Franklin Templeton Strategic Allocation Funds

Transcription

1 Unaudited Semi-Annual Report September 30, 2014 R.C.S. B Franklin Templeton Strategic Allocation Funds SOCIÉTÉ D INVESTISSEMENT À CAPITAL VARIABLE

2

3 société d investissement à capital variable UNAUDITED SEMI-ANNUAL REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2014 This report shall not constitute an offer or a solicitation of an offer to buy shares of Franklin Templeton Strategic Allocation Funds ( FTSAF or the Company ). Subscriptions are to be made on the basis of the current prospectus, where available the relevant Key Investor Information Documents (KIIDs), a copy of the latest available audited annual report and, if published thereafter, the latest unaudited semi-annual report.

4 Contents General Information 3 Report of the Investment Managers 4 Fund Performance 6 Statement of Net Assets 7 Statement of Operations and Changes in Net Assets 8 Statistical Information 9 Notes to the Financial Statements 10 Schedule of Investments 15 Franklin Equity Selection Fund 15 Franklin Strategic Dynamic Fund 16 Franklin Strategic Balanced Fund 17 Franklin Strategic Conservative Fund 18 Additional Information 19 Franklin Templeton Investments Office Directory 20 2 Unaudited Semi-Annual Report

5 société d investissement à capital variable 8A, rue Albert Borschette, L-1246 Luxembourg, Grand Duchy of Luxembourg (Registered with the registre de commerce et des sociétés, Luxembourg, under number B ) General Information (as at September 30, 2014) DIRECTORS: William Jackson Director FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED 5 Morrison Street Edinburgh EH3 8BH, Scotland United Kingdom Gregory E. McGowan Executive Vice President and General Counsel TEMPLETON WORLDWIDE, INC. 300 Southeast 2nd Street, 11th Floor Fort Lauderdale, FL U.S.A. James F. Kinloch Director FRANKLIN TEMPLETON LUXEMBOURG HOLDING S.A. 8A, rue Albert Borschette L-1246 Luxembourg Grand Duchy of Luxembourg MANAGEMENT COMPANY: FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg Grand Duchy of Luxembourg PRINCIPAL DISTRIBUTOR: FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg Grand Duchy of Luxembourg INVESTMENT MANAGERS: FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED 5 Morrison Street Edinburgh EH3 8BH, Scotland United Kingdom Acting through its German branch located at Mainzer Landstrasse Frankfurt-am-Main Germany FIDUCIARY TRUST COMPANY OF CANADA 200 King Street West, Suite 1500 Toronto, Ontario M5H 3T4 Canada Franklin Templeton Investment Management Limited has been appointed as Co-Investment Manager of the Funds, together with Fiduciary Trust Company of Canada. CUSTODIAN, LISTING AGENT AND PRINCIPAL PAYING AGENT: J.P. MORGAN BANK LUXEMBOURG S.A. European Bank and Business Centre 6, route de Trèves L-2633 Senningerberg Grand Duchy of Luxembourg AUDITOR: PRICEWATERHOUSECOOPERS, Société coopérative 400, route d Esch L-1471 Luxembourg Grand Duchy of Luxembourg LEGAL ADVISERS: ELVINGER, HOSS & PRUSSEN 2, place Winston Churchill L-1340 Luxembourg Grand Duchy of Luxembourg Unaudited Semi-Annual Report 3

6 Report of the Investment Managers Six Months to September 30, 2014 The six-month period under review has been dominated by a progressive pickup in the US economy after the slump experienced at the beginning of calendar-year But at the same time, the period has been characterized by stagnation in Europe and signs that growth in a number of emerging markets most notably China has been faltering. The result has been a divergence in monetary policies, which has been reflected in bond prices, and signs of increasing currency volatility as the six months drew to a close. Overall, however, government bonds have continued to perform thanks to the commitment of central banks in Europe, the United States and Japan to low interest rates, together with an absence of significant inflation and continued perceived safe-haven buying. Whereas long-maturity bonds fell or remained stable, continued speculation about base rate increases in the United States led to some increase in short-term bond yields, thus producing a flattening of the yield curve. As for equities, low interest rates and large-scale creation of liquidity by central banks have translated into an unusually long period of low volatility, with stocks for much of the period rising at a pretty regular, range-bound pace, although this trend looked like it might be changing as the six months drew to a close. The US economy expanded at a hefty annualized rate of 4.6% in the quarter ended June 30, its best performance in two-and-a-half years, and growth momentum was thought by many observers to have been strong in the third quarter as well. The improvement in US growth indicators and solid employment gains over the six months under review convinced the US Federal Reserve (Fed) to progressively wind down its monthly purchases of government and mortgage-backed bonds, an initiative known as quantitative easing (QE). Yet the Fed did not change policy rates, which remained at or close to zero, and it has provided broad hints that rates will remain at such levels well into 2015, dependent on economic data. While base rates have been low, corporate earnings and margins have remained healthy, pointing to a persistently efficient US private sector. The combination of these favorable winds helped push US equities higher during the six months under review, with the S&P 500 hitting an all-time intraday high at the beginning of September. Equities wavered thereafter, in part at least because of fears that a rise in US interest rates might come sooner than previously expected, because of some concerns about valuations and because of clouds hanging over economies outside the United States. In the United States itself, despite the generally positive news, there remained some doubts about the medium-term sustainability of US growth, as persistently low bond yields suggested. Indeed, the Fed itself slightly lowered its economic growth forecast for both 2014 and 2015, as the global picture seemed to darken somewhat. While market participants in the United States have been debating the sustainability of growth and the timing of monetary tightening, concerns in the eurozone have been far different. While some countries have rebounded quite strongly from the financial crisis, overall, the eurozone economy stagnated over the six months under review, weighed down by France and Italy. Lack of growth, combined with inflation that has come in well below target, has forced the European Central Bank (ECB) to introduce ever more radical stimulatory measures (although it has stopped just short of Fed-style QE). Loose monetary policy did help European equities early in the six months under review, but gains petered out as the period progressed, with investor confidence sapped by sluggish forward indicators for the currency zone and the repercussions of fighting in eastern Ukraine. In fixed income, continued monetary easing on the part of the ECB and the possibility of more to come led to a significant rally in eurozone bonds, with yields on benchmark German Bunds sinking below those for US Treasuries of the same maturity, and yields for Italian and Spanish bonds which were at the heart of the sovereign debt crisis just two years ago sinking to historic lows. The likelihood that normalization of monetary policy in the eurozone is much further away than in the United States led the euro to fall significantly against the US dollar as the period advanced. Continued easing in Japan has likewise achieved a weakening of the yen over the six months under review, helping boost Japanese markets that were hurt at the beginning of the period by an increase in the sales tax. The benchmark Nikkei 225 Index reached a six-year high in mid-september, supported by improved corporate earnings forecasts, the fall in the yen and the quickening recovery in the United States. But while monetary and fiscal measures have been heavily used, the so-called third arrow of Prime Minister Shinzo Abe s strategy to revigorate the Japanese economy has yet to bear fruit. After contracting at an annualized pace of 7.1% in the second quarter of 2014 (caused by an April hike in the sales tax), belief in Abe s ability to put Japan on an even keel has looked fragile, although confidence in the market has been bolstered by the Bank of Japan s assurance that it will keep buying 6 8 trillion ( billion) of government bonds per month plus small amounts of other assets. Liquidity provided by the Bank of Japan and the ECB has taken the place of the Fed s QE program and helped prolong the rally in emerging-market assets over the six months under review as investors have continued to engage in a hunt for yield. But as the period came to an end, the question of how emerging markets would perform in the face of a strengthening US dollar and the prospect of higher US interest rates was beginning to loom large in many investors minds, especially as growth in a number of markets has cooled. The International Monetary Fund revealed that global growth in the first half of 2014 was weaker than it had predicted as recently as April, with growth in emerging markets underperforming expectations. The more sophisticated economies most notably in Asia have benefited from the improvements in the United States and from prudent macroeconomic policies, but investors have begun to show concern about prospects for countries that show relatively high inflation and that have run persistent current account deficits. Commodity-dependent countries have been hit because geopolitical tensions in the Middle East and Ukraine have not, as yet, led to an upsurge in commodity prices quite the reverse, in fact, as supply has outstripped demand. As the period came to an end, investor concerns about certain countries began to be manifest in sliding currencies. Nonetheless, we believe emerging markets should not be dismissed en bloc. Although signs of sluggishness in China appeared during the six months under review, authorities there have launched a succession of mini-stimulus efforts designed to ensure the country achieves its gross domestic product growth target of 7.5% for Such a rate of growth is less spectacular than 4 Unaudited Semi-Annual Report

7 Report of the Investment Managers Six Months to September 30, 2014 (continued) in the past, but is perhaps more sustainable, in our view. At the same time, data showing that the Indian economy expanded at an unexpectedly high annualized rate of 5.7% in the quarter ended June 30 its best figure since early 2012 have added to the optimism among global investors surrounding the reform-minded Narendra Modi, elected prime minister in mid-may. By contrast, Brazil entered recession in the period under review, and forecasts for growth for this year and next have been revised downward. Still, as in India, we believe Brazil s upcoming general election could prove to be a market catalyst. The continued rally in bonds means that fixed-income valuations, broadly speaking, have been looking increasingly expensive to us. Healthy fundamentals good growth, low default rates and low inflation, and large cash stock piles have certainly benefited the corporate credit market, in our view, as has the ready availability of liquidity. But in a market skewed by the availability of liquidity, spreads on high-yield corporate debt and leveraged bank loans over benchmark government bonds remained at historically narrow levels during the period under review. However, evidence that companies at the lower end of the ratings scale were taking on more leverage to benefit from favorable financing conditions was beginning to take the shine off the riskier end of the corporate credit market as the period came to a close. In conclusion, as we move into the second half of the financial year for our funds, we will certainly need to pay close attention to signs of an uptick in volatility in a number of asset classes. The most reliable motor of global growth continues to be the United States, but doubts remain about much of the world. At the same time, we remain confident that bouts of volatility can be successfully navigated to the potential benefit of our clients. The information stated in this report represents historical data and is not an indication of future results. THE INVESTMENT MANAGERS October Unaudited Semi-Annual Report 5

8 Fund Performance Percentage Change to September 30, 2014 Reference Share Class Launch Date 6 Months % 1 Year % 3 Years % 5 Years % Since Launch % Franklin Equity Selection Fund N (acc) EUR 11 Dec Franklin Strategic Dynamic Fund A (acc) EUR 13 Feb Franklin Strategic Balanced Fund A (acc) EUR 13 Feb Franklin Strategic Conservative Fund A (acc) EUR 13 Feb Information on other share classes is available on request. This report shall not constitute an offer or a solicitation of an offer to buy shares. Subscriptions are to be made on the basis of the current prospectus, where available the relevant Key Investor Information Documents ( KIIDs ), a copy of the latest available audited annual report and, if published thereafter, the latest unaudited semi-annual report. The price of shares and income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is no guarantee of future performance. Currency fluctuations may affect the value of investments. Data source: Performance Franklin Templeton Investments. 6 Unaudited Semi-Annual Report

9 Statement of Net Assets at September 30, 2014 TOTAL Franklin Equity Selection Fund Franklin Strategic Dynamic Fund Franklin Strategic Balanced Fund Franklin Strategic Conservative Fund (EUR) (EUR) (EUR) (EUR) (EUR) ASSETS Investment in securities at market value (note 2(b)) 151,963,897 30,208,819 53,921,308 49,743,114 18,090,656 Cash 4,349, ,611 1,171,119 1,620,185 1,426,707 Amounts receivable on sale of investments 714, ,068 Amounts receivable on subscriptions 126,572 4,052 22,959 45,127 54,434 Interest and dividends receivable, net 2, Option contracts at market value (notes 2(g), 5) 87,041 38,524 35,676 12,841 TOTAL ASSETS 157,243,283 31,058,550 55,154,823 51,444,953 19,584,957 LIABILITIES Amounts payable on purchases of investments 189, ,146 Amounts payable on redemptions 126,911 96,837 22,847 7,227 Investment management fees payable (note 6) 44,710 10,258 17,966 12,564 3,922 Taxes and expense payable 420, , , ,142 55,678 TOTAL LIABILITIES 781, , , ,553 66,827 TOTAL NET ASSETS 156,461,689 30,627,063 55,014,096 51,302,400 19,518,130 THREE YEAR ASSET SUMMARY March 31, ,089,782 27,644,768 48,103,274 44,363,150 17,978,590 March 31, ,838,361 30,449,884 41,435,785 37,756,962 21,195,730 March 31, ,406,546 27,405,545 32,656,101 29,696,202 15,648,698 The accompanying notes form an integral part of these financial statements Unaudited Semi-Annual Report 7

10 Statement of Operations and Changes in Net Assets for the Period ended September 30, 2014 TOTAL Franklin Equity Selection Fund Franklin Strategic Dynamic Fund Franklin Strategic Balanced Fund Franklin Strategic Conservative Fund (EUR) (EUR) (EUR) (EUR) (EUR) NET ASSETS AT THE BEGINNING OF THE PERIOD 138,089,782 27,644,768 48,103,274 44,363,150 17,978,590 INCOME Dividends (net of withholding taxes) (note 2(d)) 372,956 79, , ,509 Interest on bonds (net of withholding taxes) (note 2(d)) 3,939 1,730 1, Sundry income 9,048 5,218 3,830 TOTAL INCOME 385,943 80, , ,938 EXPENSES Investment management fees (note 6) 256,224 59, ,622 71,681 22,769 Administration and transfer agency fees 164,554 97,519 27,886 26,418 12,731 Subscription tax (note 9) 17,615 2,471 7,160 5,916 2,068 Custodian fees 31,236 7,018 8,411 8,718 7,089 Audit fees 29,852 6,005 10,426 9,681 3,740 Printing and publishing expenses 152,001 30,580 53,049 49,244 19,128 Bank charges Class A (dis) and Class A (acc) shares maintenance charges (note 10) 243, ,892 94,192 21,535 Class N (acc) shares maintenance charges (note 10) 207, , ,030 19,249 Other charges (note 11) 139,901 28,161 48,775 45,308 17,657 TOTAL EXPENSES 1,242, , , , ,966 NET (LOSS) FROM INVESTMENTS (856,139) (415,756) (306,337) (120,018) (14,028) Net realised profit on sale of investments 5,511,277 1,005,445 2,387,500 1,718, ,457 Net realised profit on foreign exchange transactions 43, ,785 17,615 3,355 NET REALISED PROFIT FOR THE PERIOD 4,698, ,767 2,103,948 1,616, ,784 Change in net unrealised appreciation/(depreciation) on: Investments 9,325,418 3,530,458 3,077,581 2,208, ,943 Option contracts (138,129) (60,941) (56,874) (20,314) Foreign exchange transactions (6,655) (1,521) (2,226) (2,000) (908) NET INCREASE IN NET ASSETS AS A RESULT OF OPERATIONS 13,879,605 4,118,704 5,118,362 3,766, ,505 MOVEMENT OF CAPITAL Issue of shares 12,971,608 1,973,931 3,240,626 4,549,950 3,207,101 Redemption of shares (8,479,306) (3,110,340) (1,448,166) (1,376,734) (2,544,066) 4,492,302 (1,136,409) 1,792,460 3,173, ,035 NET INCREASE/(DECREASE) IN NET ASSETS AS A RESULT OF MOVEMENT IN CAPITAL 4,492,302 (1,136,409) 1,792,460 3,173, ,035 NET ASSETS AT THE END OF THE PERIOD 156,461,689 30,627,063 55,014,096 51,302,400 19,518,130 Portfolio Turnover Ratio (note 17) 41.54% % % % The accompanying notes form an integral part of these financial statements 8 Unaudited Semi-Annual Report

11 Statistical Information Total Expense Ratio September 30, 2014 (see note 18) Shares Outstanding September 30, 2014 September 30, 2014 Net Asset Value per Share March 31, 2014 March 31, 2013 Franklin Equity Selection Fund EUR N (acc) EUR 2.81% 2,932, Franklin Strategic Dynamic Fund EUR A (acc) EUR 1.51% 4,405, A (Ydis) EUR 1.51% 12, I (acc) EUR 0.99% I (Ydis) EUR 0.98% N (acc) EUR 2.26% 15, Franklin Strategic Balanced Fund EUR A (acc) EUR 1.31% 3,727, A (Ydis) EUR 1.31% 275, I (acc) EUR 0.88% 22, I (Ydis) EUR 0.86% N (acc) EUR 1.91% 35, Franklin Strategic Conservative Fund EUR A (acc) EUR 1.24% 882, A (Ydis) EUR 1.24% 281, I (acc) EUR 0.88% I (Ydis) EUR 0.88% N (acc) EUR 1.94% 337, Unaudited Semi-Annual Report 9

12 Notes to the Financial Statements at September 30, 2014 Note 1 The Company Franklin Templeton Strategic Allocation Funds ( FTSAF or the Company ) is a collective investment undertaking pursuant to Part I of the amended Luxembourg law of December 17, 2010 on undertakings for collective investment and qualifies as a société d investissement à capital variable. The Company was incorporated in Luxembourg on January 26, 2006, for an undetermined period. At the date of this report, it offers shares in 4 sub-funds of the Company (the Funds ). The Board of Directors of the Company may authorise the creation of additional Funds in the future with different investment objectives. The Company s objective is to seek medium- and long-term capital appreciation, mainly through investments in investment funds managed by Franklin Templeton Investments as well as other asset managers which invest in worldwide equities and debt securities. Note 2 Significant accounting policies (a) General The financial statements are prepared in accordance with the regulations of the Grand Duchy of Luxembourg relating to investment funds. (b) Investment in securities Securities which are listed on a stock exchange or traded on any other organised market are valued at the last available price on such exchange or market which is normally the principal market for each security, and those securities dealt in on an over-the-counter market are valued in a manner as near as possible to that for quoted securities. Securities not listed on any stock exchange nor traded on any organised market are valued at the last available price, or if such price is not representative of their fair value, they are valued prudently and in good faith on the basis of their reasonably foreseeable sales prices. The Company has procedures to determine the fair value of individual securities and other assets for which market prices are not readily available or which may not be reliably priced. In such circumstances, the price of such investment shall be adjusted in accordance with the procedures adopted, as determined by or under the direction of the Board of Directors. Stocks, shares or units in open-ended investment funds are valued based on the last net asset value determined according to the provisions of the particular investment fund s prospectus as provided by the Management Company of such investment fund. During the accounting period under review, gains and losses on investment securities sold were computed on the average cost basis for all Funds. (c) Foreign exchange transactions Transactions expressed in currencies other than each Fund s currency are translated into each Fund s currency at the exchange rates applicable on the transaction dates. Assets and liabilities designated in currencies other than each Fund s currency are translated into each Fund s currency at the appropriate exchange rates ruling at the period-end. Gains and losses on foreign exchange transactions are recognised in the Statement of Operations and Changes in Net Assets in determining the results for the accounting period. (d) Income Dividends are credited to income on their ex-dividend date. Interest income is accrued on a daily basis. (e) Formation expenses Formation expenses associated with the launch of new Funds are expensed as incurred. (f) Forward foreign exchange contracts Forward foreign exchange contracts are valued at the forward rate applicable at the Statement of Net Assets date for the remaining period, until maturity. Gains or losses resulting from forward foreign exchange contracts are recognised in the Statement of Operations and Changes in Net Assets. (g) Option contracts Options are contracts entitling the holder to purchase or sell a specified number of shares or units of a particular security at a specified price at any time until the contract-stated expiration date. Options purchased are recorded as investments; options written (sold) are recorded as liabilities. When the exercise of an option results in a cash settlement, the difference between the premium (original option value) and the settlement proceeds is accounted for as a realised gain or loss. When securities are acquired or delivered upon exercise of an option, the acquisition cost or sale proceeds are adjusted by the amount of the premium. When an option is closed, the difference between the premium and the cost to close the position is accounted for as a realised gain or loss. When an option expires, the premium is accounted for as a realised gain for options written or as a realised loss for options purchased. The risks include price movements in the underlying securities, the possibility there may be an illiquid options market, or the inability of the counterparties to fulfill their obligations under the contract. These options are settled in cash and subject the Company to unlimited risk of loss. The Company, however, is not subject to credit risk on written options as the counterparty has already performed its obligation by paying the premium at the inception of the contract. The market values are recorded under Option Contracts at Market Value in the Statement of Net Assets. Note 3 Time deposits As at September 30, 2014, the Company had no cash invested in time deposits. Note 4 Forward foreign exchange contracts As at September 30, 2014, the Company had no open forward foreign exchange contracts. 10 Unaudited Semi-Annual Report

13 Notes to the Financial Statements at September 30, 2014 (continued) Note 5 Open positions on option contracts As at September 30, 2014, the Company had entered into the following outstanding contracts: Franklin Strategic Dynamic Fund Purchase/Sale Description Counterparty Trading Number of Market Unrealised position currency contracts value profit/(loss) purchased/(sold) EUR EUR Index option Purchase EURO STOXX 50 Index, Put Option, JPMorgan Chase Bank EUR 24 8,688 (24,264) Strike Price 3000, Dec Purchase S&P 500 Index, Put Option, JPMorgan Chase Bank USD 12 29,836 (36,677) Strike Price 1900, Dec ,524 (60,941) Franklin Strategic Balanced Fund Purchase/Sale Description Counterparty Trading Number of Market Unrealised position currency contracts value profit/(loss) purchased/(sold) EUR EUR Index option Purchase EURO STOXX 50 Index, Put Option, JPMorgan Chase Bank EUR 23 8,326 (23,253) Strike Price 3000, Dec Purchase S&P 500 Index, Put Option, JPMorgan Chase Bank USD 11 27,350 (33,621) Strike Price 1900, Dec ,676 (56,874) Franklin Strategic Conservative Fund Purchase/Sale Description Counterparty Trading Number of Market Unrealised position currency contracts value profit/(loss) purchased/(sold) EUR EUR Index option Purchase EURO STOXX 50 Index, Put Option, JPMorgan Chase Bank EUR 8 2,896 (8,088) Strike Price 3000, Dec Purchase S&P 500 Index, Put Option, JPMorgan Chase Bank USD 4 9,945 (12,226) Strike Price 1900, Dec ,841 (20,314) Note 6 Investment management fees The Investment Managers, as noted on page 3, receive from the Company a monthly fee equivalent to a certain percentage per annum (as detailed below) of each Fund s average daily net assets during the period. The following percentages apply in respect of the different Funds as at September 30, 2014: Franklin Equity Selection Fund 0.40% Franklin Strategic Dynamic Fund 0.40% Franklin Strategic Balanced Fund 0.30% Franklin Strategic Conservative Fund 0.25% In addition, investment management fees are charged on the underlying target funds as detailed in note 19. Note 7 Soft Commissions The Investment Managers may enter with Broker/Dealers that are entities and not individuals into soft commission arrangements only where there is a direct and identifiable benefit to the clients of the Investment Managers, including the Company, and where the Investment Managers are satisfied that the transactions generating the soft commissions are made in good faith, in strict compliance with applicable regulatory requirements and in the best interests of the Company. Any such arrangements must be made by the Investment Managers on terms commensurate with best market practice. Note 8 Connected party transactions Certain Directors of the Company are or may also be Officers and/or Directors of one or more of the various Investment Managers of the Funds, such as Fiduciary Trust Company of Canada and Franklin Templeton Investment Management Limited. All transactions with connected parties were entered into in the ordinary course of business and under normal commercial terms. The investment management fees that are accrued by the Company in respect of the Management Company are detailed in note 6 to the financial statements. There are no connected brokers in Franklin Templeton Investments, and no transactions were entered into with connected brokers during the period ended September 30, The Company accrued fees in respect of Franklin Templeton International Services S.à r.l. as the Management Company and as the Principal Distributor of the Funds. Unaudited Semi-Annual Report 11

14 Notes to the Financial Statements at September 30, 2014 (continued) Note 9 Taxation Under current laws and practice, the Company is not liable in the Grand Duchy of Luxembourg to any taxes on income or on realised or unrealised capital gains. The Company is liable in the Grand Duchy of Luxembourg to a tax of 0.05% per annum, such tax being paid quarterly, and calculated on the net asset value of each Fund at the end of each relevant quarter. This tax is not applicable for the portion of the assets of a Fund invested in other undertakings for collective investment that have already been subject to such tax. Class I shares may benefit from a reduced rate of 0.01% per annum if all shareholders of this share class are institutional investors. Investment income received or capital gains realised by the Company may be subject to tax in the countries of origin. All liabilities in respect of taxes payable on unrealised capital gains on investments are provided for as soon as there is a reasonable certainty that a liability will crystallise. No stamp duty or other tax is payable in the Grand Duchy of Luxembourg on the issue of shares in the Company. The Company is registered for Value Added Tax in the Grand Duchy of Luxembourg and subject to account for Value Added Tax in accordance with current laws. Note 10 Share classes Class A (acc) shares: No distribution of dividends will be made in respect of Class A (acc) shares but the net income attributable will be reflected in the increased value of the shares. All other terms and conditions are the same as those which apply for Class A (dis) shares. Class A (dis) shares: are offered at the applicable net asset value, plus an initial sales charge of up to 6.50% of the total amount invested. In addition, a maintenance charge of up to 0.50% per annum of the applicable average net asset value is deducted and paid to the Principal Distributor. This charge is accrued daily and is deducted and paid monthly to the Principal Distributor. A contingent deferred sales charge of 1% applies to certain redemptions on qualified investments of USD 1 million or more within 18 months after repurchase. Class I (acc) shares: No distribution of dividends will be made but the net income attributable will be reflected in the increased value of the shares. All other terms and conditions are the same as those which apply for Class I (dis) shares. Class I (dis) shares: are offered to institutional investors as more fully described in the current prospectus of the Company. Purchases of Class I (dis) shares are not subject to an initial sales charge, nor a contingent deferred sales charge or any maintenance, distribution or servicing charges. Class N (acc) shares: No distribution of dividends will be made but the net income attributable will be reflected in the increased value of the shares. N (acc) shares are subject to an initial sales charge of up to 5% of the total amount invested. In addition, a maintenance charge of up to 1.25% per annum of the applicable average net asset value is accrued daily and is deducted and paid monthly to the Principal Distributor. Class N (acc) shares may be offered in certain limited circumstances as more fully described in the current prospectus of the Company. The above mentioned distributing share classes may have different frequencies: Mdis share classes distribute monthly, Qdis share classes distribute quarterly and Ydis share classes distribute annually. Note 11 Other charges analysis The breakdown of other charges categories is as follows: TOTAL Franklin Equity Selection Fund Franklin Strategic Dynamic Fund Franklin Strategic Balanced Fund Franklin Strategic Conservative Fund (EUR) (EUR) (EUR) (EUR) (EUR) Other charges Tax fees 44,473 8,952 15,516 14,411 5,594 Paying agent 39,889 8,022 13,929 12,931 5,007 Legal fees 29,845 6,010 10,408 9,668 3,759 Miscellaneous expenses 18,987 3,834 6,601 6,143 2,409 Registration and filing fees 6,707 1,343 2,321 2, ,901 28,161 48,775 45,308 17,657 Note 12 Expenses reimbursement On a daily basis, for share classes where the expenses are capped, the level of expenses is calculated and compared to the cap and where the level of expenses is higher than the cap, this difference is booked as a decrease of expense (the waiver fees ). On a monthly basis the waiver fees are deducted from the fees received by Franklin Templeton International Services S.à r.l. When applicable, the amount of waiver fees is disclosed as Expenses reimbursement in the Statement of Operations and Changes in Net Assets. Note 13 Statement of changes in the investment portfolio A list, specifying for each Fund total purchases and sales transacted during the period under review, may be obtained, upon request, at the registered office of the Company. Note 14 Transaction costs Transaction costs are costs incurred to acquire financial assets or liabilities. They include fees and commissions paid to agents, brokers and dealers. During the period ended September 30, 2014 the Company incurred the following transaction costs: Fund Currency Amount Franklin Equity Selection Fund EUR 3,550 Franklin Strategic Dynamic Fund EUR 10,723 Franklin Strategic Balanced Fund EUR 10,062 Franklin Strategic Conservative Fund EUR 4, Unaudited Semi-Annual Report

15 Notes to the Financial Statements at September 30, 2014 (continued) Note 15 Equalisation The Funds use an accounting practice known as equalisation, by which a portion of the proceeds from issue and costs of redemption of shares, equivalent on a per share basis to the amount of undistributed net investment income on the date of the transaction, is credited or charged to undistributed income. As a result, undistributed net investment income per share is unaffected by issues or redemptions of shares. When applicable the amount of equalisation is disclosed as Equalisation in the Statement of Operations and Changes in Net Assets. There was no equalisation for the period ended September 30, Note 16 Annual and interim dividends distributed for the period ended September 30, 2014 No dividends were accumulated or paid during the period. Note 17 Portfolio Turnover Ratio The portfolio turnover ratio, expressed as a percentage, is equal to the total of purchases and sales of securities netted against the absolute value of subscriptions and redemptions over average net assets of the Fund for the year. It is effectively a measure of how frequently a fund buys or sells securities other than required to support subscriptions and redemptions. Note 18 Total Expense Ratios of FTSAF The Total Expense Ratio ( TER ), expressed as a percentage, represents how the total expenses of the Funds relate to the average net assets of the Funds for the period ended September 30, The total expenses comprise the Investment Management fees, the Administration and Transfer Agency fees, the Custodian fees and other expenses as summarised in the Statement of Operations and Changes in Net Assets. Note 19 Total Expense Ratios and management fees of the underlying target funds The Total Expense Ratios ( TERs ) and the management fees below are for the funds held by FTSAF on September 30, The management fees are included in the TERs disclosed. Management TER* fees Franklin Equity Selection Fund FTIF Templeton Asian Growth Fund, Class I (acc) EUR 1.22% 0.90% FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR 1.21% 0.90% FTIF Templeton Latin America Fund, Class I (acc) USD 1.30% 1.00% FTIF Templeton Eastern Europe Fund, Class I (acc) EUR 1.39% 1.10% FTIF Franklin MENA Fund, Class I (acc) EUR 1.39% 1.05% First State Investments ICVC First State Asia Pacific Leaders Fund, Class B (Accumulation) EUR 0.89% 0.85% db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF, Class 1C 0.65% up to 0.45% Schroder ISF Frontier Markets Equity, Class C Acc 1.55% 1.00% Lyxor UCITS ETF Eastern Europe (CECE NTR EUR), Class C-EUR 0.50% up to 0.50% db x-trackers MSCI EM LATAM Index UCITS ETF, Class 1C 0.65% up to 0.45% Franklin Strategic Dynamic Fund FTIF Franklin U.S. Opportunities Fund, Class I (acc) EUR 0.96% 0.70% FTIF Franklin European Growth Fund, Class I (acc) EUR 0.97% 0.70% FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR 1.21% 0.90% FTIF Franklin Euro Short Duration Bond Fund I (acc) EUR 0.55% 0.30% FTIF Templeton Global Total Return Fund, Class I (Ydis) EUR-H1 (hedged) 0.87% 0.55% db x-trackers MSCI USA Index UCITS ETF, Class 1C 0.30% up to 0.20% Macquarie Collective Funds plc Delaware Investments U.S. Large Cap Value Fund, Class I USD (Accumulating) 0.75% 0.60% db x-trackers MSCI Europe Index UCITS ETF, Class 1C 0.30% up to 0.20% Invesco Funds Invesco Pan European Structured Equity Fund, Class C accumulation EUR 1.09% 0.80% ishares III plc ishares Core Euro Government Bond UCITS ETF 0.20% up to 0.20% First State Investments ICVC First State Asia Pacific Leaders Fund, Class B (Accumulation) EUR 0.89% 0.85% GLG Investments plc GLG Japan CoreAlpha Equity, Class I H EUR 1.13% 0.75% Polar Capital Funds PLC Japan Fund, Class I Euro 1.20% 1.00% Schroder ISF Frontier Markets Equity, Class C Acc 1.55% 1.00% Standard Life Investments Global SICAV European Corporate Bond Fund, Class D Accumulation 0.54% 0.50% Franklin Strategic Balanced Fund FTIF Franklin Euro Government Bond Fund, Class I (Qdis) EUR 0.61% 0.35% FTIF Franklin U.S. Opportunities Fund, Class I (acc) EUR 0.96% 0.70% FTIF Franklin European Growth Fund, Class I (acc) EUR 0.97% 0.70% FTIF Franklin Euro Short Duration Bond Fund I (acc) EUR 0.55% 0.30% FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR 1.21% 0.90% FTIF Templeton Global Total Return Fund, Class I (Ydis) EUR-H1 (hedged) 0.87% 0.55% ishares III plc ishares Core Euro Government Bond UCITS ETF 0.20% up to 0.20% db x-trackers MSCI USA Index UCITS ETF, Class 1C 0.30% up to 0.20% Macquarie Collective Funds plc Delaware Investments U.S. Large Cap Value Fund, Class I USD (Accumulating) 0.75% 0.60% db x-trackers MSCI Europe Index UCITS ETF, Class 1C 0.30% up to 0.20% Invesco Funds Invesco Pan European Structured Equity Fund, Class C accumulation EUR 1.09% 0.80% Standard Life Investments Global SICAV European Corporate Bond Fund, Class D Accumulation 0.54% 0.50% First State Investments ICVC First State Asia Pacific Leaders Fund, Class B (Accumulation) EUR 0.89% 0.85% Robeco Capital Growth Funds Robeco European High Yield Bonds, Class DH EUR 1.19% 1.00% GLG Investments plc GLG Japan CoreAlpha Equity, Class I H EUR 1.13% 0.75% Polar Capital Funds PLC Japan Fund, Class I Euro 1.20% 1.00% Schroder ISF Frontier Markets Equity, Class C Acc 1.55% 1.00% Unaudited Semi-Annual Report 13

16 Note 19 Total Expense Ratios and management fees of the underlying target funds (continued) Management TER* fees Franklin Strategic Conservative Fund FTIF Franklin Euro Government Bond Fund, Class I (Qdis) EUR 0.61% 0.35% FTIF Franklin Euro Short Duration Bond Fund I (acc) EUR 0.55% 0.30% FTIF Templeton Global Total Return Fund, Class I (Ydis) EUR-H1 (hedged) 0.87% 0.55% FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR 1.21% 0.90% FTIF Franklin U.S. Opportunities Fund, Class I (acc) EUR 0.96% 0.70% FTIF Franklin European Growth Fund, Class I (acc) EUR 0.97% 0.70% ishares III plc ishares Core Euro Government Bond UCITS ETF 0.20% up to 0.20% db x-trackers II IBOXX Sovereigns Eurozone UCITS ETF, Class 1C 0.15% up to 0.05% Standard Life Investments Global SICAV European Corporate Bond Fund, Class D Accumulation 0.54% 0.50% Robeco Capital Growth Funds Robeco European High Yield Bonds, Class DH EUR 1.19% 1.00% db x-trackers MSCI USA Index UCITS ETF, Class 1C 0.30% up to 0.20% Macquarie Collective Funds plc Delaware Investments U.S. Large Cap Value Fund, Class I USD (Accumulating) 0.75% 0.60% Invesco Funds Invesco Pan European Structured Equity Fund, Class C accumulation EUR 1.09% 0.80% Polar Capital Funds PLC Japan Fund, Class I Euro 1.20% 1.00% * Depending on fund provider s data delivery: Total Expense Ratio (TER) or Ongoing Charges Ratio (OCR) Source: FTIF Funds: the TERs and the Mangement fees are taken from the annual report as at June 30, 2014 db x-trackers Funds: the TERs are taken from the db x-trackers website and the management fees are taken from the prospectus dated September 2014 db x-trackers II Fund: the TER is taken from the db x-trackers website and the management fee is taken from the prospectus dated August 2014 First State Investments ICVC Fund: the OCR is taken from the KIID dated April 1, 2014 and the management fee is taken from the prospectus dated September 3, 2014 GLG Investments plc Fund: the OCR is taken from the KIID dated February 10, 2014 and the management fee is taken from the propectus dated July 23, 2014 Invesco Fund: the OCR is taken from the KIID dated April 1, 2014 and the management fee is taken from the prospectus dated August 20, 2014 ishares III plc Fund: the TER and the management fee are taken from the prospectus dated June 9, 2014 Lyxor Fund: the OCR is taken from the KIID dated June 19, 2014 and the management fee is taken from the prospectus dated June 19, 2014 Macquarie Collective Fund: the TER and the management fee are taken from the annual report as at March 31, 2014 Polar Capital Fund: the OCR is taken from the KIID dated February 18, 2014 and the management fee is taken from the prospectus dated March 26, 2014 Robeco Capital Growth Fund: the OCR is taken from the KIID dated February 20, 2014 and the mangement fee is taken from the prospectus dated July 2014 Schroder Fund: the TERs and the Mangement fees are taken from the semi-annual report as at June 30, 2014 Standard Life Investments Global SICAV Fund: the OCR is taken from the KIID dated June 13, 2014 and the management fee is taken from the prospectus dated June 2014 Note 20 Audited annual reports and unaudited semi-annual reports The audited annual reports and unaudited semi-annual reports are available on the following Franklin Templeton Investments website, or may be obtained, free of charge, on request at the registered office of the Company. They are only distributed to registered Shareholders in those countries where local regulation so requires. Note 21 Abbreviations Countries DEU Germany FRA France GBR United Kingdom IRL Ireland LUX Luxembourg USA United States Currencies EUR Euro USD US Dollar Notes to the Financial Statements at September 30, 2014 (continued) 14 Unaudited Semi-Annual Report

17 Franklin Equity Selection Fund Schedule of Investments as of September 30, 2014 (Currency EUR) Number of shares or face value Description Country code Trading currency Market value % of net assets OPEN ENDED MUTUAL FUNDS Franklin Templeton Investments 197,524 FTIF Templeton Asian Growth Fund, Class I (acc) EUR LUX EUR 5,755, ,474 FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR LUX EUR 5,745, ,438 FTIF Templeton Latin America Fund, Class I (acc) USD LUX USD 3,826, ,669 FTIF Templeton Eastern Europe Fund, Class I (acc) EUR LUX EUR 1,344, ,846 FTIF Franklin MENA Fund, Class I (acc) EUR LUX EUR 935, ,608, Third Party Funds 3,402,539 First State Investments ICVC First State Asia Pacific Leaders Fund, Class B (Accumulation) EUR GBR EUR 5,721, ,613 db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF, Class 1C LUX EUR 2,619, ,156 Schroder ISF Frontier Markets Equity, Class C Acc LUX USD 1,665, ,835 Lyxor UCITS ETF Eastern Europe (CECE NTR EUR), Class C-EUR FRA EUR 1,416, ,963 db x-trackers MSCI EM LATAM Index UCITS ETF, Class 1C LUX EUR 1,178, ,600, TOTAL OPEN ENDED MUTUAL FUNDS 30,208, TOTAL INVESTMENTS 30,208, Allocation of Portfolio Equity Funds The accompanying notes form an integral part of these financial statements Unaudited Semi-Annual Report 15

18 Franklin Strategic Dynamic Fund Schedule of Investments as of September 30, 2014 (Currency EUR) Number of shares or face value Description Country code Trading currency Market value % of net assets TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET BONDS Government and Municipal Bonds 1,398,400 U.S. Treasury Note, 0.50%, 07/31/16 USA USD 1,107, Structured Notes 1,400,000 Societe Generale SA, SGI VI Smart Beta, Reg S, zero cpn., 06/10/19 FRA USD 1,055, TOTAL BONDS 2,162, TOTAL TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET 2,162, OPEN ENDED MUTUAL FUNDS Franklin Templeton Investments 260,960 FTIF Franklin U.S. Opportunities Fund, Class I (acc) EUR LUX EUR 5,769, ,062 FTIF Franklin European Growth Fund, Class I (acc) EUR LUX EUR 3,538, ,390 FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR LUX EUR 2,673, ,419 FTIF Franklin Euro Short Duration Bond Fund I (acc) EUR LUX EUR 1,094, ,691 FTIF Templeton Global Total Return Fund, Class I (Ydis) EUR-H1 (hedged) LUX EUR 949, ,026, Third Party Funds 219,753 db x-trackers MSCI USA Index UCITS ETF, Class 1C LUX EUR 8,689, ,585 Macquarie Collective Funds plc Delaware Investments U.S. Large Cap Value Fund, Class I USD (Accumulating) IRL USD 8,627, ,663 db x-trackers MSCI Europe Index UCITS ETF, Class 1C LUX EUR 4,920, ,313 Invesco Funds Invesco Pan European Structured Equity Fund, Class C accumulation EUR LUX EUR 3,698, ,723 ishares III plc ishares Core Euro Government Bond UCITS ETF DEU EUR 2,673, ,534,098 First State Investments ICVC First State Asia Pacific Leaders Fund, Class B (Accumulation) EUR GBR EUR 2,579, ,660 GLG Investments plc GLG Japan CoreAlpha Equity, Class I H EUR IRL EUR 1,878, ,288 Polar Capital Funds PLC Japan Fund, Class I Euro IRL EUR 1,838, ,906 Schroder ISF Frontier Markets Equity, Class C Acc LUX USD 1,768, ,480 Standard Life Investments Global SICAV European Corporate Bond Fund, Class D Accumulation LUX EUR 1,057, ,731, TOTAL OPEN ENDED MUTUAL FUNDS 51,758, TOTAL INVESTMENTS 53,921, Allocation of Portfolio Equity Funds Bond Funds Alternative Investments The accompanying notes form an integral part of these financial statements 16 Unaudited Semi-Annual Report

19 Franklin Strategic Balanced Fund Schedule of Investments as of September 30, 2014 (Currency EUR) Number of shares or face value Description Country code Trading currency Market value % of net assets TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET BONDS Government and Municipal Bonds 1,303,300 U.S. Treasury Note, 0.50%, 07/31/16 USA USD 1,032, Structured Notes 1,300,000 Societe Generale SA, SGI VI Smart Beta, Reg S, zero cpn., 06/10/19 FRA USD 980, TOTAL BONDS 2,012, TOTAL TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET 2,012, OPEN ENDED MUTUAL FUNDS Franklin Templeton Investments 468,560 FTIF Franklin Euro Government Bond Fund, Class I (Qdis) EUR LUX EUR 5,004, ,901 FTIF Franklin U.S. Opportunities Fund, Class I (acc) EUR LUX EUR 3,579, ,697 FTIF Franklin European Growth Fund, Class I (acc) EUR LUX EUR 2,191, ,048 FTIF Franklin Euro Short Duration Bond Fund I (acc) EUR LUX EUR 1,855, ,200 FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR LUX EUR 1,611, ,043 FTIF Templeton Global Total Return Fund, Class I (Ydis) EUR-H1 (hedged) LUX EUR 1,464, ,707, Third Party Funds 65,331 ishares III plc ishares Core Euro Government Bond UCITS ETF DEU EUR 7,686, ,160 db x-trackers MSCI USA Index UCITS ETF, Class 1C LUX EUR 5,383, ,796 Macquarie Collective Funds plc Delaware Investments U.S. Large Cap Value Fund, Class I USD (Accumulating) IRL USD 5,345, ,490 db x-trackers MSCI Europe Index UCITS ETF, Class 1C LUX EUR 3,049, ,504 Invesco Funds Invesco Pan European Structured Equity Fund, Class C accumulation EUR LUX EUR 2,290, ,698 Standard Life Investments Global SICAV European Corporate Bond Fund, Class D Accumulation LUX EUR 1,955, ,001,287 First State Investments ICVC First State Asia Pacific Leaders Fund, Class B (Accumulation) EUR GBR EUR 1,683, ,652 Robeco Capital Growth Funds Robeco European High Yield Bonds, Class DH EUR LUX EUR 1,206, ,026 GLG Investments plc GLG Japan CoreAlpha Equity, Class I H EUR IRL EUR 1,191, ,332 Polar Capital Funds PLC Japan Fund, Class I Euro IRL EUR 1,139, ,960 Schroder ISF Frontier Markets Equity, Class C Acc LUX USD 1,090, ,023, TOTAL OPEN ENDED MUTUAL FUNDS 47,730, TOTAL INVESTMENTS 49,743, Allocation of Portfolio Equity Funds Bond Funds Alternative Investments The accompanying notes form an integral part of these financial statements Unaudited Semi-Annual Report 17

20 Franklin Strategic Conservative Fund Schedule of Investments as of September 30, 2014 (Currency EUR) Number of shares or face value Description Country code Trading currency Market value % of net assets TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET BONDS Government and Municipal Bonds 488,300 U.S. Treasury Note, 0.50%, 07/31/16 USA USD 386, Structured Notes 480,000 Societe Generale SA, SGI VI Smart Beta, Reg S, zero cpn., 06/10/19 FRA USD 361, TOTAL BONDS 748, TOTAL TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET 748, OPEN ENDED MUTUAL FUNDS Franklin Templeton Investments 334,359 FTIF Franklin Euro Government Bond Fund, Class I (Qdis) EUR LUX EUR 3,570, ,675 FTIF Franklin Euro Short Duration Bond Fund I (acc) EUR LUX EUR 1,545, ,949 FTIF Templeton Global Total Return Fund, Class I (Ydis) EUR-H1 (hedged) LUX EUR 1,032, ,537 FTIF Templeton Asian Smaller Companies Fund, Class I (acc) EUR LUX EUR 436, ,105 FTIF Franklin U.S. Opportunities Fund, Class I (acc) EUR LUX EUR 400, ,996 FTIF Franklin European Growth Fund, Class I (acc) EUR LUX EUR 389, ,375, Third Party Funds 31,599 ishares III plc ishares Core Euro Government Bond UCITS ETF DEU EUR 3,717, ,101 db x-trackers II iboxx Sovereigns Eurozone UCITS ETF, Class 1C LUX EUR 1,945, ,780 Standard Life Investments Global SICAV European Corporate Bond Fund, Class D Accumulation LUX EUR 1,457, ,686 Robeco Capital Growth Funds Robeco European High Yield Bonds, Class DH EUR LUX EUR 850, ,241 db x-trackers MSCI USA Index UCITS ETF, Class 1C LUX EUR 602, ,245 Macquarie Collective Funds plc Delaware Investments U.S. Large Cap Value Fund, Class I USD (Accumulating) IRL USD 598, ,765 Invesco Funds Invesco Pan European Structured Equity Fund, Class C accumulation EUR LUX EUR 424, ,038 Polar Capital Funds PLC Japan Fund, Class I Euro IRL EUR 370, ,966, TOTAL OPEN ENDED MUTUAL FUNDS 17,342, TOTAL INVESTMENTS 18,090, Allocation of Portfolio Bond Funds Equity Funds Alternative Investments The accompanying notes form an integral part of these financial statements 18 Unaudited Semi-Annual Report