C 2008 2007 2006 2005 2004(a) 2004 - ------- -------- -------- ------- ------ ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.42 $ 13.18 $ 12.60 $ 12.36 $ 11.53 $ 10.80 -------- -------- ------- ------- ------- ------- Income from investment operations(b): Net investment income(c, d) ................. 0.30 0.38 0.30 0.19 0.08 0.14 Net realized and unrealized gains (losses) .. (2.41) 0.58 0.85 0.28 0.84 0.73 -------- -------- ------- ------- ------- ------- Total from investment operations ............... (2.11) 0.96 1.15 0.47 0.92 0.87 -------- -------- ------- ------- ------- ------- Less distributions from: Net investment income ....................... (0.30) (0.37) (0.33) (0.23) (0.09) (0.14) Net realized gains .......................... (0.24) (0.35) (0.24) -- -- -- -------- -------- ------- ------- ------- ------- Total distributions ............................ (0.54) (0.72) (0.57) (0.23) (0.09) (0.14) -------- -------- ------- ------- ------- ------- Redemption fees(e, f) .......................... -- -- -- -- -- -- -------- -------- ------- ------- ------- ------- Net asset value, end of year ................... $ 10.77 $ 13.42 $ 13.18 $ 12.60 $ 12.36 $ 11.53 ======== ======== ======= ======= ======= ======= Total return(g) ................................ (16.04)% 7.48% 9.16% 3.83% 8.03% 8.04% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 1.39% 1.43% 1.43% 1.47% 1.57% 1.60% Expenses net of waiver and payments by affiliates(i) ............................... 1.25% 1.24% 1.24% 1.43% 1.57% 1.60% Net investment income(d) ....................... 2.44% 2.77% 2.35% 1.57% 1.65% 1.25% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $152,773 $110,914 $76,018 $63,298 $59,803 $52,881 Portfolio turnover rate ........................ 4.84% 8.11% 11.08% 8.16% 2.63% 3.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 37 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR YEAR ENDED DECEMBER 31, ENDED ----------------------------------------------- JULY 31, CLASS R 2008 2007 2006 2005 2004(a) 2004 - ------- ------- ------- ------- ------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.55 $ 13.30 $ 12.71 $ 12.46 $ 11.63 $10.89 ------- ------- ------- ------- ------- ------ Income from investment operations(b): Net investment income(c, d) ................. 0.37 0.47 0.37 0.26 0.11 0.21 Net realized and unrealized gains (losses) .. (2.44) 0.57 0.85 0.28 0.85 0.72 ------- ------- ------- ------- ------- ------ Total from investment operations ............... (2.07) 1.04 1.22 0.54 0.96 0.93 ------- ------- ------- ------- ------- ------ Less distributions from: Net investment income ....................... (0.35) (0.44) (0.39) (0.29) (0.13) (0.19) Net realized gains .......................... (0.24) (0.35) (0.24) -- -- -- ------- ------- ------- ------- ------- ------ Total distributions ............................ (0.59) (0.79) (0.63) (0.29) (0.13) (0.19) ------- ------- ------- ------- ------- ------ Redemption fees(e, f) .......................... -- -- -- -- -- -- ------- ------- ------- ------- ------- ------ Net asset value, end of year ................... $ 10.89 $ 13.55 $ 13.30 $ 12.71 $ 12.46 $11.63 ======= ======= ======= ======= ======= ====== Total return(g) ................................ (15.58)% 7.91% 9.73% 4.37% 8.27% 8.56% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 0.90% 0.93% 0.94% 0.98% 1.07% 1.10% Expenses net of waiver and payments by affiliates(i) ............................... 0.76% 0.74% 0.75% 0.94% 1.07% 1.10% Net investment income(d) ....................... 2.93% 3.27% 2.84% 2.06% 2.15% 1.75% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $29,466 $25,476 $14,490 $14,112 $12,199 $8,370 Portfolio turnover rate ........................ 4.84% 8.11% 11.08% 8.16% 2.63% 3.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 38 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED ------------------------ DECEMBER 31, ADVISOR CLASS 2008 2007 2006 2005(a) - ------------- ------- ------ ------ ------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 13.57 $13.31 $12.72 $12.81 ------- ------ ------ ------ Income from investment operations(b): Net investment income(c, d) ........................ 0.45 0.53 0.45 0.07 Net realized and unrealized gains (losses) ......... (2.46) 0.58 0.83 0.02 ------- ------ ------ ------ Total from investment operations ...................... (2.01) 1.11 1.28 0.09 ------- ------ ------ ------ Less distributions from: Net investment income .............................. (0.41) (0.50) (0.45) (0.18) Net realized gains ................................. (0.24) (0.35) (0.24) -- ------- ------ ------ ------ Total distributions ................................... (0.65) (0.85) (0.69) (0.18) ------- ------ ------ ------ Redemption fees(e, f) ................................. -- -- -- -- ------- ------ ------ ------ Net asset value, end of year .......................... $ 10.91 $13.57 $13.31 $12.72 ======= ====== ====== ====== Total return(g) ....................................... (15.15)% 8.48% 10.28% 0.68% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .. 0.40% 0.43% 0.44% 0.48% Expenses net of waiver and payments by affiliates(i) .. 0.26% 0.24% 0.25% 0.44% Net investment income(d) .............................. 3.43% 3.77% 3.34% 2.56% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $ 4,307 $3,536 $1,726 $ 753 Portfolio turnover rate ............................... 4.84% 8.11% 11.08% 8.16%
(a) For the period December 1, 2005 (effective date) to December 31, 2005. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 39 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND SHARES VALUE - ------------------------------------------- ---------- ------------ INVESTMENTS IN UNDERLYING FUNDS 79.1%(a) DOMESTIC EQUITY 25.9% (b) Franklin Flex Cap Growth Fund, Advisor Class ......................... 1,340,796 $ 41,846,252 (b) Franklin Growth Opportunities Fund, Advisor Class .................... 665,939 8,783,735 Franklin MicroCap Value Fund, Advisor Class .......................... 411,171 8,737,379 (b) Franklin Natural Resources Fund, Advisor Class ....................... 325,130 6,687,931 (b) Franklin Small Cap Growth Fund, Advisor Class ........................ 3,116,009 19,288,094 Mutual Shares Fund, Class Z .......................................... 2,478,691 37,973,540 ------------ 123,316,931 ------------ DOMESTIC FIXED INCOME 27.0% Franklin Strategic Mortgage Portfolio ................................ 1,588,251 13,277,775 Franklin Total Return Fund, Advisor Class ............................ 5,220,454 45,522,363 Franklin U.S. Government Securities Fund, Advisor Class .............. 10,528,051 69,800,978 ------------ 128,601,116 ------------ FOREIGN EQUITY 11.8% Franklin Global Real Estate Fund, Advisor Class ...................... 819,615 4,278,392 (b) Franklin Gold and Precious Metals Fund, Advisor Class ................ 436,156 11,248,469 Mutual European Fund, Class Z ........................................ 1,188,214 20,496,687 Templeton China World Fund, Advisor Class ............................ 413,757 8,755,108 Templeton Foreign Fund, Advisor Class ................................ 2,685,225 11,788,138 ------------ 56,566,794 ------------ FOREIGN FIXED INCOME 14.4% Templeton Global Bond Fund, Advisor Class ............................ 6,133,308 68,509,055 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $437,244,196) ............................................... 376,993,896 ------------ SHORT TERM INVESTMENTS (COST $97,970,385) 20.6%(a) MONEY MARKET FUNDS 20.6% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ............................................................. 97,970,385 97,970,385 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $535,214,581) 99.7% ...... 474,964,281 OTHER ASSETS, LESS LIABILITIES 0.3% .................................. 1,500,169 ------------ NET ASSETS 100.0% .................................................... $476,464,450 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 40 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED ------------------------------------------------- JULY 31, CLASS A 2008 2007 2006 2005 2004(a) 2004 - ------- -------- -------- -------- -------- -------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................... $ 14.35 $ 14.03 $ 13.14 $ 12.69 $ 11.65 $ 10.64 -------- -------- -------- -------- -------- -------- Income from investment operations(b): Net investment income(c, d) ........................ 0.35 0.43 0.35 0.25 0.12 0.20 Net realized and unrealized gains (losses) ......... (3.31) 0.87 1.15 0.50 1.05 1.00 -------- -------- -------- -------- -------- -------- Total from investment operations ...................... (2.96) 1.30 1.50 0.75 1.17 1.20 -------- -------- -------- -------- -------- -------- Less distributions from: Net investment income .............................. (0.35) (0.43) (0.38) (0.30) (0.13) (0.19) Net realized gains ................................. (0.37) (0.55) (0.23) -- -- -- -------- -------- -------- -------- -------- -------- Total distributions ................................... (0.72) (0.98) (0.61) (0.30) (0.13) (0.19) -------- -------- -------- -------- -------- -------- Redemption fees(e, f) ................................. -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net asset value, end of year .......................... $ 10.67 $ 14.35 $ 14.03 $ 13.14 $ 12.69 $ 11.65 ======== ======== ======== ======== ======== ======== Total return(g) ....................................... (21.22)% 9.40% 11.57% 5.94% 10.14% 11.18% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) .. 0.68% 0.68% 0.70% 0.74% 0.81% 0.89% Expenses net of waiver and payments by affiliates(i) .. 0.52% 0.50% 0.50% 0.69% 0.81% 0.89% Net investment income(d) .............................. 2.74% 2.92% 2.56% 1.93% 2.32% 1.75% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................... $476,415 $491,451 $401,392 $316,754 $281,033 $219,273 Portfolio turnover rate ............................... 7.29% 10.29% 9.40% 10.59% 2.78% 4.13%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.73% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 41 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED ------------------------------------------------ JULY 31, CLASS B 2008 2007 2006 2005 2004(a) 2004(b) - ------- ------- ------- ------- ------- ------- ------------ ER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.31 $ 13.99 $ 13.10 $ 12.66 $11.62 $11.62 ------- ------- ------- ------- ------ ------ Income from investment operations(c): Net investment income(d, e) ................. 0.25 0.31 0.24 0.15 0.09 0.05 Net realized and unrealized gains (losses) .. (3.30) 0.88 1.15 0.50 1.03 0.09 ------- ------- ------- ------- ------ ------ Total from investment operations ............... (3.05) 1.19 1.39 0.65 1.12 0.14 ------- ------- ------- ------- ------ ------ Less distributions from: Net investment income ....................... (0.25) (0.32) (0.27) (0.21) (0.08) (0.14) Net realized gains .......................... (0.37) (0.55) (0.23) -- -- -- ------- ------- ------- ------- ------ ------ Total distributions ............................ (0.62) (0.87) (0.50) (0.21) (0.08) (0.14) ------- ------- ------- ------- ------ ------ Redemption fees(f, g) .......................... -- -- -- -- -- -- ------- ------- ------- ------- ------ ------ Net asset value, end of year ................... $ 10.64 $ 14.31 $ 13.99 $ 13.10 $12.66 $11.62 ======= ======= ======= ======= ====== ====== Total return(h) ................................ (21.80)% 8.61% 10.70% 5.18% 9.77% 1.18% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 1.43% 1.43% 1.45% 1.49% 1.56% 1.64% Expenses net of waiver and payments by affiliates(j) ............................... 1.27% 1.25% 1.25% 1.44% 1.56% 1.64% Net investment income(e) ....................... 1.99% 2.17% 1.81% 1.18% 1.57% 1.00% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $11,060 $12,445 $11,533 $10,170 $8,700 $5,417 Portfolio turnover rate ........................ 7.29% 10.29% 9.40% 10.59% 2.78% 4.13%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period December 1, 2003 (effective date) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.73% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 42 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED ----------------------------------------------------- JULY 31, CLASS C 2008 2007 2006 2005 2004(a) 2004 - ------- -------- -------- -------- -------- -------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.11 $ 13.81 $ 12.94 $ 12.50 $ 11.47 $ 10.48 -------- -------- -------- -------- -------- ------- Income from investment operations(b): Net investment income(c, d) ................. 0.25 0.31 0.24 0.15 0.08 0.12 Net realized and unrealized gains (losses) .. (3.26) 0.87 1.13 0.50 1.03 0.98 -------- -------- -------- -------- -------- ------- Total from investment operations ............... (3.01) 1.18 1.37 0.65 1.11 1.10 -------- -------- -------- -------- -------- ------- Less distributions from: Net investment income ....................... (0.26) (0.33) (0.27) (0.21) (0.08) (0.11) Net realized gains .......................... (0.37) (0.55) (0.23) -- -- -- -------- -------- -------- -------- -------- ------- Total distributions ............................ (0.63) (0.88) (0.50) (0.21) (0.08) (0.11) -------- -------- -------- -------- -------- ------- Redemption fees(e, f) .......................... -- -- -- -- -- -- -------- -------- -------- -------- -------- ------- Net asset value, end of year ................... $ 10.47 $ 14.11 $ 13.81 $ 12.94 $ 12.50 $ 11.47 ======== ======== ======== ======== ======== ======= Total return(g) ................................ (21.87)% 8.61% 10.72% 5.25% 9.75% 10.39% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 1.43% 1.43% 1.45% 1.48% 1.56% 1.64% Expenses net of waiver and payments by affiliates(i) ............................... 1.27% 1.25% 1.25% 1.43% 1.56% 1.64% Net investment income(d) ....................... 1.99% 2.17% 1.81% 1.19% 1.57% 1.00% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $164,355 $160,563 $134,465 $112,294 $105,966 $90,988 Portfolio turnover rate ........................ 7.29% 10.29% 9.40% 10.59% 2.78% 4.13%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.73% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 43 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED ------------------------------------------------- JULY 31, CLASS R 2008 2007 2006 2005 2004(a) 2004 - ------- ------- ------- ------- ------- ------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.32 $ 14.00 $ 13.11 $ 12.66 $ 11.62 $ 10.62 ------- ------- ------- ------- ------- ------- Income from investment operations(b): Net investment income(c, d) ................. 0.33 0.39 0.31 0.21 0.11 0.18 Net realized and unrealized gains (losses) .. (3.32) 0.88 1.15 0.51 1.04 0.98 ------- ------- ------- ------- ------- ------- Total from investment operations ............... (2.99) 1.27 1.46 0.72 1.15 1.16 ------- ------- ------- ------- ------- ------- Less distributions from: Net investment income ....................... (0.32) (0.40) (0.34) (0.27) (0.11) (0.16) Net realized gains .......................... (0.37) (0.55) (0.23) -- -- -- ------- ------- ------- ------- ------- ------- Total distributions ............................ (0.69) (0.95) (0.57) (0.27) (0.11) (0.16) ------- ------- ------- ------- ------- ------- Redemption fees(e, f) .......................... -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- Net asset value, end of year ................... $ 10.64 $ 14.32 $ 14.00 $ 13.11 $ 12.66 $ 11.62 ======= ======= ======= ======= ======= ======= Total return(g) ................................ (21.45)% 9.16% 11.27% 5.73% 9.92% 10.95% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 0.93% 0.93% 0.95% 0.99% 1.06% 1.14% Expenses net of waiver and payments by affiliates(i) ............................... 0.77% 0.75% 0.75% 0.94% 1.06% 1.14% Net investment income(d) ....................... 2.49% 2.67% 2.31% 1.68% 2.07% 1.50% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $47,009 $40,102 $31,719 $30,403 $25,162 $17,161 Portfolio turnover rate ........................ 7.29% 10.29% 9.40% 10.59% 2.78% 4.13%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.73% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 44 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON MODERATE TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED -------------------------- DECEMBER 31, ADVISOR CLASS 2008 2007 2006 2005(a) - ------------- ------- ------ ------ ------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.35 $14.03 $13.15 $13.23 ------- ------ ------ ------ Income from investment operations(b): Net investment income(c, d) ................. 0.40 0.46 0.40 0.08 Net realized and unrealized gains (losses) .. (3.33) 0.88 1.13 0.02 ------- ------ ------ ------ Total from investment operations ............... (2.93) 1.34 1.53 0.10 ------- ------ ------ ------ Less distributions from: Net investment income ....................... (0.38) (0.47) (0.42) (0.18) Net realized gains .......................... (0.37) (0.55) (0.23) -- ------- ------ ------ ------ Total distributions ............................ (0.75) (1.02) (0.65) (0.18) ------- ------ ------ ------ Redemption fees(e, f) .......................... -- -- -- -- ------- ------ ------ ------ Net asset value, end of year ................... $ 10.67 $14.35 $14.03 $13.15 ======= ====== ====== ====== Total return(g) ................................ (21.02)% 9.66% 11.87% 0.68% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 0.43% 0.43% 0.45% 0.49% Expenses net of waiver and payments by affiliates(i) ............................... 0.27% 0.25% 0.25% 0.44% Net investment income(d) ....................... 2.99% 3.17% 2.81% 2.18% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $11,489 $9,699 $7,071 $3,890 Portfolio turnover rate ........................ 7.29% 10.29% 9.40% 10.59%
(a) For the period December 1, 2005 (effective date) to December 31, 2005. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.73% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 45 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON MODERATE TARGET FUND SHARES VALUE - --------------------------------------- ---------- ------------ INVESTMENTS IN UNDERLYING FUNDS 87.6%(a) DOMESTIC EQUITY 35.5% (b) Franklin Flex Cap Growth Fund, Advisor Class .......................... 2,727,033 $ 85,110,686 (b) Franklin Growth Opportunities Fund, Advisor Class ..................... 1,549,751 20,441,214 Franklin MicroCap Value Fund, Advisor Class ........................... 847,164 18,002,242 (b) Franklin Natural Resources Fund, Advisor Class ........................ 647,108 13,311,021 (b) Franklin Small Cap Growth Fund, Advisor Class ......................... 6,369,467 39,427,004 Mutual Shares Fund, Class Z ........................................... 4,966,209 76,082,317 ------------ 252,374,484 ------------ DOMESTIC FIXED INCOME 23.1% Franklin Strategic Mortgage Portfolio ................................. 1,996,994 16,694,866 Franklin Total Return Fund, Advisor Class ............................. 6,834,034 59,592,777 Franklin U.S. Government Securities Fund, Advisor Class ............... 13,251,917 87,860,208 ------------ 164,147,851 ------------ FOREIGN EQUITY 16.5% Franklin Global Real Estate Fund, Advisor Class ....................... 1,892,771 9,880,265 (b) Franklin Gold and Precious Metals Fund, Advisor Class ................. 910,297 23,476,570 Mutual European Fund, Class Z ......................................... 2,511,618 43,325,411 Templeton China World Fund, Advisor Class ............................. 841,864 17,813,834 Templeton Foreign Fund, Advisor Class ................................. 5,164,040 22,670,135 ------------ 117,166,215 ------------ FOREIGN FIXED INCOME 12.5% Templeton Global Bond Fund, Advisor Class ............................. 7,960,044 88,913,693 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $731,359,634) ................................................ 622,602,243 ------------ SHORT TERM INVESTMENTS (COST $83,588,421) 11.8%(a) MONEY MARKET FUNDS 11.8% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% .. 83,588,421 83,588,421 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $814,948,055) 99.4% ....... 706,190,664 OTHER ASSETS, LESS LIABILITIES 0.6% ................................... 4,136,792 ------------ NET ASSETS 100.0% ..................................................... $710,327,456 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 46 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED ----------------------------------------------------- JULY 31, CLASS A 2008 2007 2006 2005 2004(a) 2004 - ------- -------- -------- -------- -------- -------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 16.17 $ 15.63 $ 14.10 $ 13.17 $ 11.83 $ 10.46 -------- -------- -------- -------- -------- -------- Income from investment operations(b): Net investment income(c, d) ................. 0.19 0.32 0.24 0.14 0.09 0.11 Net realized and unrealized gains (losses) .. (5.00) 1.31 1.73 0.96 1.33 1.36 -------- -------- -------- -------- -------- -------- Total from investment operations ............... (4.81) 1.63 1.97 1.10 1.42 1.47 -------- -------- -------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.22) (0.32) (0.32) (0.17) (0.08) (0.10) Net realized gains .......................... (0.66) (0.77) (0.12) -- -- -- -------- -------- -------- -------- -------- -------- Total distributions ............................ (0.88) (1.09) (0.44) (0.17) (0.08) (0.10) -------- -------- -------- -------- -------- -------- Redemption fees(e, f) .......................... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net asset value, end of year ................... $ 10.48 $ 16.17 $ 15.63 $ 14.10 $ 13.17 $ 11.83 ======== ======== ======== ======== ======== ======== Total return(g) ................................ (30.75)% 10.58% 13.90% 8.47% 12.04% 14.04% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 0.76% 0.74% 0.75% 0.79% 0.85% 0.83% Expenses net of waiver and payments by affiliates(i) ............................... 0.51% 0.50% 0.50% 0.72% 0.85% 0.83% Net investment income(d) ....................... 1.43% 1.93% 1.59% 1.07% 1.72% 0.91% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $283,111 $394,689 $319,521 $230,686 $202,560 $165,500 Portfolio turnover rate ........................ 8.87% 10.36% 9.31% 10.50% 3.98% 3.46%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 47 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED --------------------------------------------- JULY 31, CLASS B 2008 2007 2006 2005 2004(a) 2004(b) - ------- ------- ------ ------ ------ ------- ------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 15.91 $15.45 $13.97 $13.09 $11.75 $11.80 ------- ------ ------ ------ ------ ------ Income from investment operations(c): Net investment income (loss)(d, e) .......... 0.09 0.17 0.12 0.04 0.06 (0.02) Net realized and unrealized gains (losses) .. (4.90) 1.31 1.72 0.96 1.32 0.09 ------- ------ ------ ------ ------ ------ Total from investment operations ............... (4.81) 1.48 1.84 1.00 1.38 0.07 ------- ------ ------ ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.12) (0.25) (0.24) (0.12) (0.04) (0.12) Net realized gains .......................... (0.66) (0.77) (0.12) -- -- -- ------- ------ ------ ------ ------ ------ Total distributions ............................ (0.78) (1.02) (0.36) (0.12) (0.04) (0.12) ------- ------ ------ ------ ------ ------ Redemption fees(f, g) .......................... -- -- -- -- -- -- ------- ------ ------ ------ ------ ------ Net asset value, end of year ................... $ 10.32 $15.91 $15.45 $13.97 $13.09 $11.75 ======= ====== ====== ====== ====== ====== Total return(h) ................................ (31.24)% 9.76% 13.06% 7.63% 11.76% 0.56% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 1.51% 1.49% 1.50% 1.54% 1.60% 1.58% Expenses net of waiver and payments by affiliates(j) ............................... 1.26% 1.25% 1.25% 1.47% 1.60% 1.58% Net investment income(c) ....................... 0.68% 1.18% 0.84% 0.32% 0.97% 0.16% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $ 6,261 $8,292 $8,195 $6,468 $5,343 $3,178 Portfolio turnover rate ........................ 8.87% 10.36% 9.31% 10.50% 3.98% 3.46%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period December 1, 2003 (effective date) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 48 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED ----------------------------------------------- JULY 31, CLASS C 2008 2007 2006 2005 2004(a) 2004 - ------- -------- -------- -------- ------- ------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 15.90 $ 15.44 $ 13.97 $ 13.09 $ 11.72 $ 10.38 -------- -------- -------- ------- ------- ------- Income from investment operations(b): Net investment income(c, d) ................. 0.09 0.19 0.13 0.04 0.05 0.02 Net realized and unrealized gains (losses) .. (4.90) 1.29 1.70 0.96 1.32 1.35 -------- -------- -------- ------- ------- ------- Total from investment operations ............... (4.81) 1.48 1.83 1.00 1.37 1.37 -------- -------- -------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ............ (0.12) (0.25) (0.24) (0.12) -- (0.03) Net realized gains .......................... (0.66) (0.77) (0.12) -- -- -- -------- -------- -------- ------- ------- ------- Total distributions ............................ (0.78) (1.02) (0.36) (0.12) -- (0.03) -------- -------- -------- ------- ------- ------- Redemption fees(e, f) .......................... -- -- -- -- -- -- -------- -------- -------- ------- ------- ------- Net asset value, end of year ................... $ 10.31 $ 15.90 $ 15.44 $ 13.97 $ 13.09 $ 11.72 ======== ======== ======== ======= ======= ======= Total return(g) ................................ (31.26)% 9.72% 13.08% 7.63% 11.69% 13.18% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 1.51% 1.49% 1.50% 1.54% 1.60% 1.58% Expenses net of waiver and payments by affiliates(i) ............................... 1.26% 1.25% 1.25% 0.47% 1.60% 1.58% Net investment income(d) ....................... 0.68% 1.18% 0.84% 0.32% 0.97% 0.16% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $106,379 $145,218 $122,156 $88,986 $73,816 $61,179 Portfolio turnover rate ........................ 8.87% 10.36% 9.31% 10.50% 3.98% 3.46%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 49 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, YEAR ENDED -------------------------------------------- JULY 31, CLASS R 2008 2007 2006 2005 2004(a) 2004 - ------- ------- ------- ------- ------- ------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................. $ 16.02 $ 15.52 $ 14.02 $ 13.11 $ 11.76 $ 10.40 ------- ------- ------- ------- ------- ------- Income from investment operations(b): Net investment income(c, d) ..................... 0.17 0.29 0.20 0.11 0.08 0.08 Net realized and unrealized gains (losses) ...... (4.96) 1.28 1.71 0.95 1.33 1.36 ------- ------- ------- ------- ------- ------- Total from investment operations ................... (4.79) 1.57 1.91 1.06 1.41 1.44 ------- ------- ------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ................ (0.19) (0.30) (0.29) (0.15) (0.06) (0.08) Net realized gains .............................. (0.66) (0.77) (0.12) -- -- -- ------- ------- ------- ------- ------- ------- Total distributions ................................ (0.85) (1.07) (0.41) (0.15) (0.06) (0.08) ------- ------- ------- ------- ------- ------- Redemption fees(e, f) .............................. -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- Net asset value, end of year ....................... $ 10.38 $ 16.02 $ 15.52 $ 14.02 $ 13.11 $ 11.76 ======= ======= ======= ======= ======= ======= Total return(g) .................................... (30.92)% 10.31% 13.65% 8.10% 12.00% 13.89% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ................................... 1.01% 0.99% 1.00% 1.04% 1.10% 1.08% Expenses net of waiver and payments by affiliates(i) ................................... 0.76% 0.75% 0.75% 0.97% 1.10% 1.08% Net investment income(d) ........................... 1.18% 1.68% 1.34% 0.82% 1.47% 0.66% SUPPLEMENTAL DATA Net assets, end of year (000's) .................... $35,485 $36,757 $26,215 $19,461 $15,206 $11,714 Portfolio turnover rate ............................ 8.87% 10.36% 9.31% 10.50% 3.98% 3.46%
(a) For the period August 1, 2004 to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 50 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON GROWTH TARGET FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED ------------------------ DECEMBER 31, ADVISOR CLASS 2008 2007 2006 2005(a) - ------------- ------- ------ ------ ------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................. $ 16.19 $15.64 $14.10 $14.18 ------- ------ ------ ------ Income from investment operations(b): Net investment income(c, d) ..................... 0.27 0.38 0.29 0.11 Net realized and unrealized gains (losses) ...... (5.06) 1.29 1.72 (0.03) ------- ------ ------ ------ Total from investment operations ................... (4.79) 1.67 2.01 0.08 ------- ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ............... (0.25) (0.35) (0.35) (0.16) Net realized gains .............................. (0.66) (0.77) (0.12) -- ------- ------ ------ ------ Total distributions ................................ (0.91) (1.12) (0.47) (0.16) ------- ------ ------ ------ Redemption fees(e, f) .............................. -- -- -- -- ------- ------ ------ ------ Net asset value, end of year ....................... $ 10.49 $16.19 $15.64 $14.10 ======= ====== ====== ====== Total return(g) .................................... (30.56)% 10.80% 14.26% 0.54% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ................................... 0.51% 0.49% 0.50% 0.54% Expenses net of waiver and payments by affiliates(i) ................................... 0.26% 0.25% 0.25% 0.47% Net investment income(d) ........................... 1.68% 2.18% 1.84% 1.32% SUPPLEMENTAL DATA Net assets, end of year (000's) .................... $11,059 $9,917 $5,593 $3,320 Portfolio turnover rate ............................ 8.87% 10.36% 9.31% 10.50%
(a) For the period December 1, 2005 (effective date) to December 31, 2005. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 51 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON GROWTH TARGET FUND SHARES VALUE - ------------------------------------- ---------- ------------ INVESTMENTS IN UNDERLYING FUNDS 94.8%(a) DOMESTIC EQUITY 53.7% (b) Franklin Flex Cap Growth Fund, Advisor Class.................................... 2,564,043 $ 80,023,790 (b) Franklin Growth Opportunities Fund, Advisor Class ................................... 1,363,020 17,978,237 Franklin MicroCap Value Fund, Advisor Class ................................... 791,091 16,810,677 (b) Franklin Natural Resources Fund, Advisor Class ................................... 636,509 13,092,997 (b) Franklin Small Cap Growth Fund, Advisor Class ................................... 6,082,093 37,648,156 Mutual Shares Fund, Class Z ................ 4,693,775 71,908,626 ------------ 237,462,483 ------------ DOMESTIC FIXED INCOME 11.0% Franklin Strategic Mortgage Portfolio ...... 602,416 5,036,200 Franklin Total Return Fund, Advisor Class ................................... 1,996,638 17,410,681 Franklin U.S. Government Securities Fund, Advisor Class ........................... 3,967,140 26,302,137 ------------ 48,749,018 ------------ FOREIGN EQUITY 24.2% Franklin Global Real Estate Fund, Advisor Class ................................... 1,649,225 8,608,954 (b) Franklin Gold and Precious Metals Fund, Advisor Class ........................... 821,076 21,175,539 Mutual European Fund, Class Z .............. 2,290,529 39,511,618 Templeton China World Fun d, Advisor Class ................................... 772,967 16,355,972 Templeton Foreign Fund, Advisor Class ...... 4,915,537 21,579,207 ------------ 107,231,290 ------------ FOREIGN FIXED INCOME 5.9% Templeton Global Bond Fun d, Advisor Class ................................... 2,344,923 26,192,792 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $527,007,856) .................. 419,635,583 ------------ SHORT TERM INVESTMENTS (COST $23,259,060) 5.3%(a) MONEY MARKET FUNDS 5.3% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ........... 23,259,060 23,259,060 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $550,266,916) 100.1% .............. 442,894,643 OTHER ASSETS, LESS LIABILITIES (0.1)% ...... (601,424) ------------ NET ASSETS 100.0% .......................... $442,293,219 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 52 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2008
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ------------- ------------- Assets: Investments in Underlying Funds (Note 6): Cost ..................................... $535,214,581 $ 814,948,055 $ 550,266,916 ------------ ------------ ------------- Value .................................... $474,964,281 $ 706,190,664 $ 442,894,643 Receivables from capital shares sold ........ 4,023,622 7,096,497 1,670,129 ------------ ------------- ------------- Total assets .......................... 478,987,903 713,287,161 444,564,772 ------------ ------------- ------------- Liabilities: Payables: Capital shares redeemed .................. 2,013,440 2,225,825 1,832,087 Affiliates ............................... 355,381 471,034 201,119 Unaffiliated transfer agent fees ......... 117,155 208,983 189,227 Accrued expenses and other liabilities ...... 37,477 53,863 49,120 ------------ ------------- ------------- Total liabilities ..................... 2,523,453 2,959,705 2,271,553 ------------ ------------- ------------- Net assets, at value ............... $476,464,450 $ 710,327,456 $ 442,293,219 ------------ ------------- ------------- Net assets consist of: Paid-in capital ............................. $534,752,241 $ 813,895,457 $ 551,098,719 Undistributed net investment income ......... 427,455 929,902 981,391 Net unrealized appreciation (depreciation) .. (60,250,300) (108,757,391) (107,372,273) Accumulated net realized gain (loss) ........ 1,535,054 4,259,488 (2,414,618) ------------ ------------- ------------- Net assets, at value ............... $476,464,450 $ 710,327,456 $ 442,293,219 ============ ============= =============
The accompanying notes are an integral part of these financial statements. Annual Report | 53 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2008
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ------------ ------------ CLASS A: Net assets, at value ........................ $282,768,792 $476,414,850 $283,110,569 ------------ ------------ ------------ Shares outstanding .......................... 25,901,115 44,643,350 27,009,058 ------------ ------------ ------------ Net asset value per share(a) ................ $ 10.92 $ 10.67 $ 10.48 ------------ ------------ ------------ Maximum offering price per share (net asset value per share / 94.25%) ..... $ 11.59 $ 11.32 $ 11.12 ------------ ------------ ------------ CLASS B: Net assets, at value ........................ $ 7,149,557 $ 11,059,602 $ 6,260,730 ------------ ------------ ------------ Shares outstanding .......................... 656,830 1,039,737 606,719 ------------ ------------ ------------ Net asset value and maximum offering price per share(a) ....................... $ 10.88 $ 10.64 $ 10.32 ------------ ------------ ------------ CLASS C: Net assets, at value ........................ $152,773,026 $164,355,172 $106,378,632 ------------ ------------ ------------ Shares outstanding .......................... 14,186,416 15,691,473 10,314,416 ------------ ------------ ------------ Net asset value and maximum offering price per share(a).............................. $ 10.77 $ 10.47 $ 10.31 ------------ ------------ ------------ CLASS R: Net assets, at value ........................ $ 29,465,586 $ 47,008,916 $ 35,484,504 ------------ ------------ ------------ Shares outstanding .......................... 2,706,102 4,416,166 3,417,802 ------------ ------------ ------------ Net asset value and maximum offering price per share ................................ $ 10.89 $ 10.64 $ 10.38 ------------ ------------ ------------ ADVISOR CLASS: Net assets, at value ........................ $ 4,307,489 $ 11,488,916 $ 11,058,784 ------------ ------------ ------------ Shares outstanding .......................... 394,922 1,076,645 1,054,053 ------------ ------------ ------------ Net asset value and maximum offering price per share ................................ $ 10.91 $ 10.67 $ 10.49 ------------ ------------ ------------
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable. The accompanying notes are an integral part of these financial statements. 54 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the year ended December 31, 2008
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ------------- ------------- Investment income: Dividends from Underlying Funds (Note 6) ............................. $ 16,682,058 $ 23,333,928 $ 10,315,636 ------------ ------------- ------------- Expenses: Asset allocation fees (Note 3a) ...................................... 903,546 1,611,554 1,267,729 Distribution fees: (Note 3c) Class A ........................................................... 688,268 1,217,417 869,348 Class B ........................................................... 69,500 115,801 75,045 Class C ........................................................... 1,374,483 1,625,970 1,294,350 Class R ........................................................... 139,027 220,799 187,972 Transfer agent fees (Note 3e) ........................................ 702,096 1,228,898 1,233,983 Reports to shareholders .............................................. 42,341 74,237 72,858 Registration and filing fees ......................................... 108,539 103,636 87,012 Professional fees .................................................... 27,040 33,092 27,907 Trustees' fees and expenses .......................................... 3,071 5,093 4,008 Other ................................................................ 19,764 26,817 22,695 ------------ ------------- ------------- Total expenses ................................................. 4,077,675 6,263,314 5,142,907 Expenses waived/paid by affiliates (Note 3f) ................... (645,311) (1,142,869) (1,323,444) ------------ ------------- ------------- Net expenses ................................................ 3,432,364 5,120,445 3,819,463 ------------ ------------- ------------- Net investment income .................................... 13,249,694 18,213,483 6,496,173 ------------ ------------- ------------- Realized and unrealized gains (losses): Net realized gain (loss) from: Sale of investments in Underlying Funds ........................... (4,102,645) (6,892,541) (13,083,276) Realized gain distributions by Underlying Funds ................... 6,944,086 13,692,458 13,260,337 ------------ ------------- ------------- Net realized gain (loss) ................................. 2,841,441 6,799,917 177,061 ------------ ------------- ------------- Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .................................................. (94,915,134) (196,772,246) (197,001,270) ------------ ------------- ------------- Net realized and unrealized gain (loss) ................................. (92,073,693) (189,972,329) (196,824,209) ------------ ------------- ------------- Net increase (decrease) in net assets resulting from operations ......... $(78,823,999) $(171,758,846) $(190,328,036) ============ ============= =============
The accompanying notes are an integral part of these financial statements. Annual Report | 55 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND MODERATE TARGET FUND -------------------------- --------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, -------------------------- --------------------------- 2008 2007 2008 2007 ------------ ------------ ------------- ------------ Increase (decrease) in net assets: Operations: Net investment income ............................................. $ 13,249,694 $ 11,066,674 $ 18,213,483 $ 17,560,996 Net realized gain (loss) from Underlying Funds .................... 2,841,441 12,679,747 6,799,917 32,240,957 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ............................. (94,915,134) 1,298,295 (196,772,246) 5,441,929 ------------ ------------ ------------- ------------ Net increase (decrease) in net assets resulting from operations .......................................... (78,823,999) 25,044,716 (171,758,846) 55,243,882 ------------ ------------ ------------- ------------ Distributions to shareholders from: Net investment income: Class A ........................................................ (9,093,615) (7,827,189) (14,241,980) (13,678,690) Class B ........................................................ (175,167) (169,537) (248,537) (266,922) Class C ........................................................ (3,810,306) (2,738,556) (3,721,764) (3,504,431) Class R ........................................................ (869,315) (691,739) (1,250,162) (1,047,371) Advisor Class .................................................. (134,845) (114,381) (346,065) (289,700) Net realized gains: Class A ........................................................ (5,215,326) (5,708,542) (14,041,188) (16,900,630) Class B ........................................................ (122,096) (165,679) (327,683) (444,317) Class C ........................................................ (2,743,261) (2,453,393) (4,781,082) (5,720,106) Class R ........................................................ (541,689) (501,465) (1,274,713) (1,395,923) Advisor Class .................................................. (67,963) (82,400) (281,923) (335,235) ------------ ------------ ------------- ------------ Total distributions to shareholders .................................. (22,773,583) (20,452,881) (40,515,097) (43,583,325) ------------ ------------ ------------- ------------ Capital share transactions: (Note 2) Class A ........................................................ 92,679,878 53,837,470 128,035,233 81,959,202 Class B ........................................................ 2,232,512 (45,467) 2,045,174 661,569 Class C ........................................................ 73,404,375 33,874,823 52,799,515 23,513,166 Class R ........................................................ 10,284,248 10,789,707 20,814,658 7,788,466 Advisor Class .................................................. 1,455,357 1,808,846 4,642,852 2,488,553 ------------ ------------ ------------- ------------ Total capital share transactions ..................................... 180,056,370 100,265,379 208,337,432 116,410,956 ------------ ------------ ------------- ------------ Redemption fees ...................................................... 12,809 2,308 4,916 7,689 ------------ ------------ ------------- ------------ Net increase (decrease) in net assets ....................... 78,471,597 104,859,522 (3,931,595) 128,079,202 Net assets: Beginning of year .................................................... 397,992,853 293,133,331 714,259,051 586,179,849 ------------ ------------ ------------- ------------ End of year .......................................................... $476,464,450 $397,992,853 $ 710,327,456 $714,259,051 ============ ============ ============= ============ Undistributed net investment income included in net assets: End of year .......................................................... $ 427,455 $ 221,449 $ 929,902 $ 431,170 ============ ============ ============= ============
The accompanying notes are an integral part of these financial statements. 56 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND ---------------------------- YEAR ENDED DECEMBER 31, ---------------------------- 2008 2007 ------------- ------------ Increase (decrease) in net assets: Operations: Net investment income ............................................. $ 6,496,173 $ 9,342,685 Net realized gain (loss) from Underlying Funds .................... 177,061 35,997,986 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ............................. (197,001,270) 5,370,351 ------------- ------------ Net increase (decrease) in net assets resulting from operations .......................................... (190,328,036) 50,711,022 ------------- ------------ Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ........................................................ (5,761,341) (7,570,294) Class B ........................................................ (72,932) (126,683) Class C ........................................................ (1,258,031) (2,228,923) Class R ........................................................ (646,134) (666,373) Advisor Class .................................................. (257,043) (199,883) Net realized gains: Class A ........................................................ (16,500,974) (17,221,275) Class B ........................................................ (368,168) (393,145) Class C ........................................................ (6,340,529) (6,480,615) Class R ........................................................ (1,770,767) (1,546,719) Advisor Class .................................................. (434,667) (383,485) ------------- ------------ Total distributions to shareholders .................................. (33,410,586) (36,817,395) ------------- ------------ Capital share transactions: (Note 2) Class A ........................................................ 34,252,033 65,581,672 Class B ........................................................ 1,172,839 (137,062) Class C ........................................................ 16,176,377 19,702,856 Class R ........................................................ 14,662,480 9,979,926 Advisor Class .................................................. 4,892,287 4,168,665 ------------- ------------ Total capital share transactions ..................................... 71,156,016 99,296,057 ------------- ------------ Redemption fees ...................................................... 2,223 3,636 ------------- ------------ Net increase (decrease) in net assets ....................... (152,580,383) 113,193,320 Net assets: Beginning of year .................................................... 594,873,602 481,680,282 ------------- ------------ End of year .......................................................... $ 442,293,219 $594,873,602 ============= ============ Undistributed net investment income included in net assets: End of year .......................................................... $ 981,391 $ 348,055 ============= ============
The accompanying notes are an integral part of these financial statements. Annual Report | 57 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Templeton Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of ten separate funds, three of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The Funds invest primarily in Franklin Templeton mutual funds (Underlying Funds). The Funds offer five classes of shares: Class A, Class B, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege. The following summarizes the Funds' significant accounting policies. A. SECURITY VALUATION Net asset value per share is calculated as of the close of trading of the NYSE. Investments in the Underlying Funds are valued at their closing net asset value each trading day. B. INCOME TAXES No provision has been made for U.S. income taxes because it is each fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. The Funds have reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2008, and have determined that no provision for income tax is required in the Funds' financial statements. C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income and realized gain distributions by Underlying Funds are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods. 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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense. 58 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) The Funds indirectly bear their proportionate share of expenses from the Underlying Funds. Since the Underlying Funds have varied expense levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of expenses incurred indirectly by the Funds will vary. Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses. D. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those estimates. E. REDEMPTION FEES A short term trading redemption fee was imposed, with some exceptions, on any fund shares that were redeemed or exchanged within seven calendar days following their purchase date. The redemption fee was 2% of the amount redeemed. Such fees were retained by the Funds and accounted for as an addition to paid-in capital. Effective September 1, 2008, the redemption fee was eliminated. F. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote. Annual Report | 59 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST At December 31, 2008, there were an unlimited number of shares authorized (without par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND MODERATE TARGET FUND -------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------- ----------- ------------- CLASS A SHARES: Year ended December 31, 2008 Shares sold ......................... 15,568,306 $ 190,953,863 19,698,628 $ 242,960,356 Shares issued in reinvestment of distributions ................. 1,088,389 13,016,234 2,242,119 27,400,727 Shares redeemed ..................... (9,272,012) (111,290,219) (11,533,860) (142,325,850) ---------- ------------- ----------- ------------- Net increase (decrease) ............. 7,384,683 $ 92,679,878 10,406,887 $ 128,035,233 ========== ============= =========== ============= Year ended December 31, 2007 Shares sold ......................... 7,078,140 $ 97,213,137 10,075,503 $ 146,783,957 Shares issued in reinvestment of distributions ................. 917,963 12,445,343 2,072,310 29,756,594 Shares redeemed ..................... (4,074,316) (55,821,010) (6,516,873) (94,581,349) ---------- ------------- ----------- ------------- Net increase (decrease) ............. 3,921,787 $ 53,837,470 5,630,940 $ 81,959,202 ========== ============= =========== ============= CLASS B SHARES: Year ended December 31, 2008 Shares sold ......................... 386,978 $ 4,705,293 439,730 $ 5,372,790 Shares issued in reinvestment of distributions ................. 21,263 252,962 44,191 537,722 Shares redeemed ..................... (231,042) (2,725,743) (313,835) (3,865,338) ---------- ------------- ----------- ------------- Net increase (decrease) ............. 177,199 $ 2,232,512 170,086 $ 2,045,174 ========== ============= =========== ============= Year ended December 31, 2007 Shares sold ......................... 75,828 $ 1,039,277 142,091 $ 2,071,530 Shares issued in reinvestment of distributions ................. 20,207 273,102 46,068 659,454 Shares redeemed ..................... (99,759) (1,357,846) (142,774) (2,069,415) ---------- ------------- ----------- ------------- Net increase (decrease) ............. (3,724) $ (45,467) 45,385 $ 661,569 ========== ============= =========== ============= CLASS C SHARES: Year ended December 31, 2008 Shares sold ......................... 9,143,048 $ 111,410,003 7,246,871 $ 88,052,929 Shares issued in reinvestment of distributions ................. 485,398 5,720,049 641,662 7,691,753 Shares redeemed ..................... (3,708,346) (43,725,677) (3,579,060) (42,945,167) ---------- ------------- ----------- ------------- Net increase (decrease) ............. 5,920,100 $ 73,404,375 4,309,473 $ 52,799,515 ========== ============= =========== ============= Year ended December 31, 2007 Shares sold ......................... 3,221,426 $ 43,702,669 2,656,444 $ 38,027,015 Shares issued in reinvestment of distributions ................. 334,604 4,481,670 590,251 8,334,505 Shares redeemed ..................... (1,059,402) (14,309,516) (1,602,070) (22,848,354) ---------- ------------- ----------- ------------- Net increase (decrease) ............. 2,496,628 $ 33,874,823 1,644,625 $ 23,513,166 ========== ============= =========== =============
60 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND MODERATE TARGET FUND ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT --------- ------------ ---------- ------------ CLASS R SHARES: Year ended December 31, 2008 Shares sold ......................... 1,459,923 $ 18,062,085 2,991,280 $ 37,361,989 Shares issued in reinvestment of distributions ................. 113,747 1,356,174 202,851 2,464,649 Shares redeemed ..................... (747,198) (9,134,011) (1,577,937) (19,011,980) --------- ------------ ---------- ------------ Net increase (decrease) ............. 826,472 $ 10,284,248 1,616,194 $ 20,814,658 ========= ============ ========== ============ Year ended December 31, 2007 Shares sold ......................... 1,454,253 $ 19,847,027 1,210,627 $ 17,652,708 Shares issued in reinvestment of distributions ................. 84,244 1,140,279 168,596 2,415,935 Shares redeemed ..................... (748,379) (10,197,599) (844,179) (12,280,177) --------- ------------ --------- ------------ Net increase (decrease) ............. 790,118 $ 10,789,707 535,044 $ 7,788,466 ========= ============ ========== ============ ADVISOR CLASS SHARES: Year ended December 31, 2008 Shares sold ......................... 257,955 $ 2,902,039 495,708 $ 5,839,904 Shares issued in reinvestment of distributions ................. 16,949 201,287 51,803 626,829 Shares redeemed ..................... (140,537) (1,647,969) (146,513) (1,823,881) --------- ------------ --------- ------------ Net increase (decrease) ............. 134,367 $ 1,455,357 400,998 $ 4,642,852 ========= ============ ========== ============ Year ended December 31, 2007 Shares sold ......................... 199,132 $ 2,746,355 286,936 $ 4,165,520 Shares issued in reinvestment of distributions ................. 14,487 196,279 43,439 623,886 Shares redeemed ..................... (82,760) (1,133,788) (158,634) (2,300,853) --------- ------------ ---------- ------------ Net increase (decrease) ............. 130,859 $ 1,808,846 171,741 $ 2,488,553 ========= ============ ========== ============
FRANKLIN TEMPLETON GROWTH TARGET FUND -------------------------- SHARES AMOUNT ---------- ------------- CLASS A SHARES: Year ended December 31, 2008 Shares sold ..................................... 8,614,981 $ 114,733,064 Shares issued in reinvestment of distributions .. 1,667,657 21,595,931 Shares redeemed ................................. (7,689,195) (102,076,962) ---------- ------------- Net increase (decrease) ......................... 2,593,443 $ 34,252,033 ========== ============= Year ended December 31, 2007 Shares sold ..................................... 6,798,084 $ 111,758,870 Shares issued in reinvestment of distributions .. 1,467,899 23,798,123 Shares redeemed ................................. (4,286,644) (69,975,321) ---------- ------------- Net increase (decrease) ......................... 3,979,339 $ 65,581,672 ========== =============
Annual Report | 61 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON GROWTH TARGET FUND -------------------------- SHARES AMOUNT ----------- ------------ CLASS B SHARES: Year ended December 31, 2008 Shares sold ..................................... 169,541 $ 2,246,202 Shares issued in reinvestment of distributions .. 32,101 421,308 Shares redeemed ................................. (116,215) (1,494,671) ---------- ------------ Net increase (decrease) ......................... 85,427 $ 1,172,839 ========== ============ Year ended December 31, 2007 Shares sold ..................................... 42,490 $ 697,796 Shares issued in reinvestment of distributions .. 31,417 501,388 Shares redeemed ................................. (83,154) (1,336,246) ---------- ------------ Net increase (decrease) ......................... (9,247) $ (137,062) ========== ============ CLASS C SHARES: Year ended December 31, 2008 Shares sold ..................................... 3,113,955 $ 41,358,304 Shares issued in reinvestment of distributions .. 526,370 6,908,111 Shares redeemed ................................. (2,459,694) (32,090,038) ---------- ------------ Net increase (decrease) ......................... 1,180,631 $ 16,176,377 ========== ============ Year ended December 31, 2007 Shares sold ..................................... 2,165,566 $ 35,001,780 Shares issued in reinvestment of distributions .. 496,954 7,928,135 Shares redeemed ................................. (1,438,748) (23,227,059) ---------- ------------ Net increase (decrease) ......................... 1,223,772 $ 19,702,856 ========== ============ CLASS R SHARES: Year ended December 31, 2008 Shares sold ..................................... 2,125,306 $ 28,652,652 Shares issued in reinvestment of distributions .. 185,467 2,367,456 Shares redeemed ................................. (1,186,756) (16,357,628) ---------- ------------ Net increase (decrease) ......................... 1,124,017 $ 14,662,480 ========== ============ Year ended December 31, 2007 Shares sold ..................................... 1,107,656 $ 18,148,876 Shares issued in reinvestment of distributions .. 136,113 2,188,209 Shares redeemed ................................. (638,597) (10,357,159) ---------- ------------ Net increase (decrease) ......................... 605,172 $ 9,979,926 ========== ============ ADVISOR CLASS SHARES: Year ended December 31, 2008 Shares sold ..................................... 529,385 $ 6,071,746 Shares issued in reinvestment of distributions .. 55,379 690,032 Shares redeemed ................................. (143,400) (1,869,491) ---------- ------------ Net increase (decrease) ......................... 441,364 $ 4,892,287 ========== ============ Year ended December 31, 2007 Shares sold ..................................... 301,327 $ 4,948,640 Shares issued in reinvestment of distributions .. 35,509 576,489 Shares redeemed ................................. (81,819) (1,356,464) ---------- ------------ Net increase (decrease) ......................... 255,017 $ 4,168,665 ========== ============
62 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors/trustees of certain of the Underlying Funds and of the following subsidiaries:
SUBSIDIARY AFFILIATION - ---------- ---------------------- Franklin Advisers, Inc. (Advisers) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. ASSET ALLOCATION FEES The Funds pay an asset allocation fee to Advisers of 0.25% per year of the average daily net assets of each of the Funds for investment advisory services, consisting principally of determining the allocation of assets of the Funds among the designated Underlying Funds. B. ADMINISTRATIVE FEES 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. C. DISTRIBUTION FEES The Trust's Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds' Class B, C and R compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to the maximum annual plan rate for each class. The maximum annual plan rates, based on the average daily net assets, for each class, are as follows: Class A ... 0.25% Class B ... 1.00% Class C ... 1.00% Class R ... 0.50%
Annual Report | 63 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) D. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ----------- ----------- Sales charges retained net of commissions paid to unaffiliated broker/dealers ............................................ $282,199 $470,718 $231,198 Contingent deferred sales charges retained ................... $ 57,525 $ 52,000 $ 29,636
E. TRANSFER AGENT FEES For the year ended December 31, 2008, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ----------- ----------- Transfer agent fees .. $331,000 $577,732 $619,229
F. WAIVER AND EXPENSE REIMBURSEMENTS Advisers and Investor Services have agreed in advance to waive all or a portion of their respective fees and to assume payment of other expenses through April 30, 2009. Total expenses waived or paid are not subject to reimbursement by the Funds subsequent to the Funds' fiscal year end. After April 30, 2009, Advisers and Investor Services may discontinue this waiver at any time upon notice to the Funds' Board of Trustees. 4. INCOME TAXES The tax character of distributions paid during the years ended December 31, 2008 and 2007, was as follows:
FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND ------------------------- 2008 2007 ----------- ----------- Distributions paid from: Ordinary income ........... $14,083,248 $11,724,151 Long term capital gain .... 8,690,335 8,728,730 ----------- ----------- $22,773,583 $20,452,881 =========== ===========
64 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED)
FRANKLIN TEMPLETON MODERATE TARGET FUND ------------------------- 2008 2007 ----------- ----------- Distributions paid from: Ordinary income ........... $19,808,519 $19,429,120 Long term capital gain .... 20,706,578 24,154,205 ----------- ----------- $40,515,097 $43,583,325 =========== ===========
FRANKLIN TEMPLETON GROWTH TARGET FUND ------------------------- 2008 2007 ----------- ----------- Distributions paid from: Ordinary income ........... $ 7,995,480 $10,792,156 Long term capital gain .... 25,415,106 26,025,239 ----------- ----------- $33,410,586 $36,817,395 =========== ===========
At December 31, 2008, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND -------------- -------------- -------------- Cost of investments ......................... $ 537,687,675 $ 817,857,223 $ 552,892,593 ============= ============= ============= Unrealized appreciation ..................... $ 7,148,985 $ 15,525,617 $ 11,514,029 Unrealized depreciation ..................... (69,872,379) (127,192,176) (121,511,979) ------------- ------------- ------------- Net unrealized appreciation (depreciation) .. $ (62,723,394) $(111,666,559) $(109,997,950) ============= ============= ============= Undistributed ordinary income ............... $ 427,455 $ 929,902 $ 981,391 Undistributed long term capital gains ....... 4,008,148 7,168,654 211,060 ------------- ------------- ------------- Distributable earnings ...................... $ 4,435,603 $ 8,098,556 $ 1,192,451 ============= ============= =============
Net investment income differs for financial statement and tax purposes primarily due to differing treatment of short term capital gains distributions from Underlying Funds. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales and short term capital gains distributions from Underlying Funds. Annual Report | 65 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INVESTMENT TRANSACTIONS Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2008, were as follows:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND ------------ ------------ ------------ Purchases ... $177,105,034 $233,211,603 $108,122,786 Sales ....... $ 17,690,000 $ 47,450,000 $ 45,444,000
6. INVESTMENTS IN UNDERLYING FUNDS The Funds invest primarily in the Underlying Funds which are managed by Advisers or an affiliate of Advisers. The Funds do not invest in the Underlying Funds for the purpose of exercising management or control. At December 31, 2008, the Funds held the following positions which exceed 5% of the Underlying Funds' shares outstanding:
NAME OF ISSUER % OF SHARES HELD - -------------- ---------------- FRANKLIN TEMPLETON CONSERVATIVE TARGET FUND Franklin Strategic Mortgage Portfolio ..... 9.05% Franklin Global Real Estate Fund .......... 7.82% Franklin Small Cap Growth Fund ............ 5.69% FRANKLIN TEMPLETON MODERATE TARGET FUND Franklin Global Real Estate Fund .......... 18.06% Franklin Small Cap Growth Fund ............ 11.64% Franklin Strategic Mortgage Portfolio ..... 11.38% Franklin Growth Opportunities Fund ........ 9.49% FRANKLIN TEMPLETON GROWTH TARGET FUND Franklin Global Real Estate Fund .......... 15.74% Franklin Small Cap Growth Fund ............ 11.11% Franklin Growth Opportunities Fund ........ 8.35% Franklin MicroCap Value Fund .............. 6.14%
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant to a SEC exemptive order specific to the Funds' investment in the Sweep Money Fund, asset allocation fees are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund. 66 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. FAIR VALUE MEASUREMENTS The Funds adopted Financial Accounting Standards Board (FASB) Statement No. 157, "Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Funds have determined that the implementation of SFAS 157 did not have a material impact on the Funds' financial statements. SFAS 157 establishes a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds' investments and are summarized in the following fair value hierarchy: - Level 1 - quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. At December 31, 2008, all of the Funds' investments in securities carried at fair value were in Level 1 inputs. 8. SUBSEQUENT EVENT On January 23, 2009, the Funds entered into, along with certain other funds managed by Franklin Templeton Investments (individually, "Borrower"; collectively "Borrowers"), a $725 million senior unsecured syndicated global line of credit ("Global Credit Facility") to provide a source of funds to the Borrowers for temporary and emergency purposes and to meet future unanticipated or unusually large redemption requests. Under the terms of the Global Credit Facility, each Borrower has agreed to pay its proportionate share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility. Annual Report | 67 Franklin Templeton Fund Allocator Series REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 Franklin Templeton Conservative Target Fund, Franklin Templeton Moderate Target Fund and Franklin Templeton Growth Target Fund (separate portfolios of Franklin Templeton Allocator Series, hereafter referred to as the "Funds") at December 31, 2008, 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 the periods presented, in conformity with accounting principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 investments in the Underlying Funds at December 31, 2008 by correspondence with the transfer agent of the Underlying Funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California February 20, 2009 68 | Annual Report Franklin Templeton Fund Allocator Series TAX DESIGNATION (UNAUDITED) Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds designate the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended December 31, 2008:
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND - ------------ ----------- ----------- $8,690,335 $20,706,578 $25,415,106
Under Section 854(b)(2) of the Code, the Funds designate the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2008.
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND - ------------ ----------- ----------- 6.49% 9.12% 21.99%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2008.
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON CONSERVATIVE MODERATE GROWTH TARGET FUND TARGET FUND TARGET FUND - ------------ ----------- ----------- $1,803,989 $3,585,392 $3,461,057
Distributions, including qualified dividend income, paid during calendar year 2008 will be reported to shareholders on Form 1099-DIV in January 2009. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. Annual Report | 69 Franklin Templeton Fund Allocator Series BOARD MEMBERS AND OFFICERS The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- ----------- --------------- ---------------------------- ---------------------------------------- HARRIS J. ASHTON (1932) Trustee Since 1995 138 Bar-S Foods (meat packing company). One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). ROBERT F. CARLSON (1928) Trustee Since 2005 115 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. SAM GINN (1937) Trustee Since 2007 115 Chevron Corporation (global energy One Franklin Parkway company) and ICO Global Communications San Mateo, CA 94403-1906 (Holdings) Limited (satellite company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding company) (1988-1994). EDITH E. HOLIDAY (1952) Trustee Since 1998 138 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas), H.J. Heinz San Mateo, CA 94403-1906 Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
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NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- ----------- --------------- ---------------------------- ---------------------------------------- FRANK W.T. LAHAYE (1929) Trustee Since 1995 115 Center for Creative Land Recycling One Franklin Parkway (brownfield redevelopment). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). FRANK A. OLSON (1932) Trustee Since 2007 138 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas) and Sentient San Mateo, CA 94403-1906 Jet (private jet service). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines). LARRY D. THOMPSON (1945) Trustee Since 2007 145 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). JOHN B. WILSON (1959) Lead Trustee since 115 None One Franklin Parkway Independent 2006 and Lead San Mateo, CA 94403-1906 Trustee Independent Trustee since 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- ----------- --------------- ---------------------------- ---------------------------------------- **CHARLES B. JOHNSON (1933) Trustee and Since 1995 138 None One Franklin Parkway Chairman of San Mateo, CA 94403-1906 the Board PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments.
Annual Report | 71
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- ----------- --------------- ---------------------------- ---------------------------------------- **GREGORY E. JOHNSON (1961) Trustee Since 2007 92 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments. JENNIFER J. BOLT (1964) Chief Since December Not Applicable Not Applicable One Franklin Parkway Executive 2008 San Mateo, CA 94403-1906 Officer - Finance and Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President - Operations and Technology, Franklin Resources, Inc.; Director, Templeton Global Advisors Limited; officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable One Franklin Parkway Compliance Officer since San Mateo, CA 94403-1906 Officer and 2004 and Vice Vice President - AML President Compliance since - AML 2006 Compliance PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable One Franklin Parkway Chief 2004, Chief San Mateo, CA 94403-1906 Financial Financial Officer and Officer and Chief Chief Accounting Accounting Officer Officer since February 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). JIMMY D. GAMBILL (1947) Vice Since February Not Applicable Not Applicable 500 East Broward Blvd. President 2008 Suite 2100 Fort Lauderdale, FL 33394-3091 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
72 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - -------------------------- ----------- --------------- ---------------------------- ---------------------------------------- DAVID P. GOSS (1947) Vice Since 2000 Not Applicable Not Applicable One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. RUPERT H. JOHNSON, JR. President Since 2002 Not Applicable Not Applicable (1940) and Chief One Franklin Parkway Executive San Mateo, CA 94403-1906 Officer - Investment Management PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments. KAREN L. SKIDMORE (1952) Vice Since 2006 Not Applicable Not Applicable One Franklin Parkway President San Mateo, CA 94403-1906 and Secretary PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin Templeton Investments. CRAIG S. TYLE (1960) Vice Since 2005 Not Applicable Not Applicable One Franklin Parkway President San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers. ** Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's investment manager and distributor. Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Resources. Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson and Jennifer J. Bolt. Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI. Annual Report | 73 Franklin Templeton Fund Allocator Series SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Trust's investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330. 74 | Annual Report This page intentionally left blank. This page intentionally left blank. Literature Request LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING TONE. FRANKLIN TEMPLETON FUNDS VALUE Franklin All Cap Value Fund Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(1) Franklin MidCap Value Fund Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund(2) Mutual Shares Fund BLEND Franklin Focused Core Equity Fund Franklin Large Cap Equity Fund Franklin Rising Dividends Fund GROWTH Franklin Capital Growth Fund(1) Franklin Flex Cap Growth Fund Franklin Growth Fund Franklin Growth Opportunities Fund(3) Franklin Small Cap Growth Fund(4) Franklin Small-Mid Cap Growth Fund SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Real Estate Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Mutual Financial Services Fund GLOBAL Mutual Discovery Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund INTERNATIONAL Franklin India Growth Fund Franklin International Growth Fund Franklin International Small Cap Growth Fund Mutual European Fund Templeton BRIC Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Emerging Markets Small Cap Fund Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Frontier Markets Fund HYBRID Franklin Balanced Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Templeton Income Fund ASSET ALLOCATION Franklin Templeton Corefolio(R) Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund FIXED INCOME Franklin Adjustable U.S. Government Securities Fund(5) Franklin Floating Rate Daily Access Fund Franklin High Income Fund Franklin Limited Maturity U.S. Government Securities Fund(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(5) Templeton Global Bond Fund Templeton Global Total Return Fund Templeton International Bond Fund TAX-FREE INCOME(6) NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) LIMITED-/INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(8) Colorado Connecticut Florida Georgia Kentucky Louisiana Maryland Massachusetts(7) Michigan(7) Minnesota(7) Missouri New Jersey New York(8) North Carolina Ohio(7) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(9) (1.) The fund is closed to new investors. Existing shareholders and select retirement plans can continue adding to their accounts. (2.) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to Franklin Growth Opportunities Fund. The fund's investment goal and strategy remained the same. (4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to Franklin Small Cap Growth Fund. The fund's investment goal and strategy remained the same. (5.) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (6.) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7.) The fund invests primarily in insured municipal securities. (8.) These funds are available in four or more variations, including long-term portfolios, intermediate-term portfolios, portfolios of insured securities, a high-yield portfolio (CA only) and money market portfolios. (9.) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 12/08 Not part of the annual report (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway San Mateo, CA 94403-1906 WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN TEMPLETON FUND ALLOCATOR SERIES INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. (800) DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES (800) 632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. FAS A2008 02/09 (GRAPHIC) DECEMBER 31, 2008 Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION FRANKLIN TEMPLETON FUND ALLOCATOR SERIES WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) FRANKLIN - TEMPLETON - MUTUAL SERIES Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE(R) Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups-- Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with offices in over 25 countries, Templeton offers investors a truly global perspective. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities. TRUE DIVERSIFICATION Because our management groups work independently and adhere to different investment approaches, Franklin, Templeton and Mutual Series funds typically have distinct portfolios. That's why our funds can be used to build truly diversified allocation plans covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable, accurate and personal service that has helped us become one of the most trusted names in financial services. MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS (GRAPHIC) Not part of the annual report Contents SHAREHOLDER LETTER ........................................................ 1 ANNUAL REPORT Economic and Market Overview .............................................. 3 Franklin Templeton Corefolio Allocation Fund .............................. 5 Franklin Templeton Founding Funds Allocation Fund ......................... 14 Franklin Templeton Perspectives Allocation Fund ........................... 23 Financial Highlights and Statements of Investments ........................ 32 Financial Statements ...................................................... 49 Notes to Financial Statements ............................................. 54 Report of Independent Registered Public Accounting Firm ................... 64 Tax Designation ........................................................... 65 Board Members and Officers ................................................ 66 Shareholder Information ................................................... 70
Shareholder Letter Dear Shareholder: The year 2008 was an extraordinary and stressful time for investors and those of us who have worked in financial markets for many years. During this turbulent period, the U.S. economy slipped into recession, credit markets froze and housing prices plummeted. Most stocks and bonds suffered major losses as investors worried about an uncertain future. Although this environment is bound to provoke great concern, we think it is important to put short-term market developments in perspective. Keep in mind that as daunting as current conditions may be, we have navigated through other periods of high market volatility, such as the stock market crash of 1987. We remain committed to our long-term perspective and our disciplined investment philosophy. Therefore, we view recent declines as potential opportunities to find bargains that we believe may be well positioned to become eventual winners. Although conditions remain challenging, our experience gives us ample reason to be optimistic about future market stabilization and recovery. The enclosed annual report for Franklin Templeton Fund Allocator Series includes a discussion of market conditions and each Fund's performance during the period under review. You will also find performance data and financial information. Please remember that all securities markets fluctuate, as do mutual fund share prices. Sign up for EDELIVERY of your Shareholder Report Shareholders who are registered at franklintempleton.com can receive this report via email by selecting eDelivery options under "My Profile." Not all accounts are eligible for eDelivery. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Not part of the annual report | 1 If you would like more frequent updates, FRANKLINTEMPLETON.COM provides daily prices, monthly performance figures, portfolio holdings and other information. You can also access your account, buy and sell shares, read timely articles, and find helpful financial planning tools. We hope you will take advantage of these online services. As always, we recommend investors consult their financial advisors and review their portfolios to design a long-term strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. We firmly believe that most people benefit from professional advice, and that advice is invaluable as investors navigate changing market environments. We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your investment needs in the years ahead. Sincerely, /s/ Charles B. Johnson Charles B. Johnson Chairman Franklin Templeton Fund Allocator Series THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 2 | Not part of the annual report Annual Report Economic and Market Overview In 2008, the U.S. economy faltered and The Conference Board's Consumer Confidence Index fell to an all-time low since it began in 1967. The government's abrupt conservatorship of Fannie Mae and Freddie Mac and the failure of several blue-chip banks and financial institutions roiled the equity markets. Despite government interventions and massive emergency funding, rapidly weakening manufacturing activity and falling home prices exacerbated the nation's economic troubles. Jobless claims mounted and the unemployment rate rose to 7.2% by period-end.(1) In early December, the National Bureau of Economic Research officially declared the U.S. economy has been in recession since December 2007. The weakening U.S. economy negatively impacted growth prospects around the world. Although growth in the first half of the year was robust in developing economies, particularly in Asia, signs of a global slowdown surfaced in the latter half. In an environment of extremely high commodity prices that increased inflationary pressure, the world's monetary authorities faced the choice of lowering short-term interest rates to stimulate growth or raising them to fight rising inflation. Stimulus provided through fiscal and monetary policies implemented around the globe sought to restore financial market stability and reignite economic growth. The U.S. Treasury and the Federal Reserve Board took unprecedented steps, including lowering short-term rates to near 0% from 4.25%. The European Central Bank and many of the world's other central banks had raised rates due to inflationary pressures. Later in the year, the potential for global recession trumped inflationary concerns, and the world's monetary authorities cut interest rates aggressively. The U.S. dollar, which had declined earlier in the period versus many of the world's currencies, regained ground quickly toward period-end as a flight to the relative safety of U.S. Treasuries prevailed. (1.) Source: Bureau of Labor Statistics. Annual Report | 3 In this challenging economic time, volatility came to define global equity markets. Virtually all local indexes ended the 12-month period with marked losses. Despite negative economic data and an outlook for decelerating corporate earnings and profit margins globally, many companies outside the financials sector retained relatively strong balance sheets. THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 4 | Not part of the annual report Franklin Templeton Corefolio Allocation Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Corefolio Allocation Fund seeks capital appreciation through investments in an equally weighted combination of Franklin Capital Growth Fund, Franklin Growth Fund, Mutual Shares Fund and Templeton Growth Fund. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. This annual report for Franklin Templeton Corefolio Allocation Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton Corefolio Allocation Fund - Class A had a -38.13% cumulative total return for the 12 months under review. In comparison, the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index, had total returns of -37.00% and - -40.33%.(1) You can find other performance data in the Performance Summary beginning on page 7. INVESTMENT STRATEGY The Fund invests its assets in an equally weighted combination of Franklin Capital Growth Fund, Franklin Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying funds, in turn, invest primarily in U.S. and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund's allocations to maintain the predetermined equal weightings of approximately 25% of total net assets in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 37. Annual Report | 5 ASSET ALLOCATION* Franklin Templeton Corefolio Allocation Fund Based on Total Net Assets as of 12/31/08 Domestic Equity 74.8% Foreign Equity 25.1% Short-Term Investments & Other Net Assets 0.1%
* The asset allocation is based on the SOI, which classifies each underlying fund into a broad asset class. PORTFOLIO REVIEW The Fund's performance can be attributed largely to maintaining a relatively static allocation among domestic and foreign equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. During the fiscal year under review, the Fund's performance was hindered by Templeton Growth Fund - Advisor Class, which underperformed the MSCI World Index. Franklin Capital Growth Fund - Advisor Class and Mutual Shares Fund - Class Z performed comparably to the S&P 500, while Franklin Growth Fund - Advisor Class performed better than the S&P 500. Thank you for your continued participation in Franklin Templeton Corefolio Allocation Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Vice President of Franklin Advisers, Inc. Franklin Templeton Corefolio Allocation Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 6 | Annual Report Performance Summary as of 12/31/08 FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTCOX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.76 $8.46 $14.22 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1317 Long-Term Capital Gain $0.2896 TOTAL $0.4213
CLASS B (SYMBOL: FBCOX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.68 $8.44 $14.12 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.0386 Long-Term Capital Gain $0.2896 TOTAL $0.3282
CLASS C (SYMBOL: FTCLX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.68 $8.40 $14.08 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.0459 Long-Term Capital Gain $0.2896 TOTAL $0.3355
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------- ------ -------- -------- Net Asset Value (NAV) -$5.74 $8.46 $14.20 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1002 Long-Term Capital Gain $0.2896 TOTAL $0.3898
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------- ------ -------- -------- Net Asset Value (NAV) -$5.78 $8.47 $14.25 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1684 Long-Term Capital Gain $0.2896 TOTAL $0.4580
Annual Report | 7 Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
INCEPTION CLASS A 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) -38.13% -10.68% -0.90% Average Annual Total Return(3) -41.70% -3.38% -1.26% Value of $10,000 Investment(4) $ 5,830 $ 8,420 $9,340 Total Annual Operating Expenses(5) Without Waiver 1.33% With Waiver 1.18%
INCEPTION CLASS B 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) -38.53% -13.60% -4.42% Average Annual Total Return(3) -40.92% -3.23% -1.00% Value of $10,000 Investment(4) $ 5,908 $ 8,487 $9,474 Total Annual Operating Expenses(5) Without Waiver 2.03% With Waiver 1.88%
INCEPTION CLASS C 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) -38.58% -13.63% -4.53% Average Annual Total Return(3) -39.18% -2.89% -0.86% Value of $10,000 Investment(4) $ 6,082 $ 8,637 $9,547 Total Annual Operating Expenses(5) Without Waiver 2.02% With Waiver 1.87%
INCEPTION CLASS R 1-YEAR 5-YEAR (8/15/03) - ------- -------- -------- --------- Cumulative Total Return(2) -38.28% -11.53% -1.83% Average Annual Total Return(3) -38.28% -2.42% -0.34% Value of $10,000 Investment(4) $ 6,172 $ 8,847 $9,817 Total Annual Operating Expenses(5) Without Waiver 1.53% With Waiver 1.38%
INCEPTION Advisor Class 1-YEAR 5-YEAR (8/15/03) - ------------- -------- -------- --------- Cumulative Total Return(2) -37.92% -9.27% +0.73% Average Annual Total Return(3) -37.92% -1.93% +0.14% Value of $10,000 Investment(4) $ 6,208 $9,073 $10,073 Total Annual Operating Expenses(5) Without Waiver 1.03% With Waiver 0.88%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ADMINISTRATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.90% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. 8 | Annual Report Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -41.70% 5-Year -3.38% Since Inception (8/15/03) -1.26%
CLASS A (8/15/03-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS A INDEX INDEX - ------------- ---------------------------- ------- ---------- 8/15/2003 $ 9,425 $10,000 $10,000 8/31/2003 $ 9,491 $10,101 $10,113 9/30/2003 $ 9,369 $ 9,993 $10,177 10/31/2003 $ 9,783 $10,559 $10,783 11/30/2003 $ 9,962 $10,652 $10,950 12/31/2003 $10,457 $11,210 $11,639 1/31/2004 $10,600 $11,416 $11,829 2/29/2004 $10,770 $11,575 $12,031 3/31/2004 $10,637 $11,400 $11,956 4/30/2004 $10,533 $11,221 $11,718 5/31/2004 $10,618 $11,375 $11,832 6/30/2004 $10,884 $11,596 $12,080 7/31/2004 $10,448 $11,212 $11,689 8/31/2004 $10,429 $11,258 $11,745 9/30/2004 $10,600 $11,380 $11,971 10/31/2004 $10,770 $11,554 $12,267 11/30/2004 $11,292 $12,021 $12,917 12/31/2004 $11,677 $12,430 $13,414 1/31/2005 $11,333 $12,127 $13,114 2/28/2005 $11,591 $12,382 $13,536 3/31/2005 $11,439 $12,163 $13,279 4/30/2005 $11,237 $11,932 $12,999 5/31/2005 $11,526 $12,312 $13,239 6/30/2005 $11,546 $12,330 $13,360 7/31/2005 $11,951 $12,788 $13,830 8/31/2005 $11,951 $12,671 $13,940 9/30/2005 $12,067 $12,774 $14,306 10/31/2005 $11,845 $12,561 $13,962 11/30/2005 $12,260 $13,036 $14,435 12/31/2005 $12,452 $13,041 $14,758 1/31/2006 $12,756 $13,386 $15,420 2/28/2006 $12,824 $13,422 $15,404 3/31/2006 $13,089 $13,589 $15,749 4/30/2006 $13,268 $13,772 $16,236 5/31/2006 $12,920 $13,375 $15,696 6/30/2006 $12,901 $13,394 $15,698 7/31/2006 $12,851 $13,476 $15,799 8/31/2006 $13,169 $13,797 $16,217 9/30/2006 $13,427 $14,152 $16,415 10/31/2006 $13,875 $14,614 $17,021 11/30/2006 $14,183 $14,891 $17,447 12/31/2006 $14,350 $15,100 $17,806 1/31/2007 $14,625 $15,329 $18,020 2/28/2007 $14,412 $15,029 $17,934 3/31/2007 $14,549 $15,197 $18,270 4/30/2007 $15,130 $15,870 $19,086 5/31/2007 $15,648 $16,424 $19,640 6/30/2007 $15,534 $16,151 $19,495 7/31/2007 $15,078 $15,650 $19,067 8/31/2007 $15,109 $15,885 $19,061 9/30/2007 $15,565 $16,479 $19,974 10/31/2007 $15,969 $16,741 $20,591 11/30/2007 $15,379 $16,041 $19,759 12/31/2007 $15,097 $15,930 $19,510 1/31/2008 $14,089 $14,974 $18,023 2/29/2008 $13,791 $14,488 $17,927 3/31/2008 $13,608 $14,425 $17,764 4/30/2008 $14,206 $15,128 $18,712 5/31/2008 $14,544 $15,324 $19,021 6/30/2008 $13,226 $14,032 $17,511 7/31/2008 $13,259 $13,914 $17,087 8/31/2008 $13,335 $14,115 $16,855 9/30/2008 $11,953 $12,858 $14,858 10/31/2008 $ 9,819 $10,698 $12,044 11/30/2008 $ 9,068 $ 9,931 $11,273 12/31/2008 $ 9,340 $10,036 $11,641 Total Returns -6.60% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08 - ------- -------- 1-Year -40.92% 5-Year -3.23% Since Inception (8/15/03) -1.00%
CLASS B (8/15/03-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS B INDEX INDEX - ------------- ---------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,930 $ 9,993 $10,177 10/31/2003 $10,360 $10,559 $10,783 11/30/2003 $10,550 $10,652 $10,950 12/31/2003 $11,062 $11,210 $11,639 1/31/2004 $11,203 $11,416 $11,829 2/29/2004 $11,374 $11,575 $12,031 3/31/2004 $11,223 $11,400 $11,956 4/30/2004 $11,113 $11,221 $11,718 5/31/2004 $11,193 $11,375 $11,832 6/30/2004 $11,474 $11,596 $12,080 7/31/2004 $11,002 $11,212 $11,689 8/31/2004 $10,982 $11,258 $11,745 9/30/2004 $11,143 $11,380 $11,971 10/31/2004 $11,324 $11,554 $12,267 11/30/2004 $11,866 $12,021 $12,917 12/31/2004 $12,268 $12,430 $13,414 1/31/2005 $11,893 $12,127 $13,114 2/28/2005 $12,156 $12,382 $13,536 3/31/2005 $11,996 $12,163 $13,279 4/30/2005 $11,781 $11,932 $12,999 5/31/2005 $12,077 $12,312 $13,239 6/30/2005 $12,087 $12,330 $13,360 7/31/2005 $12,506 $12,788 $13,830 8/31/2005 $12,496 $12,671 $13,940 9/30/2005 $12,608 $12,774 $14,306 10/31/2005 $12,373 $12,561 $13,962 11/30/2005 $12,802 $13,036 $14,435 12/31/2005 $12,990 $13,041 $14,758 1/31/2006 $13,309 $13,386 $15,420 2/28/2006 $13,360 $13,422 $15,404 3/31/2006 $13,639 $13,589 $15,749 4/30/2006 $13,817 $13,772 $16,236 5/31/2006 $13,441 $13,375 $15,696 6/30/2006 $13,420 $13,394 $15,698 7/31/2006 $13,357 $13,476 $15,799 8/31/2006 $13,681 $13,797 $16,217 9/30/2006 $13,942 $14,152 $16,415 10/31/2006 $14,401 $14,614 $17,021 11/30/2006 $14,715 $14,891 $17,447 12/31/2006 $14,879 $15,100 $17,806 1/31/2007 $15,156 $15,329 $18,020 2/28/2007 $14,922 $15,029 $17,934 3/31/2007 $15,055 $15,197 $18,270 4/30/2007 $15,650 $15,870 $19,086 5/31/2007 $16,181 $16,424 $19,640 6/30/2007 $16,051 $16,151 $19,495 7/31/2007 $15,564 $15,650 $19,067 8/31/2007 $15,596 $15,885 $19,061 9/30/2007 $16,062 $16,479 $19,974 10/31/2007 $16,462 $16,741 $20,591 11/30/2007 $15,845 $16,041 $19,759 12/31/2007 $15,548 $15,930 $19,510 1/31/2008 $14,502 $14,974 $18,023 2/29/2008 $14,183 $14,488 $17,927 3/31/2008 $13,992 $14,425 $17,764 4/30/2008 $14,590 $15,128 $18,712 5/31/2008 $14,929 $15,324 $19,021 6/30/2008 $13,574 $14,032 $17,511 7/31/2008 $13,596 $13,914 $17,087 8/31/2008 $13,664 $14,115 $16,855 9/30/2008 $12,241 $12,858 $14,858 10/31/2008 $10,050 $10,698 $12,044 11/30/2008 $ 9,283 $ 9,931 $11,273 12/31/2008 $ 9,474 $10,036 $11,641 Total Returns -5.26% 0.36% 16.41%
Annual Report | 9 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -39.18% 5-Year -2.89% Since Inception (8/15/03) -0.86%
CLASS C (8/15/03-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS C INDEX INDEX - ------------- ---------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,930 $ 9,993 $10,177 10/31/2003 $10,360 $10,559 $10,783 11/30/2003 $10,540 $10,652 $10,950 12/31/2003 $11,054 $11,210 $11,639 1/31/2004 $11,194 $11,416 $11,829 2/29/2004 $11,365 $11,575 $12,031 3/31/2004 $11,215 $11,400 $11,956 4/30/2004 $11,104 $11,221 $11,718 5/31/2004 $11,194 $11,375 $11,832 6/30/2004 $11,466 $11,596 $12,080 7/31/2004 $10,993 $11,212 $11,689 8/31/2004 $10,973 $11,258 $11,745 9/30/2004 $11,144 $11,380 $11,971 10/31/2004 $11,315 $11,554 $12,267 11/30/2004 $11,858 $12,021 $12,917 12/31/2004 $12,256 $12,430 $13,414 1/31/2005 $11,892 $12,127 $13,114 2/28/2005 $12,155 $12,382 $13,536 3/31/2005 $11,995 $12,163 $13,279 4/30/2005 $11,770 $11,932 $12,999 5/31/2005 $12,066 $12,312 $13,239 6/30/2005 $12,087 $12,330 $13,360 7/31/2005 $12,495 $12,788 $13,830 8/31/2005 $12,495 $12,671 $13,940 9/30/2005 $12,597 $12,774 $14,306 10/31/2005 $12,362 $12,561 $13,962 11/30/2005 $12,801 $13,036 $14,435 12/31/2005 $12,994 $13,041 $14,758 1/31/2006 $13,303 $13,386 $15,420 2/28/2006 $13,365 $13,422 $15,404 3/31/2006 $13,634 $13,589 $15,749 4/30/2006 $13,811 $13,772 $16,236 5/31/2006 $13,435 $13,375 $15,696 6/30/2006 $13,414 $13,394 $15,698 7/31/2006 $13,351 $13,476 $15,799 8/31/2006 $13,675 $13,797 $16,217 9/30/2006 $13,937 $14,152 $16,415 10/31/2006 $14,397 $14,614 $17,021 11/30/2006 $14,710 $14,891 $17,447 12/31/2006 $14,875 $15,100 $17,806 1/31/2007 $15,152 $15,329 $18,020 2/28/2007 $14,918 $15,029 $17,934 3/31/2007 $15,051 $15,197 $18,270 4/30/2007 $15,648 $15,870 $19,086 5/31/2007 $16,179 $16,424 $19,640 6/30/2007 $16,038 $16,151 $19,495 7/31/2007 $15,561 $15,650 $19,067 8/31/2007 $15,593 $15,885 $19,061 9/30/2007 $16,060 $16,479 $19,974 10/31/2007 $16,461 $16,741 $20,591 11/30/2007 $15,843 $16,041 $19,759 12/31/2007 $15,545 $15,930 $19,510 1/31/2008 $14,496 $14,974 $18,023 2/29/2008 $14,176 $14,488 $17,927 3/31/2008 $13,984 $14,425 $17,764 4/30/2008 $14,596 $15,128 $18,712 5/31/2008 $14,924 $15,324 $19,021 6/30/2008 $13,577 $14,032 $17,511 7/31/2008 $13,588 $13,914 $17,087 8/31/2008 $13,667 $14,115 $16,855 9/30/2008 $12,241 $12,858 $14,858 10/31/2008 $10,055 $10,698 $12,044 11/30/2008 $ 9,274 $ 9,931 $11,273 12/31/2008 $ 9,547 $10,036 $11,641 Total Returns -4.53% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------- -------- 1-Year -38.28% 5-Year -2.42% Since Inception (8/15/03) -0.34%
CLASS R (8/15/03-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO S&P 500 MSCI WORLD DATE ALLOCATION FUND - CLASS R INDEX INDEX - ------------- ---------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,940 $ 9,993 $10,177 10/31/2003 $10,380 $10,559 $10,783 11/30/2003 $10,570 $10,652 $10,950 12/31/2003 $11,096 $11,210 $11,639 1/31/2004 $11,236 $11,416 $11,829 2/29/2004 $11,417 $11,575 $12,031 3/31/2004 $11,267 $11,400 $11,956 4/30/2004 $11,156 $11,221 $11,718 5/31/2004 $11,246 $11,375 $11,832 6/30/2004 $11,528 $11,596 $12,080 7/31/2004 $11,065 $11,212 $11,689 8/31/2004 $11,045 $11,258 $11,745 9/30/2004 $11,216 $11,380 $11,971 10/31/2004 $11,397 $11,554 $12,267 11/30/2004 $11,951 $12,021 $12,917 12/31/2004 $12,363 $12,430 $13,414 1/31/2005 $11,998 $12,127 $13,114 2/28/2005 $12,262 $12,382 $13,536 3/31/2005 $12,111 $12,163 $13,279 4/30/2005 $11,886 $11,932 $12,999 5/31/2005 $12,193 $12,312 $13,239 6/30/2005 $12,213 $12,330 $13,360 7/31/2005 $12,633 $12,788 $13,830 8/31/2005 $12,633 $12,671 $13,940 9/30/2005 $12,756 $12,774 $14,306 10/31/2005 $12,520 $12,561 $13,962 11/30/2005 $12,971 $13,036 $14,435 12/31/2005 $13,158 $13,041 $14,758 1/31/2006 $13,479 $13,386 $15,420 2/28/2006 $13,552 $13,422 $15,404 3/31/2006 $13,832 $13,589 $15,749 4/30/2006 $14,022 $13,772 $16,236 5/31/2006 $13,643 $13,375 $15,696 6/30/2006 $13,622 $13,394 $15,698 7/31/2006 $13,569 $13,476 $15,799 8/31/2006 $13,906 $13,797 $16,217 9/30/2006 $14,169 $14,152 $16,415 10/31/2006 $14,642 $14,614 $17,021 11/30/2006 $14,969 $14,891 $17,447 12/31/2006 $15,145 $15,100 $17,806 1/31/2007 $15,435 $15,329 $18,020 2/28/2007 $15,199 $15,029 $17,934 3/31/2007 $15,344 $15,197 $18,270 4/30/2007 $15,958 $15,870 $19,086 5/31/2007 $16,505 $16,424 $19,640 6/30/2007 $16,374 $16,151 $19,495 7/31/2007 $15,892 $15,650 $19,067 8/31/2007 $15,925 $15,885 $19,061 9/30/2007 $16,407 $16,479 $19,974 10/31/2007 $16,823 $16,741 $20,591 11/30/2007 $16,199 $16,041 $19,759 12/31/2007 $15,905 $15,930 $19,510 1/31/2008 $14,841 $14,974 $18,023 2/29/2008 $14,516 $14,488 $17,927 3/31/2008 $14,333 $14,425 $17,764 4/30/2008 $14,953 $15,128 $18,712 5/31/2008 $15,298 $15,324 $19,021 6/30/2008 $13,919 $14,032 $17,511 7/31/2008 $13,942 $13,914 $17,087 8/31/2008 $14,023 $14,115 $16,855 9/30/2008 $12,564 $12,858 $14,858 10/31/2008 $10,325 $10,698 $12,044 11/30/2008 $ 9,532 $ 9,931 $11,273 12/31/2008 $ 9,817 $10,036 $11,641 Total Returns -1.83% 0.36% 16.41%
10 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08 - ------------- -------- 1-Year -37.92% 5-Year -1.93% Since Inception (8/15/03) +0.14%
ADVISOR CLASS (8/15/03-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND - ADVISOR S&P 500 MSCI WORLD DATE CLASS INDEX INDEX - ------------- ---------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,070 $10,101 $10,113 9/30/2003 $ 9,940 $ 9,993 $10,177 10/31/2003 $10,380 $10,559 $10,783 11/30/2003 $10,580 $10,652 $10,950 12/31/2003 $11,102 $11,210 $11,639 1/31/2004 $11,253 $11,416 $11,829 2/29/2004 $11,434 $11,575 $12,031 3/31/2004 $11,293 $11,400 $11,956 4/30/2004 $11,193 $11,221 $11,718 5/31/2004 $11,273 $11,375 $11,832 6/30/2004 $11,565 $11,596 $12,080 7/31/2004 $11,092 $11,212 $11,689 8/31/2004 $11,082 $11,258 $11,745 9/30/2004 $11,263 $11,380 $11,971 10/31/2004 $11,444 $11,554 $12,267 11/30/2004 $12,008 $12,021 $12,917 12/31/2004 $12,432 $12,430 $13,414 1/31/2005 $12,066 $12,127 $13,114 2/28/2005 $12,341 $12,382 $13,536 3/31/2005 $12,190 $12,163 $13,279 4/30/2005 $11,974 $11,932 $12,999 5/31/2005 $12,282 $12,312 $13,239 6/30/2005 $12,313 $12,330 $13,360 7/31/2005 $12,734 $12,788 $13,830 8/31/2005 $12,744 $12,671 $13,940 9/30/2005 $12,867 $12,774 $14,306 10/31/2005 $12,631 $12,561 $13,962 11/30/2005 $13,083 $13,036 $14,435 12/31/2005 $13,294 $13,041 $14,758 1/31/2006 $13,618 $13,386 $15,420 2/28/2006 $13,691 $13,422 $15,404 3/31/2006 $13,995 $13,589 $15,749 4/30/2006 $14,186 $13,772 $16,236 5/31/2006 $13,804 $13,375 $15,696 6/30/2006 $13,794 $13,394 $15,698 7/31/2006 $13,741 $13,476 $15,799 8/31/2006 $14,090 $13,797 $16,217 9/30/2006 $14,366 $14,152 $16,415 10/31/2006 $14,853 $14,614 $17,021 11/30/2006 $15,192 $14,891 $17,447 12/31/2006 $15,376 $15,100 $17,806 1/31/2007 $15,680 $15,329 $18,020 2/28/2007 $15,452 $15,029 $17,934 3/31/2007 $15,599 $15,197 $18,270 4/30/2007 $16,220 $15,870 $19,086 5/31/2007 $16,796 $16,424 $19,640 6/30/2007 $16,663 $16,151 $19,495 7/31/2007 $16,186 $15,650 $19,067 8/31/2007 $16,220 $15,885 $19,061 9/30/2007 $16,718 $16,479 $19,974 10/31/2007 $17,150 $16,741 $20,591 11/30/2007 $16,519 $16,041 $19,759 12/31/2007 $16,226 $15,930 $19,510 1/31/2008 $15,145 $14,974 $18,023 2/29/2008 $14,826 $14,488 $17,927 3/31/2008 $14,640 $14,425 $17,764 4/30/2008 $15,282 $15,128 $18,712 5/31/2008 $15,644 $15,324 $19,021 6/30/2008 $14,243 $14,032 $17,511 7/31/2008 $14,266 $13,914 $17,087 8/31/2008 $14,360 $14,115 $16,855 9/30/2008 $12,877 $12,858 $14,858 10/31/2008 $10,577 $10,698 $12,044 11/30/2008 $ 9,772 $ 9,931 $11,273 12/31/2008 $10,073 $10,036 $11,641 Total Returns 0.73% 0.36% 16.41%
ENDNOTES BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND POLITICAL OR SOCIAL INSTABILITY. THESE AND OTHER RISKS, INCLUDING INVESTMENTS IN SPECIALIZED INDUSTRY SECTORS, SUCH AS THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MARKET'S MOST VOLATILE SECTORS, INVOLVES SPECIAL CONSIDERATIONS. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the administrator had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. (6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. Annual Report | 11 Your Fund's Expenses FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 12 | Annual Report Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD CLASS A 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** - ------- ------------- ------------- ---------------- ----------------- Actual $1,000 $ 706.20 $2.06 $5.15 Hypothetical (5% return before expenses) $1,000 $1,022.72 $2.44 $6.09 CLASS B Actual $1,000 $ 704.20 $5.05 $8.14 Hypothetical (5% return before expenses) $1,000 $1,019.20 $5.99 $9.63 CLASS C Actual $1,000 $ 703.20 $5.01 $8.09 Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.94 $9.58 CLASS R Actual $1,000 $ 705.20 $2.91 $6.00 Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.46 $7.10 ADVISOR CLASS Actual $1,000 $ 707.20 $0.77 $3.86 Hypothetical (5% return before expenses) $1,000 $1,024.23 $0.92 $4.57
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.48%; B: 1.18%; C: 1.17%; R: 0.68%; and Advisor: 0.18%) multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.20%; B: 1.90%; C: 1.89%; R: 1.40%; and Advisor: 0.90%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. Annual Report | 13 Franklin Templeton Founding Funds Allocation Fund YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Templeton Founding Funds Allocation Fund's principal investment goal is capital appreciation, with a secondary goal of income. The Fund invests in an equally weighted combination of Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. This annual report for Franklin Templeton Founding Funds Allocation Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton Founding Funds Allocation Fund - Class A had a -37.66% cumulative total return for the 12 months under review. In comparison, the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index, had total returns of -37.00% and -40.33%.(1) You can find other performance data in the Performance Summary beginning on page 16. INVESTMENT STRATEGY The Fund invests its assets in an equally weighted combination of Franklin Income Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying funds, in turn, invest primarily in U.S. and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund's allocations to maintain the predetermined equal weightings of approximately 33 1/3% of total net assets in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 43. 14 | Annual Report PORTFOLIO REVIEW The Fund's performance can be attributed largely to maintaining a relatively static allocation among domestic and foreign equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. During the fiscal year under review, Fund performance was hindered by Templeton Growth Fund - Advisor Class, which underperformed the MSCI World Index. Mutual Shares Fund - Class Z performed comparably to the S&P 500, while Franklin Income Fund - Advisor Class performed better than the S&P 500. Thank you for your continued participation in Franklin Templeton Founding Funds Allocation Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Vice President of Franklin Advisers, Inc. Franklin Templeton Founding Funds Allocation Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. ASSET ALLOCATION* Franklin Templeton Founding Funds Allocation Fund Based on Total Net Assets as of 12/31/08** Domestic Hybrid 34.0% Foreign Equity 33.2% Domestic Equity 33.1%
* The asset allocation is based on the SOI, which classifies each underlying fund into a broad asset class. ** Short-term investments and other net assets equal -0.3%. Annual Report | 15 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FFALX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.67 $7.83 $13.50 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.3764 Long-Term Capital Gain $0.2835 TOTAL $0.6599
CLASS B (SYMBOL: FFABX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.61 $7.84 $13.45 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2870 Long-Term Capital Gain $0.2835 TOTAL $0.5705
CLASS C (SYMBOL: FFACX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.55 $7.74 $13.29 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.2891 Long-Term Capital Gain $0.2835 TOTAL $0.5726
CLASS R (SYMBOL: FFARX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.66 $7.84 $13.50 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.3525 Long-Term Capital Gain $0.2835 TOTAL $0.6360
ADVISOR CLASS (SYMBOL: FFAAX) CHANGE 12/31/08 12/31/07 - ----------------------------- ------ -------- -------- Net Asset Value (NAV) -$5.71 $7.87 $13.58 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.4148 Long-Term Capital Gain $0.2835 TOTAL $0.6983
16 | Annual Report Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
INCEPTION CLASS A 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------ --------- Cumulative Total Return(2) -37.66% -7.37% +3.37% Average Annual Total Return(3) -41.23% -2.69% -0.48% Value of $10,000 Investment(4) $ 5,877 $8,727 $9,742 Total Annual Operating Expenses(5) Without Waiver 1.18% With Waiver 1.13%
INCEPTION CLASS B 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) -38.05% -10.32% -0.21% Average Annual Total Return(3) -40.38% -2.47% -0.19% Value of $10,000 Investment(4) $ 5,962 $ 8,826 $9,901 Total Annual Operating Expenses(5) Without Waiver 1.88% With Waiver 1.83%
INCEPTION CLASS C 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) -38.04% -10.27% -0.14% Average Annual Total Return(3) -38.62% -2.14% -0.03% Value of $10,000 Investment(4) $ 6,138 $ 8,973 $9,986 Total Annual Operating Expenses(5) Without Waiver 1.88% With Waiver 1.83%
INCEPTION CLASS R 1-YEAR 5-YEAR (8/15/03) - ------- ------- ------- --------- Cumulative Total Return(2) -37.77% -8.14% +2.59% Average Annual Total Return(3) -37.77% -1.68% +0.48% Value of $10,000 Investment(4) $ 6,223 $9,186 $10,259 Total Annual Operating Expenses(5) Without Waiver 1.38% With Waiver 1.33%
INCEPTION ADVISOR CLASS 1-YEAR 5-YEAR (8/15/03) - ------------- ------- ------- --------- Cumulative Total Return(2) -37.44% -5.74% +5.33% Average Annual Total Return(3) -37.44% -1.18% +0.97% Value of $10,000 Investment(4) $ 6,256 $9,426 $10,533 Total Annual Operating Expenses(5) Without Waiver 0.88% With Waiver 0.83%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ADMINISTRATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.85% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 17 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -41.23% 5-Year -2.69% Since Inception (8/15/03) -0.48%
CLASS A (8/15/03 - 12/31/08) (PERFORMANCE GRAPH)
Franklin Templeton Founding Funds S&P 500 MSCI World Date Allocation Fund - Class A Index Index - ---------------- ------------------------- ------- ---------- 8/15/2003 $ 9,425 $10,000 $10,000 8/31/2003 $ 9,463 $10,101 $10,113 9/30/2003 $ 9,519 $ 9,993 $10,177 10/31/2003 $ 9,811 $10,559 $10,783 11/30/2003 $10,019 $10,652 $10,950 12/31/2003 $10,517 $11,210 $11,639 1/31/2004 $10,650 $11,416 $11,829 2/29/2004 $10,850 $11,575 $12,031 3/31/2004 $10,774 $11,400 $11,956 4/30/2004 $10,631 $11,221 $11,718 5/31/2004 $10,641 $11,375 $11,832 6/30/2004 $10,802 $11,596 $12,080 7/31/2004 $10,650 $11,212 $11,689 8/31/2004 $10,783 $11,258 $11,745 9/30/2004 $10,954 $11,380 $11,971 10/31/2004 $11,135 $11,554 $12,267 11/30/2004 $11,610 $12,021 $12,917 12/31/2004 $11,945 $12,430 $13,414 1/31/2005 $11,693 $12,127 $13,114 2/28/2005 $12,082 $12,382 $13,536 3/31/2005 $11,903 $12,163 $13,279 4/30/2005 $11,727 $11,932 $12,999 5/31/2005 $11,903 $12,312 $13,239 6/30/2005 $12,119 $12,330 $13,360 7/31/2005 $12,404 $12,788 $13,830 8/31/2005 $12,473 $12,671 $13,940 9/30/2005 $12,601 $12,774 $14,306 10/31/2005 $12,237 $12,561 $13,962 11/30/2005 $12,404 $13,036 $14,435 12/31/2005 $12,700 $13,041 $14,758 1/31/2006 $13,086 $13,386 $15,420 2/28/2006 $13,157 $13,422 $15,404 3/31/2006 $13,379 $13,589 $15,749 4/30/2006 $13,627 $13,772 $16,236 5/31/2006 $13,400 $13,375 $15,696 6/30/2006 $13,431 $13,394 $15,698 7/31/2006 $13,627 $13,476 $15,799 8/31/2006 $13,937 $13,797 $16,217 9/30/2006 $14,103 $14,152 $16,415 10/31/2006 $14,526 $14,614 $17,021 11/30/2006 $14,857 $14,891 $17,447 12/31/2006 $15,156 $15,100 $17,806 1/31/2007 $15,351 $15,329 $18,020 2/28/2007 $15,275 $15,029 $17,934 3/31/2007 $15,502 $15,197 $18,270 4/30/2007 $16,021 $15,870 $19,086 5/31/2007 $16,407 $16,424 $19,640 6/30/2007 $16,241 $16,151 $19,495 7/31/2007 $15,668 $15,650 $19,067 8/31/2007 $15,613 $15,885 $19,061 9/30/2007 $16,021 $16,479 $19,974 10/31/2007 $16,296 $16,741 $20,591 11/30/2007 $15,811 $16,041 $19,759 12/31/2007 $15,628 $15,930 $19,510 1/31/2008 $14,818 $14,974 $18,023 2/29/2008 $14,459 $14,488 $17,927 3/31/2008 $14,228 $14,425 $17,764 4/30/2008 $14,881 $15,128 $18,712 5/31/2008 $15,023 $15,324 $19,021 6/30/2008 $13,777 $14,032 $17,511 7/31/2008 $13,647 $13,914 $17,087 8/31/2008 $13,623 $14,115 $16,855 9/30/2008 $12,080 $12,858 $14,858 10/31/2008 $10,099 $10,698 $12,044 11/30/2008 $ 9,292 $ 9,931 $11,273 12/31/2008 $ 9,742 $10,036 $11,641 Total Returns -2.58% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 12/31/08 - ------- -------- 1-Year -40.38% 5-Year -2.47% Since Inception (8/15/03) -0.19%
CLASS B (8/15/03 - 12/31/08) (PERFORMANCE GRAPH)
Franklin Templeton Founding Funds S&P 500 MSCI World Date Allocation Fund - Class B Index Index - ---------------- ------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,090 $ 9,993 $10,177 10/31/2003 $10,400 $10,559 $10,783 11/30/2003 $10,610 $10,652 $10,950 12/31/2003 $11,128 $11,210 $11,639 1/31/2004 $11,279 $11,416 $11,829 2/29/2004 $11,470 $11,575 $12,031 3/31/2004 $11,390 $11,400 $11,956 4/30/2004 $11,229 $11,221 $11,718 5/31/2004 $11,229 $11,375 $11,832 6/30/2004 $11,400 $11,596 $12,080 7/31/2004 $11,239 $11,212 $11,689 8/31/2004 $11,360 $11,258 $11,745 9/30/2004 $11,541 $11,380 $11,971 10/31/2004 $11,722 $11,554 $12,267 11/30/2004 $12,216 $12,021 $12,917 12/31/2004 $12,576 $12,430 $13,414 1/31/2005 $12,298 $12,127 $13,114 2/28/2005 $12,689 $12,382 $13,536 3/31/2005 $12,501 $12,163 $13,279 4/30/2005 $12,303 $11,932 $12,999 5/31/2005 $12,490 $12,312 $13,239 6/30/2005 $12,708 $12,330 $13,360 7/31/2005 $12,998 $12,788 $13,830 8/31/2005 $13,061 $12,671 $13,940 9/30/2005 $13,185 $12,774 $14,306 10/31/2005 $12,801 $12,561 $13,962 11/30/2005 $12,967 $13,036 $14,435 12/31/2005 $13,277 $13,041 $14,758 1/31/2006 $13,671 $13,386 $15,420 2/28/2006 $13,735 $13,422 $15,404 3/31/2006 $13,968 $13,589 $15,749 4/30/2006 $14,207 $13,772 $16,236 5/31/2006 $13,968 $13,375 $15,696 6/30/2006 $14,001 $13,394 $15,698 7/31/2006 $14,196 $13,476 $15,799 8/31/2006 $14,500 $13,797 $16,217 9/30/2006 $14,662 $14,152 $16,415 10/31/2006 $15,096 $14,614 $17,021 11/30/2006 $15,443 $14,891 $17,447 12/31/2006 $15,737 $15,100 $17,806 1/31/2007 $15,929 $15,329 $18,020 2/28/2007 $15,850 $15,029 $17,934 3/31/2007 $16,065 $15,197 $18,270 4/30/2007 $16,593 $15,870 $19,086 5/31/2007 $16,996 $16,424 $19,640 6/30/2007 $16,800 $16,151 $19,495 7/31/2007 $16,214 $15,650 $19,067 8/31/2007 $16,145 $15,885 $19,061 9/30/2007 $16,547 $16,479 $19,974 10/31/2007 $16,835 $16,741 $20,591 11/30/2007 $16,318 $16,041 $19,759 12/31/2007 $16,108 $15,930 $19,510 1/31/2008 $15,270 $14,974 $18,023 2/29/2008 $14,887 $14,488 $17,927 3/31/2008 $14,648 $14,425 $17,764 4/30/2008 $15,311 $15,128 $18,712 5/31/2008 $15,446 $15,324 $19,021 6/30/2008 $14,169 $14,032 $17,511 7/31/2008 $14,022 $13,914 $17,087 8/31/2008 $13,985 $14,115 $16,855 9/30/2008 $12,401 $12,858 $14,858 10/31/2008 $10,351 $10,698 $12,044 11/30/2008 $ 9,516 $ 9,931 $11,273 12/31/2008 $ 9,901 $10,036 $11,641 Total Returns -0.99% 0.36% 16.41%
18 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -38.62% 5-Year -2.14% Since Inception (8/15/03) -0.03%
CLASS C (8/15/03 - 12/31/08) (PERFORMANCE GRAPH)
Franklin Templeton Founding Funds S&P 500 MSCI World Date Allocation Fund - Class C Index Index - ---------------- ------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,090 $ 9,993 $10,177 10/31/2003 $10,390 $10,559 $10,783 11/30/2003 $10,610 $10,652 $10,950 12/31/2003 $11,129 $11,210 $11,639 1/31/2004 $11,270 $11,416 $11,829 2/29/2004 $11,471 $11,575 $12,031 3/31/2004 $11,391 $11,400 $11,956 4/30/2004 $11,229 $11,221 $11,718 5/31/2004 $11,229 $11,375 $11,832 6/30/2004 $11,401 $11,596 $12,080 7/31/2004 $11,240 $11,212 $11,689 8/31/2004 $11,360 $11,258 $11,745 9/30/2004 $11,542 $11,380 $11,971 10/31/2004 $11,723 $11,554 $12,267 11/30/2004 $12,216 $12,021 $12,917 12/31/2004 $12,565 $12,430 $13,414 1/31/2005 $12,298 $12,127 $13,114 2/28/2005 $12,688 $12,382 $13,536 3/31/2005 $12,500 $12,163 $13,279 4/30/2005 $12,303 $11,932 $12,999 5/31/2005 $12,490 $12,312 $13,239 6/30/2005 $12,697 $12,330 $13,360 7/31/2005 $12,998 $12,788 $13,830 8/31/2005 $13,060 $12,671 $13,940 9/30/2005 $13,185 $12,774 $14,306 10/31/2005 $12,801 $12,561 $13,962 11/30/2005 $12,967 $13,036 $14,435 12/31/2005 $13,272 $13,041 $14,758 1/31/2006 $13,670 $13,386 $15,420 2/28/2006 $13,734 $13,422 $15,404 3/31/2006 $13,969 $13,589 $15,749 4/30/2006 $14,209 $13,772 $16,236 5/31/2006 $13,969 $13,375 $15,696 6/30/2006 $13,991 $13,394 $15,698 7/31/2006 $14,198 $13,476 $15,799 8/31/2006 $14,504 $13,797 $16,217 9/30/2006 $14,668 $14,152 $16,415 10/31/2006 $15,094 $14,614 $17,021 11/30/2006 $15,444 $14,891 $17,447 12/31/2006 $15,728 $15,100 $17,806 1/31/2007 $15,933 $15,329 $18,020 2/28/2007 $15,853 $15,029 $17,934 3/31/2007 $16,070 $15,197 $18,270 4/30/2007 $16,592 $15,870 $19,086 5/31/2007 $16,999 $16,424 $19,640 6/30/2007 $16,801 $16,151 $19,495 7/31/2007 $16,209 $15,650 $19,067 8/31/2007 $16,151 $15,885 $19,061 9/30/2007 $16,546 $16,479 $19,974 10/31/2007 $16,836 $16,741 $20,591 11/30/2007 $16,314 $16,041 $19,759 12/31/2007 $16,116 $15,930 $19,510 1/31/2008 $15,279 $14,974 $18,023 2/29/2008 $14,891 $14,488 $17,927 3/31/2008 $14,650 $14,425 $17,764 4/30/2008 $15,321 $15,128 $18,712 5/31/2008 $15,445 $15,324 $19,021 6/30/2008 $14,165 $14,032 $17,511 7/31/2008 $14,015 $13,914 $17,087 8/31/2008 $13,978 $14,115 $16,855 9/30/2008 $12,399 $12,858 $14,858 10/31/2008 $10,359 $10,698 $12,044 11/30/2008 $ 9,526 $ 9,931 $11,273 12/31/2008 $ 9,986 $10,036 $11,641 Total Returns -0.14% 0.36% 16.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------- -------- 1-Year -37.77% 5-Year -1.68% Since Inception (8/15/03) +0.48%
CLASS R (8/15/03 - 12/31/08) (PERFORMANCE GRAPH)
Franklin Templeton Founding Funds S&P 500 MSCI World Date Allocation Fund - Class R Index Index - ---------------- ------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,100 $ 9,993 $10,177 10/31/2003 $10,410 $10,559 $10,783 11/30/2003 $10,630 $10,652 $10,950 12/31/2003 $11,168 $11,210 $11,639 1/31/2004 $11,319 $11,416 $11,829 2/29/2004 $11,521 $11,575 $12,031 3/31/2004 $11,440 $11,400 $11,956 4/30/2004 $11,279 $11,221 $11,718 5/31/2004 $11,289 $11,375 $11,832 6/30/2004 $11,471 $11,596 $12,080 7/31/2004 $11,309 $11,212 $11,689 8/31/2004 $11,440 $11,258 $11,745 9/30/2004 $11,622 $11,380 $11,971 10/31/2004 $11,803 $11,554 $12,267 11/30/2004 $12,307 $12,021 $12,917 12/31/2004 $12,668 $12,430 $13,414 1/31/2005 $12,400 $12,127 $13,114 2/28/2005 $12,803 $12,382 $13,536 3/31/2005 $12,624 $12,163 $13,279 4/30/2005 $12,426 $11,932 $12,999 5/31/2005 $12,614 $12,312 $13,239 6/30/2005 $12,843 $12,330 $13,360 7/31/2005 $13,145 $12,788 $13,830 8/31/2005 $13,207 $12,671 $13,940 9/30/2005 $13,343 $12,774 $14,306 10/31/2005 $12,957 $12,561 $13,962 11/30/2005 $13,134 $13,036 $14,435 12/31/2005 $13,444 $13,041 $14,758 1/31/2006 $13,852 $13,386 $15,420 2/28/2006 $13,928 $13,422 $15,404 3/31/2006 $14,163 $13,589 $15,749 4/30/2006 $14,414 $13,772 $16,236 5/31/2006 $14,174 $13,375 $15,696 6/30/2006 $14,217 $13,394 $15,698 7/31/2006 $14,414 $13,476 $15,799 8/31/2006 $14,743 $13,797 $16,217 9/30/2006 $14,907 $14,152 $16,415 10/31/2006 $15,356 $14,614 $17,021 11/30/2006 $15,717 $14,891 $17,447 12/31/2006 $16,018 $15,100 $17,806 1/31/2007 $16,224 $15,329 $18,020 2/28/2007 $16,144 $15,029 $17,934 3/31/2007 $16,373 $15,197 $18,270 4/30/2007 $16,932 $15,870 $19,086 5/31/2007 $17,340 $16,424 $19,640 6/30/2007 $17,153 $16,151 $19,495 7/31/2007 $16,547 $15,650 $19,067 8/31/2007 $16,489 $15,885 $19,061 9/30/2007 $16,909 $16,479 $19,974 10/31/2007 $17,212 $16,741 $20,591 11/30/2007 $16,687 $16,041 $19,759 12/31/2007 $16,485 $15,930 $19,510 1/31/2008 $15,631 $14,974 $18,023 2/29/2008 $15,240 $14,488 $17,927 3/31/2008 $14,997 $14,425 $17,764 4/30/2008 $15,698 $15,128 $18,712 5/31/2008 $15,835 $15,324 $19,021 6/30/2008 $14,521 $14,032 $17,511 7/31/2008 $14,383 $13,914 $17,087 8/31/2008 $14,346 $14,115 $16,855 9/30/2008 $12,731 $12,858 $14,858 10/31/2008 $10,628 $10,698 $12,044 11/30/2008 $ 9,777 $ 9,931 $11,273 12/31/2008 $10,259 $10,036 $11,641 Total Returns 2.59% 0.36% 16.41%
Annual Report | 19 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08 - ------------- -------- 1-Year -37.44% 5-Year -1.18% Since Inception (8/15/03 +0.97%
ADVISOR CLASS (8/15/03 - 12/31/08) (PERFORMANCE GRAPH)
Franklin Templeton Founding Funds Allocation S&P 500 MSCI World Date Fund - ADVISOR CLASS Index Index - ---------------- ------------------------- ------- ---------- 8/15/2003 $10,000 $10,000 $10,000 8/31/2003 $10,040 $10,101 $10,113 9/30/2003 $10,100 $ 9,993 $10,177 10/31/2003 $10,420 $10,559 $10,783 11/30/2003 $10,640 $10,652 $10,950 12/31/2003 $11,175 $11,210 $11,639 1/31/2004 $11,326 $11,416 $11,829 2/29/2004 $11,538 $11,575 $12,031 3/31/2004 $11,457 $11,400 $11,956 4/30/2004 $11,306 $11,221 $11,718 5/31/2004 $11,326 $11,375 $11,832 6/30/2004 $11,508 $11,596 $12,080 7/31/2004 $11,346 $11,212 $11,689 8/31/2004 $11,477 $11,258 $11,745 9/30/2004 $11,669 $11,380 $11,971 10/31/2004 $11,861 $11,554 $12,267 11/30/2004 $12,375 $12,021 $12,917 12/31/2004 $12,744 $12,430 $13,414 1/31/2005 $12,475 $12,127 $13,114 2/28/2005 $12,889 $12,382 $13,536 3/31/2005 $12,710 $12,163 $13,279 4/30/2005 $12,511 $11,932 $12,999 5/31/2005 $12,710 $12,312 $13,239 6/30/2005 $12,940 $12,330 $13,360 7/31/2005 $13,253 $12,788 $13,830 8/31/2005 $13,326 $12,671 $13,940 9/30/2005 $13,472 $12,774 $14,306 10/31/2005 $13,086 $12,561 $13,962 11/30/2005 $13,263 $13,036 $14,435 12/31/2005 $13,589 $13,041 $14,758 1/31/2006 $14,011 $13,386 $15,420 2/28/2006 $14,087 $13,422 $15,404 3/31/2006 $14,335 $13,589 $15,749 4/30/2006 $14,599 $13,772 $16,236 5/31/2006 $14,357 $13,375 $15,696 6/30/2006 $14,401 $13,394 $15,698 7/31/2006 $14,621 $13,476 $15,799 8/31/2006 $14,952 $13,797 $16,217 9/30/2006 $15,128 $14,152 $16,415 10/31/2006 $15,591 $14,614 $17,021 11/30/2006 $15,955 $14,891 $17,447 12/31/2006 $16,270 $15,100 $17,806 1/31/2007 $16,491 $15,329 $18,020 2/28/2007 $16,421 $15,029 $17,934 3/31/2007 $16,664 $15,197 $18,270 4/30/2007 $17,229 $15,870 $19,086 5/31/2007 $17,653 $16,424 $19,640 6/30/2007 $17,477 $16,151 $19,495 7/31/2007 $16,864 $15,650 $19,067 8/31/2007 $16,817 $15,885 $19,061 9/30/2007 $17,253 $16,479 $19,974 10/31/2007 $17,559 $16,741 $20,591 11/30/2007 $17,029 $16,041 $19,759 12/31/2007 $16,836 $15,930 $19,510 1/31/2008 $15,968 $14,974 $18,023 2/29/2008 $15,584 $14,488 $17,927 3/31/2008 $15,337 $14,425 $17,764 4/30/2008 $16,061 $15,128 $18,712 5/31/2008 $16,201 $15,324 $19,021 6/30/2008 $14,867 $14,032 $17,511 7/31/2008 $14,727 $13,914 $17,087 8/31/2008 $14,702 $14,115 $16,855 9/30/2008 $13,050 $12,858 $14,858 10/31/2008 $10,902 $10,698 $12,044 11/30/2008 $10,038 $ 9,931 $11,273 12/31/2008 $10,533 $10,036 $11,641 Total Returns 5.33% 0.36% 16.41%
ENDNOTES BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THIS FUND OF FUNDS IS SUBJECT TO THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. HIGHER-YIELDING, LOWER-RATED CORPORATE BONDS ENTAIL A GREATER DEGREE OF CREDIT RISK COMPARED TO INVESTMENT-GRADE SECURITIES. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND POLITICAL OR SOCIAL INSTABILITY. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the administrator had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. (6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. 20 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 21 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD 7/1/07 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** ------------- ------------- ---------------- ----------------- CLASS A Actual $1,000 $ 707.10 $2.02 $4.89 Hypothetical (5% return before expenses) $1,000 $1,022.77 $2.39 $5.79 CLASS B Actual $1,000 $ 704.30 $5.01 $7.88 Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.94 $9.32 CLASS C Actual $1,000 $ 705.00 $4.89 $7.76 Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.79 $9.17 CLASS R Actual $1,000 $ 706.50 $2.92 $5.79 Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.46 $6.85 ADVISOR CLASS Actual $1,000 $ 708.50 $0.77 $3.65 Hypothetical (5% return before expenses) $1,000 $1,024.23 $0.92 $4.32
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.47%; B: 1.17%; C: 1.14%; R: 0.68%; and Advisor: 0.18%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.14%; B: 1.84%; C: 1.81%; R: 1.35%; and Advisor: 0.85%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 22 | Annual Report Franklin Templeton Perspectives Allocation Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton Perspectives Allocation Fund seeks capital appreciation through investments in an equally weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. This annual report for Franklin Templeton Perspectives Allocation Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton Perspectives Allocation Fund - Class A had a -39.29% cumulative total return for the 12 months under review. In comparison, the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and the Morgan Stanley Capital International (MSCI) World Index, had total returns of -37.00% and -40.33%.(1) You can find other performance data in the Performance Summary beginning on page 25. INVESTMENT STRATEGY The Fund invests its assets in an equally weighted combination of Franklin Flex Cap Growth Fund, Mutual Shares Fund and Templeton Growth Fund. These underlying funds, in turn, invest primarily in U.S. and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund's allocations to maintain the predetermined equal weightings of approximately 33 1/3% of total net assets in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages. (1.) Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 48. Annual Report | 23 ASSET ALLOCATION* Franklin Templeton Perspectives Allocation Fund Based on Total Net Assets as of 12/31/08 Domestic Equity 66.1% Foreign Equity 33.0% Short-Term Investments & Other Net Assets 0.9%
* The asset allocation is based on the SOI, which classifies each underlying fund into a broad asset class. PORTFOLIO REVIEW The Fund's performance can be attributed largely to maintaining a relatively static allocation among domestic and foreign equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. During the fiscal year under review, Fund performance was hindered by Templeton Growth Fund - Advisor Class, which underperformed the MSCI World Index. Mutual Shares Fund - Class Z and Franklin Flex Cap Growth Fund - Advisor Class performed comparably to the S&P 500. Thank you for your continued participation in Franklin Templeton Perspectives Allocation Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey T. Anthony Coffey, CFA Vice President of Franklin Advisers, Inc. Franklin Templeton Perspectives Allocation Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 24 | Annual Report Performance Summary as of 12/31/08 FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FPAAX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.48 $7.69 $13.17 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1179 Short-Term Capital Gain $0.0002 Long-Term Capital Gain $0.2600 TOTAL $0.3781
CLASS C (SYMBOL: FPCAX) CHANGE 12/31/08 12/31/07 - ----------------------- ------ -------- -------- Net Asset Value (NAV) -$5.42 $7.66 $13.08 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.0369 Short-Term Capital Gain $0.0002 Long-Term Capital Gain $0.2600 TOTAL $0.2971
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------- ------ -------- -------- Net Asset Value (NAV) -$5.47 $7.70 $13.17 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.0896 Short-Term Capital Gain $0.0002 Long-Term Capital Gain $0.2600 TOTAL $0.3498
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------- ------ -------- -------- Net Asset Value (NAV) -$5.51 $7.71 $13.22 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1511 Short-Term Capital Gain $0.0002 Long-Term Capital Gain $0.2600 TOTAL $0.4113
Annual Report | 25 Performance Summary (CONTINUED) PERFORMANCE(1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 3-YEAR INCEPTION (8/2/04) - ------- ------- -------- ------------------ Cumulative Total Return(2) -39.29% -25.64% -9.37% Average Annual Total Return(3) -42.76% -11.18% -3.51% Value of $10,000 Investment(4) $ 5,724 $ 7,008 $8,542 Total Annual Operating Expenses(5) Without Waiver 1.39% With Waiver 1.21%
CLASS C 1-YEAR 3-YEAR INCEPTION (8/2/04) - ------- ------- -------- ------------------ Cumulative Total Return(2) -39.75% -27.17% -12.02% Average Annual Total Return(3) -40.33% -10.03% -2.86% Value of $10,000 Investment(4) $ 5,967 $ 7,283 $ 8,798 Total Annual Operating Expenses(5) Without Waiver 2.08% With Waiver 1.90%
CLASS R 1-YEAR 3-YEAR INCEPTION (8/2/04) - ------- ------- -------- ------------------ Cumulative Total Return(2) -39.44% -26.10% -10.08% Average Annual Total Return(3) -39.44% -9.59% -2.38% Value of $10,000 Investment(4) $ 6,056 $ 7,390 $ 8,992 Total Annual Operating Expenses(5) Without Waiver 1.59% With Waiver 1.41%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (8/2/04) - ------------- ------- -------- ------------------ Cumulative Total Return(2) -39.10% -24.84% -8.00% Average Annual Total Return(3) -39.10% -9.08% -1.87% Value of $10,000 Investment(4) $6,090 $ 7,516 $9,200 Total Annual Operating Expenses(5) Without Waiver 1.09% With Waiver 0.91%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE ADMINISTRATOR HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ADMINISTRATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES) DO NOT EXCEED 0.92% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. 26 | Annual Report Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT(1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -42.76% 3-Year -11.18% Since Inception (8/2/04) -3.51%
CLASS A (8/2/04 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES DATE ALLOCATION FUND- CLASS A S&P 500 INDEX MSCI WORLD INDEX - ------------- ------------------------------- ------------- ---------------- 8/2/2004 $ 9,425 $10,000 $10,000 8/31/2004 $ 9,510 $10,040 $10,048 9/30/2004 $ 9,670 $10,149 $10,241 10/31/2004 $ 9,840 $10,304 $10,494 11/30/2004 $10,311 $10,721 $11,050 12/31/2004 $10,643 $11,086 $11,475 1/31/2005 $10,367 $10,816 $11,219 2/28/2005 $10,681 $11,043 $11,580 3/31/2005 $10,519 $10,848 $11,360 4/30/2005 $10,328 $10,642 $11,120 5/31/2005 $10,566 $10,981 $11,326 6/30/2005 $10,624 $10,996 $11,429 7/31/2005 $10,958 $11,405 $11,831 8/31/2005 $11,006 $11,301 $11,926 9/30/2005 $11,168 $11,393 $12,239 10/31/2005 $10,910 $11,203 $11,944 11/30/2005 $11,273 $11,626 $12,349 12/31/2005 $11,488 $11,631 $12,626 1/31/2006 $11,916 $11,938 $13,192 2/28/2006 $11,945 $11,971 $13,178 3/31/2006 $12,169 $12,120 $13,473 4/30/2006 $12,318 $12,283 $13,890 5/31/2006 $11,903 $11,929 $13,428 6/30/2006 $11,942 $11,945 $13,429 7/31/2006 $11,922 $12,019 $13,516 8/31/2006 $12,189 $12,305 $13,874 9/30/2006 $12,377 $12,622 $14,043 10/31/2006 $12,753 $13,033 $14,562 11/30/2006 $13,030 $13,281 $14,926 12/31/2006 $13,175 $13,467 $15,233 1/31/2007 $13,461 $13,671 $15,416 2/28/2007 $13,257 $13,404 $15,342 3/31/2007 $13,429 $13,554 $15,629 4/30/2007 $13,948 $14,154 $16,328 5/31/2007 $14,353 $14,648 $16,802 6/30/2007 $14,280 $14,405 $16,678 7/31/2007 $13,865 $13,958 $16,312 8/31/2007 $13,928 $14,167 $16,307 9/30/2007 $14,436 $14,697 $17,088 10/31/2007 $14,789 $14,931 $17,616 11/30/2007 $14,249 $14,307 $16,904 12/31/2007 $14,069 $14,207 $16,690 1/31/2008 $12,969 $13,355 $15,419 2/29/2008 $12,616 $12,921 $15,337 3/31/2008 $12,496 $12,866 $15,197 4/30/2008 $13,142 $13,492 $16,008 5/31/2008 $13,437 $13,667 $16,272 6/30/2008 $12,266 $12,515 $14,980 7/31/2008 $12,223 $12,410 $14,618 8/31/2008 $12,255 $12,589 $14,419 9/30/2008 $10,975 $11,467 $12,711 10/31/2008 $ 9,027 $ 9,541 $10,304 11/30/2008 $ 8,327 $ 8,857 $ 9,644 12/31/2008 $ 8,542 $ 8,951 $ 9,958 Total Returns -14.58% -10.49% -0.42%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -40.33% 3-Year -10.03% Since Inception (8/2/04) -2.86%
CLASS C (8/2/04 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES DATE ALLOCATION FUND- CLASS C S&P 500 INDEX MSCI WORLD INDEX - ------------- ------------------------------- ------------- ---------------- 8/2/2004 $10,000 $10,000 $10,000 8/31/2004 $10,090 $10,040 $10,048 9/30/2004 $10,250 $10,149 $10,241 10/31/2004 $10,430 $10,304 $10,494 11/30/2004 $10,910 $10,721 $11,050 12/31/2004 $11,266 $11,086 $11,475 1/31/2005 $10,964 $10,816 $11,219 2/28/2005 $11,286 $11,043 $11,580 3/31/2005 $11,115 $10,848 $11,360 4/30/2005 $10,902 $10,642 $11,120 5/31/2005 $11,155 $10,981 $11,326 6/30/2005 $11,206 $10,996 $11,429 7/31/2005 $11,550 $11,405 $11,831 8/31/2005 $11,591 $11,301 $11,926 9/30/2005 $11,763 $11,393 $12,239 10/31/2005 $11,479 $11,203 $11,944 11/30/2005 $11,854 $11,626 $12,349 12/31/2005 $12,080 $11,631 $12,626 1/31/2006 $12,512 $11,938 $13,192 2/28/2006 $12,543 $11,971 $13,178 3/31/2006 $12,769 $12,120 $13,473 4/30/2006 $12,915 $12,283 $13,890 5/31/2006 $12,476 $11,929 $13,428 6/30/2006 $12,518 $11,945 $13,429 7/31/2006 $12,487 $12,019 $13,516 8/31/2006 $12,758 $12,305 $13,874 9/30/2006 $12,946 $12,622 $14,043 10/31/2006 $13,333 $13,033 $14,562 11/30/2006 $13,615 $13,281 $14,926 12/31/2006 $13,761 $13,467 $15,233 1/31/2007 $14,050 $13,671 $15,416 2/28/2007 $13,836 $13,404 $15,342 3/31/2007 $14,006 $13,554 $15,629 4/30/2007 $14,541 $14,154 $16,328 5/31/2007 $14,955 $14,648 $16,802 6/30/2007 $14,868 $14,405 $16,678 7/31/2007 $14,421 $13,958 $16,312 8/31/2007 $14,486 $14,167 $16,307 9/30/2007 $15,010 $14,697 $17,088 10/31/2007 $15,370 $14,931 $17,616 11/30/2007 $14,792 $14,307 $16,904 12/31/2007 $14,602 $14,207 $16,690 1/31/2008 $13,452 $13,355 $15,419 2/29/2008 $13,084 $12,921 $15,337 3/31/2008 $12,947 $12,866 $15,197 4/30/2008 $13,610 $13,492 $16,008 5/31/2008 $13,896 $13,667 $16,272 6/30/2008 $12,684 $12,515 $14,980 7/31/2008 $12,638 $12,410 $14,618 8/31/2008 $12,661 $12,589 $14,419 9/30/2008 $11,334 $11,467 $12,711 10/31/2008 $ 9,321 $ 9,541 $10,304 11/30/2008 $ 8,589 $ 8,857 $ 9,644 12/31/2008 $ 8,798 $ 8,951 $ 9,958 Total Returns -12.02% -10.49% -0.42%
Annual Report | 27 Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------- -------- 1-Year -39.44% 3-Year -9.59% Since Inception (8/2/04) -2.38%
CLASS R (8/2/04 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES DATE ALLOCATION FUND - CLASS R S&P 500 INDEX MSCI WORLD INDEX - ------------- ------------------------------- ------------- ---------------- 8/2/2004 $10,000 $10,000 $10,000 8/31/2004 $10,080 $10,040 $10,048 9/30/2004 $10,250 $10,149 $10,241 10/31/2004 $10,440 $10,304 $10,494 11/30/2004 $10,930 $10,721 $11,050 12/31/2004 $11,281 $11,086 $11,475 1/31/2005 $10,989 $10,816 $11,219 2/28/2005 $11,322 $11,043 $11,580 3/31/2005 $11,159 $10,848 $11,360 4/30/2005 $10,946 $10,642 $11,120 5/31/2005 $11,199 $10,981 $11,326 6/30/2005 $11,260 $10,996 $11,429 7/31/2005 $11,605 $11,405 $11,831 8/31/2005 $11,655 $11,301 $11,926 9/30/2005 $11,828 $11,393 $12,239 10/31/2005 $11,554 $11,203 $11,944 11/30/2005 $11,939 $11,626 $12,349 12/31/2005 $12,168 $11,631 $12,626 1/31/2006 $12,612 $11,938 $13,192 2/28/2006 $12,643 $11,971 $13,178 3/31/2006 $12,880 $12,120 $13,473 4/30/2006 $13,037 $12,283 $13,890 5/31/2006 $12,587 $11,929 $13,428 6/30/2006 $12,639 $11,945 $13,429 7/31/2006 $12,608 $12,019 $13,516 8/31/2006 $12,890 $12,305 $13,874 9/30/2006 $13,089 $12,622 $14,043 10/31/2006 $13,487 $13,033 $14,562 11/30/2006 $13,781 $13,281 $14,926 12/31/2006 $13,931 $13,467 $15,233 1/31/2007 $14,223 $13,671 $15,416 2/28/2007 $14,017 $13,404 $15,342 3/31/2007 $14,200 $13,554 $15,629 4/30/2007 $14,738 $14,154 $16,328 5/31/2007 $15,166 $14,648 $16,802 6/30/2007 $15,078 $14,405 $16,678 7/31/2007 $14,639 $13,958 $16,312 8/31/2007 $14,705 $14,167 $16,307 9/30/2007 $15,243 $14,697 $17,088 10/31/2007 $15,616 $14,931 $17,616 11/30/2007 $15,034 $14,307 $16,904 12/31/2007 $14,848 $14,207 $16,690 1/31/2008 $13,687 $13,355 $15,419 2/29/2008 $13,315 $12,921 $15,337 3/31/2008 $13,188 $12,866 $15,197 4/30/2008 $13,869 $13,492 $16,008 5/31/2008 $14,169 $13,667 $16,272 6/30/2008 $12,934 $12,515 $14,980 7/31/2008 $12,888 $12,410 $14,618 8/31/2008 $12,922 $12,589 $14,419 9/30/2008 $11,571 $11,467 $12,711 10/31/2008 $ 9,516 $ 9,541 $10,304 11/30/2008 $ 8,776 $ 8,857 $ 9,644 12/31/2008 $ 8,992 $ 8,951 $ 9,958 Total Returns -10.08% -10.49% -0.42%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08 - ------------- -------- 1-Year -39.10% 3-Year -9.08% Since Inception (8/2/04) -1.87%
Advisor Class (8/2/04 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON PERSPECTIVES DATE ALLOCATION FUND - ADVISOR CLASS S&P 500 INDEX MSCI WORLD INDEX - ------------- ------------------------------- ------------- ---------------- 8/2/2004 $10,000 $10,000 $10,000 8/31/2004 $10,090 $10,040 $10,048 9/30/2004 $10,260 $10,149 $10,241 10/31/2004 $10,450 $10,304 $10,494 11/30/2004 $10,950 $10,721 $11,050 12/31/2004 $11,301 $11,086 $11,475 1/31/2005 $11,008 $10,816 $11,219 2/28/2005 $11,341 $11,043 $11,580 3/31/2005 $11,178 $10,848 $11,360 4/30/2005 $10,975 $10,642 $11,120 5/31/2005 $11,239 $10,981 $11,326 6/30/2005 $11,300 $10,996 $11,429 7/31/2005 $11,655 $11,405 $11,831 8/31/2005 $11,705 $11,301 $11,926 9/30/2005 $11,888 $11,393 $12,239 10/31/2005 $11,614 $11,203 $11,944 11/30/2005 $12,010 $11,626 $12,349 12/31/2005 $12,241 $11,631 $12,626 1/31/2006 $12,697 $11,938 $13,192 2/28/2006 $12,728 $11,971 $13,178 3/31/2006 $12,977 $12,120 $13,473 4/30/2006 $13,134 $12,283 $13,890 5/31/2006 $12,693 $11,929 $13,428 6/30/2006 $12,745 $11,945 $13,429 7/31/2006 $12,724 $12,019 $13,516 8/31/2006 $13,019 $12,305 $13,874 9/30/2006 $13,218 $12,622 $14,043 10/31/2006 $13,618 $13,033 $14,562 11/30/2006 $13,923 $13,281 $14,926 12/31/2006 $14,085 $13,467 $15,233 1/31/2007 $14,390 $13,671 $15,416 2/28/2007 $14,183 $13,404 $15,342 3/31/2007 $14,367 $13,554 $15,629 4/30/2007 $14,932 $14,154 $16,328 5/31/2007 $15,363 $14,648 $16,802 6/30/2007 $15,286 $14,405 $16,678 7/31/2007 $14,843 $13,958 $16,312 8/31/2007 $14,921 $14,167 $16,307 9/30/2007 $15,496 $14,697 $17,088 10/31/2007 $15,884 $14,931 $17,616 11/30/2007 $15,297 $14,307 $16,904 12/31/2007 $15,107 $14,207 $16,690 1/31/2008 $13,930 $13,355 $15,419 2/29/2008 $13,564 $12,921 $15,337 3/31/2008 $13,436 $12,866 $15,197 4/30/2008 $14,138 $13,492 $16,008 5/31/2008 $14,442 $13,667 $16,272 6/30/2008 $13,190 $12,515 $14,980 7/31/2008 $13,155 $12,410 $14,618 8/31/2008 $13,190 $12,589 $14,419 9/30/2008 $11,821 $11,467 $12,711 10/31/2008 $ 9,726 $9,541 $10,304 11/30/2008 $ 8,965 $8,857 $ 9,644 12/31/2008 $ 9,200 $8,951 $ 9,958 Total Returns -8.00% -10.49% -0.42%
28 | Annual Report Performance Summary (CONTINUED) ENDNOTES BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS THAT MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND IS SUBJECT TO THESE SAME RISKS. STOCKS HISTORICALLY HAVE OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. FOREIGN INVESTING HAS ADDITIONAL RISKS SUCH AS CURRENCY AND MARKET VOLATILITY AND POLITICAL OR SOCIAL INSTABILITY. THE PORTFOLIO MAY INCLUDE INVESTMENTS IN THE TECHNOLOGY SECTOR, WHICH HAS BEEN AMONG THE MOST VOLATILE IN THE MARKET. SMALLER OR RELATIVELY NEW OR UNSEASONED COMPANIES CAN BE PARTICULARLY SENSITIVE TO CHANGING ECONOMIC CONDITIONS, AND THEIR PROSPECTS FOR GROWTH ARE LESS CERTAIN THAN THOSE OF LARGER, MORE ESTABLISHED COMPANIES. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. (1.) If the administrator had not waived fees, the Fund's total returns would have been lower. (2.) Cumulative total return represents the change in value of an investment over the periods indicated. (3.) Average annual total return represents the average annual change in value of an investment over the periods indicated. (4.) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5.) Figures are as stated in the Fund's prospectus current as of the date of this report. (6.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets. Annual Report | 29 Your Fund's Expenses FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 30 | Annual Report Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** ------------- ------------- ---------------- ----------------- CLASS A Actual $1,000 $ 696.40 $2.05 $5.20 Hypothetical (5% return before expenses) $1,000 $1,022.72 $2.44 $6.19 CLASS C Actual $1,000 $ 693.60 $4.94 $8.09 Hypothetical (5% return before expenses) $1,000 $1,019.30 $5.89 $9.63 CLASS R Actual $1,000 $ 695.30 $2.90 $6.05 Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.46 $7.20 ADVISOR CLASS Actual $1,000 $ 697.50 $0.77 $3.93 Hypothetical (5% return before expenses) $1,000 $1,024.23 $0.92 $4.67
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.48%; C: 1.16%; R: 0.68%; and Advisor: 0.18%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.22%; B: 1.90%; R: 1.42%; and Advisor: 0.92%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. Annual Report | 31 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED ----------------------------------------------------- JULY 31, CLASS A 2008 2007 2006 2005 2004(a) 2004(b) - ------- -------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.22 $ 14.09 $ 12.71 $ 12.20 $ 11.02 $ 10.00 -------- -------- -------- -------- -------- -------- Income from investment operations(c): Net investment income(d, e) ................. 0.12 0.15 0.11 0.09 0.09 0.01 Net realized and unrealized gains (losses) .. (5.46) 0.57 1.81 0.71 1.21 1.07 -------- -------- -------- -------- -------- -------- Total from investment operations ............... (5.34) 0.72 1.92 0.80 1.30 1.08 -------- -------- -------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.13) (0.17) (0.16) (0.10) (0.07) -- Net realized gains .......................... (0.29) (0.42) (0.38) (0.19) (0.05) -- Tax return of capital ....................... -- -- -- -- -- (0.06) -------- -------- -------- -------- -------- -------- Total distributions ............................ (0.42) (0.59) (0.54) (0.29) (0.12) (0.06) -------- -------- -------- -------- -------- -------- Redemption fees(f, g) .......................... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net asset value, end of year ................... $ 8.46 $ 14.22 $ 14.09 $ 12.71 $ 12.20 $ 11.02 ======== ======== ======== ======== ======== ======== Total return(h) ................................ (38.13)% 5.20% 15.25% 6.63% 11.77% 10.85% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 0.62% 0.64% 0.65% 0.66% 0.68% 0.74% Expenses net of waiver and payments by affiliates(j) ............................... 0.48% 0.50% 0.50% 0.58% 0.68% 0.47% Net investment income(e) ....................... 1.01% 0.99% 0.82% 0.72% 1.86% 0.14% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $278,539 $497,314 $458,460 $353,016 $238,564 $157,792 Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.72% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 32 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED ------------------------------------------------ JULY 31, CLASS B 2008 2007 2006 2005 2004(a) 2004(b) - ------- ------- ------- ------- ------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.12 $ 13.99 $ 12.62 $ 12.12 $ 10.95 $ 10.00 ------- ------- ------- ------- ------- ------- Income from investment operations(c): Net investment income (loss)(d, e) .......... 0.03 0.05 0.01 0.01 0.06 (0.06) Net realized and unrealized gains (losses) .. (5.38) 0.57 1.81 0.70 1.20 1.06 ------- ------- ------- ------- ------- ------- Total from investment operations ............... (5.35) 0.62 1.82 0.71 1.26 1.00 ------- ------- ------- ------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.04) (0.07) (0.07) (0.02) (0.04) -- Net realized gains .......................... (0.29) (0.42) (0.38) (0.19) (0.05) -- Tax return of capital ....................... -- -- -- -- -- (0.05) ------- ------- ------- ------- ------- ------- Total distributions ............................ (0.33) (0.49) (0.45) (0.21) (0.09) (0.05) ------- ------- ------- ------- ------- ------- Redemption fees(f, g) .......................... -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- Net asset value, end of year ................... $ 8.44 $ 14.12 $ 13.99 $ 12.62 $ 12.12 $ 10.95 ======= ======= ======= ======= ======= ======= Total return(h) ................................ (38.53)% 4.49% 14.55% 5.89% 11.50% 10.02% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 1.32% 1.31% 1.30% 1.31% 1.33% 1.39% Expenses net of waiver and payments by affiliates(j) ............................... 1.18% 1.16% 1.15% 1.23% 1.33% 1.12% Net investment income (loss)(e) ................ 0.31% 0.32% 0.17% 0.07% 1.21% (0.51)% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $35,616 $72,530 $76,408 $71,496 $66,562 $44,297 Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.72% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 33 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED --------------------------------------------------- JULY 31, CLASS C 2008 2007 2006 2005 2004(a) 2004(b) - ------- ------- -------- -------- -------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.08 $ 13.96 $ 12.61 $ 12.11 $ 10.94 $ 10.00 ------- -------- -------- -------- ------- ------- Income from investment operationsc: Net investment income (loss)(d, e) .......... 0.03 0.05 0.02 0.01 0.06 (0.05) Net realized and unrealized gains (losses) .. (5.37) 0.57 1.79 0.71 1.20 1.04 ------- -------- -------- -------- ------- ------- Total from investment operations ............... (5.34) 0.62 1.81 0.72 1.26 0.99 ------- -------- -------- -------- ------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.05) (0.08) (0.08) (0.03) (0.04) -- Net realized gains .......................... (0.29) (0.42) (0.38) (0.19) (0.05) -- Tax return of capital ....................... -- -- -- -- -- (0.05) ------- -------- -------- -------- ------- ------- Total distributions ............................ (0.34) (0.50) (0.46) (0.22) (0.09) (0.05) ------- -------- -------- -------- ------- ------- Redemption fees(f, g) .......................... -- -- -- -- -- -- ------- -------- -------- -------- ------- ------- Net asset value, end of year ................... $ 8.40 $ 14.08 $ 13.96 $ 12.61 $ 12.11 $ 10.94 ======= ======== ======== ======== ======= ======= Total return(h) ................................ (38.58)% 4.50% 14.48% 6.02% 11.49% 9.93% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 1.31% 1.30% 1.29% 1.29% 1.33% 1.39% Expenses net of waiver and payments by affiliates(j) ............................... 1.17% 1.16% 1.14% 1.21% 1.33% 1.12% Net investment income (loss)(e) ................ 0.32% 0.33% 0.18% 0.09% 1.21% (0.51)% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $99,663 $181,951 $166,688 $132,459 $96,487 $73,272 Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.72% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 34 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED --------------------------------------------- JULY 31, CLASS R 2008 2007 2006 2005 2004(a) 2004(b) - ------- ------- ------ ------ ------ ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.20 $14.07 $12.69 $12.18 $11.00 $10.00 ------- ------ ------ ------ ------ ------ Income from investment operations(c): Net investment income (loss)(d, e) .......... 0.08 0.12 0.09 0.05 0.08 (0.02) Net realized and unrealized gains (losses)... (5.43) 0.57 1.81 0.73 1.21 1.08 ------- ------ ------ ------ ------ ------ Total from investment operations ............... (5.35) 0.69 1.90 0.78 1.29 1.06 ------- ------ ------ ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.10) (0.14) (0.14) (0.08) (0.06) -- Net realized gains .......................... (0.29) (0.42) (0.38) (0.19) (0.05) -- Tax return of capital ....................... -- -- -- -- -- (0.06) ------- ------ ------ ------ ------ ------ Total distributions ............................ (0.39) (0.56) (0.52) (0.27) (0.11) (0.06) ------- ------ ------ ------ ------ ------ Redemption fees(f, g) .......................... -- -- -- -- -- -- ------- ------ ------ ------ ------ ------ Net asset value, end of year ................... $ 8.46 $14.20 $14.07 $12.69 $12.18 $11.00 ------- ------ ------ ------ ------ ------ Total return(h) ................................ (38.28)% 5.02% 15.10% 6.43% 11.73% 10.65% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 0.82% 0.81% 0.80% 0.81% 0.83% 0.89% Expenses net of waiver and payments by affiliates(j) ............................... 0.68% 0.66% 0.65% 0.73% 0.83% 0.62% Net investment income (loss)(e) ................ 0.81% 0.82% 0.67% 0.57% 1.71% (0.01)% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $ 1,182 $2,602 $2,534 $2,190 $1,944 $1,408 Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.72% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 35 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED --------------------------------------------- JULY 31, ADVISOR CLASS 2008 2007 2006 2005 2004(a) 2004(b) - ------------- ------- ------ ------ ------ ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 14.25 $14.12 $12.73 $12.21 $11.02 $10.00 ------- ------ ------ ------ ------ ------ Income from investment operations(c): Net investment income(d, e) ................. 0.15 0.19 0.15 0.13 0.11 0.04 Net realized and unrealized gains (losses)... (5.47) 0.58 1.83 0.72 1.21 1.05 ------- ------ ------ ------ ------ ------ Total from investment operations ............... (5.32) 0.77 1.98 0.85 1.32 1.09 ------- ------ ------ ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.17) (0.22) (0.21) (0.14) (0.08) -- Net realized gains .......................... (0.29) (0.42) (0.38) (0.19) (0.05) -- Tax return of capital ....................... -- -- -- -- -- (0.07) ------- ------ ------ ------ ------ ------ Total distributions ............................ (0.46) (0.64) (0.59) (0.33) (0.13) (0.07) ------- ------ ------ ------ ------ ------ Redemption fees(f, g) .......................... -- -- -- -- -- -- ------- ------ ------ ------ ------ ------ Net asset value, end of year ................... $ 8.47 $14.25 $14.12 $12.73 $12.21 $11.02 ------- ------ ------ ------ ------ ------ Total return(h) ................................ (37.92)% 5.53% 15.65% 6.93% 12.09% 10.92% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 0.32% 0.31% 0.30% 0.31% 0.33% 0.39% Expenses net of waiver and payments by affiliates(j) ............................... 0.18% 0.16% 0.15% 0.23% 0.33% 0.12% Net investment income(e) ....................... 1.31% 1.32% 1.17% 1.07% 2.21% 0.49% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $ 1,654 $3,243 $3,073 $2,792 $2,097 $1,181 Portfolio turnover rate ........................ 3.20% 1.72% 1.66% 2.49% 1.02% 0.62%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.72% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 36 | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND SHARES VALUE - -------------------------------------------- ---------- ------------ INVESTMENTS IN UNDERLYING FUNDS 99.9%(a) DOMESTIC EQUITY 74.8% Franklin Capital Growth Fund, Advisor Class ........................... 13,075,595 $102,643,421 Franklin Growth Fund, Advisor Class ................................... 3,626,303 106,105,625 Mutual Shares Fund, Class Z ........................................... 6,714,641 102,868,293 ------------ 311,617,339 ------------ FOREIGN EQUITY 25.1% Templeton Growth Fund Inc., Advisor Class ............................. 8,021,301 104,597,767 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $567,833,669) ................................................ 416,215,106 ------------ SHORT TERM INVESTMENTS (COST $1,052,611) 0.2%(a) MONEY MARKET FUNDS 0.2% (b) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55%... 1,052,611 1,052,611 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $568,886,280) 100.1% ...... 417,267,717 OTHER ASSETS, LESS LIABILITIES (0.1)% ................................. (613,592) ------------ NET ASSETS 100.0% ..................................................... $416,654,125 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. Annual Report | 37 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED ----------------------------------------------------------------- JULY 31, CLASS A 2008 2007 2006 2005 2004(a) 2004(b) - ------- ---------- ----------- ---------- ---------- ---------- ------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.21 $ 10.00 ---------- ----------- ---------- ---------- ---------- -------- Income from investment operations(c): Net investment income(d, e) ................. 0.37 0.43 0.40 0.37 0.22 0.23 Net realized and unrealized gains (losses) ................................. (5.38) --(f) 1.99 0.40 1.14 1.07 ---------- ----------- ---------- ---------- ---------- -------- Total from investment operations ............... (5.01) 0.43 2.39 0.77 1.36 1.30 ---------- ----------- ---------- ---------- ---------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ..... (0.38) (0.44) (0.44) (0.30) (0.23) (0.09) Net realized gains .......................... (0.28) (0.47) (0.47) (0.25) (0.06) -- ---------- ----------- ---------- ---------- ---------- -------- Total distributions ............................ (0.66) (0.91) (0.91) (0.55) (0.29) (0.09) ---------- ----------- ---------- ---------- ---------- -------- Redemption fees(f, g) .......................... -- -- -- -- -- -- ---------- ----------- ---------- ---------- ---------- -------- Net asset value, end of year ................... $ 7.83 $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.21 ========== =========== ========== ========== ========== ======== Total return(h) ................................ (37.66)% 3.12% 19.34% 6.31% 12.16% 13.00% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................ 0.54% 0.55% 0.57% 0.58% 0.60% 0.61% Expenses net of waiver and payments by affiliates(j) ............................ 0.48% 0.50% 0.50% 0.54% 0.60% 0.49% Net investment income(e) ....................... 3.27% 2.99% 3.00% 2.98% 4.48% 2.16% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $5,015,566 $10,161,473 $7,288,143 $4,051,695 $1,640,876 $882,175 Portfolio turnover rate ........................ 4.16% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 38 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED ----------------------------------------------------- JULY 31, CLASS B 2008 2007 2006 2005 2004(a) 2004(b) - ------- -------- -------- -------- -------- -------- ------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.45 $ 13.93 $ 12.46 $ 12.23 $ 11.16 $ 10.00 -------- -------- -------- -------- -------- -------- Income from investment operations(c): Net investment income(d, e) ................. 0.28 0.35 0.28 0.26 0.19 0.16 Net realized and unrealized gains (losses) .. (5.32) (0.02) 2.00 0.43 1.13 1.08 -------- -------- -------- -------- -------- -------- Total from investment operations ............... (5.04) 0.33 2.28 0.69 1.32 1.24 -------- -------- -------- -------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.29) (0.34) (0.34) (0.21) (0.19) (0.08) Net realized gains .......................... (0.28) (0.47) (0.47) (0.25) (0.06) -- -------- -------- -------- -------- -------- -------- Total distributions ............................ (0.57) (0.81) (0.81) (0.46) (0.25) (0.08) -------- -------- -------- -------- -------- -------- Redemption fees(f, g) .......................... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net asset value, end of year ................... $ 7.84 $ 13.45 $ 13.93 $ 12.46 $ 12.23 $ 11.16 ======== ======== ======== ======== ======== ======== Total return(h) ................................ (38.05)% 2.36% 18.53% 5.58% 11.90% 12.39% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 1.24% 1.22% 1.22% 1.23% 1.25% 1.26% Expenses net of waiver and payments by affiliates(j) ............................... 1.18% 1.17% 1.15% 1.19% 1.25% 1.14% Net investment income(e) ....................... 2.57% 2.32% 2.35% 2.33% 3.83% 1.51% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $344,396 $722,716 $766,452 $688,590 $612,553 $357,282 Portfolio turnover rate ........................ 4.16% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 39 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
YEAR ENDED DECEMBER 31, PERIOD ENDED ------------------------------------------------------------- JULY 31, CLASS C 2008 2007 2006 2005 2004(a) 2004(b) - ------- ---------- ---------- ---------- ---------- -------- ------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.29 $ 13.78 $ 12.36 $ 12.23 $ 11.16 $ 10.00 ---------- ---------- ---------- ---------- -------- -------- Income from investment operations(c): Net investment income(d, e) ................. 0.28 0.29 0.31 0.29 0.19 0.17 Net realized and unrealized gains (losses) ................................. (5.26) 0.05 1.95 0.39 1.13 1.07 ---------- ---------- ---------- ---------- -------- -------- Total from investment operations ............... (4.98) 0.34 2.26 0.68 1.32 1.24 ---------- ---------- ---------- ---------- -------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds .................................... (0.29) (0.36) (0.37) (0.30) (0.19) (0.08) Net realized gains .......................... (0.28) (0.47) (0.47) (0.25) (0.06) -- ---------- ---------- ---------- ---------- -------- -------- Total distributions ............................ (0.57) (0.83) (0.84) (0.55) (0.25) (0.08) ---------- ---------- ---------- ---------- -------- -------- Redemption fees(f, g) .......................... -- -- -- -- -- -- ---------- ---------- ---------- ---------- -------- -------- Net asset value, end of year ................... $ 7.74 $ 13.29 $ 13.78 $ 12.36 $ 12.23 $ 11.16 ========== ========== ========== ========== ======== ======== Total return(h) ................................ (38.04)% 2.47% 18.50% 5.63% 11.79% 12.40% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................ 1.21% 1.22% 1.22% 1.20% 1.25% 1.26% Expenses net of waiver and payments by affiliates(j) ............................ 1.15% 1.17% 1.15% 1.16% 1.25% 1.14% Net investment income(e) ....................... 2.60% 2.32% 2.35% 2.36% 3.83% 1.51% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $2,491,516 $5,295,157 $3,692,307 $2,075,041 $927,786 $535,778 Portfolio turnover rate ........................ 4.16% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 40 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED ----------------------------------------------- JULY 31, CLASS R 2008 2007 2006 2005 2004(a) 2004(b) - ------- ------- ------- ------- ------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.50 $ 13.98 $ 12.50 $ 12.28 $ 11.22 $10.00 ------- ------- ------- ------- ------- ------ Income from investment operations(c): Net investment income (d, e) ................ 0.35 0.42 0.37 0.33 0.22 0.20 Net realized and unrealized gains (losses) .. (5.38) (0.01) 1.99 0.42 1.13 1.11 ------- ------- ------- ------- ------- ------ Total from investment operations ............... (5.03) 0.41 2.36 0.75 1.35 1.31 ------- ------- ------- ------- ------- ------ Less distributions from: Net investment income and short term gains received from Underlying Funds .......... (0.35) (0.42) (0.41) (0.28) (0.23) (0.09) Net realized gains ......................... (0.28) (0.47) (0.47) (0.25) (0.06) -- ------- ------- ------- ------- ------- ------ Total distributions ........................... (0.63) (0.89) (0.88) (0.53) (0.29) (0.09) ------- ------- ------- ------- ------- ------ Redemption fees(f, g) ......................... -- -- -- -- -- -- ------- ------- ------- ------- ------- ------ Net asset value, end of year ................... $ 7.84 $ 13.50 $ 13.98 $ 12.50 $ 12.28 $11.22 ======= ======= ======= ======= ======= ====== Total return(h) ................................ (37.77)% 2.92% 19.15% 6.12% 12.02% 13.09% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 0.74% 0.72% 0.72% 0.73% 0.75% 0.76% Expenses net of waiver and payments by affiliates(j) ............................... 0.68% 0.67% 0.65% 0.69% 0.75% 0.64% Net investment income(e) ....................... 3.07% 2.82% 2.85% 2.83% 4.33% 2.01% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $14,300 $29,028 $24,435 $17,247 $12,101 $5,225 Portfolio turnover rate ........................ 4.16% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 41 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND
PERIOD YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------- JULY 31, ADVISOR CLASS 2008 2007 2006 2005 2004(a) 2004(b) - ------------- ------- ------- ------- ------- ------ -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.58 $ 14.05 $ 12.55 $ 12.32 $11.25 $10.00 ------- ------- ------- ------- ------ ------ Income from investment operations(c): Net investment income(d, e) ................. 0.47 0.48 0.47 0.39 0.24 0.25 Net realized and unrealized gains (losses) .. (5.49) 0.01 1.98 0.42 1.14 1.09 ------- ------- ------- ------- ------ ------ Total from investment operations ............... (5.02) 0.49 2.45 0.81 1.38 1.34 ------- ------- ------- ------- ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.41) (0.49) (0.48) (0.33) (0.25) (0.09) Net realized gains .......................... (0.28) (0.47) (0.47) (0.25) (0.06) -- ------- ------- ------- ------- ------ ------ Total distributions ............................ (0.69) (0.96) (0.95) (0.58) (0.31) (0.09) ------- ------- ------- ------- ------ ------ Redemption fees(f, g) .......................... -- -- -- -- -- -- ------- ------- ------- ------- ------ ------ Net asset value, end of year ................... $ 7.87 $ 13.58 $ 14.05 $ 12.55 $12.32 $11.25 ======= ======= ======= ======= ====== ====== Total return(h) ................................ (37.44)% 3.48% 19.73% 6.63% 12.32% 13.46% RATIOS TO AVERAGE NET ASSETS(i) Expenses before waiver and payments by affiliates(j) ............................... 0.24% 0.22% 0.22% 0.23% 0.25% 0.26% Expenses net of waiver and payments by affiliates(j) ............................... 0.18% 0.17% 0.15% 0.19% 0.25% 0.14% Net investment income(e) ....................... 3.57% 3.32% 3.35% 3.33% 4.83% 2.51% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $35,445 $46,866 $25,124 $12,535 $7,792 $4,991 Portfolio turnover rate ........................ 4.16% 0.73% 0.96% 0.74% 0.37% 0.71%
(a) For the period August 1, 2004 to December 31, 2004. (b) For the period August 15, 2003 (commencement of operations) to July 31, 2004. (c) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (d) Based on average daily shares outstanding. (e) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (f) Amount rounds to less than $0.01 per share. (g) Effective September 1, 2008, the redemption fee was eliminated. (h) Total return is not annualized for periods less than one year. (i) Ratios are annualized for periods less than one year. (j) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.67% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 42 | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND SHARES VALUE - ------------------------------------------------- ------------- -------------- INVESTMENTS IN UNDERLYING FUNDS 100.3%(a) DOMESTIC EQUITY 33.1% Mutual Shares Fund, Class Z ..................... 170,820,929 $2,616,976,639 -------------- DOMESTIC HYBRID 34.0% Franklin Income Fund Inc., Advisor Class ........ 1,619,379,910 2,688,170,651 -------------- FOREIGN EQUITY 33.2% Templeton Growth Fund Inc., Advisor Class ....... 200,996,173 2,620,990,092 -------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $12,588,609,277) ....................... 7,926,137,382 -------------- SHORT TERM INVESTMENTS (COST $9,718,488) 0.1%(a) MONEY MARKET FUNDS 0.1% (b) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55%....................... 9,718,488 9,718,488 -------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $12,598,327,765) 100.4% ............... 7,935,855,870 OTHER ASSETS, LESS LIABILITIES (0.4)% ........... (34,632,621) -------------- NET ASSETS 100.0% ............................... $7,901,223,249 ==============
(a) See Note 6 regarding investments in Underlying Funds. (b) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. Annual Report | 43 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, --------------------------------------------------- CLASS A 2008 2007 2006 2005 2004(a) - ------- -------- -------- -------- -------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.17 $ 12.90 $ 11.79 $ 11.19 $ 10.00 -------- -------- -------- -------- ------- Income from investment operations(b): Net investment income(c, d) ................. 0.10 0.15 0.17 0.16 0.17 Net realized and unrealized gains (losses) .. (5.20) 0.71 1.55 0.73 1.12 -------- -------- -------- -------- ------- Total from investment operations ............... (5.10) 0.86 1.72 0.89 1.29 -------- -------- -------- -------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.12) (0.16) (0.19) (0.13) (0.07) Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03) -------- -------- -------- -------- ------- Total distributions ............................ (0.38) (0.59) (0.61) (0.29) (0.10) -------- -------- -------- -------- ------- Redemption fees(e, f) .......................... -- -- -- -- -- -------- -------- -------- -------- ------- Net asset value, end of year ................... $ 7.69 $ 13.17 $ 12.90 $ 11.79 $ 11.19 ======== ======== ======== ======== ======= Total return(g) ................................ (39.29)% 6.79% 14.69% 7.93% 12.93% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 0.68% 0.68% 0.72% 0.90% 2.31% Expenses net of waiver and payments by affiliates(i) ............................... 0.48% 0.50% 0.50% 0.46% 0.39% Net investment income(d) ....................... 0.95% 1.09% 1.18% 1.41% 3.78% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $132,432 $228,876 $190,189 $103,348 $16,155 Portfolio turnover rate ........................ 9.37% 2.53% 0.98% 0.68% 0.51%
(a) For the period August 2, 2004 (commencement of operations) to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.74% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 44 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, ----------------------------------------------- CLASS C 2008 2007 2006 2005 2004(a) - ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.08 $ 12.82 $ 11.74 $ 11.18 $10.00 ------- ------- ------- ------- ------ Income from investment operations(b): Net investment income(c, d) ................. 0.02 0.06 0.08 0.09 0.15 Net realized and unrealized gains (losses) .. (5.14) 0.71 1.54 0.72 1.12 ------- ------- ------- ------- ------ Total from investment operations ............... (5.12) 0.77 1.62 0.81 1.27 ------- ------- ------- ------- ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.04) (0.08) (0.12) (0.09) (0.06) Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03) ------- ------- ------- ------- ------ Total distributions ............................ (0.30) (0.51) (0.54) (0.25) (0.09) ------- ------- ------- ------- ------ Redemption fees(e, f) .......................... -- -- -- -- -- ------- ------- ------- ------- ------ Net asset value, end of year ................... $ 7.66 $ 13.08 $ 12.82 $ 11.74 $11.18 ======= ======= ======= ======= ====== Total return(g) ................................ (39.75)% 6.11% 13.92% 7.22% 12.66% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 1.37% 1.34% 1.36% 1.55% 2.96% Expenses net of waiver and payments by affiliates(i) ............................... 1.17% 1.16% 1.14% 1.11% 1.04% Net investment income(d) ....................... 0.26% 0.43% 0.54% 0.76% 3.13% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $46,232 $84,173 $68,482 $36,568 $4,558 Portfolio turnover rate ........................ 9.37% 2.53% 0.98% 0.68% 0.51%
(a) For the period August 2, 2004 (commencement of operations) to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.74% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 45 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, -------------------------------------------- CLASS R 2008 2007 2006 2005 2004(a) - ------- ------- ------ ------ ------ ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.17 $12.90 $11.79 $11.18 $10.00 ------- ------ ------ ------ ------ Income from investment operations(b): Net investment income(c, d) ................. 0.06 0.11 0.14 0.11 0.15 Net realized and unrealized gains (losses) .. (5.18) 0.73 1.55 0.77 1.13 ------- ------ ------ ------ ------ Total from investment operations ............... (5.12) 0.84 1.69 0.88 1.28 ------- ------ ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.09) (0.14) (0.16) (0.11) (0.07) Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03) ------- ------ ------ ------ ------ Total distributions ............................ (0.35) (0.57) (0.58) (0.27) (0.10) ------- ------ ------ ------ ------ Redemption fees(e, f) .......................... -- -- -- -- -- ------- ------ ------ ------ ------ Net asset value, end of year ................... $ 7.70 $13.17 $12.90 $11.79 $11.18 ======= ====== ====== ====== ====== Total return(g) ................................ (39.44)% 6.58% 14.49% 7.86% 12.81% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 0.88% 0.85% 0.87% 1.05% 2.46% Expenses net of waiver and payments by affiliates(i) ............................... 0.68% 0.67% 0.65% 0.61% 0.54% Net investment income(d) ....................... 0.75% 0.92% 1.03% 1.26% 3.63% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $ 693 $1,433 $1,539 $1,287 $ 260 Portfolio turnover rate ........................ 9.37% 2.53% 0.98% 0.68% 0.51%
(a) For the period August 2, 2004 (commencement of operations) to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.74% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. 46 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND
YEAR ENDED DECEMBER 31, --------------------------------------------- ADVISOR CLASS 2008 2007 2006 2005 2004(a) - ------------- ------- ------ ------ ------ ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............. $ 13.22 $12.93 $11.81 $11.19 $10.00 ------- ------ ------ ------ ------ Income from investment operations(b): Net investment income(c, d) ................. 0.19 0.24 0.22 0.11 0.14 Net realized and unrealized gains (losses) .. (5.29) 0.68 1.54 0.82 1.16 ------- ------ ------ ------ ------ Total from investment operations ............... (5.10) 0.92 1.76 0.93 1.30 ------- ------ ------ ------ ------ Less distributions from: Net investment income and short term gains received from Underlying Funds ........... (0.15) (0.20) (0.22) (0.15) (0.08) Net realized gains .......................... (0.26) (0.43) (0.42) (0.16) (0.03) ------- ------ ------ ------ ------ Total distributions ............................ (0.41) (0.63) (0.64) (0.31) (0.11) ------- ------ ------ ------ ------ Redemption fees(e, f) .......................... -- -- -- -- -- ------- ------ ------ ------ ------ Net asset value, end of year ................... $ 7.71 $13.22 $12.93 $11.81 $11.19 ------- ------ ------ ------ ------ Total return(g) ................................ (39.10)% 7.26% 15.07% 8.31% 13.01% RATIOS TO AVERAGE NET ASSETS(h) Expenses before waiver and payments by affiliates(i) ............................... 0.38% 0.35% 0.37% 0.55% 1.96% Expenses net of waiver and payments by affiliates(i) ............................... 0.18% 0.17% 0.15% 0.11% 0.04% Net investment income(d) ....................... 1.25% 1.42% 1.53% 1.76% 4.13% SUPPLEMENTAL DATA Net assets, end of year (000's) ................ $ 2,480 $2,804 $1,931 $1,104 $ 196 Portfolio turnover rate ........................ 9.37% 2.53% 0.98% 0.68% 0.51%
(a) For the period August 2, 2004 (commencement of operations) to December 31, 2004. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Amount rounds to less than $0.01 per share. (f) Effective September 1, 2008, the redemption fee was eliminated. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.74% for the year ended December 31, 2008. The accompanying notes are an integral part of these financial statements. Annual Report | 47 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND SHARES VALUE - ----------------------------------------------- ---------- ------------ INVESTMENTS IN UNDERLYING FUNDS 99.1%(a) DOMESTIC EQUITY 66.1% (b) Franklin Flex Cap Growth Fund, Advisor Class .......................... 1,936,224 $ 60,429,566 Mutual Shares Fund, Class Z ........................................... 3,903,241 59,797,646 ------------ 120,227,212 ------------ FOREIGN EQUITY 33.0% Templeton Growth Fund Inc., Advisor Class ............................. 4,593,156 59,894,749 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $273,761,479) ................................................ 180,121,961 ------------ SHORT TERM INVESTMENTS (COST $2,222,386) 1.2%(a) MONEY MARKET FUNDS 1.2% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% .. 2,222,386 2,222,386 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $275,983,865) 100.3% ...... 182,344,347 OTHER ASSETS, LESS LIABILITIES (0.3)% ................................. (508,237) ------------ NET ASSETS 100.0% ..................................................... $181,836,110 ------------
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. 48 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2008
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND --------------- --------------- --------------- Assets: Investments in Underlying Funds: (Note 6) Cost ....................................... $ 568,886,280 $12,598,327,765 $275,983,865 ------------- --------------- ------------ Value ...................................... $ 417,267,717 $ 7,935,855,870 $182,344,347 Receivables from capital shares sold .......... 758,390 16,407,923 228,940 ------------- --------------- ------------ Total assets ............................ 418,026,107 7,952,263,793 182,573,287 ------------- --------------- ------------ Liabilities: Payables: Capital shares redeemed .................... 865,189 41,818,524 522,131 Affiliates ................................. 366,604 6,971,851 136,241 Unaffiliated transfer agent fees ........... 83,436 1,629,561 40,830 Accrued expenses and other liabilities ........ 56,753 620,608 37,975 ------------- --------------- ------------ Total liabilities ....................... 1,371,982 51,040,544 737,177 ------------- --------------- ------------ Net assets, at value ................. $ 416,654,125 $ 7,901,223,249 $181,836,110 ------------- --------------- ------------ Net assets consist of: Paid-in capital ............................... $ 579,354,570 $13,577,670,730 $284,698,562 Undistributed net investment income ........... 1,573,462 82,441,125 533,605 Net unrealized appreciation (depreciation) .... (151,618,563) (4,662,471,895) (93,639,518) Accumulated net realized gain (loss) .......... (12,655,344) (1,096,416,711) (9,756,539) ------------- --------------- ------------ Net assets, at value ................. $ 416,654,125 $ 7,901,223,249 $181,836,110 ------------- --------------- ------------
The accompanying notes are an integral part of these financial statements. Annual Report | 49 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2008
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND --------------- --------------- --------------- CLASS A: Net assets, at value ..................................... $278,539,462 $5,015,566,072 $132,431,545 ------------ -------------- ------------ Shares outstanding ....................................... 32,913,059 640,571,301 17,223,960 ------------ -------------- ------------ Net asset value per share(a) ............................. $ 8.46 $ 7.83 $ 7.69 ------------ -------------- ------------ Maximum offering price per share (net asset value per share / 94.25%) ....................................... $ 8.98 $ 8.31 $ 8.16 ------------ -------------- ------------ CLASS B: Net assets, at value ..................................... $ 35,615,660 $ 344,395,658 -- ------------ -------------- ------------ Shares outstanding ....................................... 4,221,860 43,933,022 -- ------------ -------------- ------------ Net asset value and maximum offering price per share(a) .. $ 8.44 $ 7.84 -- ------------ -------------- ------------ CLASS C: Net assets, at value ..................................... $ 99,663,067 $2,491,516,391 $ 46,231,669 ------------ -------------- ------------ Shares outstanding ....................................... 11,858,075 322,091,405 6,033,290 ------------ -------------- ------------ Net asset value and maximum offering price per share(a) .. $ 8.40 $ 7.74 $ 7.66 ------------ -------------- ------------ CLASS R: Net assets, at value ..................................... $ 1,182,255 $ 14,300,068 $ 693,250 ------------ -------------- ------------ Shares outstanding ....................................... 139,671 1,824,017 90,014 ------------ -------------- ------------ Net asset value and maximum offering price per share ..... $ 8.46 $ 7.84 $ 7.70 ------------ -------------- ------------ ADVISOR CLASS: Net assets, at value ..................................... $ 1,653,681 $ 35,445,060 $ 2,479,646 ------------ -------------- ------------ Shares outstanding ....................................... 195,274 4,505,055 321,680 ------------ -------------- ------------ Net asset value and maximum offering price per share ..... $ 8.47 $ 7.87 $ 7.71 ------------ -------------- ------------
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable. The accompanying notes are an integral part of these financial statements. 50 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the year ended December 31, 2008
FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND --------------- --------------- --------------- Investment income: Dividends from Underlying Funds (Note 6) ................. $ 8,945,184 $ 468,603,503 $ 3,709,412 ------------- --------------- ------------- Expenses: Administrative fees (Note 3a) ............................ 600,722 12,517,020 259,202 Distribution fees: (Note 3b) Class A ............................................... 1,191,253 23,616,894 563,903 Class B ............................................... 549,595 5,440,241 -- Class C ............................................... 1,440,595 39,176,880 672,610 Class R ............................................... 9,531 108,605 5,692 Transfer agent fees (Note 3d) ............................ 1,081,364 14,987,756 566,241 Reports to shareholders .................................. 89,036 1,578,128 47,124 Registration and filing fees ............................. 76,972 519,557 66,907 Professional fees ........................................ 28,281 134,484 25,322 Trustees' fees and expenses .............................. 4,462 77,592 1,677 Other .................................................... 24,422 347,110 11,835 ------------- --------------- ------------- Total expenses ..................................... 5,096,233 98,504,267 2,220,513 Expenses waived/paid by affiliates (Note 3e) ....... (826,789) (7,613,028) (505,580) ------------- --------------- ------------- Net expenses .................................... 4,269,444 90,891,239 1,714,933 ------------- --------------- ------------- Net investment income ........................ 4,675,740 377,712,264 1,994,479 ------------- --------------- ------------- Realized and unrealized gains (losses): Net realized gain (loss) from: Sale of investments in Underlying Funds ............... (12,202,490) (1,085,395,157) (9,756,465) Realized gain distributions by Underlying Funds ....... 1,432,238 40,421,392 838,982 ------------- --------------- ------------- Net realized gain (loss) from Underlying Funds ..................................... (10,770,252) (1,044,973,765) (8,917,483) ------------- --------------- ------------- Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ....................... (266,649,939) (4,923,135,686) (117,330,528) ------------- --------------- ------------- Net realized and unrealized gain (loss) ..................... (277,420,191) (5,968,109,451) (126,248,011) ------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations ............................................... $(272,744,451) $(5,590,397,187) $(124,253,532) ------------- --------------- -------------
The accompanying notes are an integral part of these financial statements. Annual Report | 51 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND FOUNDING FUNDS ALLOCATION FUND ---------------------------- --------------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ---------------------------- --------------------------------- 2008 2007 2008 2007 ------------- ------------ --------------- --------------- Increase (decrease) in net assets: Operations: Net investment income ........................... $ 4,675,740 $ 5,827,534 $ 377,712,264 $ 411,806,734 Net realized gain (loss) from Underlying Funds .. (10,770,252) 26,678,658 (1,044,973,765) 664,574,182 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ............................. (266,649,939) 2,933,990 (4,923,135,686) (789,793,282) ------------- ------------ --------------- --------------- Net increase (decrease) in net assets resulting from operations ................. (272,744,451) 35,440,182 (5,590,397,187) 286,587,634 ------------- ------------ --------------- --------------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ...................................... (4,306,007) (5,840,602) (232,663,422) (317,349,633) Class B ...................................... (173,762) (347,605) (12,296,371) (17,434,411) Class C ...................................... (555,567) (976,333) (91,206,625) (136,416,205) Class R ...................................... (14,468) (25,991) (613,620) (850,119) Advisor Class ................................ (33,624) (48,599) (1,808,459) (1,589,342) Net realized gains: Class A ...................................... (9,912,353) (14,073,351) (206,963,605) (304,268,073) Class B ...................................... (1,420,594) (2,191,830) (14,528,676) (24,803,530) Class C ...................................... (3,696,588) (5,194,889) (108,826,242) (160,810,003) Class R ...................................... (51,580) (75,541) (581,731) (913,018) Advisor Class ................................ (65,462) (92,288) (920,311) (1,390,383) ------------- ------------ --------------- --------------- Total distributions to shareholders ................ (20,230,005) (28,867,029) (670,409,062) (965,824,717) ------------- ------------ --------------- --------------- Capital share transactions: (Note 2) Class A ...................................... (25,532,551) 34,638,044 (1,199,297,735) 3,296,660,627 Class B ...................................... (10,233,436) (4,799,240) (106,380,153) (20,839,227) Class C ...................................... (11,322,678) 13,884,383 (791,796,601) 1,832,949,853 Class R ...................................... (480,559) 42,997 (3,925,755) 5,610,819 Advisor Class ................................ (443,248) 135,731 8,144,816 23,543,435 ------------- ------------ --------------- --------------- Total capital share transactions ................... (48,012,472) 43,901,915 (2,093,255,428) 5,137,925,507 ------------- ------------ --------------- --------------- Redemption fees .................................... 1,576 1,283 44,669 90,601 ------------- ------------ --------------- --------------- Net increase (decrease) in net assets ..... (340,985,352) 50,476,351 (8,354,017,008) 4,458,779,025 Net assets: Beginning of year .................................. 757,639,477 707,163,126 16,255,240,257 11,796,461,232 ------------- ------------ --------------- --------------- End of year ........................................ $ 416,654,125 $757,639,477 $ 7,901,223,249 $16,255,240,257 ------------- ------------ --------------- --------------- Undistributed net investment income included in net assets: End of year ........................................ $ 1,573,462 $ 806,821 $ 82,441,125 $ 9,727,549 ------------- ------------ --------------- ---------------
The accompanying notes are an integral part of these financial statements. 52 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ---------------------------- YEAR ENDED DECEMBER 31, ---------------------------- 2008 2007 ------------- ------------ Increase (decrease) in net assets: Operations: Net investment income ........................... $ 1,994,479 $ 2,734,964 Net realized gain (loss) from Underlying Funds .. (8,917,483) 12,232,463 Net change in unrealized appreciation (depreciation) on investments in Underlying Fund ......................................... (117,330,528) 2,728,681 ------------- ------------ Net increase (decrease) in net assets resulting from operations .............. (124,253,532) 17,696,108 ------------- ------------ Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ...................................... (2,005,641) (2,720,323) Class C ...................................... (220,353) (498,075) Class R ...................................... (8,254) (14,529) Advisor Class ................................ (47,054) (41,571) Net realized gains: Class A ...................................... (4,521,662) (6,969,461) Class C ...................................... (1,694,032) (2,547,116) Class R ...................................... (29,595) (45,646) Advisor Class ................................ (50,944) (76,998) ------------- ------------ Total distributions to shareholders ................ (8,577,535) (12,913,719) ------------- ------------ Capital share transactions: (Note 2) Class A ...................................... (223,905) 35,125,183 Class C ...................................... (3,260,020) 14,529,010 Class R ...................................... (182,809) (143,982) Advisor Class ................................ 1,046,832 852,484 ------------- ------------ Total capital share transactions ................... (2,619,902) 50,362,695 ------------- ------------ Redemption fees .................................... 378 509 ------------- ------------ Net increase (decrease) in net assets ..... (135,450,591) 55,145,593 Net assets: Beginning of year .................................. 317,286,701 262,141,108 ------------- ------------ End of year ........................................ $ 181,836,110 $317,286,701 ------------- ------------ Undistributed net investment income included in net assets: End of year ........................................ $ 533,605 $ 131,201 ------------- ------------
The accompanying notes are an integral part of these financial statements. Annual Report | 53 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Templeton Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of ten separate funds, three of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The Funds invest primarily in Franklin Templeton mutual funds (Underlying Funds). The classes of shares offered within each of the funds are indicated below. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.
CLASS A, CLASS B, CLASS C, CLASS R & ADVISOR CLASS CLASS A, CLASS C, CLASS R & ADVISOR CLASS - -------------------------------------------------- ----------------------------------------------- Franklin Templeton Corefolio Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Founding Funds Allocation Fund
The following summarizes the Funds' significant accounting policies. A. SECURITY VALUATION Net asset value per share is calculated as of the close of trading of the NYSE. Investments in the Underlying Funds are valued at their closing net asset value each trading day. B. INCOME TAXES No provision has been made for U.S. income taxes because it is each fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. The Funds have reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2008, and have determined that no provision for income tax is required in the Funds' financial statements. C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income and realized gain distributions by Underlying Funds are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods. 54 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) 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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense. The Funds indirectly bear their proportionate share of expenses from the Underlying Funds. Since the Underlying Funds have varied expense levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of expenses incurred indirectly by the Funds will vary. Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses. D. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those estimates. E. REDEMPTION FEES A short term trading redemption fee was imposed, with some exceptions, on any fund shares that were redeemed or exchanged within seven calendar days following their purchase date. The redemption fee was 2% of the amount redeemed. Such fees were retained by the funds and accounted for as an addition to paid-in capital. Effective September 1, 2008, the redemption fee was eliminated. F. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote. Annual Report | 55 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST At December 31, 2008, there were an unlimited number of shares authorized (without par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS ALLOCATION FUND ALLOCATION FUND -------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ------------- ------------ --------------- CLASS A SHARES: Year ended December 31, 2008 Shares sold .................... 5,567,019 $ 61,833,850 101,658,440 $ 1,166,213,136 Shares issued in reinvestment of distributions ............ 1,265,389 13,537,176 45,436,762 415,107,291 Shares redeemed ................ (8,891,290) (100,903,577) (259,459,671) (2,780,618,162) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (2,058,882) $ (25,532,551) (112,364,469) $(1,199,297,735) ---------- ------------- ------------ --------------- Year ended December 31, 2007 Shares sold .................... 6,378,170 $ 93,084,616 292,721,549 $ 4,204,831,048 Shares issued in reinvestment of distributions ............ 1,343,124 18,899,053 43,121,092 585,972,631 Shares redeemed ................ (5,283,476) (77,345,625) (104,395,290) (1,494,143,052) ---------- ------------- ------------ --------------- Net increase (decrease) ........ 2,437,818 $ 34,638,044 231,447,351 $ 3,296,660,627 ---------- ------------- ------------ --------------- CLASS B SHARES: Year ended December 31, 2008 Shares sold .................... 104,352 $ 1,141,683 986,795 $ 10,589,681 Shares issued in reinvestment of distributions ............ 129,819 1,507,686 2,649,869 24,917,785 Shares redeemed ................ (1,149,669) (12,882,805) (13,417,606) (141,887,619) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (915,498) $ (10,233,436) (9,780,942) $ (106,380,153) ---------- ------------- ------------ --------------- Year ended December 31, 2007 Shares sold .................... 163,283 $ 2,375,521 1,830,543 $ 26,037,839 Shares issued in reinvestment of distributions ............ 173,408 2,410,075 2,891,384 39,193,366 Shares redeemed ................ (661,660) (9,584,836) (6,046,820) (86,070,432) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (324,969) $ (4,799,240) (1,324,893) $ (20,839,227) ---------- ------------- ------------ --------------- CLASS C SHARES: Year ended December 31, 2008 Shares sold .................... 2,048,102 $ 22,152,029 45,290,328 $ 503,556,683 Shares issued in reinvestment of distributions ............ 344,964 3,952,057 18,821,585 174,787,157 Shares redeemed ................ (3,459,667) (37,426,764) (140,521,755) (1,470,140,441) ---------- ------------- ------------ --------------- Net increase (decrease) ........ (1,066,601) $ (11,322,678) (76,409,842) $ (791,796,601) ---------- ------------- ------------ --------------- Year ended December 31, 2007 Shares sold .................... 2,444,225 $ 35,225,036 157,486,626 $ 2,223,665,616 Shares issued in reinvestment of distributions ............ 411,520 5,713,280 19,278,071 257,996,100 Shares redeemed ................ (1,872,480) (27,053,933) (46,146,097) (648,711,863) ---------- ------------- ------------ --------------- Net increase (decrease) ........ 983,265 $ 13,884,383 130,618,600 $ 1,832,949,853 ---------- ------------- ------------ ---------------
56 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS ALLOCATION FUND ALLOCATION FUND ------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ------- --------- ---------- ------------ CLASS R SHARES: Year ended December 31, 2008 Shares sold .................... 16,325 $ 200,227 370,382 $ 4,119,404 Shares issued in reinvestment of distributions ............ 5,950 66,049 129,876 1,191,611 Shares redeemed ................ (65,849) (746,835) (826,353) (9,236,770) ------- --------- ---------- ------------ Net increase (decrease) ........ (43,574) $(480,559) (326,095) $ (3,925,755) ------- --------- ---------- ------------ Year ended December 31, 2007 Shares sold .................... 29,749 $ 432,620 685,879 $ 9,833,344 Shares issued in reinvestment of distributions ............ 7,237 101,532 129,305 1,757,748 Shares redeemed ................ (33,870) (491,155) (413,096) (5,980,273) ------- --------- ---------- ------------ Net increase (decrease) ........ 3,116 $ 42,997 402,088 $ 5,610,819 ------- --------- ---------- ------------ ADVISOR CLASS SHARES: Year ended December 31, 2008 Shares sold .................... 45,547 $ 411,512 2,448,980 $ 23,486,926 Shares issued in reinvestment of distributions ............ 8,128 84,684 288,863 2,496,414 Shares redeemed ................ (85,974) (939,444) (1,683,911) (17,838,524) ------- --------- ---------- ------------ Net increase (decrease) ........ (32,299) $(443,248) 1,053,932 $ 8,144,816 ------- --------- ---------- ------------ Year ended December 31, 2007 Shares sold .................... 25,060 $ 368,676 2,787,785 $ 40,332,750 Shares issued in reinvestment of distributions ............ 9,535 134,617 200,669 2,743,050 Shares redeemed ................ (24,639) (367,562) (1,325,204) (19,532,365) ------- --------- ---------- ------------ Net increase (decrease) ........ 9,956 $ 135,731 1,663,250 $ 23,543,435 ------- --------- ---------- ------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ------------------------- SHARES AMOUNT ---------- ------------ CLASS A SHARES: Year ended December 31, 2008 Shares sold ..................................... 3,470,298 $ 37,241,720 Shares issued in reinvestment of distributions .. 658,516 6,336,696 Shares redeemed ................................. (4,285,488) (43,802,321) ---------- ------------ Net increase (decrease) ......................... (156,674) $ (223,905) ---------- ------------ Year ended December 31, 2007 Shares sold ..................................... 4,365,614 $ 58,774,977 Shares issued in reinvestment of distributions .. 718,932 9,372,129 Shares redeemed ................................. (2,442,712) (33,021,923) ---------- ------------ Net increase (decrease) ......................... 2,641,834 $ 35,125,183 ---------- ------------
Annual Report | 57 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ------------------------- SHARES AMOUNT ---------- ------------ CLASS C SHARES: Year ended December 31, 2008 Shares sold ..................................... 1,394,980 $ 14,721,259 Shares issued in reinvestment of distributions .. 171,980 1,784,729 Shares redeemed ................................. (1,970,998) (19,766,008) ---------- ------------ Net increase (decrease) ......................... (404,038) $ (3,260,020) ---------- ------------ Year ended December 31, 2007 Shares sold ..................................... 1,691,743 $ 22,521,919 Shares issued in reinvestment of distributions .. 218,500 2,821,600 Shares redeemed ................................. (813,348) (10,814,509) ---------- ------------ Net increase (decrease) ......................... 1,096,895 $ 14,529,010 ---------- ------------ CLASS R SHARES: Year ended December 31, 2008 Shares sold ..................................... 15,267 $ 171,827 Shares issued in reinvestment of distributions .. 3,789 37,849 Shares redeemed ................................. (37,884) (392,485) ---------- ------------ Net increase (decrease) ......................... (18,828) $ (182,809) ---------- ------------ Year ended December 31, 2007 Shares sold ..................................... 20,847 $ 278,831 Shares issued in reinvestment of distributions .. 4,625 60,158 Shares redeemed ................................. (35,903) (482,971) ---------- ------------ Net increase (decrease) ......................... (10,431) $ (143,982) ---------- ------------ ADVISOR CLASS SHARES: Year ended December 31, 2008 Shares sold ..................................... 193,937 $ 1,925,016 Shares issued in reinvestment of distributions .. 9,626 86,274 Shares redeemed ................................. (93,976) (964,458) ---------- ------------ Net increase (decrease) ......................... 109,587 $ 1,046,832 ---------- ------------ Year ended December 31, 2007 Shares sold ..................................... 121,870 $ 1,673,964 Shares issued in reinvestment of distributions .. 7,764 101,709 Shares redeemed ................................. (66,889) (923,189) ---------- ------------ Net increase (decrease) ......................... 62,745 $ 852,484 ---------- ------------
3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors/trustees of certain of the Underlying Funds and of the following subsidiaries:
SUBSIDIARY AFFILIATION - ---------- ---------------------- Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
58 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) A. ADMINISTRATIVE FEES The Funds pay an administrative fee to FT Services of 0.10% per year of the average daily net assets of each of the Funds for administrative services including monitoring and rebalancing the percentage of each Fund's investment in the Underlying Funds. B. DISTRIBUTION FEES The Trust's Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds' compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to a certain percentage per year of its average daily net assets of each class as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Class A ........................................... 0.35% 0.35% 0.35% Class B ........................................... 1.00% 1.00% -- Class C ........................................... 1.00% 1.00% 1.00% Class R ........................................... 0.50% 0.50% 0.50%
The Board of Trustees has set the current rate at 0.30% per year for Class A shares until further notice and approval by the Board. C. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Sales charges retained net of commissions paid to unaffiliated broker/dealers .................... $282,950 $5,865,846 $183,477 Contingent deferred sales charges retained ........ $ 16,107 $1,313,721 $ 11,092
D. TRANSFER AGENT FEES For the year ended December 31, 2008, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Transfer agent fees ............................... $799,403 $8,966,657 $421,682
Annual Report | 59 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) E. WAIVER AND EXPENSE REIMBURSEMENTS FT Services and Investor Services have agreed in advance to voluntarily waive all or a portion of their respective fees through April 30, 2009. Total expenses waived/paid are not subject to reimbursement by the Funds subsequent to the Fund's fiscal year end. After April 30, 2009, FT Services and Investor Services may discontinue this waiver at any time upon notice to the Funds' Board of Trustees. 4. INCOME TAXES For tax purposes, capital losses may be carried over to offset future capital gains, if any. At December 31, 2008, the capital loss carryforwards were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Capital loss carryforwards expiring in: 2016 ........................................... $6,038,174 $664,345,408 $2,686,864
For tax purposes, realized capital losses occurring subsequent to October 31, may be deferred and treated as occurring on the first day of the following fiscal year. At December 31, 2008, the deferred losses were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Realized capital losses ........................... $1,247,416 $173,997,367 $1,178,252
The tax character of distributions paid during the years ended December 31, 2008 and 2007, was as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND FOUNDING FUNDS ALLOCATION FUND ------------------------- ------------------------------ 2008 2007 2008 2007 ----------- ----------- ------------ --------------- Distributions paid from: Ordinary income ................ $ 5,083,428 $ 7,797,367 $338,588,497 $475,261,307 Long term capital gain ......... 15,146,577 21,069,662 331,820,565 490,563,410 ----------- ----------- ------------ ------------ $20,230,005 $28,867,029 $670,409,062 $965,824,717 ----------- ----------- ------------ ------------
FRANKLIN TEMPLETON PERSPECTIVES ALLOCATION FUND ------------------------ 2008 2007 ---------- ----------- Distributions paid from: Ordinary income ................ $2,286,145 $ 3,440,711 Long term capital gain ......... 6,291,390 9,473,008 ---------- ----------- $8,577,535 $12,913,719 ---------- -----------
60 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED) At December 31, 2008, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Cost of investments ............................... $ 574,256,035 $12,856,401,701 $281,875,288 ------------- --------------- ------------ Unrealized appreciation ........................... $ -- $ -- $ -- Unrealized depreciation ........................... (156,988,318) (4,920,545,831) (99,530,941) ------------- --------------- ------------ Net unrealized appreciation (depreciation) ........ $(156,988,318) $(4,920,545,831) $(99,530,941) ------------- --------------- ------------ Distributable earnings - undistributed ordinary income ......................................... $ 1,573,462 $ 82,441,125 $ 533,605 ------------- --------------- ------------
Net investment income differs for financial statement and tax purposes primarily due to differing treatments of short term capital gains distributions from Underlying Funds. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales and short term capital gains distributions from Underlying Funds. 5. INVESTMENT TRANSACTIONS Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2008, were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND ------------------ ------------------ ------------------ Purchases ......................................... $19,413,607 $ 525,884,714 $24,494,484 Sales ............................................. $81,420,811 $2,837,684,150 $33,672,409
Annual Report | 61 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. INVESTMENTS IN UNDERLYING FUNDS The Funds invest primarily in the Underlying Funds which are managed by Franklin Advisers, Inc. (Advisers), an affiliate of FT Services, or by an affiliate of Advisers. The Funds do not invest in the Underlying Funds for the purpose of exercising management or control. At December 31, 2008, the Funds held the following positions which exceed 5% of the Underlying Funds' shares outstanding:
NAME OF ISSUER % OF SHARES HELD - -------------- ---------------- FRANKLIN TEMPLETON COREFOLIO ALLOCATION FUND Franklin Capital Growth Fund ...................... 11.70% Franklin Growth Fund .............................. 5.71% FRANKLIN TEMPLETON FOUNDING FUNDS ALLOCATION FUND Mutual Shares Fund ................................ 19.16% Templeton Growth Fund Inc. ........................ 15.84% Franklin Income Fund Inc. ......................... 7.24%
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant to a SEC exemptive order specific to the Funds' investment in the Sweep Money Fund, administrative fees are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund. 7. FAIR VALUE MEASUREMENTS The Funds adopted Financial Accounting Standards Board (FASB) Statement No. 157, "Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Funds have determined that the implementation of SFAS 157 did not have a material impact on the Funds' financial statements. SFAS 157 establishes a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds' investments and are summarized in the following fair value hierarchy: - Level 1 - quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) 62 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. FAIR VALUE MEASUREMENTS (CONTINUED) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. At December 31, 2008, all of the Funds' investments in securities carried at fair value were in Level 1 inputs. 8. SUBSEQUENT EVENT On January 23, 2009, the Funds entered into, along with certain other funds managed by Franklin Templeton Investments (individually, "Borrower"; collectively "Borrowers"), a $725 million senior unsecured syndicated global line of credit ("Global Credit Facility") to provide a source of funds to the Borrowers for temporary and emergency purposes and to meet future unanticipated or unusually large redemption requests. Under the terms of the Global Credit Facility, each Borrower has agreed to pay its proportionate share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility. Annual Report | 63 Franklin Templeton Fund Allocator Series REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 Franklin Templeton Corefolio Allocation Fund, Franklin Templeton Founding Funds Allocation Fund and Franklin Templeton Perspectives Allocation Fund (separate portfolios of Franklin Templeton Fund Allocator Series, hereafter referred to as the "Funds") at December 31, 2008, 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 the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 investments in the Underlying Funds at December 31, 2008 by correspondence with the transfer agent of the Underlying Funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California February 20, 2009 64 | Annual Report Franklin Templeton Fund Allocator Series TAX DESIGNATION (UNAUDITED) Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds designate the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended December 31, 2008:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND - ------------------ ------------------ ------------------ $15,146,577 $331,820,565 $6,291,390
Under Section 871(k)(2)(C) of the Code, Franklin Templeton Perspectives Allocation Fund designates the maximum amount allowable but no less than $4,843 as short term capital gain dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended December 31, 2008. Under Section 854(b)(2) of the Code, the Funds designate the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND - ------------------ ------------------ ------------------ 100% 43.83% 74.54%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON COREFOLIO FOUNDING FUNDS PERSPECTIVES ALLOCATION FUND ALLOCATION FUND ALLOCATION FUND - ------------------ ------------------ ------------------ $9,042,062 $245,407,526 $3,755,414
Distributions, including qualified dividend income, paid during calendar year 2008 will be reported to shareholders on Form 1099-DIV in January 2009. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. Annual Report | 65 Franklin Templeton Fund Allocator Series BOARD MEMBERS AND OFFICERS The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves a three-year term that continues until that person's successor is appointed and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - --------------------------- -------------- ------------------ ----------------------- ------------------------------------- HARRIS J. ASHTON (1932) Trustee Since 1995 138 Bar-S Foods (meat packing company). One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). ROBERT F. CARLSON (1928) Trustee Since 2005 115 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. SAM GINN (1937) Trustee Since 2007 115 Chevron Corporation (global energy One Franklin Parkway company) and ICO Global San Mateo, CA 94403-1906 Communications (Holdings) Limited (satellite company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding company) (1988-1994). EDITH E. HOLIDAY (1952) Trustee Since 1998 138 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas), H.J. Heinz San Mateo, CA 94403-1906 Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
66 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - --------------------------- -------------- ------------------ ----------------------- ------------------------------------- FRANK W.T. LAHAYE (1929) Trustee Since 1995 115 Center for Creative Land Recycling One Franklin Parkway (brownfield redevelopment). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). FRANK A. OLSON (1932) Trustee Since 2007 138 Hess Corporation (exploration and One Franklin Parkway refining of oil and gas) and Sentient San Mateo, CA 94403-1906 Jet (private jet service). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines). LARRY D. THOMPSON (1945) Trustee Since 2007 145 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). JOHN B. WILSON (1959) Lead Trustee since 2006 115 None One Franklin Parkway Independent and Lead San Mateo, CA 94403-1906 Trustee Independent Trustee since 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - --------------------------- -------------- ------------------ ----------------------- ------------------------------------- **CHARLES B. JOHNSON (1933) Trustee and Since 1995 138 None One Franklin Parkway Chairman of San Mateo, CA 94403-1906 the Board PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments.
Annual Report | 67
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - --------------------------- -------------- ------------------ ----------------------- ------------------------------------- **GREGORY E. JOHNSON (1961) Trustee Since 2007 92 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments. JENNIFER J. BOLT (1964) Chief Since December Not Applicable Not Applicable One Franklin Parkway Executive 2008 San Mateo, CA 94403-1906 Officer - Finance and Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President - Operations and Technology, Franklin Resources, Inc.; Director, Templeton Global Advisors Limited; officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable One Franklin Parkway Compliance Officer since 2004 San Mateo, CA 94403-1906 Officer and and Vice Vice President President - AML - AML Compliance since Compliance 2006 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable One Franklin Parkway Chief 2004, Chief San Mateo, CA 94403-1906 Financial Financial Officer Officer and and Chief Chief Accounting Officer Accounting since February Officer 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). JIMMY D. GAMBILL (1947) Vice President Since February Not Applicable Not Applicable 500 East Broward Blvd. 2008 Suite 2100 Fort Lauderdale, FL 33394-3091 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
68 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - --------------------------- -------------- ------------------ ----------------------- ------------------------------------- DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. RUPERT H. JOHNSON, JR. President and Since 2002 Not Applicable Not Applicable (1940) Chief One Franklin Parkway Executive San Mateo, CA 94403-1906 Officer - Investment Management PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments. KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable One Franklin Parkway and Secretary San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin Templeton Investments. CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers. ** Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's investment manager and distributor. Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Resources. Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson and Jennifer J. Bolt. Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI. Annual Report | 69 Franklin Templeton Fund Allocator Series SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Trust's investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330. 70 | Annual Report This page intentionally left blank. This page intentionally left blank. Literature Request LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING TONE. FRANKLIN TEMPLETON FUNDS VALUE Franklin All Cap Value Fund Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(1) Franklin MidCap Value Fund Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund(2) Mutual Shares Fund BLEND Franklin Focused Core Equity Fund Franklin Large Cap Equity Fund Franklin Rising Dividends Fund GROWTH Franklin Capital Growth Fund(1) Franklin Flex Cap Growth Fund Franklin Growth Fund Franklin Growth Opportunities Fund(3) Franklin Small Cap Growth Fund(4) Franklin Small-Mid Cap Growth Fund SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Real Estate Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Mutual Financial Services Fund GLOBAL Mutual Discovery Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund INTERNATIONAL Franklin India Growth Fund Franklin International Growth Fund Franklin International Small Cap Growth Fund Mutual European Fund Templeton BRIC Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Emerging Markets Small Cap Fund Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Frontier Markets Fund HYBRID Franklin Balanced Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Templeton Income Fund ASSET ALLOCATION Franklin Templeton Corefolio(R) Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund FIXED INCOME Franklin Adjustable U.S. Government Securities Fund(5) Franklin Floating Rate Daily Access Fund Franklin High Income Fund Franklin Limited Maturity U.S. Government Securities Fund(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(5) Templeton Global Bond Fund Templeton Global Total Return Fund Templeton International Bond Fund TAX-FREE INCOME(6) NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) LIMITED-/INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(8) Colorado Connecticut Florida Georgia Kentucky Louisiana Maryland Massachusetts(7) Michigan(7) Minnesota(7) Missouri New Jersey New York(8) North Carolina Ohio(7) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(9) (1.) The fund is closed to new investors. Existing shareholders and select retirement plans can continue adding to their accounts. (2.) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to Franklin Growth Opportunities Fund. The fund's investment goal and strategy remained the same. (4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to Franklin Small Cap Growth Fund. The fund's investment goal and strategy remained the same. (5.) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (6.) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7.) The fund invests primarily in insured municipal securities. (8.) These funds are available in four or more variations, including long-term portfolios, intermediate-term portfolios, portfolios of insured securities, a high-yield portfolio (CA only) and money market portfolios. (9.) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 12/08 Not part of the annual report (FRANKLIN TEMPLETON INVESTMENTS(R) LOGO) One Franklin Parkway San Mateo, CA 94403-1906 WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN TEMPLETON FUND ALLOCATOR SERIES INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. (800) DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES (800) 632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. FAS2 A2008 02/09 DECEMBER 31, 2008 Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund (GRAPHICS) ANNUAL REPORT AND SHAREHOLDER LETTER ASSET ALLOCATION WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? FRANKLIN TEMPLETON FUND ALLOCATOR SERIES Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. (FRANKLIN TEMPLETON INVESTMENTS LOGO) FRANKLIN - TEMPLETON - MUTUAL SERIES Annual Report Economic and Market Overview In 2008, the U.S. economy faltered and The Conference Board's Consumer Confidence Index fell to an all-time low since it began in 1967. The government's abrupt conservatorship of Fannie Mae and Freddie Mac and the failure of several blue-chip banks and financial institutions roiled the equity markets. Despite government interventions and massive emergency funding, rapidly weakening manufacturing activity and falling home prices exacerbated the nation's economic troubles. Jobless claims mounted and the unemployment rate rose to 7.2% by period-end.(1) In early December, the National Bureau of Economic Research officially declared the U.S. economy has been in recession since December 2007. The weakening U.S. economy negatively impacted growth prospects around the world. Although growth in the first half of the year was robust in developing economies, particularly in Asia, signs of a global slowdown surfaced in the latter half. In an environment of extremely high commodity prices that increased inflationary pressure, the world's monetary authorities faced the choice of lowering short-term interest rates to stimulate growth or raising them to fight rising inflation. Stimulus provided through fiscal and monetary policies implemented around the globe sought to restore financial market stability and reignite economic growth. The U.S. Treasury and the Federal Reserve Board took unprecedented steps, including lowering short-term rates to near 0% from 4.25%. The European Central Bank and many of the world's other central banks had raised rates due to inflationary pressures. Later in the year, the potential for global recession trumped inflationary concerns, and the world's monetary authorities cut interest rates aggressively. The U.S. dollar, which had declined earlier in the period versus many of the world's currencies, regained ground quickly toward period-end as a flight to the relative safety of U.S. Treasuries prevailed. 1. Source: Bureau of Labor Statistics. Annual Report | 3 In this challenging economic time, volatility came to define global equity markets. Virtually all local indexes ended the 12-month period with marked losses. Despite negative economic data and an outlook for decelerating corporate earnings and profit margins globally, many companies outside the financials sector retained relatively strong balance sheets. THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF DECEMBER 31, 2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 4 | Annual Report Franklin Templeton 2015 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2015 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), within an increasing emphasis on income as the target date of 2015 approaches. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. ASSET ALLOCATION* Franklin Templeton 2015 Retirement Target Fund Based on Total Net Assets as of 12/31/08 (PIE CHART) Domestic Equity 43.3% Foreign Equity 20.1% Domestic Fixed Income 19.0% Foreign Fixed Income 10.0% Short-Term Investments & Other Net Assets 7.6%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton 2015 Retirement Target Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton 2015 Retirement Target Fund - Class A had a -25.55% cumulative total return for the 12 months ended December 31, 2008. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers) THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 49. Annual Report | 5 TOP 10 FUND HOLDINGS Franklin Templeton 2015 Retirement Target Fund 12/31/08
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - Advisor Class 15.0% Mutual Shares Fund - Class Z 13.2% Franklin U.S. Government Securities Fund - Advisor Class 10.3% Templeton Global Bond Fund - Advisor Class 10.0% Mutual European Fund - Class Z 7.6% Franklin Small Cap Growth Fund - Advisor Class 6.9% Franklin Total Return Fund - Advisor Class 6.7% Templeton Foreign Fund - Advisor Class 4.1% Franklin Gold and Precious Metals Fund - Advisor Class 3.8% Templeton China World Fund - Advisor Class 3.2%
U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, had total returns of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1) You can find other performance data in the Performance Summary beginning on page 8. INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on maximizing income appropriate to the Fund's risk profile. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each target fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. This allocation shifts every year, in accordance with the retirement date associated with the portfolio. 1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. Source: Payden & Rygel. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 6 | Annual Report At period-end, Franklin Templeton 2015 Retirement Target Fund's domestic equity exposure was 68.3% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2008, we held shares in large-, mid-and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 15.0% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 65.4% of the Fund's total fixed income weighting, with the balance in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 10.3% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, performed better than the MSCI EAFE Index. Templeton Foreign Fund - Advisor Class underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor Class and Templeton Global Bond Fund - Advisor Class outperformed the BC U.S. Aggregate Index. However, Franklin Total Return Fund - Advisor Class trailed the BC U.S. Aggregate Index. Thank you for your continued participation in Franklin Templeton 2015 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey - ---------------------------------------------- T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2015 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 7 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------- ---------- -------- -------- Net Asset Value (NAV) -$ 3.21 $ 8.14 $ 11.35 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $ 0.1867 Long-Term Capital Gain $ 0.1689 TOTAL $ 0.3556
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------- ---------- -------- -------- Net Asset Value (NAV) -$ 3.20 $ 8.08 $ 11.28 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $ 0.1265 Long-Term Capital Gain $ 0.1689 TOTAL $ 0.2954
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------- ---------- -------- -------- Net Asset Value (NAV) -$ 3.20 $ 8.12 $ 11.32 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $ 0.1649 Long-Term Capital Gain $ 0.1689 TOTAL $ 0.3338
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------- ---------- -------- -------- Net Asset Value (NAV) -$ 3.22 $ 8.15 $ 11.37 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $ 0.2138 Long-Term Capital Gain $ 0.1689 TOTAL $ 0.3827
8 | Annual Report Performance Summary (CONTINUED) PERFORMANCE (1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06) - ------------------------------------ -------- ------------------ Cumulative Total Return (2) -25.55% -11.21% Average Annual Total Return (3) -29.82% -7.10% Value of $10,000 Investment (4) $ 7,018 $ 8,369 Total Annual Operating Expenses (5) Without Waiver 4.39% With Waiver 1.26%
CLASS C 1-YEAR INCEPTION (8/1/06) - ------------------------------------ -------- ------------------ Cumulative Total Return (2) -26.09% -12.74% Average Annual Total Return (3) -26.81% -5.48% Value of $10,000 Investment (4) $ 7,319 $ 8,726 Total Annual Operating Expenses (5) Without Waiver 5.09% With Waiver 1.96%
CLASS R 1-YEAR INCEPTION (8/1/06) - ------------------------------------ -------- ------------------ Cumulative Total Return (2) -25.70% -11.67% Average Annual Total Return (3) -25.70% -5.01% Value of $10,000 Investment (4) $ 7,430 $ 8,833 Total Annual Operating Expenses (5) Without Waiver 4.59% With Waiver 1.46%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06) - ------------------------------------ -------- ------------------ Cumulative Total Return (2) -25.39% -10.57% Average Annual Total Return (3) -25.39% -4.52% Value of $10,000 Investment (4) $ 7,461 $ 8,943 Total Annual Operating Expenses (5) Without Waiver 4.09% With Waiver 0.96%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES), DO NOT EXCEED 0.97% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 9 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ----------------------- -------- 1-Year -29.82% Since Inception (8/1/06) -7.10%
CLASS A (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN BARCLAYS TEMPLETON CAPITAL PAYDEN S&P BarCap US P&R 90 Day 2015 U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury RETIREMENT AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR TARGET FUND S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total - CLASS A INDEX INDEX INDEX INDEX Return) Return) Return) Return) ----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------ 8/1/2006 $ 9,425 $ 10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,576 $ 10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $ 9,604 $ 10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $ 9,887 $ 10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $ 10,160 $ 11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $ 10,235 $ 11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $ 10,378 $ 11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $ 10,369 $ 11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $ 10,514 $ 11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $ 10,801 $ 11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $ 11,060 $ 12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $ 11,020 $ 11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $ 10,845 $ 11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $ 10,893 $ 11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $ 11,363 $ 12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $ 11,733 $ 12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $ 11,295 $ 11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $ 11,241 $ 11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $ 10,657 $ 11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $ 10,647 $ 10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $ 10,495 $ 10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $ 10,872 $ 11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $ 11,080 $ 11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $ 10,497 $ 10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $ 10,366 $ 10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $ 10,396 $ 10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,621 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 8,413 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 8,098 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 8,369 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -16.31% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ----------------------- -------- 1-Year -26.81% Since Inception (8/1/06) -5.48%
CLASS C (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN BARCLAYS TEMPLETON CAPITAL PAYDEN S&P BarCap US P&R 90 Day 2015 U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury RETIREMENT AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR TARGET FUND S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total - CLASS C INDEX INDEX INDEX INDEX Return) Return) Return) Return) ----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------ 8/1/2006 $10,000 $10,000 $10,000 $ 10,000 $10,000 8/31/2006 $10,150 $10,238 $10,278 $ 10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,180 $10,502 $10,296 $ 10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,480 $10,844 $10,697 $ 10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,760 $11,050 $11,020 $ 10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $10,830 $11,205 $11,366 $ 10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $10,972 $11,375 $11,444 $ 10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $10,952 $11,152 $11,538 $ 10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,096 $11,277 $11,838 $ 10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,401 $11,776 $12,374 $ 10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $11,665 $12,187 $12,608 $ 10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $11,613 $11,985 $12,627 $ 10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,427 $11,613 $12,442 $ 10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,469 $11,787 $12,251 $ 10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $11,961 $12,228 $12,909 $ 10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $12,332 $12,423 $13,417 $ 10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $11,868 $11,903 $12,980 $ 11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $11,807 $11,821 $12,688 $ 11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,190 $11,112 $11,517 $ 11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,169 $10,751 $11,686 $ 11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $11,003 $10,704 $11,569 $ 11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,401 $11,226 $12,211 $ 11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,611 $11,371 $12,354 $ 11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $10,993 $10,412 $11,346 $ 11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,843 $10,325 $10,982 $ 11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,865 $10,474 $10,540 $ 11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $10,057 $ 9,541 $ 9,020 $ 11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 8,787 $ 7,939 $ 7,200 $ 10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 8,445 $ 7,369 $ 6,814 $ 11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 8,726 $ 7,447 $ 7,225 $ 11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -12.74% -25.53% -27.75% 16.73% 9.41%
10 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ----------------------- -------- 1-Year -25.70% Since Inception (8/1/06) -5.01%
CLASS R (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN BARCLAYS TEMPLETON CAPITAL PAYDEN S&P BarCap US P&R 90 Day 2015 U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury RETIREMENT AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR TARGET FUND S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total - CLASS R INDEX INDEX INDEX INDEX Return) Return) Return) Return) ----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------ 8/1/2006 $ 10,000 $ 10,000 $10,000 $10,000 $10,000 8/31/2006 $ 10,160 $ 10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $ 10,190 $ 10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $ 10,490 $ 10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $ 10,770 $ 11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $ 10,848 $ 11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $ 11,001 $ 11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $ 10,990 $ 11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $ 11,145 $ 11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $ 11,449 $ 11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $ 11,714 $ 12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $ 11,678 $ 11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $ 11,493 $ 11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $ 11,534 $ 11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $ 12,030 $ 12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $ 12,413 $ 12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $ 11,948 $ 11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $ 11,888 $ 11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $ 11,279 $ 11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $ 11,258 $ 10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $ 11,093 $ 10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $ 11,503 $ 11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $ 11,714 $ 11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $ 11,098 $ 10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $ 10,958 $ 10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $ 10,980 $ 10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 10,163 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 8,884 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 8,551 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 8,833 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -11.67% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08 - ----------------------- -------- 1-Year -25.39% Since Inception (8/1/06) -4.52%
ADVISOR CLASS (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BARCLAYS 2015 CAPITAL PAYDEN S&P BarCap US P&R 90 Day RETIREMENT U.S. & RYGEL 500 TR MSCI EAFE Agg Bond US Treasury TARGET FUND AGGREGATE 90 DAY (IA Extended) GR USD TR USD Index TR - ADVISOR S&P 500 MSCI EAFE BOND U.S. TREASURY (%Total (%Total (%Total (%Total CLASS INDEX INDEX INDEX INDEX Return) Return) Return) Return) ----------- -------- --------- --------- ------------- ------------- ------------ ----------- ------------ 8/1/2006 $10,000 $ 10,000 $ 10,000 $ 10,000 $10,000 8/31/2006 $10,160 $ 10,238 $ 10,278 $ 10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,200 $ 10,502 $ 10,296 $ 10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,500 $ 10,844 $ 10,697 $ 10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,790 $ 11,050 $ 11,020 $ 10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $10,875 $ 11,205 $ 11,366 $ 10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $11,028 $ 11,375 $ 11,444 $ 10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $11,028 $ 11,152 $ 11,538 $ 10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,182 $ 11,277 $ 11,838 $ 10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,487 $ 11,776 $ 12,374 $ 10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $11,762 $ 12,187 $ 12,608 $ 10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $11,731 $ 11,985 $ 12,627 $ 10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,545 $ 11,613 $ 12,442 $ 10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,597 $ 11,787 $ 12,251 $ 10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $12,105 $ 12,228 $ 12,909 $ 10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $12,499 $ 12,423 $ 13,417 $ 10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $12,043 $ 11,903 $ 12,980 $ 11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $11,986 $ 11,821 $ 12,688 $ 11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,374 $ 11,112 $ 11,517 $ 11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,353 $ 10,751 $ 11,686 $ 11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $11,196 $ 10,704 $ 11,569 $ 11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,608 $ 11,226 $ 12,211 $ 11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,830 $ 11,371 $ 12,354 $ 11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $11,208 $ 10,412 $ 11,346 $ 11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $11,068 $ 10,325 $ 10,982 $ 11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $11,101 $ 10,474 $ 10,540 $ 11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $10,282 $ 9,541 $ 9,020 $ 11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 8,994 $ 7,939 $ 7,200 $ 10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 8,648 $ 7,369 $ 6,814 $ 11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 8,943 $ 7,447 $ 7,225 $ 11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -10.57% -25.53% -27.75% 16.73% 9.41%
Annual Report | 11 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus.
1. If the manager had not waived fees, the Fund's total returns would have been lower. 2. Cumulative total return represents the change in value of an investment over the periods indicated. 3. Average annual total return represents the average annual change in value of an investment over the periods indicated. 4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. 5. Figures are as stated in the Fund's prospectus current as of the date of this report. 6. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 6 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the Payden & Rygel 90 Day U.S. T-Bill Index. 12 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 13 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** ------------- ------------- ---------------- ------------------ CLASS A Actual $ 1,000 $ 797.20 $ 2.30 $ 5.74 Hypothetical (5% return before expenses) $ 1,000 $1,022.57 $ 2.59 $ 6.44 CLASS C Actual $ 1,000 $ 793.80 $ 5.37 $ 8.79 Hypothetical (5% return before expenses) $ 1,000 $1,019.15 $ 6.04 $ 9.88 CLASS R Actual $ 1,000 $ 795.90 $ 3.21 $ 6.64 Hypothetical (5% return before expenses) $ 1,000 $1,021.57 $ 3.61 $ 7.46 ADVISOR CLASS Actual $ 1,000 $ 797.80 $ 0.95 $ 4.38 Hypothetical (5% return before expenses) $ 1,000 $1,024.08 $ 1.07 $ 4.93
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.51%; C: 1.19%; R: 0.71%; and Advisor: 0.21%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.27%; C: 1.95%; R: 1.47%; and Advisor: 0.97%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 14 | Annual Report Franklin Templeton 2025 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2025 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), within an increasing emphasis on income as the target date of 2025 approaches. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. ASSET ALLOCATION* Franklin Templeton 2025 Retirement Target Fund Based on Total Net Assets as of 12/31/08 (PIE CHART) Domestic Equity 53.7% Foreign Equity 24.4% Domestic Fixed Income 11.0% Foreign Fixed Income 5.9% Short-Term Investments & Other Net Assets 5.0%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton 2025 Retirement Target Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton 2025 Retirement Target Fund - Class A had a -31.74% cumulative total return for the 12 months ended December 31, 2008. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers) THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 54. Annual Report | 15 TOP 10 FUND HOLDINGS Franklin Templeton 2025 Retirement Target Fund 12/31/08
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - Advisor Class 18.2% Mutual Shares Fund - Class Z 16.5% Mutual European Fund - Class Z 9.5% Franklin Small Cap Growth Fund - Advisor Class 8.7% Franklin U.S. Government Securities Fund - Advisor Class 5.9% Templeton Global Bond Fund - Advisor Class 5.9% Templeton Foreign Fund - Advisor Class 4.7% Franklin Gold and Precious Metals Fund - Advisor Class 4.6% Franklin Total Return Fund - Advisor Class 3.9% Templeton China World Fund - Advisor Class 3.9%
U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, had total returns of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1) You can find other performance data in the Performance Summary beginning on page 18. INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on maximizing income appropriate to the Fund's risk profile. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each target fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. This allocation shifts every year, in accordance with the retirement date associated with the portfolio. 1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. Source: Payden & Rygel. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 16 | Annual Report At period-end, Franklin Templeton 2025 Retirement Target Fund's domestic equity exposure was 68.7% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2008, we held shares in large-, mid-and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 18.2% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 65.1% of the Fund's total fixed income weighting, with the balance in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 5.9% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, performed better than the MSCI EAFE Index. Templeton Foreign Fund - Advisor Class underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor Class and Templeton Global Bond Fund - Advisor Class outperformed the BC U.S. Aggregate Index. However, Franklin Total Return Fund - Advisor Class trailed the BC U.S. Aggregate Index. Thank you for your continued participation in Franklin Templeton 2025 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey - ---------------------------------------------- T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2025 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 17 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------- ------ -------- -------- Net Asset Value (NAV) -$3.98 $7.47 $11.45 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $ 0.1426 Long-Term Capital Gain $ 0.2704 TOTAL $ 0.4130
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------- ------ -------- -------- Net Asset Value (NAV) -$3.97 $7.43 $11.40 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $ 0.0995 Long-Term Capital Gain $ 0.2704 Total $ 0.3699
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------- ------ -------- -------- Net Asset Value (NAV) -$3.97 $7.47 $11.44 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $ 0.1179 Long-Term Capital Gain $ 0.2704 TOTAL $ 0.3883
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------- ------ -------- -------- Net Asset Value (NAV) -$3.98 $7.48 $11.46 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $ 0.1677 Long-Term Capital Gain $ 0.2704 TOTAL $ 0.4381
18 | Annual Report Performance Summary (CONTINUED) PERFORMANCE (1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06) - ------- --------- ------------------ Cumulative Total Return (2) -31.74% -17.71% Average Annual Total Return (3) -35.68% -9.98% Value of $10,000 Investment (4) $ 6,432 $ 7,756 Total Annual Operating Expenses (5) Without Waiver 4.14% With Waiver 1.29%
CLASS C 1-YEAR INCEPTION (8/1/06) - ------- --------- ------------------ Cumulative Total Return (2) -32.16% -18.94% Average Annual Total Return (3) -32.82% -8.32% Value of $10,000 Investment (4) $ 6,718 $ 8,106 Total Annual Operating Expenses (5) Without Waiver 4.84% With Waiver 1.99%
CLASS R 1-YEAR INCEPTION (8/1/06) - ------- --------- ------------------ Cumulative Total Return (2) -31.90% -18.03% Average Annual Total Return (3) -31.90% -7.90% Value of $10,000 Investment (4) $ 6,810 $ 8,197 Total Annual Operating Expenses (5) Without Waiver 4.34% With Waiver 1.49%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06) - ------------------------------------ --------- ------------------ Cumulative Total Return (2) -31.49% -17.08% Average Annual Total Return (3) -31.49% -7.46% Value of $10,000 Investment (4) $ 6,851 $ 8,292 Total Annual Operating Expenses (5) Without Waiver 3.84% With Waiver 0.99%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES), DO NOT EXCEED 1.00% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 19 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -35.68% Since Inception (8/1/06) -9.98%
CLASS A (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2025 BARCLAYS P&R 90- S&P 500 TR MSCI EAFE BarCap US P&R 90 Day US RETIREMENT CAPITAL U.S. DAY U.S. (IA Extended) GR USD Agg Bond TR TReasury Index TARGET FUND - S&P 500 MSCI EAFE AGGREGATE TREASURY (%Total (%Total USD (%Total TR (%Total CLASS A INDEX INDEX INDEX INDEX Return) Return) Return) Return) ------------- ------- --------- ----------- -------- ------------- ---------- ------------ -------------- 8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,595 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $ 9,614 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $ 9,934 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,226 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $10,312 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $10,494 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $10,475 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $10,572 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $10,898 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $11,204 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $11,170 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $10,956 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,024 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $11,555 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $11,964 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $11,428 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $11,363 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $10,619 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $10,569 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $10,361 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $10,848 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,116 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $10,402 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,238 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,259 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,341 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 7,873 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 7,495 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 7,756 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -22.44% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -32.82% Since Inception (8/1/06) -8.32%
CLASS C (8/1/06-12/31/08) (PERFORMANCE GRAPH)
P&R FRANKLIN 90 Day US TEMPLETON 2025 BARCLAYS MSCI EAFE BarCap US Treasury RETIREMENT CAPITAL P&R 90-DAY S&P 500 TR GR USD Agg Bond TR Index TARGET FUND- S&P 500 MSCI EAFE U.S. AGGREGATE U.S. TREASURY (IA Extended) (%Total USD (%Total TR (%Total CLASS C INDEX INDEX INDEX INDEX (%Total Return) Return) Return) Return) -------------- --------- --------- -------------- ------------- --------------- ----------- ------------- ---------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,170 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,190 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,530 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,830 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $10,920 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $11,102 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $11,082 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,175 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,510 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $11,834 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $11,790 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,553 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,625 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $12,174 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $12,607 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $12,019 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $11,950 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,153 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,101 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $10,880 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,384 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,656 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $10,902 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,719 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,740 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,772 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 8,233 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 7,835 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 8,106 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -18.94% -25.53% -27.75% 16.73% 9.41%
20 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - --------- ---------- 1-Year -31.90% Since Inception (8/1/06) -7.90%
CLASS R (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON 2025 BARCLAYS P&R 90- S&P 500 TR MSCI EAFE BarCap US P&R 90 Day US RETIREMENT MSCI CAPITAL U.S. DAY U.S. (IA Extended) GR USD Agg Bond TR Treasury Index TARGET FUND - S&P 500 EAFE AGGREGATE TREASURY (%Total (%Total USD (%Total TR (%Total CLASS R INDEX INDEX INDEX INDEX Return) Return) Return) Return) -------------- ------- ------- ------------ --------- ------------- ---------- ----------- -------------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,200 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,540 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,840 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $10,931 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $11,124 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $11,103 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,207 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,552 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $11,877 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $11,838 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,601 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,683 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $12,241 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $12,675 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $12,097 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $12,036 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,236 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,184 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $10,960 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,476 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,750 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $11,003 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,819 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,841 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,868 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 8,312 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 7,923 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 8,197 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -18.03% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08 - ------------- -------- 1-Year -31.49% Since Inception (8/1/06) -7.46%
ADVISOR CLASS (8/1/06-12/31/08) (PERFORMANCE GRAPH)
P&R FRANKLIN 90 Day US TEMPLETON 2025 BARCLAYS MSCI EAFE BarCap US Treasury RETIREMENT CAPITAL U.S. P&R 90-DAY S&P 500 TR (IA GR USD Agg Bond TR Index TARGET FUND - S&P 500 MSCI EAFE AGGREGATE U.S. TREASURY Extended) (%Total USD (%Total TR (%Total ADVISOR CLASS INDEX INDEX INDEX INDEX (%Total Return) Return) Return) Return) -------------- ------- ----------- ------------ ------------- --------------- ------------ ------------ ----------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,180 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,550 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,860 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $10,957 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $11,140 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $11,130 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,234 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,579 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $11,914 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $11,880 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,652 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,725 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $12,297 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $12,743 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $12,163 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $12,104 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,301 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,259 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $11,043 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,561 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,847 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $11,096 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,923 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,955 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,967 $ 9,541 $9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 8,404 $ 7,939 $7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 8,013 $ 7,369 $6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 8,292 $ 7,447 $7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -17.08% -25.53% -27.75% 16.73% 9.41%
Annual Report | 21 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. 1. If the manager had not waived fees, the Fund's total returns would have been lower. 2. Cumulative total return represents the change in value of an investment over the periods indicated. 3. Average annual total return represents the average annual change in value of an investment over the periods indicated. 4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. 5. Figures are as stated in the Fund's prospectus current as of the date of this report. 6. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 16 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the Payden & Rygel 90 Day U.S. T-Bill Index. 22 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 23 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD CLASS A 7/1/08 12/31/08* 7/1/08-12/31/08* 7/1/08-12/31/08** - ------- ------------- ------------- ---------------- ----------------- Actual $ 1,000 $ 745.70 $ 2.15 $ 5.70 Hypothetical (5% return before expenses) $ 1,000 $1,022.67 $ 2.49 $ 6.60 CLASS C Actual $ 1,000 $ 743.60 $ 5.22 $ 8.77 Hypothetical (5% return before expenses) $ 1,000 $1,019.15 $ 6.04 $ 10.13 CLASS R Actual $ 1,000 $ 744.90 $ 3.03 $ 6.58 Hypothetical (5% return before expenses) $ 1,000 $1,021.67 $ 3.51 $ 7.61 ADVISOR CLASS Actual $ 1,000 $ 747.30 $ 0.83 $ 4.39 Hypothetical (5% return before expenses) $ 1,000 $1,024.18 $ 0.97 $ 5.08
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.49%; C: 1.19%; R: 0.69%; and Advisor: 0.19%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.30%; C: 2.00%; R: 1.50%; and Advisor: 1.00%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 24 | Annual Report Franklin Templeton 2035 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2035 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), within an increasing emphasis on income as the target date of 2035 approaches. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. ASSET ALLOCATION* Franklin Templeton 2035 Retirement Target Fund Based on Total Net Assets as of 12/31/08 (PIE CHART) Domestic Equity 62.6% Foreign Equity 28.1% Domestic Fixed Income 4.0% Foreign Fixed Income 2.1% Short-Term Investments & Other Net Assets 3.2%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton 2035 Retirement Target Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton 2035 Retirement Target Fund - Class A had a -35.97% cumulative total return for the 12 months ended December 31, 2008. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 59. Annual Report | 25 TOP 10 FUND HOLDINGS Franklin Templeton 2035 Retirement Target Fund 12/31/08
% OF TOTAL NET ASSETS ---------- Franklin Flex Cap Growth Fund - Advisor Class 21.2% Mutual Shares Fund - Class Z 19.7% Mutual European Fund - Class Z 10.8% Franklin Small Cap Growth Fund - Advisor Class 9.9% Franklin Gold and Precious Metals Fund - Advisor Class 5.5% Templeton Foreign Fund - Advisor Class 5.4% Templeton China World Fund - Advisor Class 4.4% Franklin Growth Opportunities Fund - Advisor Class 4.2% Franklin MicroCap Value Fund - Advisor Class 4.2% Franklin Natural Resources Fund - Advisor Class 3.5%
(EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, had total returns of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1) You can find other performance data in the Performance Summary beginning on page 28. INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on obtaining a maximum amount of current income. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each Fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, fixed income securities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. This alloca- 1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. Source: Payden & Rygel. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 26 | Annual Report tion shifts every year, in accordance with the retirement date associated with the portfolio. At period-end, Franklin Templeton 2035 Retirement Target Fund's domestic equity exposure was 69.0% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2008, we held shares in large-, mid-and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 21.2% of the Fund's total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 65.4% of the Fund's total fixed income weighting, with the balance in foreign fixed income. Franklin U.S. Government Securities Fund - Advisor Class was our largest fixed income fund weighting at 2.2% of total net assets. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, performed better than the MSCI EAFE Index. Templeton Foreign Fund - Advisor Class underperformed the MSCI EAFE Index. On the fixed income side, Franklin U.S. Government Securities Fund - Advisor Class outperformed the BC U.S. Aggregate Index. Thank you for your continued participation in Franklin Templeton 2035 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey - --------------------------------------------- T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2035 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 27 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------------- -------- -------- -------- Net Asset Value (NAV) -$4.49 $7.12 $11.61 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $0.0876 Long-Term Capital Gain $0.3237 TOTAL $0.4113
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------------- -------- -------- -------- Net Asset Value (NAV) -$4.46 $7.06 $11.52 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $0.0432 Long-Term Capital Gain $0.3237 TOTAL $0.3669
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------------- -------- -------- -------- Net Asset Value (NAV) -$4.46 $7.13 $11.59 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $0.0510 Long-Term Capital Gain $0.3237 TOTAL $0.3747
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - --------------------------------- -------- -------- -------- Net Asset Value (NAV) -$4.50 $7.14 $11.64 DISTRIBUTIONS (1/1/08 - 12/31/08) Dividend Income $0.1092 Long-Term Capital Gain $0.3237 TOTAL $0.4329
28 | Annual Report Performance Summary (CONTINUED) PERFORMANCE (1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06) - ------------------------------------- -------- ------------------ Cumulative Total Return (2) -35.97% -21.48% Average Annual Total Return (3) -39.66% -11.71% Value of $10,000 Investment (4) $6,034 $7,401 Total Annual Operating Expenses (5) Without Waiver 6.02% With Waiver 1.34%
CLASS C 1-YEAR INCEPTION (8/1/06) - ------------------------------------- -------- ------------------ Cumulative Total Return (2) -36.34% -22.79% Average Annual Total Return (3) -36.96% -10.15% Value of $10,000 Investment (4) $6,304 $7,721 Total Annual Operating Expenses(5) Without Waiver 6.72% With Waiver 2.04%
CLASS R 1-YEAR INCEPTION (8/1/06) - ------------------------------------- -------- ------------------ Cumulative Total Return (2) -36.05% -21.81% Average Annual Total Return (3) -36.05% -9.68% Value of $10,000 Investment (4) $6,395 $7,819 Total Annual Operating Expenses (5) Without Waiver 6.22% With Waiver 1.54%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06) - ------------------------------------- -------- ------------------ Cumulative Total Return (2) -35.72% -20.84% Average Annual Total Return (3) -35.72% -9.22% Value of $10,000 Investment (4) $6,428 $7,916 Total Annual Operating Expenses (5) Without Waiver 5.72% With Waiver 1.04%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES), DO NOT EXCEED 1.04% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 29 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------------------------ -------- 1-Year -39.66% Since Inception (8/1/06) -11.71%
CLASS A (8/1/06 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BARCLAYS PAYDEN & BarCap P&R 90 2035 CAPITAL RYGEL 90- S&P 500 US Agg Day US RETIREMENT U.S. DAY U.S. TR (IA MSCI EAFE Bond TR USD Treasury Index TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) GR USD (%Total TR (%Total - CLASS A INDEX INDEX BOND INDEX INDEX (%Total Return) (%Total Return) Return) Return) ----------- ------- --------- ---------- ---------- --------------- --------------- ----------- -------------- 8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709% 9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395% 10/31/2006 $ 9,981 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895% 11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106% 12/31/2006 $10,409 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202% 1/31/2007 $10,610 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594% 2/28/2007 $10,552 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498% 3/31/2007 $10,708 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100% 4/30/2007 $11,062 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004% 5/31/2007 $11,416 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998% 6/30/2007 $11,387 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000% 7/31/2007 $11,094 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000% 8/31/2007 $11,182 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100% 9/30/2007 $11,769 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000% 10/31/2007 $12,268 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500% 11/30/2007 $11,622 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000% 12/31/2007 $11,559 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600% 1/31/2008 $10,654 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000% 2/29/2008 $10,594 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360% 3/31/2008 $10,358 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700% 4/30/2008 $10,915 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400% 5/31/2008 $11,243 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500% 6/30/2008 $10,421 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500% 7/31/2008 $10,216 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000% 8/31/2008 $10,247 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100% 9/30/2008 $ 9,189 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700% 10/31/2008 $ 7,567 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200% 11/30/2008 $ 7,156 $ 7,369 $ 6,814 $11,253 $10,943 7.175460% -5.358220% 3.254990% 0.108500% 12/31/2008 $ 7,401 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500% Total Returns -25.99% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------------------------ -------- 1-Year -36.96% Since Inception (8/1/06) -10.15%
CLASS C (8/1/06 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BARCLAYS PAYDEN & MSCI BarCap US P&R 90 Day 2035 CAPITAL RYGEL 90- S&P 500 EAFE GR Agg Bond US Treasury RETIREMENT U.S. DAY U.S. TR (IA USD TR USD Index TR TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total - CLASS C INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return) ----------- ------- --------- ---------- --------- --------------- ----------- ---------- ----------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709% 9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395% 10/31/2006 $10,580 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895% 11/30/2006 $10,910 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106% 12/31/2006 $11,014 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202% 1/31/2007 $11,217 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594% 2/28/2007 $11,146 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498% 3/31/2007 $11,311 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100% 4/30/2007 $11,676 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004% 5/31/2007 $12,051 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998% 6/30/2007 $12,000 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000% 7/31/2007 $11,689 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000% 8/31/2007 $11,782 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100% 9/30/2007 $12,394 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000% 10/31/2007 $12,903 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500% 11/30/2007 $12,208 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000% 12/31/2007 $12,129 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600% 1/31/2008 $11,181 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000% 2/29/2008 $11,108 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360% 3/31/2008 $10,847 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700% 4/30/2008 $11,437 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400% 5/31/2008 $11,763 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500% 6/30/2008 $10,903 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500% 7/31/2008 $10,686 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000% 8/31/2008 $10,708 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100% 9/30/2008 $ 9,610 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700% 10/31/2008 $ 7,903 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200% 11/30/2008 $ 7,468 $ 7,369 $ 6,814 $11,253 $10,943 -7.175460% -5.358220% 3.254990% 0.108500% 12/31/2008 $ 7,721 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500% Total Returns -22.79% - 25.53% - 27.75% 16.73% 9.41%
30 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------------------------ -------- 1-Year -36.05% Since Inception (8/1/06) -9.68%
CLASS R (8/1/06 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BARCLAYS PAYDEN & MSCI BarCap US P&R 90 Day 2035 CAPITAL RYGEL 90- S&P 500 EAFE GR Agg Bond US Treasury RETIREMENT U.S. DAY U.S. TR (IA USD TR USD Index TR TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total - CLASS R INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return) ----------- -------- --------- ---------- --------- --------------- ----------- ----------- ----------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709% 9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395% 10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895% 11/30/2006 $10,930 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106% 12/31/2006 $11,040 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202% 1/31/2007 $11,253 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594% 2/28/2007 $11,182 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498% 3/31/2007 $11,337 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100% 4/30/2007 $11,712 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004% 5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998% 6/30/2007 $12,057 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000% 7/31/2007 $11,746 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000% 8/31/2007 $11,839 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100% 9/30/2007 $12,462 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000% 10/31/2007 $12,981 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500% 11/30/2007 $12,296 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000% 12/31/2007 $12,227 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600% 1/31/2008 $11,278 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000% 2/29/2008 $11,204 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360% 3/31/2008 $10,953 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700% 4/30/2008 $11,544 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400% 5/31/2008 $11,882 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500% 6/30/2008 $11,010 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500% 7/31/2008 $10,803 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000% 8/31/2008 $10,825 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100% 9/30/2008 $ 9,714 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700% 10/31/2008 $ 7,993 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200% 11/30/2008 $ 7,558 $ 7,369 $ 6,814 $11,253 $10,943 -7.175460% -5.358220% 3.254990% 0.108500% 12/31/2008 $ 7,819 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500% Total Returns - 21.81% - 25.53% - 27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08 - ------------------------ --------- 1-Year -35.72% Since Inception (8/1/06) -9.22%
ADVISOR CLASS (8/1/06 - 12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON P&R 90 2035 BARCLAYS PAYDEN & MSCI BarCap US Day US RETIREMENT CAPITAL RYGEL 90 S&P 500 EAFE GR Agg Bond Treasury TARGET U.S. -DAY U.S. TR (IA USD TR USD Index TR FUND - S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total ADVISOR CLASS INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return) ------------- ------- --------- ---------- --------- --------------- ----------- ----------- ---------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 2.379310% 2.776852% 1.530000% 0.441709% 9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088 2.577000% 0.174011% 0.878400% 0.440395% 10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127 3.258610% 3.898312% 0.661490% 0.385895% 11/30/2006 $10,950 $11,050 $11,020 $10,430 $10,170 1.901600% 3.016257% 1.160000% 0.426106% 12/31/2006 $11,060 $11,205 $11,366 $10,369 $10,214 1.402780% 3.145392% -0.580000% 0.432202% 1/31/2007 $11,284 $11,375 $11,444 $10,365 $10,256 1.512320% 0.684340% -0.041030% 0.404594% 2/28/2007 $11,213 $11,152 $11,538 $10,525 $10,296 -1.955880% 0.821455% 1.542000% 0.389498% 3/31/2007 $11,388 $11,277 $11,838 $10,525 $10,343 1.118500% 2.596354% 0.003050% 0.455100% 4/30/2007 $11,764 $11,776 $12,374 $10,582 $10,387 4.429530% 4.532205% 0.540000% 0.432004% 5/31/2007 $12,150 $12,187 $12,608 $10,502 $10,434 3.489510% 1.887661% -0.757850% 0.448998% 6/30/2007 $12,120 $11,985 $12,627 $10,471 $10,473 -1.661330% 0.154286% -0.295820% 0.376000% 7/31/2007 $11,808 $11,613 $12,442 $10,558 $10,513 -3.100480% -1.462030% 0.834140% 0.382000% 8/31/2007 $11,912 $11,787 $12,251 $10,687 $10,573 1.499010% -1.538812% 1.225650% 0.571100% 9/30/2007 $12,535 $12,228 $12,909 $10,768 $10,611 3.739880% 5.369083% 0.758630% 0.361000% 10/31/2007 $13,065 $12,423 $13,417 $10,865 $10,644 1.590680% 3.940282% 0.898290% 0.303500% 11/30/2007 $12,390 $11,903 $12,980 $11,060 $10,692 -4.180660% -3.262483% 1.798310% 0.451000% 12/31/2007 $12,314 $11,821 $12,688 $11,091 $10,716 -0.693760% -2.245007% 0.280000% 0.232600% 1/31/2008 $11,362 $11,112 $11,517 $11,278 $10,771 -5.998160% -9.228039% 1.680000% 0.512000% 2/29/2008 $11,299 $10,751 $11,686 $11,293 $10,790 -3.248580% 1.463684% 0.138800% 0.173360% 3/31/2008 $11,047 $10,704 $11,569 $11,332 $10,815 -0.431800% -1.004118% 0.341190% 0.230700% 4/30/2008 $11,650 $11,226 $12,211 $11,308 $10,826 4.870310% 5.556276% -0.208970% 0.105400% 5/31/2008 $11,989 $11,371 $12,354 $11,225 $10,832 1.295260% 1.163856% -0.733300% 0.049500% 6/30/2008 $11,125 $10,412 $11,346 $11,216 $10,848 -8.430360% -8.158399% -0.080000% 0.151500% 7/31/2008 $10,907 $10,325 $10,982 $11,207 $10,869 -0.840620% -3.201279% -0.081590% 0.198000% 8/31/2008 $10,940 $10,474 $10,540 $11,314 $10,884 1.446470% -4.026118% 0.950000% 0.136100% 9/30/2008 $ 9,826 $ 9,541 $ 9,020 $11,162 $10,914 -8.910730% -14.424379% -1.343160% 0.273700% 10/31/2008 $ 8,090 $ 7,939 $ 7,200 $10,898 $10,931 -16.794790% -20.173555% -2.360420% 0.153200% 11/30/2008 $ 7,653 $ 7,369 $ 6,814 $11,253 $10,943 -7.175460% -5.358220% 3.254990% 0.108500% 12/31/2008 $ 7,916 $ 7,447 $ 7,225 $11,673 $10,941 1.064030% 6.023190% 3.730920% -0.015500% Total Returns - 20.84% - 25.53% - 27.75% 16.73% 9.41%
Annual Report | 31 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. 1. If the manager had not waived fees, the Fund's total returns would have been lower. 2. Cumulative total return represents the change in value of an investment over the periods indicated. 3. Average annual total return represents the average annual change in value of an investment over the periods indicated. 4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. 5. Figures are as stated in the Fund's prospectus current as of the date of this report. 6. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 26 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the Payden & Rygel 90 Day U.S. T-Bill Index. 32 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 33 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD CLASS A 7/1/08 12/31/08* 7/1/08 - 12/31/08* 7/1/08 - 12/31/08** - ------------------------------ ------------- ------------- ------------------ ------------------- Actual $1,000 $ 710.20 $2.06 $ 5.72 Hypothetical (5% return before expenses) $1,000 $1,022.72 $2.44 $ 6.75 CLASS C Actual $1,000 $ 708.10 $5.07 $ 8.72 Hypothetical (5% return before expenses) $1,000 $1,019.20 $5.99 $10.28 CLASS R Actual $1,000 $ 710.20 $2.92 $ 6.58 Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.46 $ 7.76 ADVISOR CLASS Actual $1,000 $ 711.50 $0.77 $ 4.43 Hypothetical (5% return before expenses) $1,000 $1,024.23 $0.92 $ 5.23
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.48%; C: 1.18%; R: 0.68%; and Advisor: 0.18%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.33%; C: 2.03%; R: 1.53%; and Advisor: 1.03%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 34 | Annual Report Franklin Templeton 2045 Retirement Target Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Templeton 2045 Retirement Target Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund's asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and short-term (money market) investments by investing in a distinctly weighted combination of Franklin Templeton mutual funds (underlying funds), within an increasing emphasis on income as the target date of 2045 approaches. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS.INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. ASSET ALLOCATION* Franklin Templeton 2045 Retirement Target Fund Based on Total Net Assets as of 12/31/08 Domestic Equity 66.7% Foreign Equity 30.7% Short-Term Investments & Other Net Assets 2.6%
* The asset allocation is based on the Statement of Investments (SOI), which classifies each underlying fund into a broad asset class. This annual report for Franklin Templeton 2045 Retirement Target Fund covers the fiscal year ended December 31, 2008. PERFORMANCE OVERVIEW Franklin Templeton 2045 Retirement Target Fund - Class A had a -37.46% cumulative total return for the 12 months ended December 31, 2008. By comparison the Fund's benchmarks, the Standard & Poor's 500 Index (S&P 500) and Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S SOI, WHICH BEGINS ON PAGE 64. Annual Report | 35 TOP 10 FUND HOLDINGS Franklin Templeton 2045 Retirement Target Fund 12/31/08
% OF TOTAL NET ASSETS ----------- Franklin Flex Cap Growth Fund - Advisor Class 22.3% Mutual Shares Fund - Class Z 20.4% Mutual European Fund - Class Z 11.8% Franklin Small Cap Growth Fund - Advisor Class 10.8% Franklin Gold and Precious Metals Fund - Advisor Class 6.0% Templeton Foreign Fund - Advisor Class 5.8% Templeton China World Fund - Advisor Class 4.9% Franklin Growth Opportunities Fund - Advisor Class 4.8% Franklin MicroCap Value Fund - Advisor Class 4.6% Franklin Natural Resources Fund - Advisor Class 3.9%
(EAFE) Index for equities, the Barclays Capital (BC; formerly, Lehman Brothers) U.S. Aggregate Index for fixed income, and the Payden & Rygel (P&R) 90 Day U.S. T-Bill Index for short-term investments and other net assets, had total returns of -37.00%, -43.06%, +5.24% and +2.10%, respectively, during the same time.(1 )You can find other performance data in the Performance Summary beginning on page 38. INVESTMENT STRATEGY When selecting equity funds, we consider the underlying funds' foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed income funds, our primary focus is on obtaining a maximum amount of current income. In evaluating the risk level of the underlying funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund in the same underlying funds and will vary the underlying funds' allocation percentages based upon each Fund's risk/return level. We change the Fund's target asset allocation gradually over time, and it becomes increasingly conservative as the stated target date draws near. MANAGER'S DISCUSSION The Fund's performance can be attributed largely to its allocation among equities, and short-term investments and other net assets, and by the actual performance of the selected underlying funds. This allocation shifts every year, in accordance with the retirement date associated with the portfolio. 1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The MSCI EAFE Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets excluding the U.S. and Canada. The BC U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. All issues included must have at least one year to final maturity and must be rated investment grade (Baa3 or better) by Moody's Investors Service. They must also be dollar denominated and nonconvertible. Total return includes price appreciation/depreciation and income as a percentage of the original investment. The index is rebalanced monthly by market capitalization. Source: Payden & Rygel. The P&R 90 Day U.S. T-Bill Index is a total return index based on a constant maturity instrument. Payden & Rygel includes both accrued interest and change in market price in its monthly total return calculations. The value of Treasuries, if held to maturity, is fixed; principal is guaranteed and interest is fixed. The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 36 | Annual Report At period-end, Franklin Templeton 2045 Retirement Target Fund's domestic equity exposure was 68.4% of its total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2008, we held shares in large-, mid-and small-capitalization equity funds, representing both growth and value styles. Franklin Flex Cap Growth Fund - Advisor Class, at 22.3% of the Fund's total net assets, was our largest equity fund weighting at period-end. Our largest domestic growth fund holding, Franklin Flex Cap Growth Fund - Advisor Class, and our largest domestic value fund holding, Mutual Shares Fund - Class Z, performed comparably to the S&P 500. Conversely, Franklin Small Cap Growth Fund - Advisor Class underperformed the S&P 500. Our largest foreign equity holding, Mutual European Fund - Class Z, performed better than the MSCI EAFE Index. However, Templeton Foreign Fund - Advisor Class, underperformed the MSCI EAFE Index. Thank you for your continued participation in Franklin Templeton 2045 Retirement Target Fund. We look forward to serving your future investment needs. (PHOTO OF T. ANTHONY COFFEY) /s/ T. Anthony Coffey - --------------------------------------------- T. Anthony Coffey, CFA Portfolio Manager Franklin Templeton 2045 Retirement Target Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Annual Report | 37 Performance Summary as of 12/31/08 FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------------------- ------ -------- -------- Net Asset Value (NAV) -$4.68 $6.89 $11.57 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.0839 Long-Term Capital Gain $0.3700 TOTAL $0.4539
CLASS C (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------------------- ------ -------- -------- Net Asset Value (NAV) -$4.67 $6.81 $11.48 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.0535 Long-Term Capital Gain $0.3700 TOTAL $0.4235
CLASS R (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------------------- ------ -------- -------- Net Asset Value (NAV) -$4.66 $6.88 $11.54 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.0565 Long-Term Capital Gain $0.3700 TOTAL $0.4265
ADVISOR CLASS (SYMBOL: N/A) CHANGE 12/31/08 12/31/07 - ---------------------------------------------- ------ -------- -------- Net Asset Value (NAV) -$4.70 $6.89 $11.59 DISTRIBUTIONS (1/1/08-12/31/08) Dividend Income $0.1042 Long-Term Capital Gain $0.3700 TOTAL $0.4742
38 | Annual Report Performance Summary (CONTINUED) PERFORMANCE (1) CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (8/1/06) - -------------------------------------------- -------- ------------------ Cumulative Total Return (2) -37.46% -23.03% Average Annual Total Return (3) -41.08% -12.44% Value of $10,000 Investment (4) $ 5,892 $ 7,254 Total Annual Operating Expenses (5) Without Waiver 7.73% With Waiver 1.34%
CLASS C 1-YEAR INCEPTION (8/1/06) - -------------------------------------------- -------- ------------------ Cumulative Total Return (2) -37.95% -24.38% Average Annual Total Return (3) -38.55% -10.92% Value of $10,000 Investment (4) $ 6,145 $ 7,562 Total Annual Operating Expenses (5) Without Waiver 8.43% With Waiver 2.04%
CLASS R 1-YEAR INCEPTION (8/1/06) - -------------------------------------------- --------- ------------------ Cumulative Total Return (2) -37.64% -23.46% Average Annual Total Return (3) -37.64% -10.47% Value of $10,000 Investment (4) $ 6,236 $ 7,654 Total Annual Operating Expenses (5) Without Waiver 7.93% With Waiver 1.54%
ADVISOR CLASS 1-YEAR INCEPTION (8/1/06) - -------------------------------------------- -------- ------------------ Cumulative Total Return (2) -37.39% -22.60% Average Annual Total Return (3) -37.39% -10.06% Value of $10,000 Investment (4) $ 6,261 $ 7,740 Total Annual Operating Expenses (5) Without Waiver 7.43% With Waiver 1.04%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL (800) 342-5236. THE INVESTMENT MANAGER HAS CONTRACTUALLY AGREED TO WAIVE OR LIMIT ITS FEES AND TO ASSUME AS ITS OWN EXPENSE CERTAIN EXPENSES OTHERWISE PAYABLE BY THE FUND SO THAT THE FUND'S COMMON EXPENSES (I.E., A COMBINATION OF ASSET ALLOCATION FEES AND OTHER EXPENSES, INCLUDING ESTIMATED INDIRECT UNDERLYING FUND EXPENSES, BUT EXCLUDING DISTRIBUTION AND SERVICE (12B-1) FEES), DO NOT EXCEED 1.04% FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND LIQUIDATIONS) UNTIL 4/30/09. Annual Report | 39 Performance Summary (CONTINUED) TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT (1) Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index. AVERAGE ANNUAL TOTAL RETURN
CLASS A 12/31/08 - ------- -------- 1-Year -41.08% Since Inception (8/1/06) -12.44%
CLASS A (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN P&R 90 TEMPLETON BARCLAYS PAYDEN & BarCap Day US 2045 CAPITAL RYGEL 90- S&P 500 MSCI US Agg Bond Treasury RETIREMENT U.S. DAY U.S. TR (IA EAFE GR TR USD Index TR TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) USD (%Total (%Total - CLASS A INDEX INDEX BOND INDEX INDEX (%Total Return) (%Total Return) Return) Return) ----------- -------- --------- ---------- --------- --------------- --------------- ------------ ---------- 8/1/2006 $ 9,425 $10,000 $10,000 $10,000 $10,000 8/31/2006 $ 9,614 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.441709% 9/30/2006 $ 9,632 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.440395% 10/31/2006 $ 9,991 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.385895% 11/30/2006 $10,311 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.426106% 12/31/2006 $10,420 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.432202% 1/31/2007 $10,621 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.404594% 2/28/2007 $10,563 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.389498% 3/31/2007 $10,738 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.455100% 4/30/2007 $11,093 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.432004% 5/31/2007 $11,456 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.448998% 6/30/2007 $11,432 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.376000% 7/31/2007 $11,137 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.382000% 8/31/2007 $11,245 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.571100% 9/30/2007 $11,846 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.361000% 10/31/2007 $12,338 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.303500% 11/30/2007 $11,668 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.451000% 12/31/2007 $11,600 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.232600% 1/31/2008 $10,667 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.512000% 2/29/2008 $10,617 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.173360% 3/31/2008 $10,380 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.230700% 4/30/2008 $10,961 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.105400% 5/31/2008 $11,302 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.049500% 6/30/2008 $10,451 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.151500% 7/31/2008 $10,233 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.198000% 8/31/2008 $10,264 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.136100% 9/30/2008 $ 9,163 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.273700% 10/31/2008 $ 7,470 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.153200% 11/30/2008 $ 7,012 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.108500% 12/31/2008 $ 7,254 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.015500% Total Returns -27.46% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 12/31/08 - ------- -------- 1-Year -38.55% Since Inception (8/1/06) -10.92%
CLASS C (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON BarCap P&R 90 2045 BARCLAYS PAYDEN & US Agg Day US RETIREMENT CAPITAL RYGEL 90- S&P 500 MSCI EAFE Bond TR Treasury TARGET U.S. DAY U.S. TR (IA GR USD USD Index TR FUND - S&P 500 MSCI EAFE AGGREGATE TREASURY Extended) (%Total (%Total (%Total CLASS C INDEX INDEX BOND INDEX INDEX (%Total Return) Return) Return) Return) ----------- -------- --------- ---------- --------- --------------- --------------- ------------ ------------ 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,190 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,210 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,590 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,920 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $11,030 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $11,243 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $11,172 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,347 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,723 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $12,098 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $12,062 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,749 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,843 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $12,470 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $12,992 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $12,271 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $12,188 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,211 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,137 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $10,886 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,502 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,841 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $10,951 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,719 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,741 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,575 $ 9,541 $9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 7,803 $ 7,939 $7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 7,319 $ 7,369 $6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 7,562 $ 7,447 $7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -24.38% -25.53% -27.75% 16.73% 9.41%
40 | Annual Report Performance Summary (CONTINUED) AVERAGE ANNUAL TOTAL RETURN
CLASS R 12/31/08 - ------- -------- 1-Year -37.64% Since Inception (8/1/06) -10.47%
CLASS R (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN BarCap P&R 90 TEMPLETON BARCLAYS PAYDEN & S&P 500 US Agg Day US 2045 CAPITAL RYGEL 90- TR (IA MSCI EAFE Bond Treasury RETIREMENT U.S. DAY U.S. Extended) GR USD TR USD Index TR TARGET FUND S&P 500 MSCI EAFE AGGREGATE TREASURY (%Total (%Total (%Total (%Total - CLASS R INDEX INDEX BOND INDEX INDEX Return) Return) Return) Return) ----------- -------- --------- ---------- --------- --------------- --------------- ------------ ------------ 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,220 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,600 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,940 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $11,044 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $11,268 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $11,207 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,382 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,758 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $12,144 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $12,108 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,805 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,909 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $12,536 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $13,059 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $12,359 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $12,274 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,295 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,231 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $10,979 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,596 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $11,958 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $11,055 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,824 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,846 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,677 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 7,892 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 7,407 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 7,654 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns -23.46% -25.53% -27.75% 16.73% 9.41%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 12/31/08 -------- 1-Year -37.39% Since Inception (8/1/06) -10.06%
ADVISOR CLASS (8/1/06-12/31/08) (PERFORMANCE GRAPH)
FRANKLIN TEMPLETON P&R 90 2045 BARCLAYS PAYDEN & S&P 500 BarCap US Day US RETIREMENT CAPITAL RYGEL 90- TR (IA MSCI EAFE Agg Bond Treasury TARGET FUND U.S. DAY U.S. Extended) GR USD TR USD Index TR - ADVISOR S&P 500 MSCI EAFE AGGREGATE TREASURY (%Total (%Total (%Total (%Total CLASS INDEX INDEX BOND INDEX INDEX Return) Return) Return) Return) ----------- -------- --------- ---------- --------- --------------- --------------- ------------ ----------- 8/1/2006 $10,000 $10,000 $10,000 $10,000 $10,000 8/31/2006 $10,200 $10,238 $10,278 $10,153 $10,044 2.37931000% 2.77685200% 1.53000000% 0.44170900% 9/30/2006 $10,230 $10,502 $10,296 $10,242 $10,088 2.57700000% 0.17401100% 0.87840000% 0.44039500% 10/31/2006 $10,610 $10,844 $10,697 $10,310 $10,127 3.25861000% 3.89831200% 0.66149000% 0.38589500% 11/30/2006 $10,960 $11,050 $11,020 $10,430 $10,170 1.90160000% 3.01625700% 1.16000000% 0.42610600% 12/31/2006 $11,072 $11,205 $11,366 $10,369 $10,214 1.40278000% 3.14539200% -0.58000000% 0.43220200% 1/31/2007 $11,285 $11,375 $11,444 $10,365 $10,256 1.51232000% 0.68434000% -0.04103000% 0.40459400% 2/28/2007 $11,235 $11,152 $11,538 $10,525 $10,296 -1.95588000% 0.82145500% 1.54200000% 0.38949800% 3/31/2007 $11,420 $11,277 $11,838 $10,525 $10,343 1.11850000% 2.59635400% 0.00305000% 0.45510000% 4/30/2007 $11,796 $11,776 $12,374 $10,582 $10,387 4.42953000% 4.53220500% 0.54000000% 0.43200400% 5/31/2007 $12,193 $12,187 $12,608 $10,502 $10,434 3.48951000% 1.88766100% -0.75785000% 0.44899800% 6/30/2007 $12,167 $11,985 $12,627 $10,471 $10,473 -1.66133000% 0.15428600% -0.29582000% 0.37600000% 7/31/2007 $11,864 $11,613 $12,442 $10,558 $10,513 -3.10048000% -1.46203000% 0.83414000% 0.38200000% 8/31/2007 $11,968 $11,787 $12,251 $10,687 $10,573 1.49901000% -1.53881200% 1.22565000% 0.57110000% 9/30/2007 $12,606 $12,228 $12,909 $10,768 $10,611 3.73988000% 5.36908300% 0.75863000% 0.36100000% 10/31/2007 $13,139 $12,423 $13,417 $10,865 $10,644 1.59068000% 3.94028200% 0.89829000% 0.30350000% 11/30/2007 $12,439 $11,903 $12,980 $11,060 $10,692 -4.18066000% -3.26248300% 1.79831000% 0.45100000% 12/31/2007 $12,362 $11,821 $12,688 $11,091 $10,716 -0.69376000% -2.24500700% 0.28000000% 0.23260000% 1/31/2008 $11,370 $11,112 $11,517 $11,278 $10,771 -5.99816000% -9.22803900% 1.68000000% 0.51200000% 2/29/2008 $11,317 $10,751 $11,686 $11,293 $10,790 -3.24858000% 1.46368400% 0.13880000% 0.17336000% 3/31/2008 $11,064 $10,704 $11,569 $11,332 $10,815 -0.43180000% -1.00411800% 0.34119000% 0.23070000% 4/30/2008 $11,694 $11,226 $12,211 $11,308 $10,826 4.87031000% 5.55627600% -0.20897000% 0.10540000% 5/31/2008 $12,057 $11,371 $12,354 $11,225 $10,832 1.29526000% 1.16385600% -0.73330000% 0.04950000% 6/30/2008 $11,162 $10,412 $11,346 $11,216 $10,848 -8.43036000% -8.15839900% -0.08000000% 0.15150000% 7/31/2008 $10,930 $10,325 $10,982 $11,207 $10,869 -0.84062000% -3.20127900% -0.08159000% 0.19800000% 8/31/2008 $10,963 $10,474 $10,540 $11,314 $10,884 1.44647000% -4.02611800% 0.95000000% 0.13610000% 9/30/2008 $ 9,780 $ 9,541 $ 9,020 $11,162 $10,914 -8.91073000% -14.42437900% -1.34316000% 0.27370000% 10/31/2008 $ 7,979 $ 7,939 $ 7,200 $10,898 $10,931 -16.79479000% -20.17355500% -2.36042000% 0.15320000% 11/30/2008 $ 7,482 $ 7,369 $ 6,814 $11,253 $10,943 -7.17546000% -5.35822000% 3.25499000% 0.10850000% 12/31/2008 $ 7,740 $ 7,447 $ 7,225 $11,673 $10,941 1.06403000% 6.02319000% 3.73092000% -0.01550000% Total Returns - 22.60% -25.53% -27.75% 16.73% 9.41%
Annual Report | 41 Performance Summary (CONTINUED) ENDNOTES WHILE AN ASSET ALLOCATION PLAN CAN BE A VALUABLE TOOL TO HELP REDUCE OVERALL VOLATILITY, ALL INVESTMENTS INVOLVE SOME DEGREE OF RISK. GENERALLY, INVESTORS SHOULD BE COMFORTABLE WITH SOME FLUCTUATION IN THE VALUE OF THEIR INVESTMENTS, ESPECIALLY OVER THE SHORT TERM. STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG TERM, BUT THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORTER TERM. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. BECAUSE THE FUND INVESTS IN UNDERLYING FUNDS, WHICH MAY ENGAGE IN A VARIETY OF INVESTMENT STRATEGIES INVOLVING CERTAIN RISKS, THE FUND MAY BE SUBJECT TO THOSE SAME RISKS. THESE RISKS ARE DESCRIBED IN THE FUND'S PROSPECTUS. CLASS C: These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. 1. If the manager had not waived fees, the Fund's total returns would have been lower. 2. Cumulative total return represents the change in value of an investment over the periods indicated. 3. Average annual total return represents the average annual change in value of an investment over the periods indicated. 4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. 5. Figures are as stated in the Fund's prospectus current as of the date of this report. 5. Sources: (C) 2009 Morningstar; Payden & Rygel. See page 36 for descriptions of the S&P 500, the MSCI EAFE Index, the BC U.S. Aggregate Index and the P&R 90 Day U.S. T-Bill Index. 42 | Annual Report Your Fund's Expenses FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Annual Report | 43 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ENDING EXPENSES PAID EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD DURING PERIOD CLASS A 7/1/08 12/31/08* 7/1/08 - 12/31/08* 7/1/08 - 12/31/08** - ------------------------- ------------- ------------- ------------------ ------------------- Actual $ 1,000 $ 694.10 $ 1.96 $ 5.66 Hypothetical (5% return before expenses) $ 1,000 $ 1,022.82 $ 2.34 $ 6.75 Class C Actual $ 1,000 $ 690.60 $ 4.93 $ 8.63 Hypothetical (5% return before expenses) $ 1,000 $ 1,019.30 $ 5.89 $10.28 Class R Actual $ 1,000 $ 692.40 $ 2.81 $ 6.51 Hypothetical (5% return before expenses) $ 1,000 $ 1,021.82 $ 3.35 $ 7.76 Advisor Class Actual $ 1,000 $ 693.40 $ 0.68 $ 4.38 Hypothetical (5% return before expenses) $ 1,000 $ 1,024.33 $ 0.81 $ 5.23
* Expenses are calculated using the most recent six-month expense ratio excluding expenses of the underlying funds, net of expense waivers, annualized for each class (A: 0.46%; C: 1.16%; R: 0.66%; and Advisor: 0.16%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. ** Expenses are calculated using the most recent six-month expense ratio including expenses of the underlying funds, net of expense waivers, annualized for each class (A: 1.33%; C: 2.03%; R: 1.53%; and Advisor: 1.03%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period. 44 | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------ CLASS A 2008 2007 2006 (a) -------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year........................................ $ 11.35 $ 10.69 $10.00 ------- ------- ------ Income from investment operations (b): Net investment income (c), (d)......................................... 0.23 0.33 0.13 Net realized and unrealized gains (losses)............................. (3.08) 0.72 0.73 ------- ------- ------ Total from investment operations.......................................... (2.85) 1.05 0.86 ------- ------- ------ Less distributions from: Net investment income and short term gains received from Underlying Funds................................................ (0.19) (0.23) (0.15) Net realized gains..................................................... (0.17) (0.16) (0.02) ------- ------- ------ Total distributions....................................................... (0.36) (0.39) (0.17) ------- ------- ------ Redemption fees (e)....................................................... -- (f) -- (f) -- ------- ------- ------ Net asset value, end of year.............................................. $ 8.14 $ 11.35 $10.69 ======= ======= ====== Total return (g).......................................................... (25.55)% 9.84% 8.59% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i)..................... 1.36% 3.60% 12.13% Expenses net of waiver and payments by affiliates (i)..................... 0.51% 0.48% 0.50% Net investment income (d)................................................. 2.25% 3.11% 2.92% SUPPLEMENTAL DATA Net assets, end of year (000's)........................................... $ 9,407 $ 5,269 $1,364 Portfolio turnover rate................................................... 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 45 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------- CLASS C 2008 2007 2006 (a) -------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year........................................ $ 11.28 $ 10.67 $ 10.00 -------- ------- -------- Income from investment operations(b): Net investment income (c), (d)......................................... 0.14 0.36 0.14 Net realized and unrealized gains (losses)............................. (3.04) 0.60 0.69 -------- ------- -------- Total from investment operations.......................................... (2.90) 0.96 0.83 -------- ------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds................................................................ (0.13) (0.19) (0.14) Net realized gains..................................................... (0.17) (0.16) (0.02) -------- ------- -------- Total distributions....................................................... (0.30) (0.35) (0.16) -------- ------- -------- Redemption fees (e) -- (f) -- (f) -- -------- ------- -------- Net asset value, end of year.............................................. $ 8.08 $ 11.28 $ 10.67 ======== ======= ======== Total return (g).......................................................... (26.09)% 9.02% 8.30% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i)..................... 2.04% 4.28% 12.78% Expenses net of waiver and payments by affiliates (i) .................... 1.19% 1.16% 1.15% Net investment income (d)................................................. 1.57% 2.43% 2.27% SUPPLEMENTAL DATA Net assets, end of year (000's)........................................... $ 4,621 $ 2,213 $ 63 Portfolio turnover rate................................................... 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2008. 46 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------ CLASS R 2008 2007 2006 (a) -------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year....................................... $ 11.32 $10.68 $ 10.00 -------- ------ -------- Income from investment operations (b): Net investment income (c), (d)........................................ 0.18 0.34 0.11 Net realized and unrealized gains (losses)............................ (3.05) 0.68 0.74 -------- ------ -------- Total from investment operations......................................... (2.87) 1.02 0.85 -------- ------ -------- Less distributions from: Net investment income and short term gains received from Underlying Funds............................................................... (0.16) (0.22) (0.15) Net realized gains.................................................... (0.17) (0.16) (0.02) -------- ------ -------- Total distributions...................................................... (0.33) (0.38) (0.17) -------- ------ -------- Redemption fees (e)...................................................... -- (f) -- (f) -- -------- ------ -------- Net asset value, end of year............................................. $ 8.12 $11.32 $ 10.68 ======== ====== ======== Total return (g)......................................................... (25.70)% 9.59% 8.48% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i).................... 1.56% 3.78% 12.28% Expenses net of waiver and payments by affiliates (i).................... 0.71% 0.66% 0.65% Net investment income (d)................................................ 2.05% 2.93% 2.77% SUPPLEMENTAL DATA Net assets, end of year (000's).......................................... $ 821 $1,071 $ 11 Portfolio turnover rate.................................................. 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 47 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------- ADVISOR CLASS 2008 2007 2006 (a) -------- ------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year........................................ $ 11.37 $10.70 $ 10.00 -------- ------ -------- Income from investment operations (b): Net investment income (c), (d)......................................... 0.25 0.30 0.17 Net realized and unrealized gains (losses)............................. (3.09) 0.79 0.71 -------- ------ -------- Total from investment operations.......................................... (2.84) 1.09 0.88 -------- ------ -------- Less distributions from: Net investment income and short term gains received from Underlying Funds................................................................ (0.21) (0.26) (0.16) Net realized gains..................................................... (0.17) (0.16) (0.02) -------- ------ -------- Total distributions....................................................... (0.38) (0.42) (0.18) -------- ------ -------- Redemption fees (e)....................................................... -- (f) -- (f) -- -------- ------ -------- Net asset value, end of year.............................................. $ 8.15 $11.37 $ 10.70 ======== ====== ======== Total return (g).......................................................... (25.39)% 10.21% 8.75% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i)..................... 1.06% 3.28% 11.78% Expenses net of waiver and payments by affiliates (i)..................... 0.21% 0.16% 0.15% Net investment income (d)................................................. 2.55% 3.43% 3.27% SUPPLEMENTAL DATA Net assets, end of year (000's)........................................... $ 164 $ 32 $ 20 Portfolio turnover rate................................................... 8.69% 8.19% 2.42%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.76% for the year ended December 31, 2008. 48 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2015 RETIREMENT TARGET FUND SHARES VALUE --------- ----------- INVESTMENTS IN UNDERLYING FUNDS 92.4% (a) DOMESTIC EQUITY 43.3% (b) Franklin Flex Cap Growth Fund, Advisor Class .................................. 72,075 $ 2,249,448 (b) Franklin Growth Opportunities Fund, Advisor Class ............................. 32,944 434,527 Franklin MicroCap Value Fund, Advisor Class ................................... 20,646 438,735 (b) Franklin Natural Resources Fund, Advisor Class ................................ 17,694 363,966 (b) Franklin Small Cap Growth Fund, Advisor Class ................................. 166,696 1,031,850 Mutual Shares Fund, Class Z ................................................... 129,483 1,983,674 ----------- 6,502,200 ----------- DOMESTIC FIXED INCOME 19.0% Franklin Strategic Mortgage Portfolio ......................................... 36,049 301,370 Franklin Total Return Fund, Advisor Class ..................................... 114,835 1,001,359 Franklin U.S. Government Securities Fund, Advisor Class ....................... 232,734 1,543,027 ----------- 2,845,756 ----------- FOREIGN EQUITY 20.1% Franklin Global Real Estate Fund, Advisor Class ............................... 41,753 217,952 (b) Franklin Gold and Precious Metals Fund, Advisor Class ......................... 22,169 571,748 Mutual European Fund, Class Z ................................................. 66,092 1,140,087 Templeton China World Fund, Advisor Class ..................................... 22,846 483,421 Templeton Foreign Fund, Advisor Class ......................................... 139,100 610,651 ----------- 3,023,859 ----------- FOREIGN FIXED INCOME 10.0% Templeton Global Bond Fund, Advisor Class ..................................... 134,622 1,503,729 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $18,608,573) .......................................................... 13,875,544 ----------- SHORT TERM INVESTMENTS (COST $1,059,967) 7.1% (a) MONEY MARKET FUNDS 7.1% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% .......... 1,059,967 1,059,967 ----------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $19,668,540) 99.5% ................ 14,935,511 OTHER ASSETS, LESS LIABILITIES 0.5% ........................................... 77,446 ----------- NET ASSETS 100.0% ............................................................. $15,012,957 ===========
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. Annual Report | The accompanying notes are an integral part of these financial statements. | 49 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- CLASS A 2008 2007 2006 (a) -------- ---------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............................................. $ 11.45 $ 10.78 $ 10.00 -------- ---------- -------- Income from investment operations (b): Net investment income (c), (d) .............................................. 0.14 0.28 0.12 Net realized and unrealized gains (losses) .................................. (3.71) 0.82 0.82 -------- ---------- -------- Total from investment operations ............................................... (3.57) 1.10 0.94 -------- ---------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ... (0.14) (0.21) (0.14) Net realized gains .......................................................... (0.27) (0.22) (0.02) -------- ---------- -------- Total distributions ............................................................ (0.41) (0.43) (0.16) -------- ---------- -------- Redemption fees (e), (f) ....................................................... -- -- -- -------- ---------- -------- Net asset value, end of year ................................................... $ 7.47 $ 11.45 $ 10.78 ======== ========== ======== Total return (g) ............................................................... (31.74)% 10.19% 9.41% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) .......................... 1.50% 3.31% 10.76% Expenses net of waiver and payments by affiliates (i) .......................... 0.49% 0.47% 0.50% Net investment income (d) ...................................................... 1.53% 2.55% 2.78% SUPPLEMENTAL DATA Net assets, end of year (000's) ................................................ $ 9,918 $ 6,952 $ 1,699 Portfolio turnover rate ........................................................ 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. 50 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- CLASS C 2008 2007 2006 (a) -------- ---------- --------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............................................. $ 11.40 $ 10.77 $ 10.00 -------- ---------- -------- Income from investment operations (b): Net investment income (c), (d) .............................................. 0.10 0.28 0.10 Net realized and unrealized gains (losses) .................................. (3.70) 0.74 0.82 -------- ---------- -------- Total from investment operations ............................................... (3.60) 1.02 0.92 -------- ---------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ... (0.10) (0.17) (0.13) Net realized gains .......................................................... (0.27) (0.22) (0.02) -------- ---------- -------- Total distributions ............................................................ (0.37) (0.39) (0.15) -------- ---------- -------- Redemption fees (e), (f) ....................................................... -- -- -- -------- ---------- -------- Net asset value, end of year ................................................... $ 7.43 $ 11.40 $ 10.77 ======== ========== ======== Total return (g) ............................................................... (32.16)% 9.43% 9.20% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) .......................... 2.20% 3.99% 11.41% Expenses net of waiver and payments by affiliates (i) .......................... 1.19% 1.15% 1.15% Net investment income (d) ...................................................... 0.83% 1.87% 2.13% SUPPLEMENTAL DATA Net assets, end of year (000's) ................................................ $ 2,551 $ 1,104 $ 54 Portfolio turnover rate ........................................................ 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 51 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- CLASS R 2008 2007 2006 (a) -------- ---------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............................................. $ 11.44 $ 10.77 $ 10.00 -------- ---------- -------- Income from investment operations (b): Net investment income (c), (d) .............................................. 0.10 0.27 0.11 Net realized and unrealized gains (losses) .................................. (3.68) 0.82 0.82 -------- ---------- -------- Total from investment operations ............................................... (3.58) 1.09 0.93 -------- ---------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ... (0.12) (0.20) (0.14) Net realized gains .......................................................... (0.27) (0.22) (0.02) -------- ---------- -------- Total distributions ............................................................ (0.39) (0.42) (0.16) -------- ---------- -------- Redemption fees (e), (f) ....................................................... -- -- -- -------- ---------- -------- Net asset value, end of year ................................................... $ 7.47 $ 11.44 $ 10.77 ======== ========== ======== Total return (g) ............................................................... (31.90)% 10.11% 9.31% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) .......................... 1.70% 3.49% 10.91% Expenses net of waiver and payments by affiliates (i) .......................... 0.69% 0.65% 0.65% Net investment income (d) ...................................................... 1.33% 2.37% 2.63% SUPPLEMENTAL DATA Net assets, end of year (000's) ................................................ $ 155 $ 188 $ 19 Portfolio turnover rate ........................................................ 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. 52 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- ADVISOR CLASS 2008 2007 2006 (a) -------- ---------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ............................................. $ 11.46 $ 10.79 $ 10.00 -------- ---------- -------- Income from investment operations (b): Net investment income (c), (d) .............................................. 0.16 0.46 0.20 Net realized and unrealized gains (losses) .................................. (3.70) 0.67 0.76 -------- ---------- -------- Total from investment operations ............................................... (3.54) 1.13 0.96 -------- ---------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ... (0.17) (0.24) (0.15) Net realized gains .......................................................... (0.27) (0.22) (0.02) -------- ---------- -------- Total distributions ............................................................ (0.44) (0.46) (0.17) -------- ---------- -------- Redemption fees (e), (f) ....................................................... -- -- -- -------- ---------- -------- Net asset value, end of year ................................................... $ 7.48 $ 11.46 $ 10.79 ======== ========== ======== Total return (g) ............................................................... (31.49)% 10.46% 9.57% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) .......................... 1.20% 2.99% 10.41% Expenses net of waiver and payments by affiliates (i) .......................... 0.19% 0.15% 0.15% Net investment income (d) ...................................................... 1.83% 2.87% 3.13% SUPPLEMENTAL DATA Net assets, end of year (000's) ................................................ $ 322 $ 417 $ 51 Portfolio turnover rate ........................................................ 6.07% 16.28% 5.36%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.81% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 53 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND SHARES VALUE ------- ------------ INVESTMENTS IN UNDERLYING FUNDS 95.0% (a) DOMESTIC EQUITY 53.7% ..................................................... (b) Franklin Flex Cap Growth Fund, Advisor Class .............................. 75,636 $ 2,360,598 (b) Franklin Growth Opportunities Fund, Advisor Class ......................... 37,113 489,521 Franklin MicroCap Value Fund, Advisor Class ............................... 21,812 463,508 (b) Franklin Natural Resources Fund, Advisor Class ............................ 18,843 387,607 (b) Franklin Small Cap Growth Fund, Advisor Class ............................. 181,087 1,120,931 Mutual Shares Fund, Class Z................................................ 139,166 2,132,029 ------------ 6,954,194 ------------ DOMESTIC FIXED INCOME 11.0% Franklin Strategic Mortgage Portfolio ..................................... 17,330 144,878 Franklin Total Return Fund, Advisor Class ................................. 58,268 508,100 Franklin U.S. Government Securities Fund, Advisor Class ................... 115,789 767,680 ------------ 1,420,658 ------------ FOREIGN EQUITY 24.4% Franklin Global Real Estate Fund, Advisor Class ........................... 43,464 226,883 (b) Franklin Gold and Precious Metals Fund, Advisor Class ..................... 23,220 598,847 Mutual European Fund, Class Z ............................................. 71,091 1,226,321 Templeton China World Fund, Advisor Class ................................. 23,686 501,190 Templeton Foreign Fund, Advisor Class ..................................... 138,795 609,309 ------------ 3,162,550 ------------ FOREIGN FIXED INCOME 5.9% Templeton Global Bond Fund, Advisor Class ................................. 68,308 762,996 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $17,610,832) ....................................................... 12,300,398 SHORT TERM INVESTMENTS (COST $514,272) 4.0% (a) MONEY MARKET FUNDS 4.0% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ....... 514,272 514,272 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $18,125,104) 99.0% ............. 12,814,670 OTHER ASSETS, LESS LIABILITIES 1.0% ........................................ 132,738 ------------ NET ASSETS 100.0% .......................................................... $ 12,947,408 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. 54 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, --------------------------------- CLASS A 2008 2007 2006 (a) -------- --------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ....................................... $ 11.61 $ 10.88 $ 10.00 -------- --------- -------- Income from investment operations (b): Net investment income (c), (d) ......................................... 0.08 0.22 0.09 Net realized and unrealized gains (losses) ............................ (4.16) 0.97 0.95 -------- --------- -------- Total from investment operations ......................................... (4.08) 1.19 1.04 -------- --------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds .................................................... (0.09) (0.16) (0.13) Net realized gains .................................................... (0.32) (0.30) (0.03) -------- --------- -------- Total distributions ...................................................... (0.41) (0.46) (0.16) -------- --------- -------- Redemption fees (e) ...................................................... -- (f) -- (f) -- -------- --------- -------- Net asset value, end of year ............................................. $ 7.12 $ 11.61 $ 10.88 ======== ========= ======== Total return (g) ......................................................... (35.97)% 11.05% 10.44% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) .................... 2.14% 5.16% 13.47% Expenses net of waiver and payments by affiliates (i) .................... 0.49% 0.48% 0.50% Net investment income (d) ................................................ 0.87% 2.07% 2.04% SUPPLEMENTAL DATA Net assets, end of year (000's) .......................................... $ 5,349 $ 3,760 $ 1,171 Portfolio turnover rate .................................................. 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.85% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 55 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- CLASS C 2008 2007 2006 (a) -------- -------- ------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................................... $ 11.52 $ 10.86 $ 10.00 -------- -------- ------- Income from investment operations (b): Net investment income (c), (d) .................................... 0.03 0.26 0.12 Net realized and unrealized gains (losses) ........................ (4.13) 0.84 0.89 -------- -------- ------- Total from investment operations ..................................... (4.10) 1.10 1.01 -------- -------- ------- Less distributions from: Net investment income and short term gains received from Underlying Funds ................................................ (0.04) (0.14) (0.12) Net realized gains ................................................ (0.32) (0.30) (0.03) -------- -------- ------- Total distributions .................................................. (0.36) (0.44) (0.15) -------- -------- ------- Redemption fees (e) .................................................. -- (f) -- (f) -- -------- -------- ------- Net asset value, end of year ......................................... $ 7.06 $ 11.52 $ 10.86 ======== ======== ======= Total return (g) ..................................................... (36.34)% 10.12% 10.14% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) ................ 2.84% 5.84% 14.12% Expenses net of waiver and payments by affiliates (i) ................ 1.19% 1.16% 1.15 Net investment income (d) ............................................ 0.17% 1.39% 1.39% SUPPLEMENTAL DATA Net assets, end of year (000's) ...................................... $ 1,522 $ 1,103 $ 57 Portfolio turnover rate .............................................. 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.85% for the year ended December 31, 2008. 56 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ---------------------------------------- CLASS R 2008 2007 2006 (a) -------- ---------- --------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................................... $ 11.59 $ 10.88 $ 10.00 -------- ---------- --------- Income from investment operations (b): Net investment income (c), (d) ............................................ 0.03 0.28 0.11 Net realized and unrealized gains (losses) ................................ (4.12) 0.89 0.93 -------- ---------- --------- Total from investment operations ............................................. (4.09) 1.17 1.04 -------- ---------- --------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........................................................ (0.05) (0.16) (0.13) Net realized gains ........................................................ (0.32) (0.30) (0.03) -------- ---------- --------- Total distributions .......................................................... (0.37) (0.46) (0.16) -------- ---------- --------- Redemption fees (e) .......................................................... -- (f) -- (f) -- -------- ---------- --------- Net asset value, end of year ................................................. $ 7.13 $ 11.59 $ 10.88 ======== ========== ========= Total return (g) ............................................................. (36.05)% 10.76% 10.40% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) ........................ 2.34% 5.34% 13.62% Expenses net of waiver and payments by affiliates (i) ........................ 0.69% 0.66% 0.65% Net investment income (d) .................................................... 0.67% 1.89% 1.89% SUPPLEMENTAL DATA Net assets, end of year (000's) .............................................. $ 172 $ 314 $ 23 Portfolio turnover rate ...................................................... 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.85% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 57 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, -------------------------------------- ADVISOR CLASS 2008 2007 2006 (a) -------- ---------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................................... $ 11.64 $ 10.89 $ 10.00 -------- ---------- -------- Income from investment operations (b): Net investment income (c), (d) ..................................... 0.11 0.20 0.18 Net realized and unrealized gains (losses) ......................... (4.18) 1.04 0.88 -------- ---------- -------- Total from investment operations ...................................... (4.07) 1.24 1.06 -------- ---------- -------- Less distributions from: Net investment income and short term gains received from Underlying Fund.............................................................. (0.11) (0.19) (0.14) Net realized gains ................................................. (0.32) (0.30) (0.03) -------- ---------- -------- Total distributions ................................................... (0.43) (0.49) (0.17) -------- ---------- -------- Redemption fees (e) ................................................... -- (f) -- (f) -- -------- ---------- -------- Net asset value, end of year ......................................... $ 7.14 $ 11.64 $ 10.89 ======== ========== ======== Total return (g) ...................................................... (35.72)% 11.34% 10.60% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) ................. 1.84% 4.84% 13.12% Expenses net of waiver and payments by affiliates (i) ................. 0.19% 0.16% 0.15% Net investment income (d) ............................................. 1.17% 2.39% 2.39% SUPPLEMENTAL DATA Net assets, end of year (000's) ....................................... $ 213 $ 119 $ 59 Portfolio turnover rate ............................................... 7.54% 14.95% 8.29%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b)The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.85% for the year ended December 31, 2008. 58 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2035 RETIREMENT TARGET FUND SHARES VALUE - ----------------------------------------------------------------------------------------- ------- ------------- INVESTMENTS IN UNDERLYING FUNDS 96.8% (a) DOMESTIC EQUITY 62.6% (b) Franklin Flex Cap Growth Fund, Advisor Class ........................................ 49,406 $ 1,541,974 (b) Franklin Growth Opportunities Fund, Advisor Class ................................... 23,137 305,179 Franklin MicroCap Value Fund, Advisor Class ......................................... 14,268 303,192 (b) Franklin Natural Resources Fund, Advisor Class ...................................... 12,178 250,501 (b) Franklin Small Cap Growth Fund, Advisor Class ....................................... 115,494 714,908 Mutual Shares Fund, Class Z ......................................................... 93,101 1,426,313 ------------- 4,542,067 ------------- DOMESTIC FIXED INCOME 4.0% Franklin Strategic Mortgage Portfolio ............................................... 3,834 32,056 Franklin Total Return Fund, Advisor Class ........................................... 11,633 101,443 Franklin U.S. Government Securities Fund, Advisor Class ............................. 23,936 158,697 ------------- 292,196 ------------- FOREIGN EQUITY 28.1% Franklin Global Real Estate Fund, Advisor Class ..................................... 27,565 143,888 (b) Franklin Gold and Precious Metals Fund, Advisor Class ............................... 15,503 399,829 Mutual European Fund, Class Z ....................................................... 45,263 780,782 Templeton China World Fund, Advisor Class ........................................... 15,196 321,539 Templeton Foreign Fund, Advisor Class ............................................... 89,662 393,614 ------------- 2,039,652 ------------- FOREIGN FIXED INCOME 2.1% Templeton Global Bond Fund, Advisor Class ........................................... 13,865 154,872 ------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $10,407,445) ................................................................ 7,028,787 ------------- SHORT TERM INVESTMENTS (COST $149,284) 2.1% (a) MONEY MARKET FUNDS 2.1% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ................ 149,284 149,284 ------------- TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $10,556,729) 98.9% ...................... 7,178,071 OTHER ASSETS, LESS LIABILITIES 1.1% ................................................. 78,461 ------------- NET ASSETS 100.0% ................................................................... $ 7,256,532 =============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. Annual Report | The accompanying notes are an integral part of these financial statements. | 59 Franklin Templeton Fund Allocator Series Financial HIGHLIGHTS FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ------------------------------------- CLASS A 2008 2007 2006 (a) --------- --------- -------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................................................ $ 11.57 $ 10.89 $ 10.00 --------- --------- -------- Income from investment operations (b): Net investment income (c), (d) ................................................. 0.06 0.17 0.08 Net realized and unrealized gains (losses) ..................................... (4.29) 1.06 0.97 --------- --------- -------- Total from investment operations .................................................. (4.23) 1.23 1.05 --------- --------- -------- Less distributions from: Net investment income and short term gains received from Underlying Funds ...... (0.08) (0.16) (0.13) Net realized gains ............................................................. (0.37) (0.39) (0.03) --------- --------- -------- Total distributions ............................................................... (0.45) (0.55) (0.16) --------- --------- -------- Redemption fees (e) ............................................................... -- (f) -- (f) -- --------- --------- -------- Net asset value, end of year ...................................................... $ 6.89 $ 11.57 $ 10.89 ========= ========= ======== Total return (g) .................................................................. (37.46)% 11.32% 10.55% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) ............................. 3.12% 6.86% 13.15% Expenses net of waiver and payments by affiliates (i) ............................. 0.47% 0.47% 0.50% Net investment income (d) ......................................................... 0.66% 1.70% 1.97% SUPPLEMENTAL DATA Net assets, end of year (000's) ................................................... $ 3,389 $ 2,439 $ 1,169 Portfolio turnover rate ........................................................... 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.87% for the year ended December 31, 2008. 60 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- CLASS C 2008 2007 2006 (a) -------- -------- --------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................................................. $ 11.48 $ 10.87 $ 10.00 -------- -------- --------- Income from investment operations (b): Net investment income (c), (d) ................................................... 0.02 0.23 0.16 Net realized and unrealized gains (losses) ....................................... (4.27) 0.91 0.87 -------- -------- --------- Total from investment operations .................................................... (4.25) 1.14 1.03 -------- -------- --------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........ (0.05) (0.14) (0.13) Net realized gains ............................................................... (0.37) (0.39) (0.03) -------- -------- --------- Total distributions ................................................................. (0.42) (0.53) (0.16) -------- -------- --------- Redemption fees (e) ................................................................. -- (f) -- (f) -- -------- -------- --------- Net asset value, end of year ........................................................ $ 6.81 $ 11.48 $ 10.87 ======== ======== ========= Total return (g) .................................................................... (37.95)% 10.50% 10.30% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) ............................... 3.82% 7.55% 13.74% Expenses net of waiver and payments by affiliates (i) ............................... 1.17% 1.16% 1.09% Net investment income (loss) (d) .................................................... (0.04)% 1.01% 1.38% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................................................... $ 958 $ 487 $ 67 Portfolio turnover rate ............................................................. 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.87% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 61 Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- CLASS R 2008 2007 2006 (a) -------- -------- --------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................................................. $ 11.54 $ 10.88 $ 10.00 -------- -------- --------- Income from investment operations (b): Net investment income(c), (d) .................................................... 0.02 0.24 0.08 Net realized and unrealized gains (losses) ....................................... (4.25) 0.97 0.96 -------- -------- --------- Total from investment operations .................................................... (4.23) 1.21 1.04 -------- -------- --------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........ (0.06) (0.16) (0.13) Net realized gains ............................................................... (0.37) (0.39) (0.03) -------- -------- --------- Total distributions ................................................................. (0.43) (0.55) (0.16) -------- -------- --------- Redemption fees (e) ................................................................. -- (f) -- (f) -- -------- -------- --------- Net asset value, end of year ........................................................ $ 6.88 $ 11.54 $ 10.88 ======== ======== ========= Total return (g) .................................................................... (37.64)% 11.13% 10.44% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) ............................... 3.32% 7.04% 13.30% Expenses net of waiver and payments by affiliates (i) ............................... 0.67% 0.65% 0.65% Net investment income (d) ........................................................... 0.46% 1.52% 1.82% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................................................... $ 156 $ 160 $ 12 Portfolio turnover rate ............................................................. 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.87% for the year ended December 31, 2008. 62 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND
YEAR ENDED DECEMBER 31, ----------------------------------- ADVISOR CLASS 2008 2007 2006 (a) -------- -------- --------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................................................. $ 11.59 $ 10.90 $ 10.00 -------- -------- --------- Income from investment operations (b): Net investment income (c), (d) ................................................... 0.06 0.49 0.12 Net realized and unrealized gains (losses) ....................................... (4.29) 0.78 0.95 -------- -------- --------- Total from investment operations .................................................... (4.23) 1.27 1.07 -------- -------- --------- Less distributions from: Net investment income and short term gains received from Underlying Funds ........ (0.10) (0.19) (0.14) Net realized gains ............................................................... (0.37) (0.39) (0.03) -------- -------- --------- Total distributions ................................................................. (0.47) (0.58) (0.17) -------- -------- --------- Redemption fees (e) ................................................................. -- (f) -- (f) -- -------- -------- --------- Net asset value, end of year ........................................................ $ 6.89 $ 11.59 $ 10.90 ======== ======== ========= Total return (g) .................................................................... (37.39)% 11.65% 10.72% RATIOS TO AVERAGE NET ASSETS (h) Expenses before waiver and payments by affiliates (i) ............................... 2.82% 6.54% 12.80% Expenses net of waiver and payments by affiliates (i) ............................... 0.17% 0.15% 0.15% Net investment income (d) ........................................................... 0.96% 2.02% 2.32% SUPPLEMENTAL DATA Net assets, end of year (000's) ..................................................... $ 105 $ 164 $ 17 Portfolio turnover rate ............................................................. 8.09% 24.40% 8.01%
(a) For the period August 1, 2006 (commencement of operations) to December 31, 2006. (b) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (c) Based on average daily shares outstanding. (d) Recognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds in which the Fund invests. (e) Effective September 1, 2008, the redemption fee was eliminated. (f) Amount rounds to less than $0.01 per share. (g) Total return is not annualized for periods less than one year. (h) Ratios are annualized for periods less than one year. (i) Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average expense ratio of the Underlying Funds was 0.87% for the year ended December 31, 2008. Annual Report | The accompanying notes are an integral part of these financial statements. | 63 Franklin Templeton Fund Allocator Series STATEMENT OF INVESTMENTS, DECEMBER 31, 2008
FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND SHARES VALUE ------ ------------ INVESTMENTS IN UNDERLYING FUNDS 97.4% (a) DOMESTIC EQUITY 66.7% (b) Franklin Flex Cap Growth Fund, Advisor Class .............................................. 32,943 $ 1,028,139 (b) Franklin Growth Opportunities Fund, Advisor Class ......................................... 16,671 219,895 Franklin MicroCap Value Fund, Advisor Class ............................................... 9,892 210,195 (b) Franklin Natural Resources Fund, Advisor Class ............................................ 8,627 177,450 (b) Franklin Small Cap Growth Fund, Advisor Class ............................................. 80,462 498,059 Mutual Shares Fund, Class Z ............................................................... 61,272 938,689 ------------ 3,072,427 ------------ FOREIGN EQUITY 30.7% Franklin Global Real Estate Fund, Advisor Class ........................................... 19,590 102,260 (b) Franklin Gold and Precious Metals Fund, Advisor Class ..................................... 10,746 277,138 Mutual European Fund, Class Z ............................................................. 31,480 543,024 Templeton China World Fund, Advisor Class ................................................. 10,686 226,110 Templeton Foreign Fund, Advisor Class ..................................................... 61,058 268,047 ------------ 1,416,579 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS BEFORE SHORT TERM INVESTMENTS (COST $6,612,453) ....................................................................... 4,489,006 ------------ SHORT TERM INVESTMENTS (COST $39,736) 0.9% (a) MONEY MARKET FUNDS 0.9% (c) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.55% ...................... 39,736 39,736 ------------ TOTAL INVESTMENTS IN UNDERLYING FUNDS (COST $6,652,189) 98.3% ............................. 4,528,742 OTHER ASSETS, LESS LIABILITIES 1.7% ....................................................... 78,579 ------------ NET ASSETS 100.0% ......................................................................... $ 4,607,321 ============
(a) See Note 6 regarding investments in Underlying Funds. (b) Non-income producing for the twelve months ended December 31, 2008. (c) The rate shown is the annualized seven-day yield at period end. 64 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2008
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ------------------ ------------------ ------------------ ------------------ Assets: Investments in Underlying Funds: (Note 6) Cost ...................................... $ 19,668,540 $ 18,125,104 $ 10,556,729 $ 6,652,189 ----------------- ----------------- ----------------- ----------------- Value ..................................... $ 14,935,511 $ 12,814,670 $ 7,178,071 $ 4,528,742 Receivables: Capital shares sold ....................... 79,452 77,028 12,498 13,186 Affiliates ................................ 78,422 88,444 94,784 100,083 ----------------- ----------------- ----------------- ----------------- Total assets ........................... 15,093,385 12,980,142 7,285,353 4,642,011 ----------------- ----------------- ----------------- ----------------- Liabilities: Payables: Capital shares redeemed ................... 49,245 495 -- 3,958 Reports to shareholders ................... 6,701 7,056 4,556 7,470 Professional fees ......................... 21,648 21,646 20,829 20,898 Unaffiliated transfer agent fees .......... 2,834 3,537 3,436 2,364 ----------------- ----------------- ----------------- ----------------- Total liabilities ...................... 80,428 32,734 28,821 34,690 ----------------- ----------------- ----------------- ----------------- Net assets, at value ................. $ 15,012,957 $ 12,947,408 $ 7,256,532 $ 4,607,321 ----------------- ----------------- ----------------- ----------------- Net assets consist of: Paid-in capital ............................. $ 19,692,726 $ 18,273,120 $ 10,664,881 $ 6,761,942 Undistributed net investment income ......... 70,075 25,469 17,383 1,970 Net unrealized appreciation (depreciation) .. (4,733,029) (5,310,434) (3,378,658) (2,123,447) Accumulated net realized gain (loss) ........ (16,815) (40,747) (47,074) (33,144) ----------------- ----------------- ----------------- ----------------- Net assets, at value ................. $ 15,012,957 $ 12,947,408 $ 7,256,532 $ 4,607,321 ================= ================= ================= =================
Annual Report | The accompanying notes are an integral part of these financial statements. | 65 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2008
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ------------------ ------------------ ------------------ ------------------ CLASS A: Net assets, at value ........................ $ 9,407,389 $ 9,918,413 $ 5,349,446 $ 3,388,928 ------------------ ------------------ ------------------ ------------------ Shares outstanding .......................... 1,155,848 1,327,394 751,677 492,147 ------------------ ------------------ ------------------ ------------------ Net asset value per share (a) ............... $ 8.14 $ 7.47 $ 7.12 $ 6.89 ------------------ ------------------ ------------------ ------------------ Maximum offering price per share (net asset value per share / 94.25%) ................... $ 8.64 $ 7.93 $ 7.55 $ 7.31 ------------------ ------------------ ------------------ ------------------ CLASS C: Net assets, at value ........................ $ 4,620,791 $ 2,551,428 $ 1,521,609 $ 957,977 ------------------ ------------------ ------------------ ------------------ Shares outstanding .......................... 571,644 343,534 215,564 140,627 ------------------ ------------------ ------------------ ------------------ Net asset value and maximum offering price per share (a) ............................. $ 8.08 $ 7.43 $ 7.06 $ 6.81 ------------------ ------------------ ------------------ ------------------ CLASS R: Net assets, at value ........................ $ 820,668 $ 155,070 $ 172,144 $ 155,619 ------------------ ------------------ ------------------ ------------------ Shares outstanding .......................... 101,052 20,765 24,149 22,611 ------------------ ------------------ ------------------ ------------------ Net asset value and maximum offering price per share ................................. $ 8.12 $ 7.47 $ 7.13 $ 6.88 ------------------ ------------------ ------------------ ------------------ ADVISOR CLASS: Net assets, at value ........................ $ 164,109 $ 322,497 $ 213,333 $ 104,797 ------------------ ------------------ ------------------ ------------------ Shares outstanding .......................... 20,125 43,131 29,884 15,201 ------------------ ------------------ ------------------ ------------------ Net asset value and maximum offering price per share ................................. $ 8.15 $ 7.48 $ 7.14 $ 6.89 ------------------ ------------------ ------------------ ------------------
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable. 66 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the year ended December 31, 2008
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ------------------ ------------------ ------------------ ------------------ Investment income: Dividends from Underlying Funds (Note 6) ................................. $ 407,370 $ 257,038 $ 97,680 $ 48,950 Interest ................................... 924 190 156 -- ----------------- ----------------- ----------------- ----------------- Total investment income ............. 408,294 257,228 97,836 48,950 ----------------- ----------------- ----------------- ----------------- Expenses: Asset allocation fees (Note 3a) ............ 33,987 30,605 17,782 10,744 Distribution fees: (Note 3c) Class A .................................. 25,150 30,659 15,897 9,851 Class C .................................. 50,945 19,271 14,072 7,050 Class R .................................. 5,177 1,025 1,390 1,057 Transfer agent fees (Note 3e) .............. 21,545 28,660 27,414 25,357 Reports to shareholders .................... 17,853 17,446 12,673 13,287 Registration and filing fees ............... 54,531 48,297 47,374 46,428 Professional fees .......................... 23,927 23,878 22,760 22,499 Trustees' fees and expenses ................ 92 84 48 29 Other ...................................... 4,805 4,746 4,645 4,558 ----------------- ----------------- ----------------- ----------------- Total expenses ...................... 238,012 204,671 164,055 140,860 Expenses waived/paid by affiliates (Note 3f) ........................ (125,449) (129,477) (119,268) (115,654) ----------------- ----------------- ----------------- ----------------- Net expenses ................... 112,563 75,194 44,787 25,206 ----------------- ----------------- ----------------- ----------------- Net investment income ....... 295,731 182,034 53,049 23,744 ----------------- ----------------- ----------------- ----------------- Realized and unrealized gains (losses): Net realized gain (loss) from: Sale of investments in Underlying Funds .. (312,317) (336,557) (240,793) (154,588) Realized gain distributions by Underlying Funds ...................... 354,173 383,259 243,441 167,077 ----------------- ----------------- ----------------- ----------------- Net realized gain (loss) .... 41,856 46,702 2,648 12,489 ----------------- ----------------- ----------------- ----------------- Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ......................... (4,633,652) (5,148,508) (3,303,139) (2,122,749) ----------------- ----------------- ----------------- ----------------- Net realized and unrealized gain (loss) ....... (4,591,796) (5,101,806) (3,300,491) (2,110,260) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) in net assets resulting from operations .................. $ (4,296,065) $ (4,919,772) $ (3,247,442) $ (2,086,516) ================= ================= ================= =================
Annual Report | The accompanying notes are an integral part of these financial statements. | 67 Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN TEMPLETON 2015 FRANKLIN TEMPLETON 2025 RETIREMENT TARGET FUND RETIREMENT TARGET FUND --------------------------- ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2008 2007 2008 2007 ------------- ----------- ------------ ----------- Increase (decrease) in net assets: Operations: Net investment income ....................................... $ 295,731 $ 122,203 $ 182,034 $ 118,086 Net realized gain (loss) from Underlying Funds .............. 41,856 303,497 46,702 391,470 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds .......................... (4,633,652) (132,654) (5,148,508) (195,462) ------------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations ................................... (4,296,065) 293,046 (4,919,772) 314,094 ------------- ----------- ------------ ----------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ................................................ (191,755) (89,066) (181,018) (116,293) Class C ................................................ (71,295) (31,491) (32,675) (15,006) Class R ................................................ (16,886) (17,779) (2,414) (2,899) Advisor Class .......................................... (3,962) (736) (6,999) (7,148) Net realized gains: Class A ................................................ (143,847) (42,032) (293,606) (81,106) Class C ................................................ (107,235) (12,628) (51,093) (9,526) Class R ................................................ (18,739) (7,035) (6,089) (1,831) Advisor Class .......................................... (3,513) (438) (12,457) (3,157) ------------- ----------- ------------ ----------- Total distributions to shareholders ........................... (557,232) (201,205) (586,351) (236,966) ------------- ----------- ------------ ----------- Capital share transactions: (Note 2) Class A ................................................ 7,039,466 3,834,014 7,272,636 5,156,687 Class C ................................................ 3,984,119 2,150,974 2,382,415 1,061,155 Class R ................................................ 72,378 1,040,251 49,941 166,698 Advisor Class .......................................... 184,187 10,740 86,251 377,760 ------------- ----------- ------------ ----------- Total capital share transactions .............................. 11,280,150 7,035,979 9,791,243 6,762,300 ------------- ----------- ------------ ----------- Redemption fees ............................................... 112 41 253 157 ------------- ----------- ------------ ----------- Net increase (decrease) in net assets .......... 6,426,965 7,127,861 4,285,373 6,839,585 Net assets: Beginning of year ............................................. 8,585,992 1,458,131 8,662,035 1,822,450 ------------- ----------- ------------ ----------- End of year ................................................... $ 15,012,957 $ 8,585,992 $ 12,947,408 $ 8,662,035 ============= =========== ============ =========== Undistributed net investment income included in net assets: End of year ................................................... $ 70,075 $ 2,414 $ 25,469 $ 2,524 ============= =========== ============ ===========
68 | The accompanying notes are an integral part of these financial statements. | Annual Report Franklin Templeton Fund Allocator Series FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN TEMPLETON 2035 FRANKLIN TEMPLETON 2045 RETIREMENT TARGET FUND RETIREMENT TARGET FUND --------------------------- ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2008 2007 2008 2007 ------------- ----------- ------------ ----------- Increase (decrease) in net assets: Operations: Net investment income ...................................... $ 53,049 $ 54,544 $ 23,744 $ 33,275 Net realized gain (loss) from Underlying Funds ............. 2,648 269,980 12,489 177,675 Net change in unrealized appreciation (depreciation) on investments in Underlying Funds ......................... (3,303,139) (116,810) (2,122,749) (42,627) ------------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations .................................. (3,247,442) 207,714 (2,086,516) 168,323 ------------- ----------- ------------ ----------- Distributions to shareholders from: Net investment income and short term gains received from Underlying Funds: Class A ............................................... (63,814) (50,435) (40,147) (33,285) Class C ............................................... (9,049) (13,163) (7,185) (5,813) Class R ............................................... (1,220) (4,205) (1,248) (2,128) Advisor Class ......................................... (3,175) (1,855) (1,555) (2,578) Net realized gains: Class A ............................................... (183,268) (52,659) (124,622) (57,461) Class C ............................................... (45,620) (10,159) (27,951) (5,731) Class R ............................................... (10,162) (3,259) (10,661) (2,945) Advisor Class ......................................... (8,438) (2,845) (6,679) (1,299) ------------- ----------- ------------ ----------- Total distributions to shareholders .......................... (324,746) (138,580) (220,048) (111,240) ------------- ----------- ------------ ----------- Capital share transactions: (Note 2) Class A ............................................... 4,203,952 2,512,921 2,708,547 1,203,127 Class C ............................................... 1,141,684 1,061,051 841,350 421,465 Class R ............................................... (16,717) 286,076 99,956 148,108 Advisor Class ......................................... 203,645 56,592 14,472 154,787 ------------- ----------- ------------ ----------- Total capital share transactions ............................. 5,532,564 3,916,640 3,664,325 1,927,487 ------------- ----------- ------------ ----------- Redemption fees .............................................. 105 324 68 4 ------------- ----------- ------------ ----------- Net increase (decrease) in net assets .............. 1,960,481 3,986,098 1,357,829 1,984,574 Net assets: Beginning of year ............................................ 5,296,051 1,309,953 3,249,492 1,264,918 ------------- ----------- ------------ ----------- End of year .................................................. $ 7,256,532 $ 5,296,051 $ 4,607,321 $ 3,249,492 ============= =========== ============ =========== Undistributed net investment income included in net assets: End of year .................................................. $ 17,383 $ 1,418 $ 1,970 $ 1,101 ============= =========== ============ ===========
Annual Report | The accompanying notes are an integral part of these financial statements. | 69 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Templeton Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of ten separate funds, four of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The Funds invest primarily in Franklin Templeton mutual funds (Underlying Funds). The Funds offer four classes of shares: Class A, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege. The following summarizes the Funds' significant accounting policies. A. SECURITY VALUATION Net asset value per share is calculated as of the close of trading of the NYSE. Investments in the Underlying Funds are valued at their closing net asset value each trading day. B. INCOME TAXES No provision has been made for U.S. income taxes because it is each fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. The Funds have reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of December 31, 2008, and have determined that no provision for income tax is required in the Funds' financial statements. C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Estimated expenses are accrued daily. Dividend income and realized gain distributions by Underlying Funds are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods. 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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense. 70 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) The Funds indirectly bear their proportionate share of expenses from the Underlying Funds. Since the Underlying Funds have varied expense levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of expenses incurred indirectly by the Funds will vary. Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses. D. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those estimates. E. REDEMPTION FEES A short term trading redemption fee was imposed, with some exceptions, on any fund shares that were redeemed or exchanged within seven calendar days following their purchase date. The redemption fee was 2% of the amount redeemed. Such fees were retained by the funds and accounted for as an addition to paid-in capital. Effective September 1, 2008, the redemption fee was eliminated. F. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote. Annual Report | 71 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST At December 31, 2008, there were an unlimited number of shares authorized (without par value). Transactions in the Funds' shares were as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT TARGET FUND TARGET FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ------------ -------- ------------ CLASS A SHARES: Year ended December 31, 2008 Shares sold .................................... 875,282 $ 8,706,575 961,941 $ 9,374,538 Shares issued in reinvestment of distributions ................................ 32,398 299,153 49,889 441,620 Shares redeemed ................................ (216,068) (1,966,262) (291,651) (2,543,522) -------- ------------ -------- ------------ Net increase (decrease) ........................ 691,612 $ 7,039,466 720,179 $ 7,272,636 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 349,875 $ 3,984,778 488,498 $ 5,580,914 Shares issued in reinvestment of distributions ............................... 8,114 92,217 13,553 155,750 Shares redeemed ................................ (21,395) (242,981) (52,414) (579,977) -------- ------------ -------- ------------ Net increase (decrease) ........................ 336,594 $ 3,834,014 449,637 $ 5,156,687 ======== ============ ======== ============ CLASS C SHARES: Year ended December 31, 2008 Shares sold .................................... 710,317 $ 7,167,011 273,080 $ 2,613,167 Shares issued in reinvestment of distributions ................................ 16,315 154,225 8,634 76,524 Shares redeemed ................................ (351,199) (3,337,117) (35,040) (307,276) -------- ------------ -------- ------------ Net increase (decrease) ........................ 375,433 $ 3,984,119 246,674 $ 2,382,415 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 213,584 $ 2,410,848 95,440 $ 1,102,577 Shares issued in reinvestment of distributions ................................ 3,651 41,268 2,077 23,770 Shares redeemed ................................ (26,962) (301,142) (5,644) (65,192) -------- ------------ -------- ------------ Net increase (decrease) ........................ 190,273 $ 2,150,974 91,873 $ 1,061,155 ======== ============ ======== ============ CLASS R SHARES: Year ended December 31, 2008 Shares sold .................................... 27,245 $ 283,010 13,572 $ 137,944 Shares issued in reinvestment of distributions ................................ 3,756 35,625 897 8,225 Shares redeemed ................................ (24,499) (246,257) (10,175) (96,228) -------- ------------ -------- ------------ Net increase (decrease) ........................ 6,502 $ 72,378 4,294 $ 49,941 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 95,945 $ 1,067,714 14,340 $ 162,416 Shares issued in reinvestment of distributions ................................ 2,189 24,812 376 4,314 Shares redeemed ................................ (4,584) (52,275) (3) (32) -------- ------------ -------- ------------ Net increase (decrease) ........................ 93,550 $ 1,040,251 14,713 $ 166,698 ======== ============ ======== ============
72 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT TARGET FUND TARGET FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ------------ -------- ------------ ADVISOR CLASS SHARES: Year ended December 31, 2008 Shares sold .................................... 18,911 $ 201,893 10,079 $ 110,551 Shares issued in reinvestment of distributions ................................ 750 7,092 2,132 19,170 Shares redeemed ................................ (2,394) (24,798) (5,464) (43,470) -------- ------------ -------- ------------ Net increase (decrease) ........................ 17,267 $ 184,187 6,747 $ 86,251 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 949 $ 10,200 40,489 $ 477,407 Shares issued in reinvestment of distributions ................................ 66 755 857 9,849 Shares redeemed ................................ (19) (215) (9,694) (109,496) -------- ------------ -------- ------------ Net increase (decrease) ........................ 996 $ 10,740 31,652 $ 377,760 ======== ============ ======== ============
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ------------ -------- ------------ CLASS A SHARES: Year ended December 31, 2008 Shares sold .................................... 539,247 $ 5,181,122 312,283 $ 3,000,890 Shares issued in reinvestment of distributions ................................ 22,905 206,765 13,716 120,164 Shares redeemed ................................ (134,219) (1,183,935) (44,626) (412,507) -------- ------------ -------- ------------ Net increase (decrease) ........................ 427,933 $ 4,203,952 281,373 $ 2,708,547 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 225,018 $ 2,619,493 106,830 $ 1,245,860 Shares issued in reinvestment of distributions ................................ 5,002 58,354 3,171 36,890 Shares redeemed ................................ (13,914) (164,926) (6,631) (79,623) -------- ------------ -------- ------------ Net increase (decrease) ........................ 216,106 $ 2,512,921 103,370 $ 1,203,127 ======== ============ ======== ============ CLASS C SHARES: Year ended December 31, 2008 Shares sold .................................... 143,566 $ 1,353,699 103,668 $ 882,722 Shares issued in reinvestment of distributions ................................ 5,241 48,916 3,042 27,321 Shares redeemed ................................ (28,939) (260,931) (8,500) (68,693) -------- ------------ -------- ------------ Net increase (decrease) ........................ 119,868 $ 1,141,684 98,210 $ 841,350 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 89,429 $ 1,049,217 37,380 $ 434,652 Shares issued in reinvestment of distributions ................................ 1,859 21,536 848 9,798 Shares redeemed ................................ (822) (9,702) (1,957) (22,985) -------- ------------ -------- ------------ Net increase (decrease) ........................ 90,466 $ 1,061,051 36,271 $ 421,465 ======== ============ ======== ============
Annual Report | 73 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2035 RETIREMENT 2045 RETIREMEN TARGET FUND TARGET FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ------------ -------- ------------ CLASS R SHARES: Year ended December 31, 2008 Shares sold .................................... 15,557 $ 156,698 19,145 $ 196,091 Shares issued in reinvestment of distributions ................................ 1,147 11,056 1,208 11,418 Shares redeemed ................................ (19,649) (184,471) (11,585) (107,553) -------- ------------ -------- ------------ Net increase (decrease) ........................ (2,945) $ (16,717) 8,768 $ 99,956 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 24,371 $ 279,217 12,508 $ 145,703 Shares issued in reinvestment of distributions ................................ 602 7,005 389 4,524 Shares redeemed ................................ (12) (146) (175) (2,119) -------- ------------ -------- ------------ Net increase (decrease) ........................ 24,961 $ 286,076 12,722 $ 148,108 ======== ============ ======== ============ ADVISOR CLASS SHARES: Year ended December 31, 2008 Shares sold .................................... 20,527 $ 212,613 7,432 $ 73,689 Shares issued in reinvestment of distributions ................................ 1,254 11,287 863 7,870 Shares redeemed ................................ (2,139) (20,255) (7,256) (67,087) -------- ------------ -------- ------------ Net increase (decrease) ........................ 19,642 $ 203,645 1,039 $ 14,472 ======== ============ ======== ============ Year ended December 31, 2007 Shares sold .................................... 5,961 $ 68,751 12,616 $ 154,574 Shares issued in reinvestment of distributions ................................ 360 4,217 284 3,300 Shares redeemed ................................ (1,463) (16,376) (261) (3,087) -------- ------------ -------- ------------ Net increase (decrease) ........................ 4,858 $ 56,592 12,639 $ 154,787 ======== ============ ======== ============
3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors/trustees of certain of the Underlying Funds and of the following subsidiaries:
SUBSIDIARY AFFILIATION Franklin Advisers, Inc. (Advisers) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
74 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) A. ASSET ALLOCATION FEES The Funds pay an asset allocation fee to Advisers of 0.25% per year of the average daily net assets of each of the Funds for investment advisory services, consisting principally of determining the allocation of assets of the Funds among the designated Underlying Funds. B. ADMINISTRATIVE FEES 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. C. DISTRIBUTION FEES The Trust's Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds' compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund's shares up to a certain percentage per year of its average daily net assets of each class as follows: Class A ........................................... 0.35% Class C ........................................... 1.00% Class R ........................................... 0.50%
The Board of Trustees has set the current rate at 0.30% per year for Class A shares until further notice and approval by the Board. D. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Sales charges retained net of commissions paid to unaffiliated broker/dealers .................... $ 16,469 $ 22,214 $ 13,248 $ 10,315 Contingent deferred sales charges retained ........ $ 3,509 $ 928 $ 476 $ 181
Annual Report | 75 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) E. TRANSFER AGENT FEES For the year ended December 31, 2008, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Transfer agent fees $ 13,197 $ 18,344 $ 18,391 $ 18,292
F. WAIVER AND EXPENSE REIMBURSEMENTS Advisers and Investor Services have agreed in advance to waive all or a portion of their respective fees and to assume payment of other expenses through April 30, 2009. Total expenses waived or paid are not subject to reimbursement by the Fund subsequent to the Fund's fiscal year end. After April 30, 2009, Advisers and Investor Services may discontinue this waiver at any time upon notice to the Fund's Board of Trustees. G. OTHER AFFILIATED TRANSACTIONS At December 31, 2008, Advisers owned a percentage of the Funds' outstanding shares as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND - ------------------ ------------------ 9.50% 14.46%
4. INCOME TAXES The tax character of distributions paid during the years ended December 31, 2008 and 2007, was as follows:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT TARGET FUND TARGET FUND -------------------------- -------------------------- 2008 2007 2008 2007 ----------- ----------- ----------- ----------- Distributions paid from: Ordinary income ................................ $ 283,898 $ 139,072 $ 222,191 $ 141,458 Long term capital gain ......................... 273,334 62,133 364,160 95,508 ----------- ----------- ----------- ----------- $ 557,232 $ 201,205 $ 586,351 $ 236,966 =========== =========== =========== ===========
76 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES (CONTINUED)
FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND -------------------------- -------------------------- 2008 2007 2008 2007 ----------- ----------- ----------- ----------- Distributions paid from: Ordinary income ................................ $ 77,258 $ 69,862 $ 50,135 $ 43,962 Long term capital gain ......................... 247,488 68,718 169,913 67,278 ----------- ----------- ----------- ----------- $ 324,746 $ 138,580 $ 220,048 $ 111,240 =========== =========== =========== ===========
At December 31, 2008, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Cost of investments ............................... $19,794,359 $18,395,256 $10,739,528 $ 6,812,343 =========== =========== =========== =========== Unrealized appreciation ........................... $ 36,218 $ 20,223 $ 4,391 $ -- Unrealized depreciation ........................... (4,895,066) (5,600,809) $(3,565,848) (2,283,601) ----------- ----------- ----------- ----------- Net unrealized appreciation (depreciation) ................................. $(4,858,848) $(5,580,586) $(3,561,457) $(2,283,601) =========== =========== =========== =========== Undistributed ordinary income ..................... $ 70,075 $ 25,469 $ 17,383 $ 1,970 Undistributed long term capital gains ............. 109,006 229,405 135,725 127,008 ----------- ----------- ----------- ----------- Distributable earnings $ 179,081 $ 254,874 $ 153,108 $ 128,978 =========== =========== =========== ===========
Net investment income (loss) differs for financial statement and tax purposes primarily due to differing treatment of short term capital gains distributions from Underlying Funds. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales and short term capital gains distributions from Underlying Funds. 5. INVESTMENT TRANSACTIONS Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2008, were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON 2015 2025 2035 2045 RETIREMENT RETIREMENT RETIREMENT RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND ----------- ----------- ----------- ----------- Purchases ......................................... $12,231,612 $10,245,524 $ 5,998,667 $ 3,972,831 Sales ............................................. $ 1,175,989 $ 740,411 $ 533,688 $ 345,855
Annual Report | 77 Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. INVESTMENTS IN UNDERLYING FUNDS The Funds invest primarily in the Underlying Funds which are managed by Advisers (or an affiliate of Advisers). The Funds do not invest in the Underlying Funds for the purpose of exercising management or control. At December 31, 2008, the Funds held no positions which exceed 5% of the Underlying Funds. The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Pursuant to a SEC exemptive order specific to the Funds' investment in the Sweep Money Fund, asset allocation fees are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund. 7. FAIR VALUE MEASUREMENTS The Funds adopted Financial Accounting Standards Board (FASB) Statement No. 157, "Fair Value Measurement" (SFAS 157), on January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Funds have determined that the implementation of SFAS 157 did not have a material impact on the Funds' financial statements. SFAS 157 establishes a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds' investments and are summarized in the following fair value hierarchy: - Level 1 - quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. At December 31, 2008, all of the Funds' investments in securities carried at fair value were in Level 1 inputs. 78 | Annual Report Franklin Templeton Fund Allocator Series NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. SUBSEQUENT EVENT On January 23, 2009, the Funds entered into, along with certain other funds managed by Franklin Templeton Investments (individually, "Borrower"; collectively "Borrowers"), a $725 million senior unsecured syndicated global line of credit ("Global Credit Facility") to provide a source of funds to the Borrowers for temporary and emergency purposes and to meet future unanticipated or unusually large redemption requests. Under the terms of the Global Credit Facility, each Borrower has agreed to pay its proportionate share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility. Annual Report | 79 Franklin Templeton Fund Allocator Series REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 Franklin Templeton 2015 Retirement Target Fund, Franklin Templeton 2025 Retirement Target Fund, Franklin Templeton 2035 Retirement Target Fund and Franklin Templeton 2045 Retirement Target Fund (separate portfolios of Franklin Templeton Fund Allocator Series, hereafter referred to as the "Funds") at December 31, 2008, 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 the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 investments in the Underlying Funds at December 31, 2008 by correspondence with the transfer agent of the Underlying Funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California February 20, 2009 80 | Annual Report Franklin Templeton Fund Allocator Series TAX DESIGNATION (UNAUDITED) Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds designate the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended December 31, 2008:
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND - ------------------ ------------------ ------------------ ------------------ $ 273,333 $ 364,160 $ 247,488 $ 169,914
Under Section 854(b)(2) of the Code, the Funds designate the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND - ------------------ ------------------ ------------------ ------------------ 16.06% 22.93% 42.63% 43.58%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2008.
FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON FRANKLIN TEMPLETON 2015 RETIREMENT 2025 RETIREMENT 2035 RETIREMENT 2045 RETIREMENT TARGET FUND TARGET FUND TARGET FUND TARGET FUND - ------------------ ------------------ ------------------ ------------------ $ 90,611 $ 99,303 $ 63,790 $ 43,229
Distributions, including qualified dividend income, paid during calendar year 2008 will be reported to shareholders on Form 1099-DIV in January 2009. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. Annual Report | 81 Franklin Templeton Fund Allocator Series BOARD MEMBERS AND OFFICERS The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Generally, each board member serves until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------- -------- ------------- -------------------------- --------------------------------------------- HARRIS J. ASHTON (1932) Trustee Since 1995 138 Bar-S Foods (meat packing company). One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). ROBERT F. CARLSON (1928) Trustee Since 2005 115 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees Retirement Systems(CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. SAM GINN (1937) Trustee Since 2007 115 Chevron Corporation (global energy company) One Franklin Parkway and ICO Global Communications (Holdings) San Mateo, CA 94403-1906 Limited (satellite company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding company) (1988-1994). EDITH E. HOLIDAY (1952) Trustee Since 1998 138 Hess Corporation (exploration and refining One Franklin Parkway of oil and gas), H.J. Heinz Company San Mateo, CA 94403-1906 (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet(1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
82 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------- ----------- -------------- ------------------------ --------------------------------------------- FRANK W.T. LAHAYE (1929) Trustee Since 1995 115 Center for Creative Land Recycling One Franklin Parkway (brownfield redevelopment). San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). FRANK A. OLSON (1932) Trustee Since 2007 138 Hess Corporation (exploration and refining One Franklin Parkway of oil and gas) and Sentient Jet San Mateo, CA 94403-1906 (private jet service). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines). LARRY D. THOMPSON (1945) Trustee Since 2007 145 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). JOHN B. WILSON (1959) Lead Trustee since 115 None One Franklin Parkway Independent 2006 and Lead San Mateo, CA 94403-1906 Trustee Independent Trustee since 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President - - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
INTERESTED BOARD MEMBERS AND OFFICERS
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------- ----------- -------------- ------------------------ --------------------------------------------- **CHARLES B. JOHNSON (1933) Trustee and Since 1995 138 None One Franklin Parkway Chairman of San Mateo, CA 94403-1906 the Board PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments.
Annual Report | 83
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------- ---------------- ------------------ ------------------------ ---------------------------------- **GREGORY E. JOHNSON (1961) Trustee Since 2007 92 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, President and Chief Executive Officer, Franklin Resources, Inc.; President, Templeton Worldwide, Inc.; Director, Templeton Asset Management Ltd.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments. JENNIFER J. BOLT (1964) Chief Since December Not Applicable Not Applicable One Franklin Parkway Executive 2008 San Mateo, CA 94403-1906 Officer - Finance and Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President - Operations and Technology, Franklin Resources, Inc.; Director, Templeton Global Advisors Limited; officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable One Franklin Parkway Compliance Officer since 2004 San Mateo, CA 94403-1906 Officer and and Vice Vice President President - AML - AML Compliance since Compliance 2006 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). LAURA F. FERGERSON (1962) Treasurer, Treasurer since Not Applicable Not Applicable One Franklin Parkway Chief 2004, Chief San Mateo, CA 94403-1906 Financial Officer Financial Officer and Chief and Chief Accounting Accounting Officer Officer since February 2008 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President, Franklin Templeton Services, LLC; officer of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). JIMMY D. GAMBILL (1947) Vice President Since February Not Applicable Not Applicable 500 East Broward Blvd. 2008 Suite 2100 Fort Lauderdale, FL 33394-3091 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
84 | Annual Report
NUMBER OF PORTFOLIOS IN NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------- ---------------- ------------------ ------------------------ ---------------------------------- DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case maybe, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. RUPERT H. JOHNSON, JR. (1940) President and Since 2002 Not Applicable Not Applicable One Franklin Parkway Chief San Mateo, CA 94403-1906 Executive Officer - Investment Management PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments. KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable One Franklin Parkway and Secretary San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin Templeton Investments. CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers. ** Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's investment manager and distributor. Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Resources. Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson and Jennifer J. Bolt. Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI. Annual Report | 85 Franklin Templeton Fund Allocator Series SHAREHOLDER INFORMATION FRANKLIN TEMPLETON RETIREMENT TARGET FUNDS PROXY VOTING POLICIES AND PROCEDURES The Trust's investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330. 86 | Annual Report This page intentionally left blank. This page intentionally left blank. (FRANKLIN TEMPLETON INVESTMENT LOGO) One Franklin Parkway San Mateo, CA 94403-1906 - - WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN TEMPLETON FUND ALLOCATOR SERIES INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. (800) DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES (800) 632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. ITEM 2. CODE OF ETHICS. (a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer. (c) N/A (d) N/A (f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The Registrant has an audit committee financial expert serving on its audit committee. (2) The audit committee financial expert is John B. Wilson and he is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $245,040 for the fiscal year ended December 31, 2008 and $207,774 for the fiscal year ended December 31, 2007. (b) Audit-Related Fees There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4. There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements. (c) Tax Fees There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning. The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $4,000 for the fiscal year ended December 31, 2008 and $46,000 for the fiscal year ended December 31, 2007. The services for which these fees were paid included tax compliance and advice. (d) All Other Fees The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $13,083 for the fiscal year ended December 31, 2008 and $0 for the fiscal year ended December 31, 2007. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process. The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a)-(c) of Item 4 were $270,994 for the fiscal year ended December 31, 2008 and $0 for the fiscal year ended December 31, 2007. The services for which these fees were paid included review of materials provided to the fund Board in connect with the investment management contract renewal process. (e) (1) The registrant's audit committee is directly responsible for approving the services to be provided by the auditors, including: (i) pre-approval of all audit and audit related services; (ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors; (iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant's investment adviser or to any entity that controls, is controlled by or is under common control with the registrant's investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and (iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules. (e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X. (f) No disclosures are required by this Item 4(f). (g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $288,077 for the fiscal year ended December 31, 2008 and $46,000 for the fiscal year ended December 31, 2007. (h) The registrant's audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A ITEM 6. SCHEDULE OF INVESTMENTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 11. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant's filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are effective. (b) Changes in Internal Controls. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR. ITEM 12. EXHIBITS. (a)(1) Code of Ethics (a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN TEMPLETON FUND ALLOCATOR SERIES By /S/Jennifer J. Bolt ------------------- Jennifer J. Bolt Chief Executive Officer - Finance and Administration Date February 25, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /S/Jennifer J. Bolt ------------------ Jennifer J. Bolt Chief Executive Officer - Finance and Administration Date February 25, 2009 By /S/LAURA F. FERGERSON --------------------- Laura F. Fergerson Chief Financial Officer and Chief Accounting Officer Date February 25, 2009 EX-99.CODE ETH 2 ncsr_code308.txt REVISED CODE OF ETHICS Exhibit 12(a)(1) CODE OF ETHICS FOR PRINCIPAL EXECUTIVES & SENIOR FINANCIAL OFFICERS - ------------------------------------------------------------------------------ PROCEDURES Revised March 06, 2008 - ------------------------------------------------------------------------------- FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Officers and Purpose of the Code This code of ethics (the "Code") applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers," each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") for the purpose of promoting: o Honest and ethical conduct, including the ethical resolution of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds; o Compliance with applicable laws and governmental rules and regulations; o The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o Accountability for adherence to the Code. Each Covered Officer will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Franklin Resources, Inc. has separately adopted the CODE OF ETHICS AND BUSINESS CONDUCT ("Business Conduct"), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee's business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies. Additionally, the Franklin Templeton Funds have separately adopted the CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code. Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you. III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of apposition with the FT Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as "affiliated persons" of the FT Funds. The FT Funds' and the investment advisers' compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds. Each Covered Officer must: o Not use his or her personal influence or personal relationships improperly to influence investment decisions orfinancial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds; o Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds; o Not retaliate against any other Covered Officer or any employee of the FT Funds or their affiliated persons for reports of potential violations that are made in good faith; o Report at least annually the following affiliations or other relationships:/ 1 o all directorships for public companies and all companies that are required to file reports with the SEC; o any direct or indirect business relationship with any independent directors of the FT Funds; o any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm's service as the Covered Persons accountant); and o any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources). These reports will be reviewed by the Legal Department for compliance with the Code. There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include/2: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100 from any person, from any corporation or association o The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval from the Franklin Resources General Counsel for any entertainment with a value in excess of $1000. o Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund's service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof; o A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. Franklin Resources General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting. IV. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund's adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. Reporting and Accountability Each Covered Officer must: o Upon becoming a covered officer affirm in writing to the Board that he or she has received, read, and understands the Code (see Exhibit B); o Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and o Notify Franklin Resources' General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code. Franklin Resources' General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation./3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers/4 sought by any Chief Executive Officers of the Funds. The FT Funds will follow these procedures in investigating and enforcing this Code: o Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department; o If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action; o Any matter that the General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund; o If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate FT Fund or Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Independent Directors will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules./5 VI. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the FT Funds, the FT Funds' advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund's principal underwriter pursuant to Rule 17j-1 under the Investment Company Act, the Code of Ethics and Business Conduct and more detailed policies and procedures set forth in FT's Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code. VII. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds' Board including a majority of independent directors. VIII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds' Board and their counsel. IX. Internal Use The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion. X. Disclosure on Form N-CSR Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant's annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention. The Legal Department shall be responsible for ensuring that: o a copy of the Code is filed with the SEC as an exhibit to each Fund's annual report; and o any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant's annual report on Form N-CSR. In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR. In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics March 2008 FRANKLIN GROUP OF FUNDS Edward B. Jamieson President and Chief Executive Officer - Investment Management Charles B. Johnson President and Chief Executive Officer - Investment Management Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management William J. Lippman President and Chief Executive Officer - Investment Management Christopher Molumphy President and Chief Executive Officer - Investment Management Galen G. Vetter Senior Vice President and Chief Executive Officer - Finance and Administration Jimmy D. Gambill Vice President Laura Fergerson Chief Financial Officer and Chief Accounting Officer FRANKLIN MUTUAL SERIES FUNDS Peter Langerman Chief Executive Officer-Investment Management Galen G. Vetter Senior Vice President and Chief Executive Officer - Finance and Administration Jimmy D. Gambill Vice President Laura Fergerson Chief Financial Officer and Chief Accounting Officer TEMPLETON GROUP OF FUNDS Mark Mobius President and Chief Executive Officer - Investment Management Christopher J. Molumphy President and Chief Executive Officer - Investment Management Gary P. Motyl President and Chief Executive Officer - Investment Management Donald F. Reed President and Chief Executive Officer - Investment Management Galen G. Vetter Senior Vice President and Chief Executive Officer - Finance and Administration Jimmy D. Gambill Vice President Laura Fergerson Chief Financial Officer and Chief Accounting Officer EXHIBIT B ACKNOWLEDGMENT FORM DECEMBER FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS INSTRUCTIONS: 1. Complete all sections of this form. 2. Print the completed form, sign, and date. 3. Submit completed form to FT's General Counsel c/o Maria Abbott within 10 days of becoming a Covered Officer and by January 30th of each subsequent year. INTER-OFFICE MAIL: Maria Abbott, Manager, Code of Ethics, Global Compliance SM-920/2 TELEPHONE: (650) 312-5698 Fax: (650) 312-5646 E-MAIL: Abbott, Maria (internal address); mabbott@frk.com (external address) - ---------------------------------------------------------------------------- COVERED OFFICER'S NAME: - ---------------------------------------------------------------------------- TITLE: - ---------------------------------------------------------------------------- DEPARTMENT: - ---------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------- CERTIFICATION FOR YEAR ENDING: - ---------------------------------------------------------------------------- TO: Franklin Resources General Counsel, Legal Department I hereby acknowledge receipt of a copy of Franklin Templeton Fund's code of ethics for Principal Executive Officers and Senior Financial Officers (the "Code") that I have read and understand. I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment. - ---------------------------- ---------------------- Signature Date signed - ----------------------------- 1. Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel. 2. Any activity or relationship that would present a conflict for a Covered Officer may also present a conflict for the Covered Officer if a member of the Covered Officer's immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT's General Counsel in such situations. 3. Franklin Resources General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so. 4. Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. See Part X. 5. See Part X. EX-99.CERT 3 ftfas302cert209.txt SECTION 302 CERTIFICATIONS Exhibit 12(a)(2) I, Jennifer J. Bolt, certify that: 1. I have reviewed this report on Form N-CSR of FRANKLIN TEMPLETON FUND ALLOCATOR SERIES; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 2/25/2009 S\ JENNIFER J. BOLT Jennifer J. Bolt Chief Executive Officer - Finance and Administration I, Laura F. Fergerson, certify that: 1. I have reviewed this report on Form N-CSR of FRANKLIN TEMPLETON FUND ALLOCATOR SERIES; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 2/25/2009 S\ LAURA F. FERGERSON Laura F. Fergerson Chief Financial Officer and Chief Accounting Officer EX-99.906CERT 4 ftfas906cert209.txt SECTION 906 CERTIFICATION Exhibit 12(b) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jennifer J. Bolt, Chief Executive Officer of the FRANKLIN TEMPLETON FUND ALLOCATOR SERIES (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/2008 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: 2/25/2009 S\ JENNIFER J. BOLT Jennifer J. Bolt Chief Executive Officer - Finance and Administration CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Laura F. Fergerson, Chief Financial Officer of the FRANKLIN TEMPLETON FUND ALLOCATOR SERIES (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 12/31/2008 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: 2/25/2009 S\ LAURA F. FERGERSON Laura F. Fergerson Chief Financial Officer and Chief Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----