UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07851
Franklin 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: 6/30/15
Item 1. Reports to Stockholders.
Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Focus on Investment Excellence
At the core of our firm, you’ll find multiple independent investment teams—each with a focused area of expertise—from traditional to alternative strategies and multi-asset solutions. And because our portfolio groups operate autonomously, their strategies can be combined to deliver true style and asset class diversification.
All of our investment teams share a common commitment to excellence grounded in rigorous, fundamental research and robust, disciplined risk management. Decade after decade, our consistent, research-driven processes have helped Franklin Templeton earn an impressive record of strong, long-term results.
Global Perspective Shaped by Local Expertise
In today’s complex and interconnected world, smart investing demands a global perspective. Franklin Templeton pioneered international investing over 60 years ago, and our expertise in emerging markets spans more than a quarter of a century. Today, our investment professionals are on the ground across the globe, spotting investment ideas and potential risks firsthand. These locally based teams bring in-depth understanding of local companies, economies and cultural nuances, and share their best thinking across our global research network.
Strength and Experience
Franklin Templeton is a global leader in asset management serving clients in over 150 countries.1 We run our business with the same prudence we apply to asset management, staying focused on delivering relevant investment solutions, strong long-term results and reliable, personal service. This approach, focused on putting clients first, has helped us to become one of the most trusted names in financial services.
1. As of 12/31/14. Clients are represented by the total number of shareholder accounts.
Not FDIC Insured | May Lose Value | No Bank Guarantee
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| Contents | |
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| Semiannual Report | |
| Economic and Market Overview | 3 |
| Franklin Conservative Allocation | |
| Fund | 4 |
| Franklin Moderate Allocation Fund | 11 |
| Franklin Growth Allocation Fund | 18 |
| Financial Highlights and | |
| Statements of Investments | 25 |
| Financial Statements | 46 |
| Notes to Financial Statements | 51 |
| Shareholder Information | 62 |
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Semiannual Report
Economic and Market Overview
The global economy expanded moderately during the six months under review despite slowing growth in some countries. As measured by the MSCI World Index, stocks in global developed markets advanced overall during the six-month period amid a generally accommodative monetary policy environment and signs of economic improvement in Europe and Japan. Oil prices rebounded from earlier lows as demand picked up despite rising inventories and strong global supply, while gold prices declined marginally during the period under review.
U.S. economic growth was mixed during the six months under review. In 2015’s first quarter, U.S. dollar strength, low energy prices, and a labor dispute at West Coast ports led exports to decline. In the second quarter, business capital spending rebounded and manufacturing and non-manufacturing activities increased, contributing to strong job gains. During the six-month period, the U.S. Federal Reserve Board (Fed) kept its target interest rate at 0%–0.25% while considering when an increase would be appropriate, based on labor market and inflation data.
Outside the U.S., the U.K. economy slowed in 2015’s first quarter as the mining and agriculture sectors contracted. In the eurozone, economic growth improved somewhat during the six-month period. The region avoided deflation as the annual inflation rate rose in May. The European Central Bank (ECB) maintained its benchmark interest rates during the period and also expanded its asset purchases to boost inflation and the economy. The region generally benefited from a weaker euro that helped exports, the ECB’s accommodative policy and an improved 2015 eurozone growth forecast, which helped limit fears about Greece’s debt situation.
The Japanese economy continued to grow in 2015’s first quarter after exiting recession in the previous quarter, driven by an increase in private demand as business investment and private consumption rose. The Bank of Japan maintained its monetary policy during the review period but lowered its economic growth and inflation forecasts at its April meeting.
In emerging markets, economic growth generally moderated. Greece’s credit default due to the lack of progress in negotiations weighed on emerging market stocks toward period-end. China’s government implemented market-friendly policies to support new economic drivers that could help steer the economy toward more sustainable growth. Lower interest rates there fueled massive stock market speculation and a 60% price gain up to mid-June 2015 for the domestic A-share market.1 Concerned the market was overheated, the People’s Bank of China reduced liquidity, which led to a market panic in the last two weeks of June, exacerbated by certain government intervention measures. Central bank actions varied across emerging markets, as some banks raised interest rates in response to rising inflation and weakening currencies, while others lowered interest rates to promote economic growth. In the recent global environment, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose for the six-month period.
The foregoing information reflects our analysis and opinions as of June 30, 2015. 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.
1. Source: MSCI.
See www.franklintempletondatasources.com for additional data provider information.
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Semiannual Report | 3
Franklin Conservative Allocation Fund
This semiannual report for Franklin Conservative Allocation Fund covers the period ended June 30, 2015.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return consistent with a lower level of risk.1
*The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund and other fund investments into a broad asset
class based on its predominant investments under normal market conditions.
Performance Overview
The Fund’s Class A shares delivered a +1.39% cumulative total return for the six months under review. In comparison, the Fund’s new equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, returned +2.97%, while its old equity benchmark, the Standard & Poor’s 500 Index (S&P 500®), a broad measure of U.S. stock performance, returned +1.23%.2 Another previous equity benchmark, the MSCI Europe, Australasia, Far East (EAFE) Index, which measures global stock performance for developed markets excluding the U.S. and Canada, posted a +5.88% total return.2 The Fund’s new fixed income benchmark, the Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, had a -2.90% total return, while its old fixed income benchmark, the Barclays U.S. Aggregate Bond Index, which tracks U.S. investment-grade bonds, had a -0.10% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 6.
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.
Investment Strategy
Whenever possible, we attempt to hold the same underlying Franklin Templeton funds and other fund investments (collectively, “fund investments”) in each Allocation Fund’s portfolio and will vary the allocation percentages of the fund investments based upon each Allocation Fund’s risk/return level. Maintaining similarity of the fund investments across the Conservative, Moderate and Growth Allocation Funds is intended to increase the consistency of their results relative to one another. We allocate the Fund’s assets among the broad asset classes, and when selecting equity funds, we consider the fund investments’ foreign and domestic exposure, market capitalization ranges and investment styles (growth versus value). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s risk profile.
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.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the
Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 30.
4 | Semiannual Report franklintempleton.com
FRANKLIN CONSERVATIVE ALLOCATION FUND
| | |
| Top 10 Fund Holdings | | |
| 6/30/15 | | |
| | % of Total | |
| | Net Assets | |
| Templeton Global Total Return Fund – Class R6 | 19.7 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 12.6 | % |
| Franklin Growth Fund – Class R6 | 9.7 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 7.5 | % |
| Franklin Rising Dividends Fund – Class R6 | 6.3 | % |
| Franklin Strategic Income Fund – Class R6 | 5.8 | % |
| Franklin DynaTech Fund – Class R6 | 4.3 | % |
| Franklin Mutual European Fund – Class R6 | 3.4 | % |
| Franklin K2 Alternative Strategies Fund – Class R6 | 3.1 | % |
| Franklin Emerging Market Debt Opportunities Fund | 3.1 | % |
Manager’s Discussion
The Fund’s performance can be attributed to its allocation among equities and fixed income securities and to the actual performance of the fund investments.
At period-end, Franklin Conservative Allocation Fund allocated 52.1% of total net assets to fixed income, 42.2% to equity and 3.9% to alternative strategies. Domestic fixed income exposure was 56.4% of the total fixed income weighting, with the balance represented by foreign fixed income. Templeton Global Total Return Fund – Class R6, representing 19.7% of the Fund’s total net assets, was our largest fixed income fund weighting at period-end. On the equity side, domestic exposure was 67.3% of the Fund’s total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on June 30, 2015, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6 was our largest equity fund weighting at 9.7% of total net assets.
During the six-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, and our largest foreign equity fund holding, Franklin Mutual European Fund – Class R6, outperformed the MSCI ACWI.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the MSCI ACWI. On the fixed income side, Templeton Global Total Return Fund – Class R6 and Franklin Low Duration Total Return Fund – Class R6 outperformed the Barclays Multiverse Index.
Thank you for your continued participation in Franklin Conservative Allocation Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of June 30, 2015, 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.
CFA® is a trademark owned by CFA Institute.
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Semiannual Report | 5
FRANKLIN CONSERVATIVE ALLOCATION FUND
Performance Summary as of June 30, 2015
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 does 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.
| | | | | | | | |
| Net Asset Value | | | | | | | | |
| Share Class (Symbol) | | 6/30/15 | | 12/31/14 | | Change | | |
| A (FTCIX) | $ | 14.36 | $ | 14.53 | -$ | 0.17 | | |
| C (FTCCX) | $ | 14.09 | $ | 14.27 | -$ | 0.18 | | |
| R (FTCRX) | $ | 14.31 | $ | 14.48 | -$ | 0.17 | | |
| R6 (N/A) | $ | 14.35 | $ | 14.52 | -$ | 0.17 | | |
| Advisor (FTCZX) | $ | 14.35 | $ | 14.52 | -$ | 0.17 | | |
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| |
| Distributions1 (1/1/15–6/30/15) | | | | | | | | |
| | | Dividend | | Short-Term | | Long-Term | | |
| Share Class | | Income | | Capital Gain | | Capital Gain | | Total |
| A | $ | 0.0906 | $ | 0.0159 | $ | 0.2693 | $ | 0.3758 |
| C | $ | 0.0419 | $ | 0.0159 | $ | 0.2693 | $ | 0.3271 |
| R | $ | 0.0731 | $ | 0.0159 | $ | 0.2693 | $ | 0.3583 |
| R6 | $ | 0.1136 | $ | 0.0159 | $ | 0.2693 | $ | 0.3988 |
| Advisor | $ | 0.1071 | $ | 0.0159 | $ | 0.2693 | $ | 0.3923 |
6 | Semiannual Report
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FRANKLIN CONSERVATIVE ALLOCATION FUND
PERFORMANCE SUMMARY
Performance as of 6/30/152
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/R6/Advisor Class: no sales charges.
| | | | | | | | |
| | Cumulative | | Average Annual | | | Value of | Total Annual | |
| Share Class | Total Return3 | | Total Return4 | | $ | 10,000 Investment5 | Operating Expenses6 | |
| A | | | | | | | 1.27 | % |
| 6-Month | +1.39 | % | -4.46 | % | $ | 9,554 | | |
| 1-Year | +1.03 | % | -4.77 | % | $ | 9,523 | | |
| 5-Year | +37.05 | % | +5.25 | % | $ | 12,915 | | |
| 10-Year | +71.80 | % | +4.94 | % | $ | 16,189 | | |
| C | | | | | | | 2.02 | % |
| 6-Month | +1.01 | % | +0.02 | % | $ | 10,002 | | |
| 1-Year | +0.25 | % | -0.71 | % | $ | 9,929 | | |
| 5-Year | +32.04 | % | +5.72 | % | $ | 13,204 | | |
| 10-Year | +59.41 | % | +4.77 | % | $ | 15,941 | | |
| R | | | | | | | 1.52 | % |
| 6-Month | +1.28 | % | +1.28 | % | $ | 10,128 | | |
| 1-Year | +0.78 | % | +0.78 | % | $ | 10,078 | | |
| 5-Year | +35.42 | % | +6.25 | % | $ | 13,542 | | |
| 10-Year | +67.70 | % | +5.31 | % | $ | 16,770 | | |
| R6 | | | | | | | 0.92 | % |
| 6-Month | +1.55 | % | +1.55 | % | $ | 10,155 | | |
| 1-Year | +1.36 | % | +1.36 | % | $ | 10,136 | | |
| Since Inception (5/1/13) | +11.78 | % | +5.28 | % | $ | 11,178 | | |
| Advisor6 | | | | | | | 1.02 | % |
| 6-Month | +1.51 | % | +1.51 | % | $ | 10,151 | | |
| 1-Year | +1.27 | % | +1.27 | % | $ | 10,127 | | |
| 5-Year | +38.77 | % | +6.77 | % | $ | 13,877 | | |
| 10-Year | +75.88 | % | +5.81 | % | $ | 17,588 | | |
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, go to franklintempleton.com or call (800) 342-5236.
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Semiannual Report | 7
FRANKLIN CONSERVATIVE ALLOCATION FUND
PERFORMANCE SUMMARY
While an asset allocation plan can be a valuable tool to help reduce overall volatility, all investments involve risks, including possible loss of principal. Because this Fund invests in underlying funds, which may engage in a variety of investment strategies involving certain risks, the Fund is subject to those same risks. 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. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in a fund adjust to a rise in interest rates, that fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political or social instability, risks that are heightened in developing countries. These risks are described in the Fund’s prospectus. Investors should consult their financial advisors for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives and risk tolerance. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results.
| |
| 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. |
| Class R6: | Shares are available to certain eligible investors as described in the prospectus. |
| Advisor Class: | Shares are available to certain eligible investors as described in the prospectus. |
1. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income and
capital gain.
2. The Fund has an expense reduction contractually guaranteed through at least 4/30/16 and a fee waiver associated with any investment in a Franklin Templeton money
fund, contractually guaranteed through at least its current fiscal year-end. Fund investment results reflect the expense reduction and fee waiver, to the extent applicable;
without these reductions, the results would have been lower. As of 1/1/13, the Fund changed its target allocation, with short-term investments (formerly a targeted allocation
of 20%) combined into the fixed income allocations; such a change can impact performance.
3. Cumulative total return represents the change in value of an investment over the periods indicated.
4. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.
5. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
6. Figures are as stated in the Fund’s current prospectus and include the effect of acquired fund fees and expenses. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become higher than the figures shown.
7. 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 12/1/05, 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
+69.55% and +5.67%.
8 | Semiannual Report
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FRANKLIN CONSERVATIVE ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- Ongoing Fund costs, including management fees, distribu- tion 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.
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. 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.
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Semiannual Report | 9
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| FRANKLIN CONSERVATIVE ALLOCATION FUND | | | | | | |
| YOUR FUND’S EXPENSES | | | | | | | | |
| |
| |
| |
| | | Beginning | | Ending | | Expenses Paid | | Expenses Paid |
| | | Account | | Account | | During Period* During Period** |
| Share Class | | Value 1/1/15 | | Value 6/30/15 | | 1/1/15–6/30/15 | | 1/1/15–6/30/15 |
| A | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,013.90 | $ | 3.15 | $ | 6.29 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.67 | $ | 3.16 | $ | 6.31 |
| C | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,010.10 | $ | 6.88 | $ | 10.02 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.95 | $ | 6.90 | $ | 10.04 |
| R | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,012.80 | $ | 4.39 | $ | 7.54 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,020.43 | $ | 4.41 | $ | 7.55 |
| R6 | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,015.50 | $ | 1.40 | $ | 4.55 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,023.41 | $ | 1.40 | $ | 4.56 |
| Advisor | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,015.10 | $ | 1.90 | $ | 5.05 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,022.91 | $ | 1.91 | $ | 5.06 |
*Expenses are calculated using the most recent six-month expense ratio excluding expenses of the fund investments, net of expense waivers,
annualized for each class (A: 0.63%; C: 1.38%; R: 0.88%; R6: 0.28%; and Advisor: 0.38%), multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
**Expenses are calculated using the most recent six-month expense ratio including expenses of the fund investments, net of expense waivers,
annualized for each class (A: 1.26%; C: 2.01%; R: 1.51%; R6: 0.91%; and Advisor: 1.01%), multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
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Franklin Moderate Allocation Fund
This semiannual report for Franklin Moderate Allocation Fund covers the period ended June 30, 2015.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return consistent with a moderate level of risk.1 As of January 1, 2015, the Fund increased the target allocation to equity funds by 5% (from 55% to 60%) and correspondingly reduced the target allocation to fixed income funds (from 45% to 40%). The Fund’s investment goal remained the same.
*The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund and other fund investments into a broad asset
class based on its predominant investments under normal conditions.
Performance Overview
The Fund’s Class A shares delivered a +1.85% cumulative total return for the six months under review. In comparison, the Fund’s new equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, returned +2.97%, while its old equity benchmark, the Standard & Poor’s 500 Index (S&P 500), a broad measure of U.S. stock performance, returned +1.23%.2 Another previous equity benchmark, the MSCI Europe, Australasia, Far East (EAFE) Index, which measures global stock performance for developed markets excluding the U.S. and Canada, posted a +5.88% total return.2 The Fund’s new fixed income benchmark, the Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, had a -2.90% total return, while its old fixed income benchmark, the Barclays U.S. Aggregate Index, which tracks U.S. investment-grade bonds, had a -0.10% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 13.
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.
Investment Strategy
Whenever possible, we attempt to hold the same underlying Franklin Templeton funds and other fund investments (collectively, “fund investments”) in each Allocation Fund’s portfolio and will vary the allocation percentages of the fund investments based upon each Allocation Fund’s risk/return level. Maintaining similarity of the fund investments across the Conservative, Moderate and Growth Allocation Funds is intended to increase the consistency of their results relative to one another. We allocate the Fund’s assets among the broad asset classes, and when selecting equity funds, we consider the fund investments’ foreign and domestic exposure, market capitalization ranges and investment styles (growth versus value). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s risk profile.
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.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the
Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 37.
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FRANKLIN MODERATE ALLOCATION FUND
| | |
| Top 10 Fund Holdings | | |
| 6/30/15 | | |
| | % of Total | |
| Net Assets | |
| Franklin Growth Fund – Class R6 | 14.6 | % |
| Templeton Global Total Return Fund – Class R6 | 11.4 | % |
| Franklin Rising Dividends Fund – Class R6 | 9.2 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 7.7 | % |
| Franklin DynaTech Fund – Class R6 | 5.9 | % |
| Franklin Mutual European Fund – Class R6 | 5.1 | % |
| Templeton Foreign Fund – Class R6 | 4.4 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 4.4 | % |
| Franklin International Small Cap Growth Fund – Class R6 | 3.7 | % |
| Franklin Utilities Fund – Class R6 | 3.6 | % |
Manager’s Discussion
The Fund’s performance can be attributed mainly to its allocation among equities and fixed income securities and to the actual performance of the fund investments.
At period-end, Franklin Moderate Allocation Fund allocated 62.7% of total net assets to equity, 31.4% to fixed income, and 3.9% to alternative strategies. Domestic equity exposure was 67.0% of the total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on June 30, 2015, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6 was our largest equity fund weighting at 14.6% of total net assets. On the fixed income side, domestic exposure was 57.6% of the Fund’s total income weighting, with the balance represented by foreign fixed income. Templeton Global Total Return Fund – Class R6 was our largest fixed income fund weighting at 11.4% of total net assets.
During the six-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, and our largest foreign equity fund holding, Franklin Mutual European Fund – Class R6, outperformed the MSCI ACWI.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the MSCI ACWI. On the fixed income side, Templeton Global Total Return Fund – Class R6 and Franklin Low Duration Total Return Fund – Class R6 outperformed the Barclays Multiverse Index.
Thank you for your continued participation in Franklin Moderate Allocation Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of June 30, 2015, 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.
12 | Semiannual Report
franklintempleton.com
FRANKLIN MODERATE ALLOCATION FUND
Performance Summary as of June 30, 2015
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 does 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.
| | | | | | | | |
| Net Asset Value | | | | | | | | |
| Share Class (Symbol) | | 6/30/15 | | 12/31/14 | | Change | | |
| A (FMTIX) | $ | 15.54 | $ | 15.71 | -$ | 0.17 | | |
| C (FTMTX) | $ | 15.12 | $ | 15.33 | -$ | 0.21 | | |
| R (FTMRX) | $ | 15.48 | $ | 15.66 | -$ | 0.18 | | |
| R6 (N/A) | $ | 15.56 | $ | 15.72 | -$ | 0.16 | | |
| Advisor (FMTZX) | $ | 15.56 | $ | 15.72 | -$ | 0.16 | | |
| |
| |
| Distributions1 (1/1/15–6/30/15) | | | | | | | | |
| | | Dividend | | Short-Term | | Long-Term | | |
| Share Class | | Income | | Capital Gain | | Capital Gain | | Total |
| A | $ | 0.0292 | $ | 0.0141 | $ | 0.4235 | $ | 0.4668 |
| C | $ | 0.0066 | $ | 0.0141 | $ | 0.4235 | $ | 0.4442 |
| R | $ | 0.0211 | $ | 0.0141 | $ | 0.4235 | $ | 0.4587 |
| R6 | $ | 0.0405 | $ | 0.0141 | $ | 0.4235 | $ | 0.4781 |
| Advisor | $ | 0.0368 | $ | 0.0141 | $ | 0.4235 | $ | 0.4744 |
franklintempleton.com
Semiannual Report | 13
FRANKLIN MODERATE ALLOCATION FUND
PERFORMANCE SUMMARY
Performance as of 6/30/152
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/R6/Advisor Class: no sales charges.
| | | | | | | | |
| | Cumulative | | Average Annual | | | Value of | Total Annual | |
| Share Class | Total Return3 | | Total Return4 | | $ | 10,000 Investment5 | Operating Expenses6 | |
| A | | | | | | | 1.29 | % |
| 6-Month | +1.85 | % | -4.01 | % | $ | 9,599 | | |
| 1-Year | +1.73 | % | -4.13 | % | $ | 9,587 | | |
| 5-Year | +48.22 | % | +6.92 | % | $ | 13,975 | | |
| 10-Year | +85.45 | % | +5.74 | % | $ | 17,479 | | |
| C | | | | | | | 2.04 | % |
| 6-Month | +1.49 | % | +0.51 | % | $ | 10,051 | | |
| 1-Year | +1.05 | % | +0.09 | % | $ | 10,009 | | |
| 5-Year | +42.89 | % | +7.40 | % | $ | 14,289 | | |
| 10-Year | +72.09 | % | +5.58 | % | $ | 17,209 | | |
| R | | | | | | | 1.54 | % |
| 6-Month | +1.75 | % | +1.75 | % | $ | 10,175 | | |
| 1-Year | +1.56 | % | +1.56 | % | $ | 10,156 | | |
| 5-Year | +46.50 | % | +7.94 | % | $ | 14,650 | | |
| 10-Year | +80.87 | % | +6.10 | % | $ | 18,087 | | |
| R6 | | | | | | | 0.91 | % |
| 6-Month | +1.99 | % | +1.99 | % | $ | 10,199 | | |
| 1-Year | +2.13 | % | +2.13 | % | $ | 10,213 | | |
| Since Inception (5/1/13) | +16.12 | % | +7.15 | % | $ | 11,612 | | |
| Advisor6 | | | | | | | 1.04 | % |
| 6-Month | +1.96 | % | +1.96 | % | $ | 10,196 | | |
| 1-Year | +2.04 | % | +2.04 | % | $ | 10,204 | | |
| 5-Year | +50.13 | % | +8.47 | % | $ | 15,013 | | |
| 10-Year | +90.04 | % | +6.63 | % | $ | 19,004 | | |
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, go to franklintempleton.com or call (800) 342-5236.
14 | Semiannual Report
franklintempleton.com
FRANKLIN MODERATE ALLOCATION FUND
PERFORMANCE SUMMARY
While an asset allocation plan can be a valuable tool to help reduce overall volatility, all investments involve risks, including possible loss of principal. Because this Fund invests in underlying funds, which may engage in a variety of investment strategies involving certain risks, the Fund is subject to those same risks. 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. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in a fund adjust to a rise in interest rates, that fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political or social instability, risks that are heightened in developing countries. These risks are described in the Fund’s prospectus. Investors should consult their financial advisors for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives and risk tolerance. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results.
| |
| 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. |
| Class R6: | Shares are available to certain eligible investors as described in the prospectus. |
| Advisor Class: | Shares are available to certain eligible investors as described in the prospectus. |
1. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income and
capital gain.
2. The Fund has an expense reduction contractually guaranteed through at least 4/30/16 and a fee waiver associated with any investment in a Franklin Templeton money
fund, contractually guaranteed through at least its current fiscal year-end. Fund investment results reflect the expense reduction and fee waiver, to the extent applicable;
without these reductions, the results would have been lower. As of 1/1/13, the Fund changed its target allocation, with short-term investments (formerly a targeted allocation
of 10%) combined into the fixed income allocations; such a change can impact performance. As of 1/1/15, the Fund increased the target allocation to equity funds by 5%
(from 55% to 60%) and correspondingly reduced the target allocation to fixed income funds (from 45% to 40%). The Fund’s investment goal remained the same.
3. Cumulative total return represents the change in value of an investment over the periods indicated.
4. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.
5. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
6. Figures are as stated in the Fund’s current prospectus and include the effect of acquired fund fees and expenses. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become higher than the figures shown.
7. 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 12/1/05, 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
+80.73% and +6.37%.
franklintempleton.com
Semiannual Report | 15
FRANKLIN MODERATE ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- Ongoing Fund costs, including management fees, distribu- tion 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.
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. 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.
16 | Semiannual Report
franklintempleton.com
FRANKLIN MODERATE ALLOCATION FUND
YOUR FUND’S EXPENSES
| | | | | | | | |
| | | Beginning | | Ending | | Expenses Paid | | Expenses Paid |
| | | Account | | Account | | During Period* During Period** |
| Share Class | | Value 1/1/15 | | Value 6/30/15 | | 1/1/15–6/30/15 | | 1/1/15–6/30/15 |
| A | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,018.50 | $ | 3.20 | $ | 6.46 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.62 | $ | 3.21 | $ | 6.46 |
| C | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,014.90 | $ | 6.94 | $ | 10.19 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.90 | $ | 6.95 | $ | 10.19 |
| R | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,017.50 | $ | 4.45 | $ | 7.70 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,020.38 | $ | 4.46 | $ | 7.70 |
| R6 | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,019.90 | $ | 1.40 | $ | 4.66 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,023.41 | $ | 1.40 | $ | 4.66 |
| Advisor | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,019.60 | $ | 1.95 | $ | 5.21 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,022.86 | $ | 1.96 | $ | 5.21 |
*Expenses are calculated using the most recent six-month expense ratio excluding expenses of the fund investments, net of expense waivers,
annualized for each class (A: 0.64%; C: 1.39%; R: 0.89%; R6: 0.28%; and Advisor: 0.39%), multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
**Expenses are calculated using the most recent six-month expense ratio including expenses of the fund investments, net of expense waivers,
annualized for each class (A: 1.29%; C: 2.04%; R: 1.54%; R6: 0.93%; and Advisor: 1.04%), multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
franklintempleton.com
Semiannual Report | 17
Franklin Growth Allocation Fund
This semiannual report for Franklin Growth Allocation Fund covers the period ended June 30, 2015.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return consistent with a higher level of risk.1
*The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund and other fund investments into a broad asset
class based on its predominant investments under normal market conditions.
Performance Overview
The Fund’s Class A shares delivered a +2.46% cumulative total return for the six months under review. In comparison, the Fund’s new equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, returned +2.97%, while its old equity benchmark, the Standard & Poor’s 500
Index (S&P 500), a broad measure of U.S. stock performance, returned +1.23%.2 Another previous equity benchmark, the MSCI Europe, Australasia, Far East (EAFE) Index, which measures global stock performance for developed markets excluding the U.S. and Canada, posted a +5.88% total return.2 The Fund’s new fixed income benchmark, the Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, had a -2.90% total return, while its old fixed income benchmark, the Barclays U.S. Aggregate Bond Index, which tracks U.S. investment-grade bonds, had a -0.10% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 20.
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.
Investment Strategy
Whenever possible, we attempt to hold the same underlying Franklin Templeton funds and other fund investments (collectively, “fund investments”) in each Allocation Fund’s portfolio and will vary the allocation percentages of the fund investments based upon each Allocation Fund’s risk/return level. Maintaining similarity of the fund investments across the Conservative, Moderate and Growth Allocation Funds is intended to increase the consistency of their results relative to one another. We allocate the Fund’s assets among the broad asset classes, and when selecting equity funds, we consider the fund investments’ foreign and domestic exposure, market capitalization ranges and investment styles (growth versus value). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s risk profile.
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.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the
Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 44.
18 | Semiannual Report franklintempleton.com
FRANKLIN GROWTH ALLOCATION FUND
| | |
| Top 10 Fund Holdings | | |
| 6/30/15 | | |
| | % of Total | |
| Net Assets | |
| Franklin Growth Fund – Class R6 | 18.4 | % |
| Franklin Rising Dividends Fund – Class R6 | 12.1 | % |
| Franklin DynaTech Fund – Class R6 | 8.1 | % |
| Franklin Mutual European Fund – Class R6 | 6.7 | % |
| Templeton Foreign Fund – Class R6 | 6.0 | % |
| Franklin International Small Cap Growth Fund – Class R6 | 5.3 | % |
| Franklin Utilities Fund – Class R6 | 4.5 | % |
| Templeton Global Total Return Fund – Class R6 | 4.2 | % |
| Franklin Growth Opportunities Fund – Class R6 | 4.0 | % |
| Franklin K2 Alternative Strategies Fund – Class R6 | 3.1 | % |
Manager’s Discussion
The Fund’s performance can be attributed mainly to its allocation among equities and fixed income securities and to the actual performance of the fund investments.
At period-end, Franklin Growth Allocation Fund allocated 83.0% of total net assets to equity, 11.5% to fixed income and 3.9% to alternative strategies. Domestic equity exposure was 65.5% of the total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on June 30, 2015, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6 was our largest equity fund weighting at 18.4% of total net assets. On the fixed income side, domestic exposure was 57.4% of the Fund’s total income weighting, with the balance represented by foreign fixed income. Templeton Global Total Return Fund – Class R6 was our largest fixed income fund weighting at 4.2% of total net assets.
During the six-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, and our largest foreign equity fund holding, Franklin Mutual European Fund – Class R6, outperformed the MSCI ACWI.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the MSCI ACWI. On the fixed income side, Templeton Global Total Return Fund – Class R6 outperformed the Barclays Multiverse Index.
Thank you for your continued participation in Franklin Growth Allocation Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of June 30, 2015, 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.
franklintempleton.com
Semiannual Report | 19
FRANKLIN GROWTH ALLOCATION FUND
Performance Summary as of June 30, 2015
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 does 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.
| | | | | | | | |
| Net Asset Value | | | | | | | | |
| Share Class (Symbol) | | 6/31/15 | | 12/31/14 | | Change | | |
| A (FGTIX) | $ | 18.39 | $ | 18.57 | -$ | 0.18 | | |
| C (FTGTX) | $ | 17.89 | $ | 18.15 | -$ | 0.26 | | |
| R (FGTRX) | $ | 18.14 | $ | 18.34 | -$ | 0.20 | | |
| R6 (N/A) | $ | 18.47 | $ | 18.61 | -$ | 0.14 | | |
| Advisor (FGTZX) | $ | 18.47 | $ | 18.62 | -$ | 0.15 | | |
| |
| |
| Distributions1 (1/1/15–6/30/15) | | | | | | | | |
| | | Dividend | | Short-Term | | Long-Term | | |
| Share Class | | Income | | Capital Gain | | Capital Gain | | Total |
| A | $ | 0.0030 | $ | 0.0160 | $ | 0.6276 | $ | 0.6466 |
| C | $ | 0.0030 | $ | 0.0160 | $ | 0.6276 | $ | 0.6466 |
| R | $ | 0.0030 | $ | 0.0160 | $ | 0.6276 | $ | 0.6466 |
| R6 | $ | 0.0030 | $ | 0.0160 | $ | 0.6276 | $ | 0.6466 |
| Advisor | $ | 0.0030 | $ | 0.0160 | $ | 0.6276 | $ | 0.6466 |
20 | Semiannual Report
franklintempleton.com
FRANKLIN GROWTH ALLOCATION FUND
PERFORMANCE SUMMARY
Performance as of 6/30/152
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/R6/Advisor Class: no sales charges.
| | | | | | | | | | |
| | Cumulative | | Average Annual | | | Value of | Total Annual Operating Expenses6 | |
| Share Class | Total Return3 | | Total Return4 | | $ | 10,000 Investment5 | (with waiver) | | (without waiver) | |
| A | | | | | | | 1.29 | % | 1.34 | % |
| 6-Month | +2.46 | % | -3.42 | % | $ | 9,658 | | | | |
| 1-Year | +2.70 | % | -3.22 | % | $ | 9,678 | | | | |
| 5-Year | +65.36 | % | +9.29 | % | $ | 15,589 | | | | |
| 10-Year | +96.94 | % | +6.38 | % | $ | 18,567 | | | | |
| C | | | | | | | 2.04 | % | 2.09 | % |
| 6-Month | +2.08 | % | +1.09 | % | $ | 10,109 | | | | |
| 1-Year | +1.93 | % | +0.97 | % | $ | 10,097 | | | | |
| 5-Year | +59.25 | % | +9.75 | % | $ | 15,925 | | | | |
| 10-Year | +82.82 | % | +6.22 | % | $ | 18,282 | | | | |
| R | | | | | | | 1.54 | % | 1.59 | % |
| 6-Month | +2.32 | % | +2.32 | % | $ | 10,232 | | | | |
| 1-Year | +2.45 | % | +2.45 | % | $ | 10,245 | | | | |
| 5-Year | +63.40 | % | +10.32 | % | $ | 16,340 | | | | |
| 10-Year | +92.22 | % | +6.75 | % | $ | 19,222 | | | | |
| R6 | | | | | | | 0.89 | % | 0.94 | % |
| 6-Month | +2.61 | % | +2.61 | % | $ | 10,261 | | | | |
| 1-Year | +3.08 | % | +3.08 | % | $ | 10,308 | | | | |
| Since Inception (5/1/13) | +23.14 | % | +10.09 | % | $ | 12,314 | | | | |
| Advisor7 | | | | | | | 1.04 | % | 1.09 | % |
| 6-Month | +2.56 | % | +2.56 | % | $ | 10,256 | | | | |
| 1-Year | +2.93 | % | +2.93 | % | $ | 10,293 | | | | |
| 5-Year | +67.54 | % | +10.87 | % | $ | 16,754 | | | | |
| 10-Year | +101.82 | % | +7.27 | % | $ | 20,182 | | | | |
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, go to franklintempleton.com or call (800) 342-5236.
franklintempleton.com
Semiannual Report | 21
FRANKLIN GROWTH ALLOCATION FUND
PERFORMANCE SUMMARY
While an asset allocation plan can be a valuable tool to help reduce overall volatility, all investments involve risks, including possible loss of principal. Because this Fund invests in underlying funds, which may engage in a variety of investment strategies involving certain risks, the Fund is subject to those same risks. 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. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in a fund adjust to a rise in interest rates, that fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political or social instability, risks that are heightened in developing countries. These risks are described in the Fund’s prospectus. Investors should consult their financial advisors for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives and risk tolerance. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results.
| |
| 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. |
| Class R6: | Shares are available to certain eligible investors as described in the prospectus. |
| Advisor Class: | Shares are available to certain eligible investors as described in the prospectus. |
1. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income and
capital gain.
2. The Fund has an expense reduction contractually guaranteed through at least 4/30/16 and a fee waiver associated with any investment in a Franklin Templeton money
fund, contractually guaranteed through at least its current fiscal year-end. Fund investment results reflect the expense reduction and fee waiver, to the extent applicable;
without these reductions, the results would have been lower. As of 1/1/13, the Fund changed its target allocation, with short-term investments (formerly a targeted allocation
of 5%) combined into the fixed income allocations; such a change can impact performance.
3. Cumulative total return represents the change in value of an investment over the periods indicated.
4. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.
5. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
6. Figures are as stated in the Fund’s current prospectus and include the effect of acquired fund fees and expenses. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become higher than the figures shown.
7. 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 12/1/05, 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
+87.49% and +6.78%.
22 | Semiannual Report
franklintempleton.com
FRANKLIN GROWTH ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- Ongoing Fund costs, including management fees, distribu- tion 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.
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. 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.
franklintempleton.com
Semiannual Report | 23
| | | | | | | | |
| FRANKLIN GROWTH ALLOCATION FUND | | | | | | |
| YOUR FUND’S EXPENSES | | | | | | | | |
| |
| |
| |
| | | Beginning | | Ending | | Expenses Paid | | Expenses Paid |
| | | Account | | Account | | During Period* During Period** |
| Share Class | | Value 1/1/15 | | Value 6/30/15 | | 1/1/15–6/30/15 | | 1/1/15–6/30/15 |
| A | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,024.60 | $ | 3.21 | $ | 6.58 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.62 | $ | 3.21 | $ | 6.56 |
| C | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,020.80 | $ | 6.96 | $ | 10.32 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.90 | $ | 6.95 | $ | 10.29 |
| R | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,023.20 | $ | 4.46 | $ | 7.83 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,020.38 | $ | 4.46 | $ | 7.80 |
| R6 | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,026.10 | $ | 1.26 | $ | 4.62 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,023.55 | $ | 1.25 | $ | 4.61 |
| Advisor | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,025.60 | $ | 1.96 | $ | 5.32 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,022.86 | $ | 1.96 | $ | 5.31 |
*Expenses are calculated using the most recent six-month expense ratio excluding expenses of the fund investments, net of expense waivers,
annualized for each class (A: 0.64%; C: 1.39%; R: 0.89%; R6: 0.25%; and Advisor: 0.39%), multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
**Expenses are calculated using the most recent six-month expense ratio including expenses of the fund investments, net of expense waivers,
annualized for each class (A: 1.31%; C: 2.06%; R: 1.56%; R6: 0.92%; and Advisor: 1.06%), multiplied by the average account value over the
period, multiplied by 181/365 to reflect the one-half year period.
24 | Semiannual Report
franklintempleton.com
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | | | | |
| Franklin Conservative Allocation Fund | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class A | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 14.53 | | $ | 14.65 | | $ | 14.06 | | $ | 13.33 | | $ | 13.74 | | $ | 12.72 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.09 | | | 0.40 | | | 0.31 | | | 0.27 | | | 0.30 | | | 0.29 | |
| Net realized and unrealized gains (losses) | | 0.12 | | | 0.09 | | | 1.12 | | | 0.79 | | | (0.40 | ) | | 0.97 | |
| Total from investment operations | | 0.21 | | | 0.49 | | | 1.43 | | | 1.06 | | | (0.10 | ) | | 1.26 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.09 | ) | | (0.42 | ) | | (0.32 | ) | | (0.30 | ) | | (0.31 | ) | | (0.24 | ) |
| Net realized gains | | (0.29 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) | | — | | | — | |
| Total distributions | | (0.38 | ) | | (0.61 | ) | | (0.84 | ) | | (0.33 | ) | | (0.31 | ) | | (0.24 | ) |
| Net asset value, end of period | $ | 14.36 | | $ | 14.53 | | $ | 14.65 | | $ | 14.06 | | $ | 13.33 | | $ | 13.74 | |
| |
| Total returnd | | 1.39 | % | | 3.35 | % | | 10.39 | % | | 7.99 | % | | (0.71 | )% | | 10.00 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.63 | % | | 0.63 | % | | 0.60 | % | | 0.53 | % | | 0.52 | % | | 0.52 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.63 | %g | | 0.63 | %g | | 0.59 | % | | 0.50 | % | | 0.50 | % | | 0.50 | % |
| Net investment incomec | | 1.29 | % | | 2.67 | % | | 2.11 | % | | 1.98 | % | | 2.17 | % | | 2.25 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 935,234 | | $ | 910,523 | | $ | 871,541 | | $ | 794,429 | | $ | 725,675 | | $ | 612,828 | |
| Portfolio turnover rate | | 2.93 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % | | 18.67 | % | | 10.51 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.63% for the period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 25
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Conservative Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class C | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 14.27 | | $ | 14.40 | | $ | 13.83 | | $ | 13.13 | | $ | 13.53 | | $ | 12.54 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.04 | | | 0.28 | | | 0.20 | | | 0.17 | | | 0.19 | | | 0.19 | |
| Net realized and unrealized gains (losses) | | 0.11 | | | 0.09 | | | 1.11 | | | 0.76 | | | (0.38 | ) | | 0.95 | |
| Total from investment operations | | 0.15 | | | 0.37 | | | 1.31 | | | 0.93 | | | (0.19 | ) | | 1.14 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.04 | ) | | (0.31 | ) | | (0.22 | ) | | (0.20 | ) | | (0.21 | ) | | (0.15 | ) |
| Net realized gains | | (0.29 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) | | — | | | — | |
| Total distributions | | (0.33 | ) | | (0.50 | ) | | (0.74 | ) | | (0.23 | ) | | (0.21 | ) | | (0.15 | ) |
| Net asset value, end of period | $ | 14.09 | | $ | 14.27 | | $ | 14.40 | | $ | 13.83 | | $ | 13.13 | | $ | 13.53 | |
| |
| Total returnd | | 1.01 | % | | 2.58 | % | | 9.61 | % | | 7.09 | % | | (1.38 | )% | | 9.12 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 1.38 | % | | 1.38 | % | | 1.35 | % | | 1.28 | % | | 1.27 | % | | 1.27 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 1.38 | %g | | 1.38 | %g | | 1.34 | % | | 1.25 | % | | 1.25 | % | | 1.25 | % |
| Net investment incomec | | 0.54 | % | | 1.92 | % | | 1.36 | % | | 1.23 | % | | 1.42 | % | | 1.50 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 556,391 | | $ | 549,222 | | $ | 524,756 | | $ | 452,211 | | $ | 426,775 | | $ | 366,892 | |
| Portfolio turnover rate | | 2.93 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % | | 18.67 | % | | 10.51 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.63% for the period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
26 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| |
| Franklin Conservative Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class R | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 14.48 | | $ | 14.60 | | $ | 14.01 | | $ | 13.29 | | $ | 13.70 | | $ | 12.69 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.08 | | | 0.35 | | | 0.26 | | | 0.24 | | | 0.27 | | | 0.27 | |
| Net realized and unrealized gains (losses) | | 0.11 | | | 0.10 | | | 1.14 | | | 0.78 | | | (0.40 | ) | | 0.95 | |
| Total from investment operations | | 0.19 | | | 0.45 | | | 1.40 | | | 1.02 | | | (0.13 | ) | | 1.22 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.07 | ) | | (0.38 | ) | | (0.29 | ) | | (0.27 | ) | | (0.28 | ) | | (0.21 | ) |
| Net realized gains | | (0.29 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) | | — | | | — | |
| Total distributions | | (0.36 | ) | | (0.57 | ) | | (0.81 | ) | | (0.30 | ) | | (0.28 | ) | | (0.21 | ) |
| Net asset value, end of period | $ | 14.31 | | $ | 14.48 | | $ | 14.60 | | $ | 14.01 | | $ | 13.29 | | $ | 13.70 | |
| |
| Total returnd | | 1.28 | % | | 3.10 | % | | 10.14 | % | | 7.68 | % | | (0.95 | )% | | 9.69 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.88 | % | | 0.88 | % | | 0.85 | % | | 0.78 | % | | 0.77 | % | | 0.77 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.88 | %g | | 0.88 | %g | | 0.84 | % | | 0.75 | % | | 0.75 | % | | 0.75 | % |
| Net investment incomec | | 1.04 | % | | 2.42 | % | | 1.86 | % | | 1.73 | % | | 1.92 | % | | 2.00 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 154,618 | | $ | 159,897 | | $ | 166,927 | | $ | 178,520 | | $ | 149,761 | | $ | 109,077 | |
| Portfolio turnover rate | | 2.93 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % | | 18.67 | % | | 10.51 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.63% for the period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 27
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | |
| Franklin Conservative Allocation Fund (continued) | | | | | | | | | |
| | | Six Months Ended | | | Year Ended | |
| | | June 30, 2015 | | | December 31, | |
| | | (unaudited) | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | |
| Per share operating performance | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | |
| Net asset value, beginning of period | $ | 14.52 | | $ | 14.63 | | $ | 14.62 | |
| Income from investment operationsb: | | | | | | | | | |
| Net investment incomec,d | | 0.12 | | | 0.33 | | | 0.54 | |
| Net realized and unrealized gains (losses) | | 0.11 | | | 0.22 | | | 0.32 | |
| Total from investment operations | | 0.23 | | | 0.55 | | | 0.86 | |
| Less distributions from: | | | | | | | | | |
| Net investment income | | (0.11 | ) | | (0.47 | ) | | (0.33 | ) |
| Net realized gains | | (0.29 | ) | | (0.19 | ) | | (0.52 | ) |
| Total distributions | | (0.40 | ) | | (0.66 | ) | | (0.85 | ) |
| Net asset value, end of period | $ | 14.35 | | $ | 14.52 | | $ | 14.63 | |
| |
| Total returne | | 1.55 | % | | 3.79 | % | | 6.06 | % |
| |
| Ratios to average net assetsf | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.30 | % | | 0.28 | % | | 1.06 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.28 | % | | 0.28 | %h | | 0.28 | % |
| Net investment incomed | | 1.63 | % | | 3.02 | % | | 2.44 | % |
| |
| Supplemental data | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 1,836 | | $ | 1,654 | | $ | 37 | |
| Portfolio turnover rate | | 2.93 | % | | 16.67 | % | | 57.59 | % |
aFor the period May 1, 2013 (effective date) to December 31, 2013.
bThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.63% for the period ended June 30, 2015.
hBenefit of waiver and payments by affiliates rounds to less than 0.01%.
28 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| |
| Franklin Conservative Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Advisor Class | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 14.52 | | $ | 14.64 | | $ | 14.05 | | $ | 13.32 | | $ | 13.73 | | $ | 12.71 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.11 | | | 0.41 | | | 0.35 | | | 0.31 | | | 0.43 | | | 0.32 | |
| Net realized and unrealized gains (losses) | | 0.12 | | | 0.11 | | | 1.12 | | | 0.79 | | | (0.49 | ) | | 0.98 | |
| Total from investment operations | | 0.23 | | | 0.52 | | | 1.47 | | | 1.10 | | | (0.06 | ) | | 1.30 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.11 | ) | | (0.45 | ) | | (0.36 | ) | | (0.34 | ) | | (0.35 | ) | | (0.28 | ) |
| Net realized gains | | (0.29 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) | | — | | | — | |
| Total distributions | | (0.40 | ) | | (0.64 | ) | | (0.88 | ) | | (0.37 | ) | | (0.35 | ) | | (0.28 | ) |
| Net asset value, end of period | $ | 14.35 | | $ | 14.52 | | $ | 14.64 | | $ | 14.05 | | $ | 13.32 | | $ | 13.73 | |
| |
| Total returnd | | 1.51 | % | | 3.61 | % | | 10.67 | % | | 8.27 | % | | (0.47 | )% | | 10.27 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.38 | % | | 0.38 | % | | 0.35 | % | | 0.28 | % | | 0.27 | % | | 0.27 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.38 | %g | | 0.38 | %g | | 0.34 | % | | 0.25 | % | | 0.25 | % | | 0.25 | % |
| Net investment incomec | | 1.54 | % | | 2.92 | % | | 2.36 | % | | 2.23 | % | | 2.42 | % | | 2.50 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 87,850 | | $ | 90,263 | | $ | 105,657 | | $ | 85,662 | | $ | 80,690 | | $ | 14,391 | |
| Portfolio turnover rate | | 2.93 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % | | 18.67 | % | | 10.51 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.63% for the period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 29
| | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | |
| |
| |
| |
| |
| Statement of Investments, June 30, 2015 (unaudited) | | | |
| |
| Franklin Conservative Allocation Fund | | | |
| | Shares/Units | | Value |
| Investments in Underlying Funds and Exchange Traded Funds 98.2% | | | |
| Alternative Strategies 3.9% | | | |
| aFranklin K2 Alternative Strategies Fund, Class R6 | 4,833,646 | $ | 53,363,448 |
| a,bFranklin Pelagos Commodities Strategy Fund, Class R6 | 1,876,164 | | 13,602,191 |
| | | | 66,965,639 |
| Domestic Equity 28.4% | | | |
| a,bFranklin Biotechnology Discovery Fund, Class R6 | 67,401 | | 13,858,299 |
| a,bFranklin DynaTech Fund, Class R6 | 1,462,390 | | 74,055,434 |
| aFranklin Growth Fund, Class R6 | 2,181,621 | | 168,552,071 |
| a,bFranklin Growth Opportunities Fund, Class R6 | 900,613 | | 32,061,816 |
| aFranklin Real Estate Securities Fund, Class R6 | 875,496 | | 17,965,181 |
| aFranklin Rising Dividends Fund, Class R6 | 2,118,860 | | 109,396,740 |
| a,bFranklin Small Cap Growth Fund, Class R6 | 559,632 | | 11,836,219 |
| aFranklin Utilities Fund, Class R6 | 2,354,812 | | 37,535,709 |
| iShares Core S&P 500 ETF | 83,508 | | 17,304,528 |
| iShares S&P 500 Value ETF | 116,500 | | 10,742,465 |
| | | | 493,308,462 |
| Domestic Fixed Income 29.4% | | | |
| aFranklin Low Duration Total Return Fund, Class R6 | 21,763,639 | | 218,071,659 |
| aFranklin Short Duration U.S. Government ETF | 123,969 | | 12,269,435 |
| aFranklin Strategic Income Fund, Class R6 | 10,161,132 | | 99,985,543 |
| aFranklin U.S. Government Securities Fund, Class R6 | 20,174,696 | | 129,925,039 |
| iShares Intermediate Credit Bond ETF | 465,765 | | 50,703,178 |
| | | | 510,954,854 |
| Foreign Equity 13.8% | | | |
| aFranklin International Growth Fund, Class R6 | 1,457,524 | | 16,455,442 |
| aFranklin International Small Cap Growth Fund, Class R6 | 2,165,643 | | 42,403,283 |
| aFranklin Mutual European Fund, Class R6 | 2,678,717 | | 59,199,638 |
| iShares Global Infrastructure ETF | 290,739 | | 11,812,726 |
| iShares MSCI All Country Asia ex Japan ETF | 168,291 | | 10,602,333 |
| aTempleton China World Fund, Class R6 | 391,311 | | 12,932,829 |
| aTempleton Foreign Fund, Class R6 | 7,117,546 | | 51,317,507 |
| aTempleton Frontier Markets Fund, Class R6 | 1,335,092 | | 18,637,880 |
| WisdomTree Japan Hedged Equity Fund ETF (Japan) | 265,670 | | 15,196,324 |
| | | | 238,557,962 |
| Foreign Fixed Income 22.7% | | | |
| aFranklin Emerging Market Debt Opportunities Fund | 4,893,839 | | 53,000,274 |
| aTempleton Global Total Return Fund, Class R6 | 27,769,648 | | 341,288,980 |
| | | | 394,289,254 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $1,539,324,389) | | | 1,704,076,171 |
30 | Semiannual Report
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
| | | | |
| Franklin Conservative Allocation Fund (continued) | | | | |
| | Shares/Units | | Value | |
| Short Term Investments (Cost $34,744,902) 2.0% | | | | |
| Money Market Funds 2.0% | | | | |
| a,bInstitutional Fiduciary Trust Money Market Portfolio | 34,744,902 | $ | 34,744,902 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $1,574,069,291) 100.2% | | | 1,738,821,073 | |
| Other Assets, less Liabilities (0.2)% | | | (2,893,319 | ) |
| Net Assets 100.0% | | $ | 1,735,927,754 | |
See Abbreviations on page 61.
aSee Note 3(f) regarding investments in Underlying Funds.
bNon-income producing.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 31
| | | | | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | | | | |
| Franklin Moderate Allocation Fund | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class A | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 15.71 | | $ | 15.78 | | $ | 14.59 | | $ | 13.69 | | $ | 14.21 | | $ | 12.93 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.06 | | | 0.34 | | | 0.27 | | | 0.29 | | | 0.30 | | | 0.32 | |
| Net realized and unrealized gains (losses) | | 0.24 | | | 0.32 | | | 1.78 | | | 0.97 | | | (0.50 | ) | | 1.22 | |
| Total from investment operations | | 0.30 | | | 0.66 | | | 2.05 | | | 1.26 | | | (0.20 | ) | | 1.54 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.03 | ) | | (0.37 | ) | | (0.30 | ) | | (0.32 | ) | | (0.32 | ) | | (0.26 | ) |
| Net realized gains | | (0.44 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) | | — | | | — | |
| Total distributions | | (0.47 | ) | | (0.73 | ) | | (0.86 | ) | | (0.36 | ) | | (0.32 | ) | | (0.26 | ) |
| Net asset value, end of period | $ | 15.54 | | $ | 15.71 | | $ | 15.78 | | $ | 14.59 | | $ | 13.69 | | $ | 14.21 | |
| |
| Total returnd | | 1.85 | % | | 4.07 | % | | 14.35 | % | | 9.34 | % | | (1.49 | )% | | 11.97 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.64 | % | | 0.65 | % | | 0.61 | % | | 0.53 | % | | 0.53 | % | | 0.53 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.64 | %g | | 0.65 | %g | | 0.59 | % | | 0.50 | % | | 0.50 | % | | 0.50 | % |
| Net investment incomec | | 0.75 | % | | 2.08 | % | | 1.74 | % | | 2.00 | % | | 2.15 | % | | 2.42 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 1,667,764 | | $ | 1,667,201 | | $ | 1,636,122 | | $ | 1,452,659 | | $ | 1,322,230 | | $ | 1,119,369 | |
| Portfolio turnover rate | | 6.75 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % | | 19.76 | % | | 13.94 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.65% for the period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
32 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Moderate Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class C | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 15.33 | | $ | 15.42 | | $ | 14.28 | | $ | 13.40 | | $ | 13.92 | | $ | 12.68 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | —d | | | 0.21 | | | 0.15 | | | 0.17 | | | 0.19 | | | 0.22 | |
| Net realized and unrealized gains (losses) | | 0.24 | | | 0.31 | | | 1.74 | | | 0.97 | | | (0.49 | ) | | 1.18 | |
| Total from investment operations | | 0.24 | | | 0.52 | | | 1.89 | | | 1.14 | | | (0.30 | ) | | 1.40 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.01 | ) | | (0.25 | ) | | (0.19 | ) | | (0.22 | ) | | (0.22 | ) | | (0.16 | ) |
| Net realized gains | | (0.44 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) | | — | | | — | |
| Total distributions | | (0.45 | ) | | (0.61 | ) | | (0.75 | ) | | (0.26 | ) | | (0.22 | ) | | (0.16 | ) |
| Net asset value, end of period | $ | 15.12 | | $ | 15.33 | | $ | 15.42 | | $ | 14.28 | | $ | 13.40 | | $ | 13.92 | |
| |
| Total returne | | 1.49 | % | | 3.35 | % | | 13.41 | % | | 8.51 | % | | (2.17 | )% | | 11.10 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 1.39 | % | | 1.40 | % | | 1.36 | % | | 1.28 | % | | 1.28 | % | | 1.28 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 1.39 | %h | | 1.40 | %h | | 1.34 | % | | 1.25 | % | | 1.25 | % | | 1.25 | % |
| Net investment incomec | | — %i | | | 1.33 | % | | 0.99 | % | | 1.25 | % | | 1.40 | % | | 1.67 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 723,505 | | $ | 716,712 | | $ | 701,224 | | $ | 605,490 | | $ | 554,603 | | $ | 460,531 | |
| Portfolio turnover rate | | 6.75 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % | | 19.76 | % | | 13.94 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.65% for the period ended June 30, 2015.
hBenefit of waiver and payments by affiliates rounds to less than 0.01%.
iRounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 33
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Moderate Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class R | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 15.66 | | $ | 15.73 | | $ | 14.55 | | $ | 13.64 | | $ | 14.17 | | $ | 12.89 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.04 | | | 0.28 | | | 0.22 | | | 0.25 | | | 0.27 | | | 0.30 | |
| Net realized and unrealized gains (losses) | | 0.24 | | | 0.34 | | | 1.78 | | | 0.99 | | | (0.51 | ) | | 1.21 | |
| Total from investment operations | | 0.28 | | | 0.62 | | | 2.00 | | | 1.24 | | | (0.24 | ) | | 1.51 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.02 | ) | | (0.33 | ) | | (0.26 | ) | | (0.29 | ) | | (0.29 | ) | | (0.23 | ) |
| Net realized gains | | (0.44 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) | | — | | | — | |
| Total distributions | | (0.46 | ) | | (0.69 | ) | | (0.82 | ) | | (0.33 | ) | | (0.29 | ) | | (0.23 | ) |
| Net asset value, end of period | $ | 15.48 | | $ | 15.66 | | $ | 15.73 | | $ | 14.55 | | $ | 13.64 | | $ | 14.17 | |
| |
| Total returnd | | 1.75 | % | | 3.89 | % | | 13.97 | % | | 9.11 | % | | (1.73 | )% | | 11.75 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.89 | % | | 0.90 | % | | 0.86 | % | | 0.78 | % | | 0.78 | % | | 0.78 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.89 | %g | | 0.90 | %g | | 0.84 | % | | 0.75 | % | | 0.75 | % | | 0.75 | % |
| Net investment incomec | | 0.50 | % | | 1.83 | % | | 1.49 | % | | 1.75 | % | | 1.90 | % | | 2.17 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 235,968 | | $ | 263,864 | | $ | 286,688 | | $ | 274,881 | | $ | 248,702 | | $ | 198,936 | |
| Portfolio turnover rate | | 6.75 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % | | 19.76 | % | | 13.94 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.65% for the period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
34 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | |
| Franklin Moderate Allocation Fund (continued) | | | | | | | | | |
| | | Six Months Ended | | | Year Ended | |
| | | June 30, 2015 | | | December 31, | |
| | | (unaudited) | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | |
| Per share operating performance | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | |
| Net asset value, beginning of period | $ | 15.72 | | $ | 15.79 | | $ | 15.33 | |
| Income from investment operationsb: | | | | | | | | | |
| Net investment incomec,d | | 0.09 | | | 0.25 | | | 0.77 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | 0.47 | | | 0.56 | |
| Total from investment operations | | 0.32 | | | 0.72 | | | 1.33 | |
| Less distributions from: | | | | | | | | | |
| Net investment income | | (0.04 | ) | | (0.43 | ) | | (0.31 | ) |
| Net realized gains | | (0.44 | ) | | (0.36 | ) | | (0.56 | ) |
| Total distributions | | (0.48 | ) | | (0.79 | ) | | (0.87 | ) |
| Net asset value, end of period | $ | 15.56 | | $ | 15.72 | | $ | 15.79 | |
| |
| Total returne | | 1.99 | % | | 4.52 | % | | 8.93 | % |
| |
| Ratios to average net assetsf | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.28 | % | | 0.27 | % | | 0.44 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.28 | %h | | 0.27 | %h | | 0.26 | % |
| Net investment incomed | | 1.11 | % | | 2.46 | % | | 2.07 | % |
| |
| Supplemental data | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 4,595 | | $ | 4,205 | | $ | 253 | |
| Portfolio turnover rate | | 6.75 | % | | 17.95 | % | | 46.14 | % |
aFor the period May 1, 2013 (effective date) to December 31, 2013.
bThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.65% for the period ended June 30, 2015.
hBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 35
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Moderate Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Advisor Class | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 15.72 | | $ | 15.79 | | $ | 14.60 | | $ | 13.69 | | $ | 14.22 | | $ | 12.93 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.08 | | | 0.33 | | | 0.32 | | | 0.36 | | | 0.37 | | | 0.36 | |
| Net realized and unrealized gains (losses) | | 0.24 | | | 0.37 | | | 1.76 | | | 0.95 | | | (0.55 | ) | | 1.22 | |
| Total from investment operations | | 0.32 | | | 0.70 | | | 2.08 | | | 1.31 | | | (0.18 | ) | | 1.58 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.04 | ) | | (0.41 | ) | | (0.33 | ) | | (0.36 | ) | | (0.35 | ) | | (0.29 | ) |
| Net realized gains | | (0.44 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) | | — | | | — | |
| Total distributions | | (0.48 | ) | | (0.77 | ) | | (0.89 | ) | | (0.40 | ) | | (0.35 | ) | | (0.29 | ) |
| Net asset value, end of period | $ | 15.56 | | $ | 15.72 | | $ | 15.79 | | $ | 14.60 | | $ | 13.69 | | $ | 14.22 | |
| |
| Total returnd | | 1.96 | % | | 4.39 | % | | 14.56 | % | | 9.61 | % | | (1.24 | )% | | 12.31 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.39 | % | | 0.40 | % | | 0.36 | % | | 0.28 | % | | 0.28 | % | | 0.28 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.39 | %g | | 0.40 | %g | | 0.34 | % | | 0.25 | % | | 0.25 | % | | 0.25 | % |
| Net investment incomec | | 1.00 | % | | 2.33 | % | | 1.99 | % | | 2.25 | % | | 2.40 | % | | 2.67 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 76,564 | | $ | 87,612 | | $ | 159,303 | | $ | 123,176 | | $ | 78,605 | | $ | 39,641 | |
| Portfolio turnover rate | | 6.75 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % | | 19.76 | % | | 13.94 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.65% for the period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
36 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
| | | |
| Statement of Investments, June 30, 2015 (unaudited) | | | |
| |
| Franklin Moderate Allocation Fund | | | |
| | Shares/Units | | Value |
| Investments in Underlying Funds and Exchange Traded Funds 98.0% | | | |
| Alternative Strategies 3.9% | | | |
| aFranklin K2 Alternative Strategies Fund, Class R6 | 7,610,849 | $ | 84,023,775 |
| a,bFranklin Pelagos Commodities Strategy Fund, Class R6 | 3,091,053 | | 22,410,135 |
| | | | 106,433,910 |
| Domestic Equity 42.0% | | | |
| a,bFranklin Biotechnology Discovery Fund, Class R6 | 163,832 | | 33,685,593 |
| a,bFranklin DynaTech Fund, Class R6 | 3,182,545 | | 161,164,062 |
| aFranklin Growth Fund, Class R6 | 5,100,990 | | 394,102,478 |
| a,bFranklin Growth Opportunities Fund, Class R6 | 2,174,410 | | 77,408,994 |
| aFranklin Real Estate Securities Fund, Class R6 | 2,196,401 | | 45,070,156 |
| aFranklin Rising Dividends Fund, Class R6 | 4,815,019 | | 248,599,405 |
| a,bFranklin Small Cap Growth Fund, Class R6 | 1,354,629 | | 28,650,412 |
| aFranklin Utilities Fund, Class R6 | 6,148,237 | | 98,002,894 |
| iShares Core S&P 500 ETF | 133,574 | | 27,679,204 |
| iShares S&P 500 Value ETF | 247,000 | | 22,775,870 |
| | | | 1,137,139,068 |
| Domestic Fixed Income 18.1% | | | |
| aFranklin Low Duration Total Return Fund, Class R6 | 20,710,671 | | 207,520,925 |
| aFranklin Short Duration U.S. Government ETF | 143,076 | | 14,160,489 |
| aFranklin Strategic Income Fund, Class R6 | 9,448,191 | | 92,970,197 |
| aFranklin U.S. Government Securities Fund, Class R6 | 18,333,894 | | 118,070,279 |
| iShares Intermediate Credit Bond ETF | 522,707 | | 56,901,884 |
| | | | 489,623,774 |
| Foreign Equity 20.7% | | | |
| aFranklin International Growth Fund, Class R6 | 3,665,067 | | 41,378,605 |
| aFranklin International Small Cap Growth Fund, Class R6 | 5,087,421 | | 99,611,708 |
| aFranklin Mutual European Fund, Class R6 | 6,208,303 | | 137,203,501 |
| iShares Global Infrastructure ETF | 691,049 | | 28,077,321 |
| iShares MSCI All Country Asia ex Japan ETF | 375,382 | | 23,649,066 |
| aTempleton China World Fund, Class R6 | 900,061 | | 29,747,006 |
| aTempleton Foreign Fund, Class R6 | 16,529,907 | | 119,180,633 |
| aTempleton Frontier Markets Fund, Class R6 | 3,475,474 | | 48,517,622 |
| WisdomTree Japan Hedged Equity Fund ETF (Japan) | 605,475 | | 34,633,170 |
| | | | 561,998,632 |
| Foreign Fixed Income 13.3% | | | |
| aFranklin Emerging Market Debt Opportunities Fund | 4,558,482 | | 49,368,360 |
| aTempleton Global Total Return Fund, Class R6 | 25,222,781 | | 309,987,974 |
| | | | 359,356,334 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $2,225,424,666) | | | 2,654,551,718 |
franklintempleton.com
Semiannual Report | 37
FRANKLIN FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
| | | | |
| Franklin Moderate Allocation Fund (continued) | | | | |
| | Shares/Units | | Value | |
| Short Term Investments (Cost $62,680,122) 2.3% | | | | |
| Money Market Funds 2.3% | | | | |
| a,bInstitutional Fiduciary Trust Money Market Portfolio | 62,680,122 | $ | 62,680,122 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $2,288,104,788) 100.3% | | | 2,717,231,840 | |
| Other Assets, less Liabilities (0.3)% | | | (8,836,342 | ) |
| Net Assets 100.0% | | $ | 2,708,395,498 | |
See Abbreviations on page 61.
aSee Note 3(f) regarding investments in Underlying Funds.
bNon-income producing.
38 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | | | | |
| Franklin Growth Allocation Fund | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class A | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.57 | | $ | 18.40 | | $ | 15.81 | | $ | 14.53 | | $ | 15.25 | | $ | 13.51 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.02 | | | 0.24 | | | 0.19 | | | 0.21 | | | 0.22 | | | 0.27 | |
| Net realized and unrealized gains (losses) | | 0.44 | | | 0.67 | | | 3.09 | | | 1.32 | | | (0.70 | ) | | 1.66 | |
| Total from investment operations | | 0.46 | | | 0.91 | | | 3.28 | | | 1.53 | | | (0.48 | ) | | 1.93 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | —d | | | (0.29 | ) | | (0.25 | ) | | (0.25 | ) | | (0.24 | ) | | (0.19 | ) |
| Net realized gains | | (0.64 | ) | | (0.45 | ) | | (0.44 | ) | | — | | | — | | | — | |
| Total distributions | | (0.64 | ) | | (0.74 | ) | | (0.69 | ) | | (0.25 | ) | | (0.24 | ) | | (0.19 | ) |
| Net asset value, end of period | $ | 18.39 | | $ | 18.57 | | $ | 18.40 | | $ | 15.81 | | $ | 14.53 | | $ | 15.25 | |
| |
| Total returne | | 2.46 | % | | 4.95 | % | | 20.98 | % | | 10.52 | % | | (3.15 | )% | | 14.31 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 0.67 | % | | 0.68 | % | | 0.65 | % | | 0.55 | % | | 0.54 | % | | 0.55 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 0.64 | % | | 0.63 | % | | 0.59 | % | | 0.50 | % | | 0.50 | % | | 0.50 | % |
| Net investment incomec | | 0.18 | % | | 1.25 | % | | 1.10 | % | | 1.34 | % | | 1.49 | % | | 1.93 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 922,158 | | $ | 887,856 | | $ | 814,901 | | $ | 655,585 | | $ | 568,998 | | $ | 498,511 | |
| Portfolio turnover rate | | 3.11 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % | | 20.19 | % | | 17.28 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.67% for the period ended June 30, 2015.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 39
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Growth Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class C | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.15 | | $ | 18.00 | | $ | 15.50 | | $ | 14.25 | | $ | 14.97 | | $ | 13.28 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)b,c | | (0.05 | ) | | 0.09 | | | 0.06 | | | 0.09 | | | 0.11 | | | 0.16 | |
| Net realized and unrealized gains (losses) | | 0.43 | | | 0.67 | | | 3.01 | | | 1.29 | | | (0.69 | ) | | 1.62 | |
| Total from investment operations | | 0.38 | | | 0.76 | | | 3.07 | | | 1.38 | | | (0.58 | ) | | 1.78 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | —d | | | (0.16 | ) | | (0.13 | ) | | (0.13 | ) | | (0.14 | ) | | (0.09 | ) |
| Net realized gains | | (0.64 | ) | | (0.45 | ) | | (0.44 | ) | | — | | | — | | | — | |
| Total distributions | | (0.64 | ) | | (0.61 | ) | | (0.57 | ) | | (0.13 | ) | | (0.14 | ) | | (0.09 | ) |
| Net asset value, end of period | $ | 17.89 | | $ | 18.15 | | $ | 18.00 | | $ | 15.50 | | $ | 14.25 | | $ | 14.97 | |
| |
| Total returne | | 2.08 | % | | 4.21 | % | | 20.04 | % | | 9.71 | % | | (3.91 | )% | | 13.44 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 1.42 | % | | 1.43 | % | | 1.40 | % | | 1.30 | % | | 1.29 | % | | 1.30 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 1.39 | % | | 1.38 | % | | 1.34 | % | | 1.25 | % | | 1.25 | % | | 1.25 | % |
| Net investment income (loss)c | | (0.57 | )% | | 0.50 | % | | 0.35 | % | | 0.59 | % | | 0.74 | % | | 1.18 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 348,236 | | $ | 336,213 | | $ | 309,869 | | $ | 241,787 | | $ | 218,071 | | $ | 192,597 | |
| Portfolio turnover rate | | 3.11 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % | | 20.19 | % | | 17.28 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.67% for the period ended June 30, 2015.
40 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Growth Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class R | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.34 | | $ | 18.18 | | $ | 15.63 | | $ | 14.37 | | $ | 15.09 | | $ | 13.38 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)b,c | | (0.01 | ) | | 0.17 | | | 0.14 | | | 0.16 | | | 0.19 | | | 0.25 | |
| Net realized and unrealized gains (losses) | | 0.45 | | | 0.68 | | | 3.05 | | | 1.31 | | | (0.70 | ) | | 1.63 | |
| Total from investment operations | | 0.44 | | | 0.85 | | | 3.19 | | | 1.47 | | | (0.51 | ) | | 1.88 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | —d | | | (0.24 | ) | | (0.20 | ) | | (0.21 | ) | | (0.21 | ) | | (0.17 | ) |
| Net realized gains | | (0.64 | ) | | (0.45 | ) | | (0.44 | ) | | — | | | — | | | — | |
| Total distributions | | (0.64 | ) | | (0.69 | ) | | (0.64 | ) | | (0.21 | ) | | (0.21 | ) | | (0.17 | ) |
| Net asset value, end of period | $ | 18.14 | | $ | 18.34 | | $ | 18.18 | | $ | 15.63 | | $ | 14.37 | | $ | 15.09 | |
| |
| Total returne | | 2.32 | % | | 4.72 | % | | 20.67 | % | | 10.22 | % | | (3.40 | )% | | 14.02 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 0.92 | % | | 0.93 | % | | 0.90 | % | | 0.80 | % | | 0.79 | % | | 0.80 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 0.89 | % | | 0.88 | % | | 0.84 | % | | 0.75 | % | | 0.75 | % | | 0.75 | % |
| Net investment income (loss)c | | (0.07 | )% | | 1.00 | % | | 0.85 | % | | 1.09 | % | | 1.24 | % | | 1.68 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 167,752 | | $ | 182,211 | | $ | 192,361 | | $ | 169,873 | | $ | 147,126 | | $ | 120,070 | |
| Portfolio turnover rate | | 3.11 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % | | 20.19 | % | | 17.28 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dAmount rounds to less than $0.01 per share.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.67% for the period ended June 30, 2015.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 41
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | |
| Franklin Growth Allocation Fund (continued) | | | | | | | | | |
| | | Six Months Ended | | | Year Ended | |
| | | June 30, 2015 | | | December 31, | |
| | | (unaudited) | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | |
| Per share operating performance | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.61 | | $ | 18.44 | | $ | 16.88 | |
| Income from investment operationsb: | | | | | | | | | |
| Net investment incomec,d | | 0.06 | | | 0.15 | | | 0.62 | |
| Net realized and unrealized gains (losses) | | 0.44 | | | 0.83 | | | 1.68 | |
| Total from investment operations | | 0.50 | | | 0.98 | | | 2.30 | |
| Less distributions from: | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | —e | | | (0.36 | ) | | (0.30 | ) |
| Net realized gains | | (0.64 | ) | | (0.45 | ) | | (0.44 | ) |
| Total distributions | | (0.64 | ) | | (0.81 | ) | | (0.74 | ) |
| Net asset value, end of period | $ | 18.47 | | $ | 18.61 | | $ | 18.44 | |
| |
| Total returnf | | 2.61 | % | | 5.38 | % | | 13.88 | % |
| |
| Ratios to average net assetsg | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.30 | % | | 0.28 | % | | 0.95 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.25 | % | | 0.23 | % | | 0.22 | % |
| Net investment incomed | | 0.57 | % | | 1.65 | % | | 1.47 | % |
| |
| Supplemental data | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 2,200 | | $ | 1,755 | | $ | 42 | |
| Portfolio turnover rate | | 3.11 | % | | 17.55 | % | | 30.45 | % |
aFor the period May 1, 2013 (effective date) to December 31, 2013.
bThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
eAmount rounds to less than $0.01 per share.
fTotal return is not annualized for periods less than one year.
gRatios are annualized for periods less than one year.
hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.67% for the period ended June 30, 2015.
42 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Growth Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Advisor Class | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.62 | | $ | 18.45 | | $ | 15.85 | | $ | 14.56 | | $ | 15.28 | | $ | 13.53 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.04 | | | 0.27 | | | 0.24 | | | 0.25 | | | 0.32 | | | 0.30 | |
| Net realized and unrealized gains (losses) | | 0.45 | | | 0.68 | | | 3.09 | | | 1.32 | | | (0.76 | ) | | 1.68 | |
| Total from investment operations | | 0.49 | | | 0.95 | | | 3.33 | | | 1.57 | | | (0.44 | ) | | 1.98 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | —d | | | (0.33 | ) | | (0.29 | ) | | (0.28 | ) | | (0.28 | ) | | (0.23 | ) |
| Net realized gains | | (0.64 | ) | | (0.45 | ) | | (0.44 | ) | | — | | | — | | | — | |
| Total distributions | | (0.64 | ) | | (0.78 | ) | | (0.73 | ) | | (0.28 | ) | | (0.28 | ) | | (0.23 | ) |
| Net asset value, end of period | $ | 18.47 | | $ | 18.62 | | $ | 18.45 | | $ | 15.85 | | $ | 14.56 | | $ | 15.28 | |
| |
| Total returne | | 2.56 | % | | 5.23 | % | | 21.26 | % | | 10.84 | % | | (2.90 | )% | | 14.61 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 0.42 | % | | 0.43 | % | | 0.40 | % | | 0.30 | % | | 0.29 | % | | 0.30 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 0.39 | % | | 0.38 | % | | 0.34 | % | | 0.25 | % | | 0.25 | % | | 0.25 | % |
| Net investment incomec | | 0.43 | % | | 1.50 | % | | 1.35 | % | | 1.59 | % | | 1.74 | % | | 2.18 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 50,941 | | $ | 52,520 | | $ | 74,808 | | $ | 55,810 | | $ | 48,957 | | $ | 23,313 | |
| Portfolio turnover rate | | 3.11 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % | | 20.19 | % | | 17.28 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the
Fund invests.
dAmount rounds to less than $0.01 per share.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying
Funds and exchange traded funds was 0.67% for the period ended June 30, 2015.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 43
| | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | |
| |
| |
| |
| |
| Statement of Investments, June 30, 2015 (unaudited) | | | |
| |
| Franklin Growth Allocation Fund | | | |
| | Shares/Units | | Value |
| Investments in Underlying Funds and Exchange Traded Funds 98.4% | | | |
| Alternative Strategies 3.9% | | | |
| aFranklin K2 Alternative Strategies Fund, Class R6 | 4,192,880 | $ | 46,289,391 |
| a,bFranklin Pelagos Commodities Strategy Fund, Class R6 | 1,700,201 | | 12,326,458 |
| | | | 58,615,849 |
| Domestic Equity 54.4% | | | |
| a,bFranklin Biotechnology Discovery Fund, Class R6 | 114,089 | | 23,457,768 |
| a,bFranklin DynaTech Fund, Class R6 | 2,381,776 | | 120,613,153 |
| aFranklin Growth Fund, Class R6 | 3,545,912 | | 273,957,179 |
| a,bFranklin Growth Opportunities Fund, Class R6 | 1,695,447 | | 60,357,906 |
| aFranklin Real Estate Securities Fund, Class R6 | 1,649,918 | | 33,856,326 |
| aFranklin Rising Dividends Fund, Class R6 | 3,495,631 | | 180,479,452 |
| a,bFranklin Small Cap Growth Fund, Class R6 | 926,004 | | 19,584,993 |
| aFranklin Utilities Fund, Class R6 | 4,189,246 | | 66,776,577 |
| iShares Core S&P 500 ETF | 71,557 | | 14,828,041 |
| iShares S&P 500 Value ETF | 190,400 | | 17,556,784 |
| | | | 811,468,179 |
| Domestic Fixed Income 6.6% | | | |
| aFranklin Low Duration Total Return Fund, Class R6 | 4,275,058 | | 42,836,083 |
| aFranklin Short Duration U.S. Government ETF | 28,581 | | 2,828,713 |
| aFranklin Strategic Income Fund, Class R6 | 1,930,289 | | 18,994,048 |
| aFranklin U.S. Government Securities Fund, Class R6 | 3,520,990 | | 22,675,178 |
| iShares Intermediate Credit Bond ETF | 107,295 | | 11,680,134 |
| | | | 99,014,156 |
| Foreign Equity 28.6% | | | |
| aFranklin International Growth Fund, Class R6 | 2,577,042 | | 29,094,806 |
| aFranklin International Small Cap Growth Fund, Class R6 | 4,005,934 | | 78,436,188 |
| aFranklin Mutual European Fund, Class R6 | 4,512,129 | | 99,718,042 |
| iShares Global Infrastructure ETF | 501,860 | | 20,390,572 |
| iShares MSCI All Country Asia ex Japan ETF | 281,524 | | 17,736,012 |
| aTempleton China World Fund, Class R6 | 712,145 | | 23,536,383 |
| aTempleton Foreign Fund, Class R6 | 12,506,005 | | 90,168,293 |
| aTempleton Frontier Markets Fund, Class R6 | 2,951,132 | | 41,197,801 |
| WisdomTree Japan Hedged Equity Fund ETF (Japan) | 451,450 | | 25,822,940 |
| | | | 426,101,037 |
| Foreign Fixed Income 4.9% | | | |
| aFranklin Emerging Market Debt Opportunities Fund | 903,263 | | 9,782,336 |
| aTempleton Global Total Return Fund, Class R6 | 5,139,348 | | 63,162,591 |
| | | | 72,944,927 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $1,141,577,355) | | | 1,468,144,148 |
44 | Semiannual Report
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
| | | | |
| Franklin Growth Allocation Fund (continued) | | | | |
| | Shares/Units | | Value | |
| Short Term Investments (Cost $28,269,228) 1.9% | | | | |
| Money Market Funds 1.9% | | | | |
| a,bInstitutional Fiduciary Trust Money Market Portfolio | 28,269,228 | $ | 28,269,228 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $1,169,846,583) 100.3% | | | 1,496,413,376 | |
| Other Assets, less Liabilities (0.3)% | | | (5,127,214 | ) |
| Net Assets 100.0% | | $ | 1,491,286,162 | |
See Abbreviations on page 61.
aSee Note 3(f) regarding investments in Underlying Funds.
bNon-income producing.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 45
| | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | |
| |
| |
| |
| |
| Financial Statements | | | | | | | |
| |
| Statements of Assets and Liabilities | | | | | | | |
| June 30, 2015 (unaudited) | | | | | | | |
| |
| | | Franklin | | Franklin | | Franklin | |
| | | Conservative | | Moderate | | Growth | |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund | |
| Assets: | | | | | | | |
| Cost - Underlying Funds (Note 3f) | $ | 1,465,822,258 | $ | 2,115,600,864 | $ | 1,074,159,221 | |
| Cost - Exchange traded funds | | 108,247,033 | | 172,503,924 | | 95,687,362 | |
| Total cost of investments | $ | 1,574,069,291 | $ | 2,288,104,788 | $ | 1,169,846,583 | |
| Value - Underlying Funds (Note 3f) | $ | 1,622,459,519 | $ | 2,523,515,325 | $ | 1,388,398,893 | |
| Value - Exchange traded funds | | 116,361,554 | | 193,716,515 | | 108,014,483 | |
| Total value of investments | | 1,738,821,073 | | 2,717,231,840 | | 1,496,413,376 | |
| Receivables: | | | | | | | |
| Investment securities sold | | 2,410,896 | | 2,725,825 | | 553,854 | |
| Capital shares sold | | 2,636,991 | | 3,464,336 | | 2,804,090 | |
| Dividends | | 76,180 | | 161,369 | | 115,949 | |
| Other assets | | 1,304 | | 1,155 | | 616 | |
| Total assets | | 1,743,946,444 | | 2,723,584,525 | | 1,499,887,885 | |
| Liabilities: | | | | | | | |
| Payables: | | | | | | | |
| Investment securities purchased | | 2,376,900 | | 2,674,013 | | 554,606 | |
| Capital shares redeemed | | 3,377,625 | | 9,075,562 | | 6,183,162 | |
| Asset Allocation fees | | 356,084 | | 558,489 | | 283,745 | |
| Distribution fees | | 1,468,131 | | 2,148,353 | | 1,132,123 | |
| Transfer agent fees | | 390,066 | | 628,579 | | 385,402 | |
| Accrued expenses and other liabilities | | 49,884 | | 104,031 | | 62,685 | |
| Total liabilities | | 8,018,690 | | 15,189,027 | | 8,601,723 | |
| Net assets, at value | $ | 1,735,927,754 | $ | 2,708,395,498 | $ | 1,491,286,162 | |
| Net assets consist of: | | | | | | | |
| Paid-in capital | $ | 1,563,844,669 | $ | 2,269,735,432 | $ | 1,151,884,290 | |
| Undistributed net investment income (loss) | | 795,852 | | 4,223,267 | | (123,832 | ) |
| Net unrealized appreciation (depreciation) | | 164,751,782 | | 429,127,052 | | 326,566,793 | |
| Accumulated net realized gain (loss) | | 6,535,451 | | 5,309,747 | | 12,958,911 | |
| Net assets, at value | $ | 1,735,927,754 | $ | 2,708,395,498 | $ | 1,491,286,162 | |
46 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
| | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES |
| | | | | | | FINANCIAL STATEMENTS |
| |
| |
| |
| |
| Statements of Assets and Liabilities (continued) | | | | | | | | |
| June 30, 2015 (unaudited) | | | | | | | | |
| |
| | | Franklin | | | | Franklin | | Franklin |
| | | Conservative | | | | Moderate | | Growth |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund |
| Class A: | | | | | | | | |
| Net assets, at value | $ | 935,233,638 | $ | 1,667,763,634 | $ | 922,158,257 |
| Shares outstanding | | 65,114,599 | | | | 107,286,610 | | 50,152,720 |
| Net asset value per sharea | $ | 14.36 | | | $ | 15.54 | $ | 18.39 |
| Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 15.24 | | | $ | 16.49 | $ | 19.51 |
| Class C: | | | | | | | | |
| Net assets, at value | $ | 556,390,593 | | $ | | 723,504,882 | $ | 348,235,813 |
| Shares outstanding | | 39,476,776 | | | | 47,853,745 | | 19,468,656 |
| Net asset value and maximum offering price per sharea | $ | 14.09 | | | $ | 15.12 | $ | 17.89 |
| Class R: | | | | | | | | |
| Net assets, at value | $ | 154,617,858 | | $ | | 235,967,508 | $ | 167,751,612 |
| Shares outstanding | | 10,807,126 | | | | 15,247,127 | | 9,249,627 |
| Net asset value and maximum offering price per share | $ | 14.31 | | | $ | 15.48 | $ | 18.14 |
| Class R6: | | | | | | | | |
| Net assets, at value | $ | 1,836,146 | | $ | | 4,595,227 | $ | 2,199,644 |
| Shares outstanding | | 127,945 | | | | 295,238 | | 119,075 |
| Net asset value and maximum offering price per share | $ | 14.35 | | | $ | 15.56 | $ | 18.47 |
| Advisor Class: | | | | | | | | |
| Net assets, at value | $ | 87,849,519 | | $ | | 76,564,247 | $ | 50,940,836 |
| Shares outstanding | | 6,120,363 | | | | 4,919,500 | | 2,758,226 |
| Net asset value and maximum offering price per share | $ | 14.35 | | | $ | 15.56 | $ | 18.47 |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 47
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS
Statements of Operations
for the six months ended June 30, 2015 (unaudited)
| | | | | | | | | |
| | | Franklin | | | Franklin | | | Franklin | |
| | | Conservative | | | Moderate | | | Growth | |
| | | Allocation Fund | | | Allocation Fund | | | Allocation Fund | |
| Investment income: | | | | | | | | | |
| Dividends: | | | | | | | | | |
| Underlying Funds (Note 3f) | $ | 15,238,326 | | $ | 16,933,787 | | $ | 5,039,547 | |
| Exchange traded funds | | 1,223,154 | | | 2,029,955 | | | 1,019,827 | |
| Total investment income | | 16,461,480 | | | 18,963,742 | | | 6,059,374 | |
| Expenses: | | | | | | | | | |
| Asset allocation fees (Note 3a) | | 2,153,108 | | | 3,425,984 | | | 1,864,514 | |
| Distribution fees: (Note 3c) | | | | | | | | | |
| Class A | | 1,152,209 | | | 2,100,791 | | | 1,144,296 | |
| Class C | | 2,751,313 | | | 3,608,033 | | | 1,720,360 | |
| Class R | | 395,608 | | | 632,847 | | | 444,531 | |
| Transfer agent fees: (Note 3e) | | | | | | | | | |
| Class A | | 484,239 | | | 994,186 | | | 674,915 | |
| Class C | | 289,959 | | | 427,243 | | | 254,103 | |
| Class R | | 83,130 | | | 149,744 | | | 131,115 | |
| Class R6 | | 228 | | | 245 | | | 264 | |
| Advisor Class | | 46,916 | | | 47,864 | | | 38,623 | |
| Custodian fees (Note 4) | | 548 | | | 890 | | | 352 | |
| Reports to shareholders | | 51,369 | | | 105,393 | | | 66,540 | |
| Registration and filing fees | | 79,032 | | | 87,255 | | | 73,218 | |
| Professional fees | | 16,617 | | | 20,256 | | | 15,545 | |
| Trustees’ fees and expenses | | 6,172 | | | 10,126 | | | 5,204 | |
| Other | | 12,571 | | | 16,412 | | | 10,667 | |
| Total expenses | | 7,523,019 | | | 11,627,269 | | | 6,444,247 | |
| Expenses waived/paid by affiliates (Notes 3f and 3g) | | (19,552 | ) | | (28,754 | ) | | (268,853 | ) |
| Net expenses | | 7,503,467 | | | 11,598,515 | | | 6,175,394 | |
| Net investment income (loss) | | 8,958,013 | | | 7,365,227 | | | (116,020 | ) |
| Realized and unrealized gains (losses): | | | | | | | | | |
| Net realized gain (loss) from: | | | | | | | | | |
| Sale of investments: | | | | | | | | | |
| Underlying Funds (Note 3f) | | 11,127,343 | | | 10,127,127 | | | 14,452,467 | |
| Exchange traded funds | | 41,245 | | | 84,607 | | | 9,855 | |
| Net realized gain (loss) | | 11,168,588 | | | 10,211,734 | | | 14,462,322 | |
| Net change in unrealized appreciation (depreciation) on investments | | 1,616,853 | | | 31,020,104 | | | 20,237,796 | |
| Net realized and unrealized gain (loss) | | 12,785,441 | | | 41,231,838 | | | 34,700,118 | |
| Net increase (decrease) in net assets resulting from operations | $ | 21,743,454 | | $ | 48,597,065 | | $ | 34,584,098 | |
48 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
| | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL STATEMENTS | |
| |
| |
| Statements of Changes in Net Assets | | | | | | | | | | | | |
| |
| | | Franklin | | | Franklin | |
| | | Conservative Allocation Fund | | | Moderate Allocation Fund | |
| | | Six Months Ended | | | | | | Six Months Ended | | | | |
| | | June 30, 2015 | | | Year Ended | | | June 30, 2015 | | | Year Ended | |
| | | (unaudited) | | | December 31, 2014 | | | (unaudited) | | | December 31, 2014 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 8,958,013 | | $ | 41,254,503 | | $ | 7,365,227 | | $ | 52,051,448 | |
| Net realized gain (loss) | | 11,168,588 | | | 41,874,751 | | | 10,211,734 | | | 105,419,626 | |
| Net change in unrealized appreciation | | | | | | | | | | | | |
| (depreciation) on investments | | 1,616,853 | | | (31,156,451 | ) | | 31,020,104 | | | (49,648,092 | ) |
| Net increase (decrease) in net assets | | | | | | | | | | | | |
| resulting from operations | | 21,743,454 | | | 51,972,803 | | | 48,597,065 | | | 107,822,982 | |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income: | | | | | | | | | | | | |
| Class A | | (5,738,651 | ) | | (25,413,629 | ) | | (3,068,386 | ) | | (38,129,297 | ) |
| Class C | | (1,609,053 | ) | | (11,597,319 | ) | | (307,309 | ) | | (11,485,730 | ) |
| Class R | | (779,927 | ) | | (4,141,289 | ) | | (338,102 | ) | | (5,440,637 | ) |
| Class R6 | | (13,998 | ) | | (92,864 | ) | | (11,145 | ) | | (289,973 | ) |
| Advisor Class | | (642,402 | ) | | (2,859,868 | ) | | (174,782 | ) | | (2,392,681 | ) |
| Net realized gains: | | | | | | | | | | | | |
| Class A | | (18,203,722 | ) | | (11,696,465 | ) | | (45,876,709 | ) | | (36,890,069 | ) |
| Class C | | (11,025,602 | ) | | (7,240,053 | ) | | (20,385,120 | ) | | (16,239,360 | ) |
| Class R | | (3,022,006 | ) | | (2,164,890 | ) | | (6,519,769 | ) | | (6,067,607 | ) |
| Class R6 | | (35,593 | ) | | (82,538 | ) | | (125,676 | ) | | (512,949 | ) |
| Advisor Class | | (1,705,761 | ) | | (1,273,888 | ) | | (2,094,385 | ) | | (2,391,120 | ) |
| Total distributions to shareholders | | (42,776,715 | ) | | (66,562,803 | ) | | (78,901,383 | ) | | (119,839,423 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | 36,042,644 | | | 46,732,968 | | | 18,224,492 | | | 38,831,164 | |
| Class C | | 14,210,565 | | | 29,536,406 | | | 16,839,352 | | | 19,655,378 | |
| Class R | | (3,571,650 | ) | | (5,759,784 | ) | | (25,840,654 | ) | | (21,890,340 | ) |
| Class R6 | | 205,401 | | | 1,518,695 | | | 441,505 | | | 3,122,327 | |
| Advisor Class | | (1,484,836 | ) | | (14,796,952 | ) | | (10,559,626 | ) | | (71,697,229 | ) |
| Total capital share transactions | | 45,402,124 | | | 57,231,333 | | | (894,931 | ) | | (31,978,700 | ) |
| Net increase (decrease) in net | | | | | | | | | | | | |
| assets | | 24,368,863 | | | 42,641,333 | | | (31,199,249 | ) | | (43,995,141 | ) |
| Net assets: | | | | | | | | | | | | |
| Beginning of period | | 1,711,558,891 | | | 1,668,917,558 | | | 2,739,594,747 | | | 2,783,589,888 | |
| End of period | $ | 1,735,927,754 | | $ | 1,711,558,891 | | $ | 2,708,395,498 | | $ | 2,739,594,747 | |
| Undistributed net investment income included | | | | | | | | | | | | |
| in net assets: | | | | | | | | | | | | |
| End of period | $ | 795,852 | | $ | 621,870 | | $ | 4,223,267 | | $ | 757,764 | |
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 49
| | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | |
| FINANCIAL STATEMENTS | | | | | | |
| |
| |
| Statements of Changes in Net Assets (continued) | | | | | | |
| |
| | | Franklin Growth Allocation Fund | |
| | | Six Months Ended | | | | |
| | | June 30, 2015 | | | Year Ended | |
| | | (unaudited) | | | December 31, 2014 | |
| Increase (decrease) in net assets: | | | | | | |
| Operations: | | | | | | |
| Net investment income (loss) | $ | (116,020 | ) | $ | 15,192,359 | |
| Net realized gain (loss) | | 14,462,322 | | | 65,813,844 | |
| Net change in unrealized appreciation (depreciation) on investments | | 20,237,796 | | | (13,542,414 | ) |
| Net increase (decrease) in net assets resulting from operations | | 34,584,098 | | | 67,463,789 | |
| Distributions to shareholders from: | | | | | | |
| Net investment income and short term gains received from Underlying Funds: | | | | | | |
| Class A | | (144,915 | ) | | (13,601,930 | ) |
| Class C | | (56,524 | ) | | (2,879,304 | ) |
| Class R | | (28,699 | ) | | (2,339,058 | ) |
| Class R6 | | (333 | ) | | (39,682 | ) |
| Advisor Class | | (8,330 | ) | | (919,862 | ) |
| Net realized gains: | | | | | | |
| Class A | | (31,320,727 | ) | | (20,800,818 | ) |
| Class C | | (12,083,284 | ) | | (8,037,905 | ) |
| Class R | | (5,819,181 | ) | | (4,570,619 | ) |
| Class R6 | | (74,028 | ) | | (401,855 | ) |
| Advisor Class | | (1,718,073 | ) | | (1,273,439 | ) |
| Total distributions to shareholders | | (51,254,094 | ) | | (54,864,472 | ) |
| Capital share transactions: (Note 2) | | | | | | |
| Class A | | 43,938,139 | | | 65,731,634 | |
| Class C | | 17,221,322 | | | 23,942,365 | |
| Class R | | (12,998,041 | ) | | (11,877,769 | ) |
| Class R6 | | 472,622 | | | 943,402 | |
| Advisor Class | | (1,233,086 | ) | | (22,765,242 | ) |
| Total capital share transactions | | 47,400,956 | | | 55,974,390 | |
| Net increase (decrease) in net assets | | 30,730,960 | | | 68,573,707 | |
| Net assets: | | | | | | |
| Beginning of period | | 1,460,555,202 | | | 1,391,981,495 | |
| End of period | $ | 1,491,286,162 | | $ | 1,460,555,202 | |
| Undistributed net investment income (loss) included in net assets: | | | | | | |
| End of period | $ | (123,832 | ) | $ | 230,989 | |
50 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
Notes to Financial Statements (unaudited)
1. Organization and Significant Accounting Policies
Franklin Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of twenty separate funds, three of which are included in this report (Funds) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). 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 C, Class R, Class R6, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.
The accounting policies of the Underlying Funds are outlined in their respective shareholder reports. A copy of the Underlying Funds’ shareholder reports, in which each fund invests, is available on the U.S. Securities and Exchange Commission (SEC) website at sec.gov or at the SEC’s Public Reference Room in Washington, D.C. The Underlying Funds’ shareholder reports are not covered by this report.
The following summarizes the Funds’ significant accounting policies.
a. Financial Instrument Valuation
The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Funds calculate the net asset value (NAV) per share at the close of the New York Stock Exchange (NYSE), generally at 4 p.m. Eastern time (NYSE close) on each day the NYSE is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Investments in the Underlying Funds are valued at their closing NAV each trading day. Exchange traded funds (ETFs) listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively.
b. Income Taxes
It is each fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
Each fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of June 30, 2015, and for all open tax years, each fund has determined that no liability for unrecognized tax benefits is required in each fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.
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 and ETFs 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 U.S. GAAP. 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.
The Funds indirectly bear their proportionate share of expenses from the Underlying Funds and ETFs. Since the Underlying Funds and ETFs have varied expense levels and the Funds may own different proportions of the Underlying Funds and ETFs at different times, the amount of expenses incurred indirectly by the Funds will vary.
franklintempleton.com
Semiannual Report | 51
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Significant Accounting
Policies (continued)
c. Security Transactions, Investment Income, Expenses and Distributions (continued)
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 U.S. GAAP 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. 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.
| | | | | | | | | | | |
| | Franklin | | Franklin | | |
| | Conservative Allocation Fund | | Moderate Allocation Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| |
| Class A Shares: | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | |
| Shares sold | 7,676,430 | | $ | 113,416,352 | | 9,506,099 | | $ | 152,578,030 | |
| Shares issued in reinvestment of distributions | 1,611,618 | | | 23,396,801 | | 3,045,099 | | | | 47,978,542 | |
| Shares redeemed | (6,837,485 | ) | | (100,770,509 | ) | (11,368,055 | ) | | (182,332,080 | ) |
| Net increase (decrease) | 2,450,563 | | $ | 36,042,644 | | 1,183,143 | | | $ | 18,224,492 | |
| Year ended December 31, 2014 | | | | | | | | | | | |
| Shares sold | 15,046,528 | | $ | 222,808,539 | | 19,016,916 | | $ | 303,942,553 | |
| Shares issued in reinvestment of distributions | 2,451,981 | | | 36,036,838 | | 4,609,341 | | | | 73,314,303 | |
| Shares redeemed | (14,327,217 | ) | | (212,112,409 | ) | (21,174,769 | ) | | (338,425,692 | ) |
| Net increase (decrease) | 3,171,292 | | $ | 46,732,968 | | 2,451,488 | | | $ | 38,831,164 | |
| |
| Class C Shares: | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | |
| Shares sold | 3,812,395 | | $ | 55,270,725 | | 3,952,446 | | | $ | 61,819,276 | |
| Shares issued in reinvestment of distributions | 845,946 | | | 12,043,860 | | 1,302,921 | | | | 19,953,186 | |
| Shares redeemed | (3,669,378 | ) | | (53,104,020 | ) | (4,155,790 | ) | | (64,933,110 | ) |
| Net increase (decrease) | 988,963 | | $ | 14,210,565 | | 1,099,577 | | | $ | 16,839,352 | |
| Year ended December 31, 2014 | | | | | | | | | | | |
| Shares sold | 7,714,900 | | $ | 112,098,574 | | 7,476,837 | | $ | 116,581,397 | |
| Shares issued in reinvestment of distributions | 1,234,859 | | | 17,819,734 | | 1,711,464 | | | | 26,546,906 | |
| Shares redeemed | (6,904,369 | ) | | (100,381,902 | ) | (7,913,190 | ) | | (123,472,925 | ) |
| Net increase (decrease) | 2,045,390 | | $ | 29,536,406 | | 1,275,111 | | | $ | 19,655,378 | |
2. Shares of Beneficial Interest
At June 30, 2015, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
52 | Semiannual Report franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | |
| | Franklin | | | Franklin | | |
| | Conservative Allocation Fund | | Moderate Allocation Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| |
| Class R Shares: | | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | | |
| Shares sold | 794,044 | | $ | 11,643,217 | | 875,108 | | | $ | 13,975,813 | |
| Shares issued in reinvestment of distributions | 255,182 | | | | 3,688,770 | | 426,508 | | | | 6,688,971 | |
| Shares redeemed | (1,287,716 | ) | | (18,903,637 | ) | (2,907,640 | ) | | (46,505,438 | ) |
| Net increase (decrease) | (238,490 | ) | | $ | (3,571,650 | ) | (1,606,024 | ) | $ | (25,840,654 | ) |
| Year ended December 31, 2014 | | | | | | | | | | | | |
| Shares sold | 2,580,624 | | $ | 38,099,760 | | 2,707,148 | | | $ | 43,151,286 | |
| Shares issued in reinvestment of distributions | 417,661 | | | | 6,118,512 | | 707,204 | | | | 11,208,510 | |
| Shares redeemed | (3,388,627 | ) | | (49,978,056 | ) | (4,786,277 | ) | | (76,250,136 | ) |
| Net increase (decrease) | (390,342 | ) | | $ | (5,759,784 | ) | (1,371,925 | ) | $ | (21,890,340 | ) |
| |
| Class R6 Shares: | | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | | |
| Shares sold | 15,435 | | | $ | 227,246 | | 25,986 | | | $ | 416,907 | |
| Shares issued in reinvestment of distributions | 3,417 | | | | 49,591 | | 8,671 | | | | 136,822 | |
| Shares redeemed | (4,843 | ) | | | (71,436 | ) | (7,016 | ) | | | (112,224 | ) |
| Net increase (decrease) | 14,009 | | | $ | 205,401 | | 27,641 | | | $ | 441,505 | |
| Year ended December 31, 2014 | | | | | | | | | | | | |
| Shares solda | 648,287 | | | $ | 9,542,433 | | 2,720,251 | | | $ | 43,024,597 | |
| Shares issued in reinvestment of distributions | 11,847 | | | | 175,294 | | 50,054 | | | | 802,806 | |
| Shares redeemed | (548,760 | ) | | | (8,199,032 | ) | (2,518,732 | ) | | (40,705,076 | ) |
| Net increase (decrease) | 111,374 | | | $ | 1,518,695 | | 251,573 | | | $ | 3,122,327 | |
| |
| Advisor Class Shares: | | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | | |
| Shares sold | 398,424 | | | $ | 5,874,709 | | 627,567 | | | $ | 10,109,005 | |
| Shares issued in reinvestment of distributions | 155,559 | | | | 2,257,344 | | 136,150 | | | | 2,148,313 | |
| Shares redeemed | (650,379 | ) | | | (9,616,889 | ) | (1,417,642 | ) | | (22,816,944 | ) |
| Net increase (decrease) | (96,396 | ) | | $ | (1,484,836 | ) | (653,925 | ) | $ | (10,559,626 | ) |
| Year ended December 31, 2014 | | | | | | | | | | | | |
| Shares sold | 1,229,855 | | $ | 18,227,617 | | 1,859,022 | | | $ | 29,661,699 | |
| Shares issued in reinvestment of distributions | 270,947 | | | | 3,982,836 | | 287,474 | | | | 4,580,070 | |
| Shares redeemeda | (2,501,544 | ) | | (37,007,405 | ) | (6,662,568 | ) | | (105,938,998 | ) |
| Net increase (decrease) | (1,000,742 | ) | $ | (14,796,952 | ) | (4,516,072 | ) | $ | (71,697,229 | ) |
| |
| | Franklin | | | | | | | |
| | Growth Allocation Fund | | | | | | | |
| | Shares | | | Amount | | | | | | | |
| |
| Class A Shares: | | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | | |
| Shares sold | 5,373,392 | | $ | 102,609,258 | | | | | | | |
| Shares issued in reinvestment of distributions | 1,655,819 | | | 30,933,468 | | | | | | | |
| Shares redeemed | (4,695,718 | ) | | (89,604,587 | ) | | | | | | |
| Net increase (decrease) | 2,333,493 | | $ | 43,938,139 | | | | | | | |
| Year ended December 31, 2014 | | | | | | | | | | | | |
| Shares sold | 10,003,322 | | $ | 186,802,241 | | | | | | | |
| Shares issued in reinvestment of distributions | 1,798,598 | | | 33,718,676 | | | | | | | |
| Shares redeemed | (8,279,846 | ) | | (154,789,283 | ) | | | | | | |
| Net increase (decrease) | 3,522,074 | | $ | 65,731,634 | | | | | | | |
franklintempleton.com
Semiannual Report | 53
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | |
| |
| | Franklin | |
| | Growth Allocation Fund | |
| | Shares | | | | Amount | |
| |
| Class C Shares: | | | | | | |
| Six Months ended June 30, 2015 | | | | | | |
| Shares sold | 1,788,471 | | | $ | 33,290,816 | |
| Shares issued in reinvestment of distributions | 648,656 | | | | 11,787,294 | |
| Shares redeemed | (1,496,432 | ) | | | (27,856,788 | ) |
| Net increase (decrease) | 940,695 | | | $ | 17,221,322 | |
| Year ended December 31, 2014 | | | | | | |
| Shares sold | 3,313,242 | | | $ | 60,304,468 | |
| Shares issued in reinvestment of distributions | 576,629 | | | | 10,564,815 | |
| Shares redeemed | (2,572,650 | ) | | | (46,926,918 | ) |
| Net increase (decrease) | 1,317,221 | | | $ | 23,942,365 | |
| |
| Class R Shares: | | | | | | |
| Six Months ended June 30, 2015 | | | | | | |
| Shares sold | 683,147 | | | $ | 12,843,843 | |
| Shares issued in reinvestment of distributions | 310,598 | | | | 5,724,893 | |
| Shares redeemed | (1,676,856 | ) | | | (31,566,777 | ) |
| Net increase (decrease) | (683,111 | ) | $ | (12,998,041 | ) |
| Year ended December 31, 2014 | | | | | | |
| Shares sold | 1,618,817 | | | $ | 29,808,390 | |
| Shares issued in reinvestment of distributions | 363,625 | | | | 6,737,449 | |
| Shares redeemed | (2,630,686 | ) | | | (48,423,608 | ) |
| Net increase (decrease) | (648,244 | ) | $ | (11,877,769 | ) |
| |
| Class R6 Shares: | | | | | | |
| Six Months ended June 30, 2015 | | | | | | |
| Shares sold | 22,387 | | | $ | 427,994 | |
| Shares issued in reinvestment of distributions | 3,961 | | | | 74,361 | |
| Shares redeemed | (1,529 | ) | | | (29,733 | ) |
| Net increase (decrease) | 24,819 | | | $ | 472,622 | |
| Year ended December 31, 2014 | | | | | | |
| Shares solda | 1,473,569 | | | $ | 27,194,749 | |
| Shares issued in reinvestment of distributions | 23,325 | | | | 441,444 | |
| Shares redeemed | (1,404,939 | ) | | | (26,692,791 | ) |
| Net increase (decrease) | 91,955 | | | $ | 943,402 | |
| |
| Advisor Class Shares: | | | | | | |
| Six Months ended June 30, 2015 | | | | | | |
| Shares sold | 200,193 | | | $ | 3,839,445 | |
| Shares issued in reinvestment of distributions | 88,269 | | | | 1,656,076 | |
| Shares redeemed | (350,294 | ) | | | (6,728,607 | ) |
| Net increase (decrease) | (61,832 | ) | | $ | (1,233,086 | ) |
| Year ended December 31, 2014 | | | | | | |
| Shares sold | 825,057 | | | $ | 15,541,571 | |
| Shares issued in reinvestment of distributions | 112,789 | | | | 2,122,032 | |
| Shares redeemeda | (2,173,232 | ) | | | (40,428,845 | ) |
| Net increase (decrease) | (1,235,386 | ) | $ | (22,765,242 | ) |
aEffective January 8, 2014, a portion of Advisor Class shares were exchanged into Class R6.
54 | Semiannual Report
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 Funds 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 and ETFs.
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Funds and is not paid by the Funds for the services.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are not charged on shares held by affiliates. 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 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 plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each fund.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | |
| Class A | 0.25 | % |
| Class C | 1.00 | % |
| Class R | 0.50 | % |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the period:
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | Conservative | | Moderate | | Growth |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund |
| Sales charges retained net of commissions paid to unaffiliated | | | | | | |
| broker/dealers | $ | 312,493 | $ | 536,749 | $ | 401,234 |
| CDSC retained | $ | 21,659 | $ | 36,941 | $ | 14,694 |
franklintempleton.com
Semiannual Report | 55
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
e. Transfer Agent Fees
Each class of shares, except for Class R6, pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholding servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended June 30, 2015, 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 |
| | | Conservative | | Moderate | | Growth |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund |
| |
| Transfer agent fees | $ | 345,240 | $ | 665,274 | $ | 500,774 |
f. Investments in Underlying Funds
The Funds invest primarily in the Underlying Funds which are managed by Advisers (or by an affiliate of Advisers). The Funds do not invest in the Underlying Funds for the purpose of exercising a controlling influence over the management or policies. Asset allocation fees paid by the Funds are waived on assets invested in Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), as noted in the Statements of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by the Sweep Money Fund. Prior to January 1, 2014, the waiver was accounted for as a reduction to asset allocation fees.
| | | | | | | | | | | | | | |
| Investments in Underlying Funds for the period ended June 30, 2015, were as follows: | | | | | | | |
| |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | | | | | | | Outstanding | |
| | at Beginning | Gross | Gross | | Held at End | | Value at End | | Investment | | Realized | | Held at End | |
| Underlying Funds | of Period | Additions | Reductions | | of Period | | of Period | | Income | | Gain (Loss) | | of Period | |
| Franklin Conservative Allocation | | | | | | | | | | | | | | |
| Fund | | | | | | | | | | | | | | |
| Franklin Biotechnology Discovery | | | | | | | | | | | | | | |
| Fund, Class R6 | 68,573 | — | (1,172 | ) | 67,401 | $ | 13,858,299 | $ | — | $ | 42,934 | | 0.66 | % |
| Franklin DynaTech Fund, | | | | | | | | | | | | | | |
| Class R6 | 1,487,833 | — | (25,443 | ) | 1,462,390 | | 74,055,434 | | — | | 88,295 | | 2.61 | % |
| Franklin Emerging Market Debt | | | | | | | | | | | | | | |
| Opportunities Fund | 4,785,483 | 108,356 | — | | 4,893,839 | | 53,000,274 | | — | | — | | 7.34 | % |
| Franklin Flex Cap Growth Fund, | | | | | | | | | | | | | | |
| Class R6 | 318,611 | — | (318,611 | ) | — | | —a | | — | | 8,216,286 | | — | |
| Franklin Growth Fund, Class R6 | 2,275,352 | — | (93,731 | ) | 2,181,621 | | 168,552,071 | | — | | 2,293,096 | | 1.42 | % |
| Franklin Growth Opportunities Fund, | | | | | | | | | | | | | | |
| Class R6 | 916,335 | — | (15,722 | ) | 900,613 | | 32,061,816 | | — | | 49,586 | | 2.58 | % |
| Franklin International Growth Fund, | | | | | | | | | | | | | | |
| Class R6 | — | 1,457,524 | — | | 1,457,524 | | 16,455,442 | | — | | — | | 3.61 | % |
| Franklin International Small Cap | | | | | | | | | | | | | | |
| Growth Fund, Class R6 | 2,203,618 | — | (37,975 | ) | 2,165,643 | | 42,403,283 | | — | | (114,099 | ) | 2.25 | % |
| Franklin K2 Alternative Strategies | | | | | | | | | | | | | | |
| Fund, Class R6 | 5,202,283 | — | (368,637 | ) | 4,833,646 | | 53,363,448 | | — | | 157,003 | | 6.72 | % |
| Franklin Low Duration Total Return | | | | | | | | | | | | | | |
| Fund, Class R6 | 21,133,434 | 630,205 | — | | 21,763,639 | | 218,071,659 | | 1,516,229 | | — | | 8.72 | % |
56 | Semiannual Report
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | | | | | | | Outstanding | |
| | at Beginning | Gross | Gross | | Held at End | | Value at End | | Investment | | Realized | | Held at End | |
| Underlying Funds | of Period | Additions | Reductions | | of Period | | of Period | | Income | | Gain (Loss) | | of Period | |
| Franklin Conservative Allocation | | | | | | | | | | | | | | |
| Fund (continued) | | | | | | | | | | | | | | |
| Franklin Mutual European Fund, | | | | | | | | | | | | | | |
| Class R6 | 2,725,481 | — | (46,764 | ) | 2,678,717 | $ | 59,199,638 | $ | — | $ | (96,529 | ) | 1.77 | % |
| Franklin Pelagos Commodities | | | | | | | | | | | | | | |
| Strategy Fund, Class R6 | 1,849,064 | 27,100 | — | | 1,876,164 | | 13,602,191 | | — | | — | | 24.01 | % |
| Franklin Real Estate Securities | | | | | | | | | | | | | | |
| Fund, Class R6 | 883,637 | 7,027 | (15,168 | ) | 875,496 | | 17,965,181 | | 151,628 | | 61,583 | | 3.26 | % |
| Franklin Rising Dividends Fund, | | | | | | | | | | | | | | |
| Class R6 | 2,142,627 | 13,107 | (36,874 | ) | 2,118,860 | | 109,396,740 | | 692,242 | | 27,040 | | 0.64 | % |
| Franklin Short Duration U.S. | | | | | | | | | | | | | | |
| Government ETF | — | 123,969 | — | | 123,969 | | 12,269,435 | | 12,285 | | — | | 12.38 | % |
| Franklin Small Cap | | | | | | | | | | | | | | |
| Growth Fund, Class R6 | 569,352 | — | (9,720 | ) | 559,632 | | 11,836,219 | | — | | 13,893 | | 0.31 | % |
| Franklin Strategic Income Fund, | | | | | | | | | | | | | | |
| Class R6 | 9,699,192 | 461,940 | — | | 10,161,132 | | 99,985,543 | | 2,393,672 | | — | | 1.15 | % |
| Franklin U.S. Government Securities | | | | | | | | | | | | | | |
| Fund, Class R6 | 19,379,956 | 794,740 | — | | 20,174,696 | | 129,925,039 | | 2,287,344 | | — | | 2.06 | % |
| Franklin Utilities Fund, Class R6 | 2,484,668 | 34,876 | (164,732 | ) | 2,354,812 | | 37,535,709 | | 590,999 | | 365,996 | | 0.69 | % |
| Institutional Fiduciary Trust Money | | | | | | | | | | | | | | |
| Market Portfolio | 37,714,682 | 50,922,704 | (53,892,484 | ) | 34,744,902 | | 34,744,902 | | — | | — | | 0.14 | % |
| Templeton China World Fund, | | | | | | | | | | | | | | |
| Class R6 | 419,806 | — | (28,495 | ) | 391,311 | | 12,932,829 | | — | | 27,690 | | 2.07 | % |
| Templeton Foreign Fund, | | | | | | | | | | | | | | |
| Class R6 | 7,242,263 | — | (124,717 | ) | 7,117,546 | | 51,317,507 | | — | | 40,193 | | 0.70 | % |
| Templeton Frontier Markets Fund, | | | | | | | | | | | | | | |
| Class R6 | 1,358,420 | — | (23,328 | ) | 1,335,092 | | 18,637,880 | | — | | (45,624 | ) | 2.32 | % |
| Templeton Global Total Return Fund, | | | | | | | | | | | | | | |
| Class R6 | 26,547,285 | 1,222,363 | — | | 27,769,648 | | 341,288,980 | | 7,593,927 | | — | | 4.11 | % |
| Total | | | | | | $ | 1,622,459,519 | $ | 15,238,326 | $ | 11,127,343 | | | |
| |
| Franklin Moderate Allocation | | | | | | | | | | | | | | |
| Fund | | | | | | | | | | | | | | |
| Franklin Biotechnology Discovery | | | | | | | | | | | | | | |
| Fund, Class R6 | 154,628 | 11,597 | (2,393 | ) | 163,832 | $ | 33,685,593 | $ | — | $ | 56,303 | | 1.61 | % |
| Franklin DynaTech Fund, | | | | | | | | | | | | | | |
| Class R6 | 3,004,368 | 224,304 | (46,127 | ) | 3,182,545 | | 161,164,062 | | — | | 180,994 | | 5.67 | % |
| Franklin Emerging Market Debt | | | | | | | | | | | | | | |
| Opportunities Fund | 5,406,119 | — | (847,637 | ) | 4,558,482 | | 49,368,360 | | — | | (1,589,548 | ) | 6.84 | % |
| Franklin Flex Cap Growth Fund, | | | | | | | | | | | | | | |
| Class R6 | 743,400 | 55,478 | (798,878 | ) | — | | —a | | — | | 18,521,394 | | — | |
| Franklin Growth Fund, Class R6 | 4,951,261 | 368,423 | (218,694 | ) | 5,100,990 | | 394,102,478 | | — | | 661,747 | | 3.31 | % |
| Franklin Growth Opportunities Fund, | | | | | | | | | | | | | | |
| Class R6 | 2,052,803 | 153,163 | (31,556 | ) | 2,174,410 | | 77,408,994 | | — | | 88,491 | | 6.24 | % |
| Franklin International Growth Fund, | | | | | | | | | | | | | | |
| Class R6 | — | 3,691,660 | (26,593 | ) | 3,665,067 | | 41,378,605 | | — | | 1,728 | | 9.08 | % |
| Franklin International Small Cap | | | | | | | | | | | | | | |
| Growth Fund, Class R6 | 4,803,065 | 358,116 | (73,760 | ) | 5,087,421 | | 99,611,708 | | — | | (180,362 | ) | 5.28 | % |
| Franklin K2 Alternative Strategies | | | | | | | | | | | | | | |
| Fund, Class R6 | 8,440,420 | — | (829,571 | ) | 7,610,849 | | 84,023,775 | | — | | 392,985 | | 10.58 | % |
franklintempleton.com
Semiannual Report | 57
| | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| NOTES TO FINANCIAL STATEMENTS (UNAUDITED) | | | | | | | | | | | |
| |
| |
| |
| |
| 3. Transactions with Affiliates (continued) | | | | | | | | | | | | |
| |
| f. Investments in Underlying Funds (continued) | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | | | | | | | Outstanding | |
| | at Beginning | Gross | Gross | | Held at End | | Value at End | | Investment | | Realized | | Held at End | |
| Underlying Funds | of Period | Additions | Reductions | | of Period | | of Period | | Income | | Gain (Loss) | | of Period | |
| Franklin Moderate Allocation | | | | | | | | | | | | | | |
| Fund (continued) | | | | | | | | | | | | | | |
| Franklin Low Duration Total Return | | | | | | | | | | | | | | |
| Fund, Class R6 | 24,381,041 | 152,482 | (3,822,852 | ) | 20,710,671 | $ | 207,520,925 | $ | 1,532,635 | $ | (545,858 | ) | 8.30 | % |
| Franklin Mutual European Fund, | | | | | | | | | | | | | | |
| Class R6 | 5,859,326 | 438,406 | (89,429 | ) | 6,208,303 | | 137,203,501 | | — | | (143,372 | ) | 4.09 | % |
| Franklin Pelagos Commodities | | | | | | | | | | | | | | |
| Strategy Fund, Class R6 | 3,091,053 | — | — | | 3,091,053 | | 22,410,135 | | — | | — | | 39.56 | % |
| Franklin Real Estate Securities | | | | | | | | | | | | | | |
| Fund, Class R6 | 2,056,811 | 171,395 | (31,805 | ) | 2,196,401 | | 45,070,156 | | 381,677 | | (47,477 | ) | 8.17 | % |
| Franklin Rising Dividends Fund, | | | | | | | | | | | | | | |
| Class R6 | 4,519,492 | 365,010 | (69,483 | ) | 4,815,019 | | 248,599,405 | | 1,575,344 | | 61,752 | | 1.44 | % |
| Franklin Short Duration U.S. | | | | | | | | | | | | | | |
| Government ETF | — | 143,076 | — | | 143,076 | | 14,160,489 | | 14,635 | | — | | 14.29 | % |
| Franklin Small Cap | | | | | | | | | | | | | | |
| Growth Fund, Class R6 | 1,279,158 | 95,139 | (19,668 | ) | 1,354,629 | | 28,650,412 | | — | | 30,032 | | 0.75 | % |
| Franklin Strategic Income Fund, | | | | | | | | | | | | | | |
| Class R6 | 10,933,688 | 235,040 | (1,720,537 | ) | 9,448,191 | | 92,970,197 | | 2,349,827 | | (655,954 | ) | 1.07 | % |
| Franklin U.S. Government Securities | | | | | | | | | | | | | | |
| Fund, Class R6 | 21,347,055 | 337,864 | (3,351,025 | ) | 18,333,894 | | 118,070,279 | | 2,197,482 | | (483,043 | ) | 1.83 | % |
| Franklin Utilities Fund, Class R6 | 6,017,739 | 540,736 | (410,238 | ) | 6,148,237 | | 98,002,894 | | 1,543,315 | | (191,922 | ) | 1.80 | % |
| Institutional Fiduciary Trust Money | | | | | | | | | | | | | | |
| Market Portfolio | 60,252,907 | 142,936,369 | (140,509,154 | ) | 62,680,122 | | 62,680,122 | | — | | — | | 0.25 | % |
| Templeton China World Fund, | | | | | | | | | | | | | | |
| Class R6 | 849,235 | 63,735 | (12,909 | ) | 900,061 | | 29,747,006 | | — | | 54,894 | | 4.76 | % |
| Templeton Foreign Fund, | | | | | | | | | | | | | | |
| Class R6 | 15,608,526 | 1,160,121 | (238,740 | ) | 16,529,907 | | 119,180,633 | | — | | 146,148 | | 1.62 | % |
| Templeton Frontier Markets Fund, | | | | | | | | | | | | | | |
| Class R6 | 3,282,634 | 243,252 | (50,412 | ) | 3,475,474 | | 48,517,622 | | — | | (65,942 | ) | 6.04 | % |
| Templeton Global Total Return Fund, | | | | | | | | | | | | | | |
| Class R6 | 29,238,206 | 589,388 | (4,604,813 | ) | 25,222,781 | | 309,987,974 | | 7,338,872 | | (6,165,863 | ) | 3.73 | % |
| Total | | | | | | $ | 2,523,515,325 | $ | 16,933,787 | $ | 10,127,127 | | | |
| |
| Franklin Growth Allocation Fund | | | | | | | | | | | | | | |
| Franklin Biotechnology Discovery | | | | | | | | | | | | | | |
| Fund, Class R6 | 114,089 | — | — | | 114,089 | $ | 23,457,768 | $ | — | $ | — | | 1.12 | % |
| Franklin DynaTech Fund, | | | | | | | | | | | | | | |
| Class R6 | 2,381,776 | — | — | | 2,381,776 | | 120,613,153 | | — | | — | | 4.24 | % |
| Franklin Emerging Market Debt | | | | | | | | | | | | | | |
| Opportunities Fund | 846,174 | 57,089 | — | | 903,263 | | 9,782,336 | | — | | — | | 1.36 | % |
| Franklin Flex Cap Growth Fund, | | | | | | | | | | | | | | |
| Class R6 | 553,699 | — | (553,699 | ) | — | | —a | | — | | 13,616,204 | | — | |
| Franklin Growth Fund, Class R6 | 3,643,163 | — | (97,251 | ) | 3,545,912 | | 273,957,179 | | — | | 658,134 | | 2.30 | % |
| Franklin Growth Opportunities Fund, | | | | | | | | �� | | | | | | |
| Class R6 | 1,695,447 | — | — | | 1,695,447 | | 60,357,906 | | — | | — | | 4.86 | % |
| Franklin International Growth Fund, | | | | | | | | | | | | | | |
| Class R6 | — | 2,577,042 | — | | 2,577,042 | | 29,094,806 | | — | | — | | 6.39 | % |
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | |
| | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | Underlying | |
| | Number of | | | | Number of | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | | | | | | Outstanding | |
| | at Beginning | Gross | Gross | | Held at End | | Value at End | | Investment | | Realized | Held at End | |
| Underlying Funds | of Period | Additions | Reductions | | of Period | | of Period | | Income | | Gain (Loss) | of Period | |
| Franklin Growth Allocation Fund | | | | | | | | | | | | | |
| (continued) | | | | | | | | | | | | | |
| Franklin International Small Cap | | | | | | | | | | | | | |
| Growth Fund, Class R6 | 4,005,934 | — | — | | 4,005,934 | $ | 78,436,188 | $ | — | $ | — | 4.16 | % |
| Franklin K2 Alternative Strategies | | | | | | | | | | | | | |
| Fund, Class R6 | 4,373,496 | — | (180,616 | ) | 4,192,880 | | 46,289,391 | | — | | 67,360 | 5.83 | % |
| Franklin Low Duration Total Return | | | | | | | | | | | | | |
| Fund, Class R6 | 3,975,400 | 299,658 | — | | 4,275,058 | | 42,836,083 | | 298,931 | | — | 1.71 | % |
| Franklin Mutual European Fund, | | | | | | | | | | | | | |
| Class R6 | 4,512,129 | — | — | | 4,512,129 | | 99,718,042 | | — | | — | 2.97 | % |
| Franklin Pelagos Commodities | | | | | | | | | | | | | |
| Strategy Fund, Class R6 | 1,700,201 | — | — | | 1,700,201 | | 12,326,458 | | — | | — | 21.76 | % |
| Franklin Real Estate Securities | | | | | | | | | | | | | |
| Fund, Class R6 | 1,636,731 | 13,187 | — | | 1,649,918 | | 33,856,326 | | 284,486 | | — | 6.14 | % |
| Franklin Rising Dividends Fund, | | | | | | | | | | | | | |
| Class R6 | 3,474,131 | 21,500 | — | | 3,495,631 | | 180,479,452 | | 1,135,502 | | — | 1.05 | % |
| Franklin Short Duration U.S. | | | | | | | | | | | | | |
| Government ETF | — | 28,581 | — | | 28,581 | | 2,828,713 | | 2,828 | | — | 2.86 | % |
| Franklin Small Cap | | | | | | | | | | | | | |
| Growth Fund, Class R6 | 926,004 | — | — | | 926,004 | | 19,584,993 | | — | | — | 0.51 | % |
| Franklin Strategic Income Fund, | | | | | | | | | | | | | |
| Class R6 | 1,764,319 | 165,970 | — | | 1,930,289 | | 18,994,048 | | 456,784 | | — | 0.22 | % |
| Franklin U.S. Government Securities | | | | | | | | | | | | | |
| Fund, Class R6 | 3,238,824 | 282,166 | — | | 3,520,990 | | 22,675,178 | | 400,892 | | — | 0.36 | % |
| Franklin Utilities Fund, Class R6 | 4,343,712 | 61,490 | (215,956 | ) | 4,189,246 | | 66,776,577 | | 1,041,975 | | 110,769 | 1.23 | % |
| Institutional Fiduciary Trust Money | | | | | | | | | | | | | |
| Market Portfolio | 36,145,952 | 33,918,471 | (41,795,195 | ) | 28,269,228 | | 28,269,228 | | — | | — | 0.11 | % |
| Templeton China World Fund, | | | | | | | | | | | | | |
| Class R6 | 712,145 | — | — | | 712,145 | | 23,536,383 | | — | | — | 3.77 | % |
| Templeton Foreign Fund, | | | | | | | | | | | | | |
| Class R6 | 12,506,005 | — | — | | 12,506,005 | | 90,168,293 | | — | | — | 1.23 | % |
| Templeton Frontier Markets Fund, | | | | | | | | | | | | | |
| Class R6 | 2,951,132 | — | — | | 2,951,132 | | 41,197,801 | | — | | — | 5.13 | % |
| Templeton Global Total Return Fund, | | | | | | | | | | | | | |
| Class R6 | 4,704,538 | 434,810 | — | | 5,139,348 | | 63,162,591 | | 1,418,149 | | — | 0.76 | % |
| Total | | | | | | $ | 1,388,398,893 | $ | 5,039,547 | $ | 14,452,467 | | |
| |
| aAs of June 30, 2015, no longer held by the fund. | | | | | | | | | | | | |
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
g. Waiver and Expense Reimbursements
Advisers and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Funds so that the expenses (excluding distribution fees, and acquired fund fees and expenses) for each class of the Funds do not exceed the following based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until April 30, 2016:
| | | | | | |
| | Franklin | | Franklin | | Franklin | |
| | Conservative | | Moderate | | Growth | |
| | Allocation Fund | | Allocation Fund | | Allocation Fund | |
| |
| Class A, Class C, Class R & Advisor Class | 0.40 | % | 0.40 | % | 0.40 | % |
| Class R6 | 0.30 | % | 0.28 | % | 0.26 | % |
4. Expense Offset Arrangement
The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the period ended June 30, 2015, there were no credits earned.
5. Income Taxes
At June 30, 2015, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| | | | | | | | | |
| | | Franklin | | | Franklin | | | Franklin | |
| | | Conservative | | | Moderate | | | Growth | |
| | | Allocation Fund | | | Allocation Fund | | | Allocation Fund | |
| Cost of investments | $ | 1,577,076,455 | | $ | 2,291,655,275 | | $ | 1,171,325,005 | |
| |
| Unrealized appreciation | $ | 216,810,034 | | $ | 481,499,702 | | $ | 341,551,018 | |
| Unrealized depreciation | | (55,065,416 | ) | | (55,923,137 | ) | | (16,462,647 | ) |
| Net unrealized appreciation (depreciation) | $ | 161,744,618 | | $ | 425,576,565 | | $ | 325,088,371 | |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of short term capital gains distributions from Underlying Funds and ETFs and wash sales.
6. Investment Transactions
Purchases and sales of Underlying Funds and ETFs (excluding short term securities) for the period ended June 30, 2015, were as follows:
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | Conservative | | Moderate | | Growth |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund |
| |
| Purchases | $ | 63,458,741 | $ | 182,028,276 | $ | 47,949,187 |
| Sales | $ | 49,651,049 | $ | 255,398,614 | $ | 45,606,225 |
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
7. Credit Facility
The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 12, 2016. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.07% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the period ended June 30, 2015, the Funds did not use the Global Credit Facility.
8. Fair Value Measurements
The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:
- Level 1 – quoted prices in active markets for identical financial instruments
- Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
- Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of financial instruments)
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
At June 30, 2015, all of the Funds’ investments in financial instruments carried at fair value were valued using Level 1 inputs.
For detailed categories, see the accompanying Statements of Investments.
9. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
|
| Abbreviations |
| Selected Portfolio |
| ETF Exchange Traded Fund |
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Shareholder Information
Board Review of Investment Management Agreement
At a meeting held February 24, 2015, the Board of Trustees, including a majority of non-interested or independent Trustees, approved renewal of the investment management and asset allocation agreement (investment management agreement) for each of the separate funds in Franklin Fund Allocator Series, including Franklin Conservative Allocation Fund, Franklin Moderate Allocation Fund and Franklin Growth Allocation Fund (Fund(s)). In reaching its decision to approve renewal of the investment management agreements, the Board took into account information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included investment performance reports and related financial information for each Fund, along with periodic reports on expenses, shareholder services, legal and compliance matters, pricing, brokerage commissions and execution and other services provided by the Investment Manager (Manager) and its affiliates, as well as marketing support payments made to financial intermediaries. Information furnished specifically in connection with the renewal process included a report for each Fund prepared by Lipper, Inc. (Lipper), an independent organization, as well as additional material, including a Fund profitability analysis prepared by management. The Lipper reports compared each Fund’s investment performance and expenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis discussed the profitability to Franklin Templeton Investments (FTI) from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional material accompanying such profitability analysis included information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager and its affiliates to U.S. mutual funds and other accounts, including management’s explanation of differences where relevant. Such material also included a memorandum prepared by management describing project initiatives and capital investments relating to the services provided to the Funds by the FTI organization, as well as a memorandum relating to economies of scale and an analysis concerning transfer agent fees charged by an affiliate of the Manager. The Board also noted that at the February meetings each year, it receives an annual report on all marketing support payments made by FTI to financial intermediaries.
In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel. While the investment management agreements for all Funds were considered at the same Board meeting, the Board dealt with each Fund separately. In approving continuance of the investment management agreement for each Fund, the Board, including a majority of independent Trustees, determined that the existing fee structure was fair and reasonable and that continuance of the investment management agreement was in the best interests of each Fund and its shareholders. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was generally satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to the Funds and their shareholders. In addition to investment performance and expenses discussed later, the Board’s opinion was based, in part, upon periodic reports furnished it showing that the investment policies and restrictions for each Fund were consistently complied with as well as other reports periodically furnished the Board covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, the adherence to fair value pricing procedures established by the Board, and the accuracy of net asset value calculations. The Board also noted the extent of benefits provided Fund shareholders from being part of the Franklin Templeton family of funds, including the right to exchange investments between the same class of shares of different funds without a sales charge, the ability to reinvest Fund dividends into other funds and the right to combine holdings in other funds to obtain a reduced sales charge. Favorable consideration was given to management’s continual efforts and expenditures in establishing effective business continuity plans and developing strategies to address cybersecurity threats. Among other factors taken into account by the Board were the Manager’s best execution trading policies, including a favorable report by an independent portfolio trading analytical firm that also covered FOREX transactions. Consideration was also given to the experience of each Fund’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Board noted that a primary factor in management’s determination of a portfolio manager’s bonus compensation was the relative investment performance
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of the funds he or she managed and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Board also took into account the quality of transfer agent and shareholder services provided Fund shareholders by an affiliate of the Manager noting the changes taking place in the nature of transfer agency services throughout the industry and regulatory initiatives in this area, and the continual enhancements to the Franklin Templeton website. Particular attention was given to management’s conservative approach and diligent risk management procedures, including continual monitoring of counterparty credit risk and attention given to derivatives and other complex instruments including expanded collateralization requirements. The Board also took into account, among other things, management’s efforts in establishing a global credit facility for the benefit of the Funds and other accounts managed by FTI to provide a source of cash for temporary and emergency purposes or to meet unusual redemption requests as well as the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its continued subsidization of money market funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of each Fund in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the agreement renewals. The Lipper reports prepared for each individual Fund showed the investment performance of its Class A shares, in comparison to a performance universe selected by Lipper. Comparative performance for each Fund was shown for the one-year period ended December 31, 2014, and for additional periods ended that date depending on when a particular Fund commenced operations. The following summarizes the performance results for each of the Funds and the Board’s view of such performance. The Board observed that the performance of a number of the Funds was impacted by their respective allocations to global markets and currencies, as well as U.S. fixed income. These allocations, while consistent with the Funds’ longer term perspectives, were detrimental to short-term returns and comparisons to peers.
Franklin Conservative Allocation Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional mixed-asset target allocation conservative funds as selected by Lipper. The Lipper report showed the Fund’s total return for 2014 to be in the second-lowest performing quintile of such performance universe, and on an annualized basis, to be in the middle performing quintile of such universe for the previous three- and five-year periods, and the highest performing quintile of such universe for the previous 10-year period. The Board noted that the Fund’s performance reflects that of the funds in which it invests, and that the Manager continues to evaluate allocations to these funds. The Board found the performance of the Fund in comparison to its Lipper performance universe as shown in the Lipper report to be acceptable, noting its longer term performance.
Franklin Moderate Allocation Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional mixed-asset target allocation moderate funds as selected by Lipper. The Lipper report showed the Fund’s 2014 total return to be in the second-lowest performing quintile of such performance universe, and its total return on an annualized basis to be in the second-lowest performing quintile of such universe for the previous three- and five-year periods, but to be in the second-highest performing quintile of such universe for the previous 10-year period. The Board found such comparative performance to be acceptable, noting that the Fund’s 2014 total return as shown in the Lipper report exceeded 4%.
Franklin Growth Allocation Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional mixed-asset target allocation growth funds as selected by Lipper. The Lipper report showed the Fund’s 2014 total return to be in the second-lowest performing quintile of such performance universe, and its total return on an annualized basis to be in the second-lowest performing quintile of such universe during the previous three- and five-year periods, and the second-highest performing quintile of such universe during the previous 10-year period. The Board noted that the Fund’s performance reflects that of the funds in which it invests, and that the Manager continues to evaluate allocations to these funds. The Board found the performance of the Fund in comparison to its Lipper performance universe as shown in the Lipper report to be acceptable, noting its longer term performance.
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Board Review of Investment Management
Agreement (continued)
COMPARATIVE EXPENSES. Consideration was given to the fee and total expense ratio of each Fund compared with those of a group of retail front-end load fund of funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each such fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that expense ratios generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on each Fund’s contractual fee under the investment management agreement in comparison with the contractual investment management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to the Fund, as well as the actual total expense ratios of the Funds, including expenses of the underlying funds they invest in. The Lipper contractual investment management fee analysis includes the administrative fee and asset allocation advisory fee directly charged to the Funds as being part of the contractual investment management fee, with the investment management fees charged underlying funds being included within actual total expenses. Contractual investment management fees and total expenses for comparative consistency are shown by Lipper for Fund Class A shares. The Board noted that the Funds pay an asset allocation advisory fee. The Lipper reports for Franklin Moderate Allocation Fund showed that its contractual management fee rate was three basis points above the median of its Lipper expense group, and its actual total expense ratio was within six basis points above the median of its Lipper expense group. The Lipper report for Franklin Growth Allocation Fund showed its contractual management fee rate to be less than 10 basis points above the median of its Lipper expense group and its actual total expense ratio to be at the median for such expense group after a waiver. The Lipper report for Franklin Conservative Allocation Fund showed its contractual management fee rate to be three basis points above the median of its Lipper expense group and its actual total expense ratio to be within six basis points above the median. The Board found the comparative expenses of these Funds as shown in the Lipper report to be acceptable, noting that in each case such expenses were being subsidized by fee waivers.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits realized by the Manager and its affiliates in connection with the operation of each Fund. In this respect, the Board reviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’s U.S. fund business, as well as its profits in providing management and other services to each of the individual funds during the 12-month period ended September 30, 2014, being the most recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, the Board recognized that allocation methodologies are inherently subjective and various allocation methodologies may be reasonable while producing different results. In this respect, the Board noted that while management continually makes refinements to its methodologies in response to organizational and product related changes, the overall approach as defined by the primary drivers and activity measurements has remained consistent with that used in the Funds’ profitability report presentations from prior years. Additionally, the Funds’ independent registered public accounting firm had been engaged by the Manager to periodically review the reasonableness of the allocation methodologies to be used solely by the Funds’ Board in reference to the profitability analysis. In reviewing and discussing such analysis, management discussed with the Board its belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to each Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. The Board also took into account management’s expenditures in improving shareholder services provided the Funds, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Board considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services and potential benefits resulting from personnel and systems enhancements necessitated by Fund growth, as well as increased leverage with the service providers and counterparties. Based upon its
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SHAREHOLDER INFORMATION
consideration of all these factors, and taking into account the fact that Fund expenses were being subsidized through fee waivers, the Board determined that the level of profits realized by the Manager and its affiliates from providing services to each Fund was not excessive in view of the nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are realized by the Manager as the Funds grow larger and the extent to which this is reflected in the level of management fees charged. While recognizing that any precise determination is inherently subjective, the Board noted that based upon the Fund profitability analysis, it appears that as some funds get larger, at some point economies of scale do result in the Manager realizing a larger profit margin on management services provided such a fund. The Board also noted that economies of scale are shared with a fund and its shareholders through management fee breakpoints so that as a fund grows in size, its effective management fee rate declines. The management fees charged by all or substantially all the underlying funds in which the Funds invest provide for such management fee breakpoints. Consequently, to the extent economies of scale may be realized by the investment managers of these funds, the benefits are shared with each Fund and its shareholders through a reduction in actual total expense ratios.
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, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, 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.
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Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Focus on Investment Excellence
At the core of our firm, you’ll find multiple independent investment teams—each with a focused area of expertise—from traditional to alternative strategies and multi-asset solutions. And because our portfolio groups operate autonomously, their strategies can be combined to deliver true style and asset class diversification.
All of our investment teams share a common commitment to excellence grounded in rigorous, fundamental research and robust, disciplined risk management. Decade after decade, our consistent, research-driven processes have helped Franklin Templeton earn an impressive record of strong, long-term results.
Global Perspective Shaped by Local Expertise
In today’s complex and interconnected world, smart investing demands a global perspective. Franklin Templeton pioneered international investing over 60 years ago, and our expertise in emerging markets spans more than a quarter of a century. Today, our investment professionals are on the ground across the globe, spotting investment ideas and potential risks firsthand. These locally based teams bring in-depth understanding of local companies, economies and cultural nuances, and share their best thinking across our global research network.
Strength and Experience
Franklin Templeton is a global leader in asset management serving clients in over 150 countries.1 We run our business with the same prudence we apply to asset management, staying focused on delivering relevant investment solutions, strong long-term results and reliable, personal service. This approach, focused on putting clients first, has helped us to become one of the most trusted names in financial services.
1. As of 12/31/14. Clients are represented by the total number of shareholder accounts.
Not FDIC Insured | May Lose Value | No Bank Guarantee
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| Contents | |
| |
| Semiannual Report | |
| Economic and Market Overview | 3 |
| Franklin Corefolio Allocation Fund | 4 |
| Franklin Founding Funds | |
| Allocation Fund | 11 |
| Financial Highlights and | |
| Statements of Investments | 18 |
| Financial Statements | 28 |
| Notes to Financial Statements | 31 |
| Shareholder Information | 38 |
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Semiannual Report
Economic and Market Overview
The global economy expanded moderately during the six months under review despite slowing growth in some countries. As measured by the MSCI World Index, stocks in global developed markets advanced overall during the six-month period amid a generally accommodative monetary policy environment and signs of economic improvement in Europe and Japan. Oil prices rebounded from earlier lows as demand picked up despite rising inventories and strong global supply, while gold prices declined marginally during the period under review.
U.S. economic growth was mixed during the six months under review. In 2015’s first quarter, U.S. dollar strength, low energy prices, and a labor dispute at West Coast ports led exports to decline. In the second quarter, business capital spending rebounded and manufacturing and non-manufacturing activities increased, contributing to strong job gains. During the six-month period, the U.S. Federal Reserve Board (Fed) kept its target interest rate at 0%–0.25% while considering when an increase would be appropriate, based on labor market and inflation data.
Outside the U.S., the U.K. economy slowed in 2015’s first quarter as the mining and agriculture sectors contracted. In the eurozone, economic growth improved somewhat during the six-month period. The region avoided deflation as the annual inflation rate rose in May. The European Central Bank (ECB) maintained its benchmark interest rates during the period and also expanded its asset purchases to boost inflation and the economy. The region generally benefited from a weaker euro that helped exports, the ECB’s accommodative policy and an improved 2015 eurozone growth forecast, which helped limit fears about Greece’s debt situation.
The Japanese economy continued to grow in 2015’s first quarter after exiting recession in the previous quarter, driven by an increase in private demand as business investment and private consumption rose. The Bank of Japan maintained its monetary policy during the review period but lowered its economic growth and inflation forecasts at its April meeting.
In emerging markets, economic growth generally moderated. Greece’s credit default due to the lack of progress in negotiations weighed on emerging market stocks toward period-end. China’s government implemented market-friendly policies to support new economic drivers that could help steer the economy toward more sustainable growth. Lower interest rates there fueled massive stock market speculation and a 60% price gain up to mid-June 2015 for the domestic A-share market.1 Concerned the market was overheated, the People’s Bank of China reduced liquidity, which led to a market panic in the last two weeks of June, exacerbated by certain government intervention measures. Central bank actions varied across emerging markets, as some banks raised interest rates in response to rising inflation and weakening currencies, while others lowered interest rates to promote economic growth. In the recent global environment, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose for the six-month period.
The foregoing information reflects our analysis and opinions as of June 30, 2015. 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.
1. Source: MSCI.
See www.franklintempletondatasources.com for additional data provider information.
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Semiannual Report | 3
Franklin Corefolio Allocation Fund
This semiannual report for Franklin Corefolio Allocation Fund covers the period ended June 30, 2015.
Your Fund’s Goal and Main Investments
The Fund seeks capital appreciation through investments in a combination of Franklin Flex Cap Growth Fund, Franklin Growth Fund, Franklin Mutual Shares Fund and Templeton Growth Fund.
*The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class. Figures are stated
as a percentage of total and may not equal 100% or may be negative due to
rounding, use of any derivatives, unsettled trades or other factors.
Performance Overview
The Fund’s Class A shares delivered a +3.26% cumulative total return for the six months under review. In comparison, its benchmarks, the Standard & Poor’s 500 Index (S&P 500®), which is a broad measure of U.S. stock performance, generated a +1.23% total return, and the MSCI World Index, which tracks equity performance in global developed markets, produced a +2.95% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 6.
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.
Investment Strategy
The Fund invests its assets allocated approximately 25% each in Franklin Flex Cap Growth Fund, Franklin Growth Fund, Franklin 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 weightings in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages.
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 to the actual performance of the selected underlying funds.
During the period under review, Franklin Flex Cap Growth Fund – Class R6, Franklin Growth Fund – Class R6 and Franklin Mutual Shares Fund – Class R6 each outperformed the S&P 500. Templeton Growth Fund – Class R6 underperformed the MSCI World Index.
1. Source: Morningstar.
The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. See www.franklintempletondatasources.com for additional data provider information.
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 22.
4 | Semiannual Report
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FRANKLIN COREFOLIO ALLOCATION FUND
Thank you for your continued participation in Franklin Corefolio Allocation Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of June 30, 2015, 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.
CFA® is a trademark owned by CFA Institute.
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Semiannual Report | 5
FRANKLIN COREFOLIO ALLOCATION FUND
Performance Summary as of June 30, 2015
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 does 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.
| | | | | | |
| Net Asset Value | | | | | | |
| Share Class (Symbol) | | 6/30/15 | | 12/31/14 | | Change |
| A (FTCOX) | $ | 18.06 | $ | 18.00 | +$ | 0.06 |
| C (FTCLX) | $ | 17.80 | $ | 17.81 | -$ | 0.01 |
| R (N/A) | $ | 18.05 | $ | 18.01 | +$ | 0.04 |
| Advisor (FCAZX) | $ | 18.12 | $ | 18.03 | +$ | 0.09 |
| |
| |
| Distributions1 (1/1/15–6/30/15) | | | | | | |
| | | Dividend | | Long-Term | | |
| Share Class | | Income | | Capital Gain | | Total |
| A | $ | 0.0075 | $ | 0.5304 | $ | 0.5379 |
| C | $ | 0.0075 | $ | 0.5304 | $ | 0.5379 |
| R | $ | 0.0075 | $ | 0.5304 | $ | 0.5379 |
| Advisor | $ | 0.0075 | $ | 0.5304 | $ | 0.5379 |
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FRANKLIN COREFOLIO ALLOCATION FUND
PERFORMANCE SUMMARY
Performance as of 6/30/152
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.
| | | | | | | | |
| | Cumulative | | Average Annual | | | Value of | Total Annual | |
| Share Class | Total Return3 | | Total Return4 | | $ | 10,000 Investment5 | Operating Expenses6 | |
| A | | | | | | | 1.06 | % |
| 6-Month | +3.26 | % | -2.69 | % | $ | 9,731 | | |
| 1-Year | +3.51 | % | -2.46 | % | $ | 9,754 | | |
| 5-Year | +95.20 | % | +12.96 | % | $ | 18,394 | | |
| 10-Year | +95.06 | % | +6.28 | % | $ | 18,384 | | |
| C | | | | | | | 1.77 | % |
| 6-Month | +2.90 | % | +1.90 | % | $ | 10,190 | | |
| 1-Year | +2.77 | % | +1.80 | % | $ | 10,180 | | |
| 5-Year | +88.40 | % | +13.51 | % | $ | 18,840 | | |
| 10-Year | +81.87 | % | +6.16 | % | $ | 18,187 | | |
| R | | | | | | | 1.27 | % |
| 6-Month | +3.15 | % | +3.15 | % | $ | 10,315 | | |
| 1-Year | +3.34 | % | +3.34 | % | $ | 10,334 | | |
| 5-Year | +93.33 | % | +14.09 | % | $ | 19,333 | | |
| 10-Year | +91.20 | % | +6.70 | % | $ | 19,120 | | |
| Advisor | | | | | | | 0.77 | % |
| 6-Month | +3.42 | % | +3.42 | % | $ | 10,342 | | |
| 1-Year | +3.82 | % | +3.82 | % | $ | 10,382 | | |
| 5-Year | +98.18 | % | +14.66 | % | $ | 19,818 | | |
| 10-Year | +100.87 | % | +7.22 | % | $ | 20,087 | | |
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, go to franklintempleton.com or call (800) 342-5236.
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Semiannual Report | 7
FRANKLIN COREFOLIO ALLOCATION FUND
PERFORMANCE SUMMARY
All investments involve risks, including possible loss of principal. 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 those same risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Foreign investing carries additional risks such as currency and market volatility, and political or social instability, risks that are heightened in developing countries. 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. Value securities may not increase in price as anticipated or may decline further in value. These and other risks, including investments in specialized industry sectors such as the technology sector, which has been among the most volatile in the market, are discussed 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. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income and
capital gain.
2. The Fund has a fee waiver associated with any investment in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end.
Fund investment results reflect the fee waiver, to the extent applicable; without this reduction, the results would have been lower.
3. Cumulative total return represents the change in value of an investment over the periods indicated.
4. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.
5. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
6. Figures are as stated in the Fund’s current prospectus and include the effect of acquired fund fees and expenses. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become higher than the figures shown.
8 | Semiannual Report
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FRANKLIN COREFOLIO ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- Ongoing Fund costs, including management fees, distribu- tion 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) of 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) of 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 Fund’s actual expense ratio 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.
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. 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.
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| FRANKLIN COREFOLIO ALLOCATION FUND | | | | | | |
| YOUR FUND’S EXPENSES | | | | | | | | |
| |
| |
| |
| | | Beginning | | Ending | | Expenses Paid | | Expenses Paid |
| | | Account | | Account | | During Period* | | During Period** |
| Share Class | | Value 1/1/15 | | Value 6/30/15 | | 1/1/15–6/30/15 | | 1/1/15–6/30/15 |
| A | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,032.60 | $ | 2.42 | $ | 5.34 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,022.41 | $ | 2.41 | $ | 5.31 |
| C | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,029.00 | $ | 5.99 | $ | 8.90 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,018.89 | $ | 5.96 | $ | 8.85 |
| R | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,031.50 | $ | 3.48 | $ | 6.40 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.37 | $ | 3.46 | $ | 6.36 |
| Advisor | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,034.20 | $ | 0.96 | $ | 3.88 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,023.85 | $ | 0.95 | $ | 3.86 |
*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: 1.19%; R: 0.69%; and Advisor: 0.19%), multiplied by the average account value over the period,
multiplied by 181/365 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: 1.06%; C: 1.77%; R: 1.27%; and Advisor: 0.77%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
10 | Semiannual Report
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Franklin Founding Funds Allocation Fund
This semiannual report for Franklin Founding Funds Allocation Fund covers the period ended June 30, 2015.
Your Fund’s Goals and Main Investments
The 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, Franklin Mutual Shares Fund and Templeton Growth Fund.
*The asset allocation is based on the Statement of Investments (SOI), which
classifies each underlying fund into a broad asset class.
Performance Overview
The Fund’s Class A shares delivered a +0.83% cumulative total return for the six months under review. In comparison, its benchmarks, the Standard & Poor’s 500 Index (S&P 500), which is a broad measure of U.S. stock performance, generated a +1.23% total return, and the MSCI World Index, which tracks equity performance in global developed markets, produced a +2.95% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 13.
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.
Investment Strategy
The Fund invests its assets in an equally weighted combination of Franklin Income Fund, Franklin 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.
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 to the actual performance of the selected underlying funds.
During the period under review, Franklin Income Fund –Class R6 underperformed the S&P 500, while Franklin Mutual Shares Fund – Class R6 outperformed the S&P 500. Templeton Growth Fund – Class R6 underperformed the MSCI World Index.
1. Source: Morningstar.
The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 27.
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Semiannual Report | 11
FRANKLIN FOUNDING FUNDS ALLOCATION FUND
Thank you for your continued participation in Franklin Founding Funds Allocation Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of June 30, 2015, 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.
12 | Semiannual Report
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FRANKLIN FOUNDING FUNDS ALLOCATION FUND
Performance Summary as of June 30, 2015
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 does 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.
| | | | | | |
| Net Asset Value | | | | | | |
| Share Class (Symbol) | | 6/30/15 | | 12/31/14 | | Change |
| A (FFALX) | $ | 13.31 | $ | 13.31 | $ | 0.00 |
| C (FFACX) | $ | 13.11 | $ | 13.11 | $ | 0.00 |
| R (FFARX) | $ | 13.33 | $ | 13.33 | $ | 0.00 |
| Advisor (FFAAX) | $ | 13.38 | $ | 13.38 | $ | 0.00 |
| |
| |
| Distributions1 (1/1/15–6/30/15) | | | | | | |
| | Dividend | | | | |
| Share Class | | Income | | | | |
| A | $ | 0.1132 | | | | |
| C | $ | 0.0660 | | | | |
| R | $ | 0.0983 | | | | |
| Advisor | $ | 0.1295 | | | | |
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Semiannual Report | 13
FRANKLIN FOUNDING FUNDS ALLOCATION FUND
PERFORMANCE SUMMARY
Performance as of 6/30/152
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.
| | | | | | | | |
| | Cumulative | | Average Annual | | | Value of | Total Annual | |
| Share Class | Total Return3 | | Total Return4 | | $ | 10,000 Investment5 | Operating Expenses6 | |
| A | | | | | | | 0.99 | % |
| 6-Month | +0.83 | % | -4.95 | % | $ | 9,505 | | |
| 1-Year | -3.40 | % | -8.95 | % | $ | 9,105 | | |
| 5-Year | +72.46 | % | +10.19 | % | $ | 16,246 | | |
| 10-Year | +71.18 | % | +4.90 | % | $ | 16,137 | | |
| C | | | | | | | 1.74 | % |
| 6-Month | +0.49 | % | -0.51 | % | $ | 9,949 | | |
| 1-Year | -4.09 | % | -5.02 | % | $ | 9,498 | | |
| 5-Year | +66.13 | % | +10.68 | % | $ | 16,613 | | |
| 10-Year | +59.43 | % | +4.77 | % | $ | 15,943 | | |
| R | | | | | | | 1.24 | % |
| 6-Month | +0.72 | % | +0.72 | % | $ | 10,072 | | |
| 1-Year | -3.62 | % | -3.62 | % | $ | 9,638 | | |
| 5-Year | +70.37 | % | +11.24 | % | $ | 17,037 | | |
| 10-Year | +67.37 | % | +5.29 | % | $ | 16,737 | | |
| Advisor | | | | | | | 0.74 | % |
| 6-Month | +0.95 | % | +0.95 | % | $ | 10,095 | | |
| 1-Year | -3.14 | % | -3.14 | % | $ | 9,686 | | |
| 5-Year | +74.49 | % | +11.78 | % | $ | 17,449 | | |
| 10-Year | +76.07 | % | +5.82 | % | $ | 17,607 | | |
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, go to franklintempleton.com or call (800) 342-5236.
14 | Semiannual Report
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FRANKLIN FOUNDING FUNDS ALLOCATION FUND
PERFORMANCE SUMMARY
All investments involve risks, including possible loss of principal. 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. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bonds are affected by changes in interest rates and the creditworthiness of their issuers. Bond prices generally move in the opposite direction of interest rates. Thus, as the 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 carries additional risks such as currency and market volatility and political or social instability, risks that are heightened in developing countries. Value securities may not increase in price as anticipated or may decline further in value. The Fund’s prospectus also includes a description of the main investment risks.
| |
Class C: Class R: Advisor Class: | These shares have higher annual fees and expenses than Class A shares. Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. Shares are available to certain eligible investors as described in the prospectus. |
1. The distribution amount is the sum of the dividend payments to shareholders for the period shown and includes only estimated tax-basis net investment income.
2. The Fund has a fee waiver associated with any investment in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end. Fund investment results reflect the fee waiver, to the extent applicable; without this reduction, the results would have been lower.
3. Cumulative total return represents the change in value of an investment over the periods indicated.
4. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized. 5. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
6. Figures are as stated in the Fund’s current prospectus and include the effect of acquired fund fees and expenses. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
franklintempleton.com
Semiannual Report | 15
FRANKLIN FOUNDING FUNDS ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- Ongoing Fund costs, including management fees, distribu- tion 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) of 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) of 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 Fund’s actual expense ratio 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.
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. 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.
16 | Semiannual Report
franklintempleton.com
FRANKLIN FOUNDING FUNDS ALLOCATION FUND
YOUR FUND’S EXPENSES
| | | | | | | | |
| | | Beginning | | Ending | | Expenses Paid | | Expenses Paid |
| | | Account | | Account | | During Period* | | During Period** |
| Share Class | | Value 1/1/15 | | Value 6/30/15 | | 1/1/15–6/30/15 | | 1/1/15–6/30/15 |
| A | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,008.30 | $ | 2.04 | $ | 4.98 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,022.76 | $ | 2.06 | $ | 5.01 |
| C | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,004.90 | $ | 5.77 | $ | 8.70 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,019.04 | $ | 5.81 | $ | 8.75 |
| R | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,007.20 | $ | 3.28 | $ | 6.22 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.52 | $ | 3.31 | $ | 6.26 |
| Advisor | | | | | | | | |
| Actual | $ | 1,000 | $ | 1,009.50 | $ | 0.80 | $ | 3.74 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,024.00 | $ | 0.80 | $ | 3.76 |
*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: 0.41%; C: 1.16%; R: 0.66%; and Advisor: 0.16%), multiplied by the average account value over the period,
multiplied by 181/365 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: 1.00%; C: 1.75%; R: 1.25%; and Advisor: 0.75%), multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
franklintempleton.com
Semiannual Report | 17
| | | | | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | | | | |
| Franklin Corefolio Allocation Fund | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | �� | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class A | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.00 | | $ | 17.61 | | $ | 13.57 | | $ | 11.93 | | $ | 12.41 | | $ | 11.08 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)b,c | | (0.04 | ) | | 0.23 | | | 0.11 | | | 0.11 | | | 0.11 | | | 0.15 | |
| Net realized and unrealized gains (losses) | | 0.64 | | | 0.91 | | | 4.09 | | | 1.65 | | | (0.47 | ) | | 1.30 | |
| Total from investment operations | | 0.60 | | | 1.14 | | | 4.20 | | | 1.76 | | | (0.36 | ) | | 1.45 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | (0.01 | ) | | (0.29 | ) | | (0.16 | ) | | (0.12 | ) | | (0.12 | ) | | (0.12 | ) |
| Net realized gains | | (0.53 | ) | | (0.46 | ) | | — | | | — | | | — | | | — | |
| Total distributions | | (0.54 | ) | | (0.75 | ) | | (0.16 | ) | | (0.12 | ) | | (0.12 | ) | | (0.12 | ) |
| Net asset value, end of period | $ | 18.06 | | $ | 18.00 | | $ | 17.61 | | $ | 13.57 | | $ | 11.93 | | $ | 12.41 | |
| |
| Total returnd | | 3.26 | % | | 6.48 | % | | 31.01 | % | | 14.80 | % | | (2.90 | )% | | 13.13 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.48 | % | | 0.48 | % | | 0.44 | % | | 0.36 | % | | 0.39 | % | | 0.45 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.48 | %g | | 0.48 | %g | | 0.44 | % | | 0.36 | % | | 0.39 | % | | 0.38 | % |
| Net investment income (loss)c | | (0.48 | )% | | 1.27 | % | | 0.68 | % | | 0.86 | % | | 0.89 | % | | 1.26 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 560,973 | | $ | 558,862 | | $ | 558,124 | | $ | 449,252 | | $ | 418,444 | | $ | 479,773 | |
| Portfolio turnover rate | | 0.05 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % | | 2.50 | % | | 21.72 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.58% for the
period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
18 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Corefolio Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class C | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 17.81 | | $ | 17.44 | | $ | 13.45 | | $ | 11.82 | | $ | 12.30 | | $ | 10.99 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)b,c | | (0.11 | ) | | 0.10 | | | (—)d | | | 0.02 | | | 0.02 | | | 0.06 | |
| Net realized and unrealized gains (losses) | | 0.64 | | | 0.89 | | | 4.04 | | | 1.64 | | | (0.47 | ) | | 1.30 | |
| Total from investment operations | | 0.53 | | | 0.99 | | | 4.04 | | | 1.66 | | | (0.45 | ) | | 1.36 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | (0.01 | ) | | (0.16 | ) | | (0.05 | ) | | (0.03 | ) | | (0.03 | ) | | (0.05 | ) |
| Net realized gains | | (0.53 | ) | | (0.46 | ) | | — | | | — | | | — | | | — | |
| Total distributions | | (0.54 | ) | | (0.62 | ) | | (0.05 | ) | | (0.03 | ) | | (0.03 | ) | | (0.05 | ) |
| Net asset value, end of period | $ | 17.80 | | $ | 17.81 | | $ | 17.44 | | $ | 13.45 | | $ | 11.82 | | $ | 12.30 | |
| |
| Total returne | | 2.90 | % | | 5.69 | % | | 30.09 | % | | 14.04 | % | | (3.67 | )% | | 12.39 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 1.19 | % | | 1.19 | % | | 1.15 | % | | 1.07 | % | | 1.10 | % | | 1.17 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesg | | 1.19 | %h | | 1.19 | %h | | 1.15 | % | | 1.07 | % | | 1.10 | % | | 1.10 | % |
| Net investment income (loss)c | | (1.19 | )% | | 0.56 | % | | (0.03 | )% | | 0.15 | % | | 0.18 | % | | 0.54 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 180,932 | | $ | 176,680 | | $ | 176,332 | | $ | 142,879 | | $ | 138,447 | | $ | 162,084 | |
| Portfolio turnover rate | | 0.05 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % | | 2.50 | % | | 21.72 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.58% for the
period ended June 30, 2015.
hBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 19
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Corefolio Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class R | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.01 | | $ | 17.60 | | $ | 13.56 | | $ | 11.93 | | $ | 12.41 | | $ | 11.08 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)b,c | | (0.06 | ) | | 0.16 | | | 0.06 | | | 0.09 | | | 0.08 | | | 0.12 | |
| Net realized and unrealized gains (losses) | | 0.64 | | | 0.95 | | | 4.11 | | | 1.64 | | | (0.47 | ) | | 1.31 | |
| Total from investment operations | | 0.58 | | | 1.11 | | | 4.17 | | | 1.73 | | | (0.39 | ) | | 1.43 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | (0.01 | ) | | (0.24 | ) | | (0.13 | ) | | (0.10 | ) | | (0.09 | ) | | (0.10 | ) |
| Net realized gains | | (0.53 | ) | | (0.46 | ) | | — | | | — | | | — | | | — | |
| Total distributions | | (0.54 | ) | | (0.70 | ) | | (0.13 | ) | | (0.10 | ) | | (0.09 | ) | | (0.10 | ) |
| Net asset value, end of period | $ | 18.05 | | $ | 18.01 | | $ | 17.60 | | $ | 13.56 | | $ | 11.93 | | $ | 12.41 | |
| |
| Total returnd | | 3.15 | % | | 6.30 | % | | 30.76 | % | | 14.49 | % | | (3.15 | )% | | 12.93 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.69 | % | | 0.69 | % | | 0.65 | % | | 0.57 | % | | 0.60 | % | | 0.67 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.69 | %g | | 0.69 | %g | | 0.65 | % | | 0.57 | % | | 0.60 | % | | 0.60 | % |
| Net investment income (loss)c | | (0.69 | )% | | 1.06 | % | | 0.47 | % | | 0.65 | % | | 0.68 | % | | 1.04 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 1,585 | | $ | 1,545 | | $ | 1,903 | | $ | 1,856 | | $ | 1,686 | | $ | 2,188 | |
| Portfolio turnover rate | | 0.05 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % | | 2.50 | % | | 21.72 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.58% for the
period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
20 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Corefolio Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Advisor Class | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 18.03 | | $ | 17.64 | | $ | 13.59 | | $ | 11.95 | | $ | 12.44 | | $ | 11.09 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)b,c | | (0.02 | ) | | 0.32 | | | 0.18 | | | 0.18 | | | 0.17 | | | 0.26 | |
| Net realized and unrealized gains (losses) | | 0.65 | | | 0.88 | | | 4.08 | | | 1.62 | | | (0.50 | ) | | 1.24 | |
| Total from investment operations | | 0.63 | | | 1.20 | | | 4.26 | | | 1.80 | | | (0.33 | ) | | 1.50 | |
| Less distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | | | | | |
| received from Underlying Funds | | (0.01 | ) | | (0.35 | ) | | (0.21 | ) | | (0.16 | ) | | (0.16 | ) | | (0.15 | ) |
| Net realized gains | | (0.53 | ) | | (0.46 | ) | | — | | | — | | | — | | | — | |
| Total distributions | | (0.54 | ) | | (0.81 | ) | | (0.21 | ) | | (0.16 | ) | | (0.16 | ) | | (0.15 | ) |
| Net asset value, end of period | $ | 18.12 | | $ | 18.03 | | $ | 17.64 | | $ | 13.59 | | $ | 11.95 | | $ | 12.44 | |
| |
| Total returnd | | 3.42 | % | | 6.79 | % | | 31.38 | % | | 15.11 | % | | (2.67 | )% | | 13.56 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.19 | % | | 0.19 | % | | 0.15 | % | | 0.07 | % | | 0.10 | % | | 0.17 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.19 | %g | | 0.19 | %g | | 0.15 | % | | 0.07 | % | | 0.10 | % | | 0.10 | % |
| Net investment income (loss)c | | (0.19 | )% | | 1.56 | % | | 0.97 | % | | 1.15 | % | | 1.18 | % | | 1.54 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 19,232 | | $ | 18,918 | | $ | 15,495 | | $ | 10,245 | | $ | 7,815 | | $ | 7,357 | |
| Portfolio turnover rate | | 0.05 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % | | 2.50 | % | | 21.72 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.58% for the
period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 21
| | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | |
| |
| |
| |
| Statement of Investments, June 30, 2015 (unaudited) | | | | |
| Franklin Corefolio Allocation Fund | | | | |
| | Shares | | Value | |
| aInvestments in Underlying Funds 100.1% | | | | |
| Domestic Equity 76.0% | | | | |
| bFranklin Flex Cap Growth Fund, Class R6 | 3,520,822 | $ | 194,138,130 | |
| Franklin Growth Fund, Class R6 | 2,506,907 | | 193,683,640 | |
| Franklin Mutual Shares Fund, Class R6 | 6,355,258 | | 192,119,464 | |
| | | | 579,941,234 | |
| Foreign Equity 24.1% | | | | |
| Templeton Growth Fund Inc., Class R6 | 7,652,076 | | 183,955,901 | |
| Total Investments in Underlying Funds before Short Term Investments | | | | |
| (Cost $538,885,579) | | | 763,897,135 | |
| Short Term Investments (Cost $399,592) 0.1% | | | | |
| Money Market Funds 0.1% | | | | |
| a,bInstitutional Fiduciary Trust Money Market Portfolio | 399,592 | | 399,592 | |
| Total Investments in Underlying Funds (Cost $539,285,171) 100.2% | | | 764,296,727 | |
| Other Assets, less Liabilities (0.2)% | | | (1,574,691 | ) |
| Net Assets 100.0% | | $ | 762,722,036 | |
aSee Note 3(e) regarding investments in Underlying Funds.
bNon-income producing.
22 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | | | | |
| Franklin Founding Funds Allocation Fund | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class A | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 13.31 | | $ | 13.37 | | $ | 11.14 | | $ | 9.88 | | $ | 10.46 | | $ | 9.82 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.09 | | | 0.46 | | | 0.32 | | | 0.35 | | | 0.35 | | | 0.36 | |
| Net realized and unrealized gains (losses) | | 0.02 | | | (0.06 | ) | | 2.29 | | | 1.28 | | | (0.55 | ) | | 0.66 | |
| Total from investment operations | | 0.11 | | | 0.40 | | | 2.61 | | | 1.63 | | | (0.20 | ) | | 1.02 | |
| Less distributions from net investment | | | | | | | | | | | | | | | | | | |
| income | | (0.11 | ) | | (0.46 | ) | | (0.38 | ) | | (0.37 | ) | | (0.38 | ) | | (0.38 | ) |
| Net asset value, end of period | $ | 13.31 | | $ | 13.31 | | $ | 13.37 | | $ | 11.14 | | $ | 9.88 | | $ | 10.46 | |
| |
| Total returnd | | 0.83 | % | | 2.92 | % | | 23.64 | % | | 16.76 | % | | (1.95 | )% | | 10.61 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.41 | % | | 0.41 | % | | 0.39 | % | | 0.33 | % | | 0.34 | % | | 0.41 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.41 | %g | | 0.41 | %g | | 0.39 | % | | 0.33 | % | | 0.34 | % | | 0.35 | % |
| Net investment incomec | | 1.33 | % | | 3.35 | % | | 2.63 | % | | 3.24 | % | | 3.36 | % | | 3.61 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 3,794,081 | | $ | 3,958,706 | | $ | 4,170,045 | | $ | 3,766,640 | | $ | 3,773,080 | | $ | 4,771,043 | |
| Portfolio turnover rate | | 0.88 | % | | 3.79 | % | | 3.04 | % | | 3.59 | % | | 3.69 | % | | 3.99 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.59% for the
period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 23
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Founding Funds Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class C | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 13.11 | | $ | 13.18 | | $ | 10.99 | | $ | 9.75 | | $ | 10.32 | | $ | 9.70 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.04 | | | 0.35 | | | 0.23 | | | 0.26 | | | 0.27 | | | 0.28 | |
| Net realized and unrealized gains (losses) | | 0.03 | | | (0.07 | ) | | 2.25 | | | 1.27 | | | (0.54 | ) | | 0.64 | |
| Total from investment operations | | 0.07 | | | 0.28 | | | 2.48 | | | 1.53 | | | (0.27 | ) | | 0.92 | |
| Less distributions from net investment | | | | | | | | | | | | | | | | | | |
| income | | (0.07 | ) | | (0.35 | ) | | (0.29 | ) | | (0.29 | ) | | (0.30 | ) | | (0.30 | ) |
| Net asset value, end of period | $ | 13.11 | | $ | 13.11 | | $ | 13.18 | | $ | 10.99 | | $ | 9.75 | | $ | 10.32 | |
| |
| Total returnd | | 0.49 | % | | 2.12 | % | | 22.69 | % | | 15.87 | % | | (2.65 | )% | | 9.69 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 1.16 | % | | 1.16 | % | | 1.14 | % | | 1.08 | % | | 1.09 | % | | 1.16 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 1.16 | %g | | 1.16 | %g | | 1.14 | % | | 1.08 | % | | 1.09 | % | | 1.10 | % |
| Net investment incomec | | 0.58 | % | | 2.60 | % | | 1.88 | % | | 2.49 | % | | 2.61 | % | | 2.86 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 1,671,220 | | $ | 1,745,766 | | $ | 1,829,111 | | $ | 1,657,087 | | $ | 1,743,292 | | $ | 2,252,033 | |
| Portfolio turnover rate | | 0.88 | % | | 3.79 | % | | 3.04 | % | | 3.59 | % | | 3.69 | % | | 3.99 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.59% for the
period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
24 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| |
| Franklin Founding Funds Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Class R | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 13.33 | | $ | 13.39 | | $ | 11.16 | | $ | 9.89 | | $ | 10.48 | | $ | 9.84 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.07 | | | 0.44 | | | 0.29 | | | 0.31 | | | 0.35 | | | 0.34 | |
| Net realized and unrealized gains (losses) | | 0.03 | | | (0.08 | ) | | 2.29 | | | 1.30 | | | (0.58 | ) | | 0.65 | |
| Total from investment operations | | 0.10 | | | 0.36 | | | 2.58 | | | 1.61 | | | (0.23 | ) | | 0.99 | |
| Less distributions from net investment | | | | | | | | | | | | | | | | | | |
| income | | (0.10 | ) | | (0.42 | ) | | (0.35 | ) | | (0.34 | ) | | (0.36 | ) | | (0.35 | ) |
| Net asset value, end of period | $ | 13.33 | | $ | 13.33 | | $ | 13.39 | | $ | 11.16 | | $ | 9.89 | | $ | 10.48 | |
| |
| Total returnd | | 0.72 | % | | 2.68 | % | | 23.28 | % | | 16.52 | % | | (2.27 | )% | | 10.31 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.66 | % | | 0.66 | % | | 0.64 | % | | 0.58 | % | | 0.59 | % | | 0.66 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.66 | %g | | 0.66 | %g | | 0.64 | % | | 0.58 | % | | 0.59 | % | | 0.60 | % |
| Net investment incomec | | 1.08 | % | | 3.10 | % | | 2.38 | % | | 2.99 | % | | 3.11 | % | | 3.36 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 11,975 | | $ | 11,619 | | $ | 10,597 | | $ | 10,058 | | $ | 11,922 | | $ | 12,568 | |
| Portfolio turnover rate | | 0.88 | % | | 3.79 | % | | 3.04 | % | | 3.59 | % | | 3.69 | % | | 3.99 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.59% for the
period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 25
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | |
| Franklin Founding Funds Allocation Fund (continued) | | | | | | | | | | | | | | | | |
| | | Six Months Ended | | | | | | | | | | | | | | | | |
| | | June 30, 2015 | | | | | | Year Ended December 31, | | | | |
| | | (unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Advisor Class | | | | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the period) | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 13.38 | | $ | 13.44 | | $ | 11.20 | | $ | 9.93 | | $ | 10.52 | | $ | 9.87 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.11 | | | 0.53 | | | 0.39 | | | 0.38 | | | 0.39 | | | 0.40 | |
| Net realized and unrealized gains (losses) | | 0.02 | | | (0.10 | ) | | 2.26 | | | 1.29 | | | (0.57 | ) | | 0.66 | |
| Total from investment operations | | 0.13 | | | 0.43 | | | 2.65 | | | 1.67 | | | (0.18 | ) | | 1.06 | |
| Less distributions from net investment | | | | | | | | | | | | | | | | | | |
| income | | (0.13 | ) | | (0.49 | ) | | (0.41 | ) | | (0.40 | ) | | (0.41 | ) | | (0.41 | ) |
| Net asset value, end of period | $ | 13.38 | | $ | 13.38 | | $ | 13.44 | | $ | 11.20 | | $ | 9.93 | | $ | 10.52 | |
| |
| Total returnd | | 0.95 | % | | 3.17 | % | | 23.93 | % | | 17.08 | % | | (1.78 | )% | | 10.95 | % |
| |
| Ratios to average net assetse | | | | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.16 | % | | 0.16 | % | | 0.14 | % | | 0.08 | % | | 0.09 | % | | 0.16 | % |
| Expenses net of waiver and payments by | | | | | | | | | | | | | | | | | | |
| affiliatesf | | 0.16 | %g | | 0.16 | %g | | 0.14 | % | | 0.08 | % | | 0.09 | % | | 0.10 | % |
| Net investment incomec | | 1.58 | % | | 3.60 | % | | 2.88 | % | | 3.49 | % | | 3.61 | % | | 3.86 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000’s) | $ | 144,543 | | $ | 141,932 | | $ | 114,369 | | $ | 71,487 | | $ | 72,427 | | $ | 71,126 | |
| Portfolio turnover rate | | 0.88 | % | | 3.79 | % | | 3.04 | % | | 3.59 | % | | 3.69 | % | | 3.99 | % |
aThe 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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cRecognition 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.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.59% for the
period ended June 30, 2015.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
26 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
| | | | |
| Statement of Investments, June 30, 2015 (unaudited) | | | | |
| Franklin Founding Funds Allocation Fund | | | | |
| | Shares | | Value | |
| aInvestments in Underlying Funds 99.4% | | | | |
| Domestic Equity 33.2% | | | | |
| Franklin Mutual Shares Fund, Class R6 | 61,852,629 | $ | 1,869,804,986 | |
| Domestic Hybrid 33.3% | | | | |
| Franklin Income Fund, Class R6 | 809,571,308 | | 1,870,109,722 | |
| Foreign Equity 32.9% | | | | |
| Templeton Growth Fund Inc., Class R6 | 76,894,488 | | 1,848,543,490 | |
| Total Investments in Underlying Funds before Short Term Investments | | | | |
| (Cost $5,190,236,813) | | | 5,588,458,198 | |
| Short Term Investments (Cost $41,274,014) 0.7% | | | | |
| Money Market Funds 0.7% | | | | |
| a,bInstitutional Fiduciary Trust Money Market Portfolio | 41,274,014 | | 41,274,014 | |
| Total Investments in Underlying Funds (Cost $5,231,510,827) 100.1% | | | 5,629,732,212 | |
| Other Assets, less Liabilities (0.1)% | | | (7,914,037 | ) |
| Net Assets 100.0% | | $ | 5,621,818,175 | |
aSee Note 3(e) regarding investments in Underlying Funds.
bNon-income producing.
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 27
| | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | |
| |
| |
| |
| Financial Statements | | | | | | | |
| |
| Statements of Assets and Liabilities | | | | | | | |
| June 30, 2015 (unaudited) | | | | | | | |
| |
| | | Franklin | | | | Franklin | |
| | | Corefolio | | | | Founding Funds | |
| | | Allocation Fund | | | | Allocation Fund | |
| Assets: | | | | | | | |
| Investments in Underlying Funds: (Note 3e) | | | | | | | |
| Cost | $ | 539,285,171 | | $ | | 5,231,510,827 | |
| Value | $ | 764,296,727 | | $ | | 5,629,732,212 | |
| Receivables from capital shares sold | | 598,865 | | | | 3,163,658 | |
| Other assets | | 314 | | | | 2,421 | |
| Total assets | | 764,895,906 | | | | 5,632,898,291 | |
| Liabilities: | | | | | | | |
| Payables: | | | | | | | |
| Capital shares redeemed | | 1,398,499 | | | | 5,070,782 | |
| Administrative fees | | 19,115 | | | | 140,961 | |
| Distribution fees | | 599,566 | | | | 4,559,943 | |
| Transfer agent fees | | 113,272 | | | | 1,009,280 | |
| Accrued expenses and other liabilities | | 43,418 | | | | 299,150 | |
| Total liabilities | | 2,173,870 | | | | 11,080,116 | |
| Net assets, at value | $ | 762,722,036 | | $ | | 5,621,818,175 | |
| Net assets consist of: | | | | | | | |
| Paid-in capital | $ | 546,636,420 | | $ | | 7,736,920,908 | |
| Undistributed net investment income (loss) | | (2,420,359 | ) | | | — | |
| Distributions in excess of net investment income | | — | | | | (1,206,312 | ) |
| Net unrealized appreciation (depreciation) | | 225,011,556 | | | | 398,221,385 | |
| Accumulated net realized gain (loss) | | (6,505,581 | ) | | | (2,512,117,806 | ) |
| Net assets, at value | $ | 762,722,036 | | $ | | 5,621,818,175 | |
| Class A: | | | | | | | |
| Net assets, at value | $ | 560,973,208 | | $ | | 3,794,080,827 | |
| Shares outstanding | | 31,054,764 | | | | 285,121,774 | |
| Net asset value per sharea | $ | 18.06 | | | $ | 13.31 | |
| Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 19.16 | | | $ | 14.12 | |
| Class C: | | | | | | | |
| Net assets, at value | $ | 180,931,775 | | $ | | 1,671,219,685 | |
| Shares outstanding | | 10,162,773 | | | | 127,472,874 | |
| Net asset value and maximum offering price per sharea | $ | 17.80 | | | $ | 13.11 | |
| Class R: | | | | | | | |
| Net assets, at value | $ | 1,585,044 | | $ | | 11,974,682 | |
| Shares outstanding | | 87,824 | | | | 898,420 | |
| Net asset value and maximum offering price per share | $ | 18.05 | | | $ | 13.33 | |
| Advisor Class: | | | | | | | |
| Net assets, at value | $ | 19,232,009 | | $ | | 144,542,981 | |
| Shares outstanding | | 1,061,340 | | | | 10,802,175 | |
| Net asset value and maximum offering price per share | $ | 18.12 | | | $ | 13.38 | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
28 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS
Statements of Operations
for the six months ended June 30, 2015 (unaudited)
| | | | | | |
| | | Franklin | | | Franklin | |
| | | Corefolio | | | Founding Funds | |
| | | Allocation Fund | | | Allocation Fund | |
| Investment income: | | | | | | |
| Dividends from Underlying Funds (Note 3e) | $ | — | | $ | 50,597,603 | |
| Expenses: | | | | | | |
| Administrative fees (Note 3a) | | 114,753 | | | 869,370 | |
| Distribution fees: (Note 3b) | | | | | | |
| Class A | | 815,576 | | | 4,893,071 | |
| Class C | | 901,804 | | | 8,624,521 | |
| Class R | | 3,932 | | | 29,928 | |
| Transfer agent fees: (Note 3d) | | | | | | |
| Class A | | 356,333 | | | 2,269,936 | |
| Class C | | 113,948 | | | 1,000,289 | |
| Class R | | 993 | | | 6,945 | |
| Advisor Class | | 12,231 | | | 83,362 | |
| Reports to shareholders | | 34,279 | | | 268,755 | |
| Registration and filing fees | | 41,739 | | | 90,925 | |
| Professional fees | | 15,045 | | | 26,912 | |
| Trustees’ fees and expenses | | 2,767 | | | 22,237 | |
| Other | | 4,937 | | | 24,253 | |
| Total expenses | | 2,418,337 | | | 18,210,504 | |
| Expenses waived/paid by affiliates (Note 3e) | | (116 | ) | | (6,698 | ) |
| Net expenses | | 2,418,221 | | | 18,203,806 | |
| Net investment income (loss) | | (2,418,221 | ) | | 32,393,797 | |
| Realized and unrealized gains (losses): | | | | | | |
| Net realized gain (loss) from sale of investments in Underlying Funds (Note 3e) | | 2,250,112 | | | 50,632,983 | |
| Net change in unrealized appreciation (depreciation) on investments in Underlying Funds | | 24,164,373 | | | (36,034,808 | ) |
| Net realized and unrealized gain (loss) | | 26,414,485 | | | 14,598,175 | |
| Net increase (decrease) in net assets resulting from operations | $ | 23,996,264 | | $ | 46,991,972 | |
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report | 29
| | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | | | |
| |
| |
| Statements of Changes in Net Assets | | | | | | | | | | | | | | |
| |
| | | Franklin Corefolio | | | Franklin Founding Funds | |
| | | Allocation Fund | | | | Allocation Fund | |
| | | Six Months Ended | | | | | | | Six Months Ended | | | | | |
| | | June 30, 2015 | | | | Year Ended | | | June 30, 2015 | | | | Year Ended | |
| | | (unaudited) | | | December 31, 2014 | | | (unaudited) | | | December 31, 2014 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | | | |
| Net investment income (loss) | $ | (2,418,221 | ) | | $ | 8,388,248 | | $ | 32,393,797 | | $ | 191,442,759 | |
| Net realized gain (loss) | | 2,250,112 | | | | 41,511,109 | | | 50,632,983 | | | | 83,265,093 | |
| Net change in unrealized appreciation | | | | | | | | | | | | | | |
| (depreciation) | | 24,164,373 | | | | (3,551,863 | ) | | (36,034,808 | ) | | | (108,863,053 | ) |
| Net increase (decrease) in net assets | | | | | | | | | | | | | | |
| resulting from operations | | 23,996,264 | | | | 46,347,494 | | | 46,991,972 | | | | 165,844,799 | |
| Distributions to shareholders from: | | | | | | | | | | | | | | |
| Net investment income and short term gains | | | | | | | | | | | | | | |
| received from Underlying Funds: | | | | | | | | | | | | | | |
| Class A | | (227,469 | ) | | | (8,829,349 | ) | | (32,061,744 | ) | | | (133,406,015 | ) |
| Class C | | (74,576 | ) | | | (1,592,410 | ) | | (8,383,295 | ) | | | (46,293,686 | ) |
| Class R | | (640 | ) | | | (20,055 | ) | | (87,610 | ) | | | (359,896 | ) |
| Advisor Class | | (7,757 | ) | | | (358,226 | ) | | (1,381,007 | ) | | | (5,003,841 | ) |
| Net realized gains: | | | | | | | | | | | | | | |
| Class A | | (16,042,014 | ) | | | (14,098,077 | ) | | — | | | | — | |
| Class C | | (5,256,639 | ) | | | (4,523,072 | ) | | — | | | | — | |
| Class R | | (45,259 | ) | | | (40,063 | ) | | — | | | | — | |
| Advisor Class | | (548,568 | ) | | | (436,646 | ) | | — | | | | — | |
| Total distributions to shareholders | | (22,202,922 | ) | | | (29,897,898 | ) | | (41,913,656 | ) | | | (185,063,438 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | | | |
| Class A | | 203,206 | | | | (11,607,396 | ) | | (168,681,320 | ) | | | (200,440,623 | ) |
| Class C | | 4,461,475 | | | | (3,453,757 | ) | | (75,651,318 | ) | | | (76,893,558 | ) |
| Class R | | 37,564 | | | | (398,674 | ) | | 361,102 | | | | 1,081,592 | |
| Advisor Class | | 220,773 | | | | 3,161,219 | | | 2,688,108 | | | | 29,372,430 | |
| Total capital share transactions | | 4,923,018 | | | | (12,298,608 | ) | | (241,283,428 | ) | | | (246,880,159 | ) |
| Net increase (decrease) in net | | | | | | | | | | | | | | |
| assets | | 6,716,360 | | | | 4,150,988 | | | (236,205,112 | ) | | | (266,098,798 | ) |
| Net assets: | | | | | | | | | | | | | | |
| Beginning of period | | 756,005,676 | | | | 751,854,688 | | | 5,858,023,287 | | | | 6,124,122,085 | |
| End of period | $ | 762,722,036 | | $ | 756,005,676 | | $ | 5,621,818,175 | | $ | 5,858,023,287 | |
| Undistributed net investment income (loss) | | | | | | | | | | | | | | |
| included in net assets, end of period | $ | (2,420,359 | ) | | $ | 308,304 | | $ | — | | | $ | 8,313,547 | |
| Distributions in excess of net investment | | | | | | | | | | | | | | |
| income included in net assets, end | | | | | | | | | | | | | | |
| of period | $ | — | | | $ | — | | $ | (1,206,312 | ) | | $ | — | |
30 | Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
Notes to Financial Statements (unaudited)
1. Organization and Significant Accounting Policies
Franklin Fund Allocator Series (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of twenty separate funds, two of which are included in this report (Funds) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). 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, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.
The accounting policies of the Underlying Funds are outlined in their respective shareholder reports. A copy of the Underlying Funds’ shareholder reports, in which each fund invests, is available on the U.S. Securities and Exchange Commission (SEC) website at sec.gov or at the SEC’s Public Reference Room in Washington, D.C. The Underlying Funds’ shareholder reports are not covered by this report.
The following summarizes the Funds’ significant accounting policies.
a. Financial Instrument Valuation
The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Funds calculate the net asset value (NAV) per share at the close of the New York Stock Exchange (NYSE), generally at 4 p.m. Eastern time (NYSE close) on each day the NYSE is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Investments in the Underlying Funds are valued at their closing NAV each trading day.
b. Income Taxes
It is each fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and if applicable, excise taxes. As a result, no provision for U.S. federal income taxes is required.
Each fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of June 30, 2015, and for all open tax years, each fund has determined that no liability for unrecognized tax benefits is required in each fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.
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 U.S. GAAP. 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.
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.
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Semiannual Report | 31
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Significant Accounting
Policies (continued)
c. Security Transactions, Investment Income, Expenses and Distributions (continued)
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 U.S. GAAP 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.
2. Shares of Beneficial Interest
e. 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.
At June 30, 2015, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | | |
| | Franklin Corefolio | | Franklin Founding | |
| | Allocation Fund | | Funds Allocation Fund | |
| | Shares | | | | Amount | | Shares | | | Amount | |
| |
| Class A Shares: | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | |
| Shares sold | 1,487,304 | | | $ | 27,631,865 | | 10,729,739 | | $ | 145,603,660 | |
| Shares issued in reinvestment of distributions | 859,989 | | | | 15,849,582 | | 2,262,235 | | | 30,743,795 | |
| Shares redeemed | (2,334,763 | ) | | | (43,278,241 | ) | (25,398,131 | ) | | (345,028,775 | ) |
| Net increase (decrease) | 12,530 | | | $ | 203,206 | | (12,406,157 | ) | $ | (168,681,320 | ) |
| Year ended December 31, 2014 | | | | | | | | | | | |
| Shares sold | 2,413,183 | | | $ | 43,518,714 | | 19,906,286 | | $ | 273,633,151 | |
| Shares issued in reinvestment of distributions | 1,224,302 | | | | 22,288,418 | | 9,416,761 | | | 127,659,936 | |
| Shares redeemed | (4,285,411 | ) | | | (77,414,528 | ) | (43,730,010 | ) | | (601,733,710 | ) |
| Net increase (decrease) | (647,926 | ) | $ | (11,607,396 | ) | (14,406,963 | ) | $ | (200,440,623 | ) |
| Class C Shares: | | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | | |
| Shares sold | 574,090 | | | $ | 10,542,741 | | 3,692,228 | | $ | 49,397,747 | |
| Shares issued in reinvestment of distributions | 282,675 | | | | 5,133,377 | | 577,314 | | | 7,730,237 | |
| Shares redeemed | (612,211 | ) | | | (11,214,643 | ) | (9,925,341 | ) | | (132,779,302 | ) |
| Net increase (decrease) | 244,554 | | | $ | 4,461,475 | | (5,655,799 | ) | $ | (75,651,318 | ) |
| Year ended December 31, 2014 | | | | | | | | | | | |
| Shares sold | 996,127 | | | $ | 17,701,623 | | 9,884,802 | | $ | 134,054,863 | |
| Shares issued in reinvestment of distributions | 326,186 | | | | 5,874,206 | | 3,199,427 | | | 42,547,550 | |
| Shares redeemed | (1,516,270 | ) | | | (27,029,586 | ) | (18,703,992 | ) | | (253,495,971 | ) |
| Net increase (decrease) | (193,957 | ) | | $ | (3,453,757 | ) | (5,619,763 | ) | $ | (76,893,558 | ) |
| |
| |
| 32 | Semiannual Report | | | | | | | franklintempleton.com | |
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | |
| | Franklin Corefolio | | Franklin Founding | |
| | Allocation Fund | | Funds Allocation Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| |
| Class R Shares: | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | |
| Shares sold | 948 | | $ | 17,812 | | 77,169 | | $ | 1,049,272 | |
| Shares issued in reinvestment of distributions | 2,493 | | | 45,899 | | 6,364 | | | 86,675 | |
| Shares redeemed | (1,413 | ) | | (26,147 | ) | (56,833 | ) | | (774,845 | ) |
| Net increase (decrease) | 2,028 | | $ | 37,564 | | 26,700 | | $ | 361,102 | |
| Year ended December 31, 2014 | | | | | | | | | | |
| Shares sold | 4,924 | | $ | 89,486 | | 211,459 | | $ | 2,909,865 | |
| Shares issued in reinvestment of distributions | 3,303 | | | 60,118 | | 26,264 | | | 356,063 | |
| Shares redeemed | (30,535 | ) | | (548,278 | ) | (157,159 | ) | | (2,184,336 | ) |
| Net increase (decrease) | (22,308 | ) | $ | (398,674 | ) | 80,564 | | $ | 1,081,592 | |
| Advisor Class Shares: | | | | | | | | | | |
| Six Months ended June 30, 2015 | | | | | | | | | | |
| Shares sold | 67,227 | | $ | 1,258,572 | | 1,494,899 | | $ | 20,495,171 | |
| Shares issued in reinvestment of distributions | 25,026 | | | 462,479 | | 93,603 | | | 1,279,558 | |
| Shares redeemed | (80,029 | ) | | (1,500,278 | ) | (1,395,701 | ) | | (19,086,621 | ) |
| Net increase (decrease) | 12,224 | | $ | 220,773 | | 192,801 | | $ | 2,688,108 | |
| Year ended December 31, 2014 | | | | | | | | | | |
| Shares sold | 206,099 | | $ | 3,805,167 | | 4,069,923 | | $ | 56,722,830 | |
| Shares issued in reinvestment of distributions | 37,593 | | | 685,534 | | 339,057 | | | 4,620,646 | |
| Shares redeemed | (72,888 | ) | | (1,329,482 | ) | (2,309,193 | ) | | (31,971,046 | ) |
| Net increase (decrease) | 170,804 | | $ | 3,161,219 | | 2,099,787 | | $ | 29,372,430 | |
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 Funds 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 |
a. Administrative Fees
The Funds pay an administrative fee to FT Services of 0.03% 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 Board has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are not charged on shares held by affiliates. 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 for each class. 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 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 plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each fund.
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Semiannual Report | 33
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
b. Distribution Fees (continued)
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | |
| Class A | 0.35 | % |
| Class C | 1.00 | % |
| Class R | 0.50 | % |
For Franklin Founding Funds Allocation Fund, the Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
For Franklin Corefolio Allocation Fund, the Board has set the current rate at 0.30% per year for Class A shares. On July 15, 2015, the Board approved to set the rate at 0.25% per year for Class A shares, effective August 1, 2015, until further notice and approval by the Board.
c. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the period:
| | | | |
| | | Franklin | | Franklin |
| | | Corefolio | | Founding Funds |
| | | Allocation Fund | | Allocation Fund |
| Sales charges retained net of commissions paid to unaffiliated | | | | |
| broker/dealers | $ | 96,130 | $ | 466,254 |
| CDSC retained | $ | 2,319 | $ | 34,094 |
d. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholding servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets.
For the period ended June 30, 2015, 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 |
| | | Corefolio | | Founding Funds |
| | | Allocation Fund | | Allocation Fund |
| |
| Transfer agent fees | $ | 316,576 | $ | 1,610,739 |
e. 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 an affiliate of Advisers. The Funds do not invest in the Underlying Funds for the purpose of exercising a controlling influence over the management or policies. Administrative fees paid by the Funds are waived on assets invested in Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), as noted in the Statements of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by the Sweep Money Fund. Prior to January 1, 2014, the waiver was accounted for as a reduction to administrative fees.
34 | Semiannual Report
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | |
| Investments in Underlying Funds for the period ended June 30, 2015, were as follows: | | | | | | | |
| |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | | | | | | | Outstanding | |
| | at Beginning | Gross | Gross | | Held at End | | Value at End | | Investment | | Realized | | Held at End | |
| Underlying Funds | of Period | Additions | Reductions | | of Period | | of Period | | Income | | Gain (Loss) | | of Period | |
| Franklin Corefolio Allocation Fund | | | | | | | | | | | | | | |
| Franklin Flex Cap Growth Fund, | | | | | | | | | | | | | | |
| Class R6 | 3,732,210 | — | (211,388 | ) | 3,520,822 | $ | 194,138,130 | $ | — | $ | (144,903 | ) | 5.56 | % |
| Franklin Growth Fund, Class R6 | 2,568,915 | — | (62,008 | ) | 2,506,907 | | 193,683,640 | | — | | 2,361,945 | | 1.63 | % |
| Franklin Mutual Shares Fund, | | | | | | | | | | | | | | |
| Class R6 | 6,472,059 | — | (116,801 | ) | 6,355,258 | | 192,119,464 | | — | | 37,303 | | 1.17 | % |
| Institutional Fiduciary Trust Money | | | | | | | | | | | | | | |
| Market Portfolio | 69,924 | 15,766,918 | (15,437,250 | ) | 399,592 | | 399,592 | | — | | — | | —a | |
| Templeton Growth Fund Inc., | | | | | | | | | | | | | | |
| Class R6 | 7,644,877 | 15,986 | (8,787 | ) | 7,652,076 | | 183,955,901 | | — | | (4,233 | ) | 1.16 | % |
| Total | | | | | | $ | 764,296,727 | $ | — | $ | 2,250,112 | | | |
| |
| Franklin Founding Funds | | | | | | | | | | | | | | |
| Allocation Fund | | | | | | | | | | | | | | |
| Franklin Income Fund, Class R6 | 812,267,014 | 21,277,590 | (23,973,296 | ) | 809,571,308 | $ | 1,870,109,722 | $ | 50,597,603 | $ | 2,050,470 | | 2.10 | % |
| Franklin Mutual Shares Fund, | | | | | | | | | | | | | | |
| Class R6 | 66,439,008 | — | (4,586,379 | ) | 61,852,629 | | 1,869,804,986 | | — | | 35,500,145 | | 11.38 | % |
| Institutional Fiduciary Trust Money | | | | | | | | | | | | | | |
| Market Portfolio | 37,146,628 | 201,832,555 | (197,705,169 | ) | 41,274,014 | | 41,274,014 | | — | | — | | 0.16 | % |
| Templeton Growth Fund Inc., | | | | | | | | | | | | | | |
| Class R6 | 81,271,618 | — | (4,377,130 | ) | 76,894,488 | | 1,848,543,490 | | — | | 13,082,368 | | 11.62 | % |
| Total | | | | | | $ | 5,629,732,212 | $ | 50,597,603 | $ | 50,632,983 | | | |
| aRounds to less than 0.01%. | | | | | | | | | | | | | | |
4. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.
| | | | | |
| At December 31, 2014, the capital loss carryforwards were as follows: | | | | | |
| |
| | | Franklin | | | Franklin |
| | | Corefolio | | | Founding Funds |
| | | Allocation Fund | | | Allocation Fund |
| Capital loss carryforwards subject to expiration: | | | | | |
| 2016 | $ | — | | $ | 666,677,037 |
| 2017 | | 5,160,881 | a | | 1,091,470,427 |
| 2018 | | — | | | 465,945,460 |
| Long term capital loss carryforwards not subject to expiration | | — | | | 310,184,412 |
| Total capital loss carryforwards | $ | 5,160,881 | | $ | 2,534,277,336 |
aIncludes $5,160,881 from the merged Franklin Templeton Perspectives Allocation Fund, which may be carried over to offset future capital gains, subject to certain limitations.
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Semiannual Report | 35
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
4. Income Taxes (continued)
At June 30, 2015, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| | | | | |
| | | Franklin | | Franklin | |
| | | Corefolio | | Founding Funds | |
| | | Allocation Fund | | Allocation Fund | |
| Cost of investments | $ | 542,991,265 | $ | 5,259,984,282 | |
| |
| Unrealized appreciation | $ | 221,305,462 | $ | 464,082,319 | |
| Unrealized depreciation | | — | | (94,334,389 | ) |
| Net unrealized appreciation (depreciation) | $ | 221,305,462 | $ | 369,747,930 | |
|
| Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing |
| treatment of short term capital gains distributions from Underlying Funds and wash sales. |
| |
| 5. Investment Transactions |
| Purchases and sales of Underlying Funds (excluding short term securities) for the period ended June 30, 2015, were as follows: |
| | | | |
| | | Franklin | | Franklin |
| | | Corefolio | | Founding Funds |
| | | Allocation Fund | | Allocation Fund |
| Purchases | $ | 400,000 | $ | 50,597,603 |
| Sales | $ | 19,928,400 | $ | 304,000,000 |
6. Credit Facility
The Funds together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 12, 2016. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.07% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the period ended June 30, 2015, the Funds did not use the Global Credit Facility.
36 | Semiannual Report
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
7. Fair Value Measurements
The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:
- Level 1 – quoted prices in active markets for identical financial instruments
- Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
- Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of financial instruments)
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
At June 30, 2015, all of the Funds’ investments in financial instruments carried at fair value were valued using Level 1 inputs.
For detailed categories, see the accompanying Statements of Investments.
8. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.
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FRANKLIN FUND ALLOCATOR SERIES
Shareholder Information
Board Review of Investment Management Agreement
At a meeting held February 24, 2015, the Board of Trustees, including a majority of non-interested or independent Trustees, approved renewal of the investment management agreement for each of the separate funds in Franklin Fund Allocator Series, including Franklin Corefolio Allocation Fund and Franklin Founding Funds Allocation Fund (Fund(s)). In reaching its decision to approve renewal of the investment management agreements, the Board took into account information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included investment performance reports and related financial information for each Fund, along with periodic reports on expenses, shareholder services, legal and compliance matters, pricing, brokerage commissions and execution and other services provided by the Investment Manager (Manager) and its affiliates, as well as marketing support payments made to financial intermediaries. Information furnished specifically in connection with the renewal process included a report for each Fund prepared by Lipper, Inc. (Lipper), an independent organization, as well as additional material, including a Fund profitability analysis prepared by management. The Lipper reports compared each Fund’s investment performance and expenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis discussed the profitability to Franklin Templeton Investments (FTI) from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional material accompanying such profitability analysis included information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager and its affiliates to U.S. mutual funds and other accounts, including management’s explanation of differences where relevant. Such material also included a memorandum prepared by management describing project initiatives and capital investments relating to the services provided to the Funds by the FTI organization, as well as a memorandum relating to economies of scale and an analysis concerning transfer agent fees charged by an affiliate of the Manager. The Board also noted that at the February meetings each year, it receives an annual report on all marketing support payments made by FTI to financial intermediaries.
In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel. While the investment management agreements for all Funds were considered at the same Board meeting, the Board dealt with each Fund separately. In approving continuance of the investment management agreement for each Fund, the Board, including a majority of independent Trustees, determined that the existing management fee structure was fair and reasonable and that continuance of the investment management agreement was in the best interests of each Fund and its shareholders. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was generally satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to the Funds and their shareholders. In addition to investment performance and expenses discussed later, the Board’s opinion was based, in part, upon periodic reports furnished it showing that the investment policies and restrictions for each Fund were consistently complied with as well as other reports periodically furnished the Board covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, the adherence to fair value pricing procedures established by the Board, and the accuracy of net asset value calculations. The Board also noted the extent of benefits provided Fund shareholders from being part of the Franklin Templeton family of funds, including the right to exchange investments between the same class of shares of different funds without a sales charge, the ability to reinvest Fund dividends into other funds and the right to combine holdings in other funds to obtain a reduced sales charge. Favorable consideration was given to management’s continual efforts and expenditures in establishing effective business continuity plans and developing strategies to address cybersecurity threats. Among other factors taken into account by the Board were the Managers’ best execution trading policies, including a favorable report by an independent portfolio trading analytical firm that also covered FOREX transactions. Consideration was also given to the experience of each Fund’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Board noted that a primary factor in management’s determination of a portfolio manager’s bonus
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compensation was the relative investment performance of the funds he or she managed and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Board also took into account the quality of transfer agent and shareholder services provided Fund shareholders by an affiliate of the Manager noting the changes taking place in the nature of transfer agency services throughout the industry and regulatory initiatives in this area, and the continual enhancements to the Franklin Templeton website. Particular attention was given to management’s conservative approach and diligent risk management procedures, including continual monitoring of counterparty credit risk and attention given to derivatives and other complex instruments including expanded collateralization requirements. The Board also took into account, among other things, management’s efforts in establishing a global credit facility for the benefit of the Funds and other accounts managed by FTI to provide a source of cash for temporary and emergency purposes or to meet unusual redemption requests as well as the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its continued subsidization of money market funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of each Fund in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the agreement renewals. The Lipper reports prepared for each individual Fund showed the investment performance of its Class A shares, in comparison to a performance universe selected by Lipper. Comparative performance for each Fund was shown for the one-year period ended December 31, 2014, and for additional periods ended that date depending on when a particular Fund commenced operations. The following summarizes the performance results for each of the Funds and the Board’s view of such performance. The Board observed that the performance of a number of the Funds was impacted by their respective allocations to global markets and currencies, as well as U.S. fixed income. These allocations, while consistent with the Funds’ longer term perspectives, were detrimental to short-term returns and comparisons to peers.
Franklin Corefolio Allocation Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional mixed-asset target allocation aggressive growth funds as selected by Lipper. The Lipper report showed the Fund’s 2014 total return to be in the second-highest performing quintile of such universe, and its total return on an annualized basis to be in the highest performing quintile of such universe for the previous three-, five- and 10-year periods. The Fund’s performance reflects those of the four underlying funds in which it invests in approximately equal allocations, and the Board has reviewed such performance and discussed with management the relative performance of such underlying funds. Based on such review and discussions, the Board believes the Fund’s investment strategy continues to be an appropriate one.
Franklin Founding Funds Allocation Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional mixed-asset target allocation growth funds as selected by Lipper. This Fund seeks income as a secondary goal, and the Lipper report showed its income return for both the one-year period and each of the annualized three-, five- and 10-year periods to be in the highest quintile of such universe. The Lipper report showed the Fund’s total return for the one-year period to be in the lowest performing quintile of its Lipper performance universe, and on an annualized basis for the previous three-year period to be in the second-highest performing quintile, for the previous five-year period to be in the middle performing quintile, and to be in the second-lowest performing quintile of such universe for the previous 10-year period. The Fund’s performance reflects that of the three underlying funds in which it invests in approximately equal allocations, and the Board was satisfied with such performance and believes such investment strategy continues to be an appropriate one in light of the Fund’s income objective.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total expense ratio of each Fund compared with those of a group of retail front-end load fund of funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each such fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that
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Board Review of Investment Management
Agreement (continued) expense ratios generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on each Fund’s contractual investment management fee in comparison with the contractual investment management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to the Fund, as well as the actual total expense ratios of the Funds, including expenses of the underlying funds they invest in. The Lipper contractual investment management fee analysis includes the administrative fee and asset allocation advisory fee directly charged to the Funds as being part of the contractual investment management fee, with the investment management fees charged underlying funds being included within actual total expenses. Contractual investment management fees and total expenses for comparative consistency are shown by Lipper for Fund Class A shares. The Board noted that for Franklin Corefolio Allocation Fund and Franklin Founding Funds Allocation Fund there is no investment advisory agreement or investment advisory fee, but only an administration agreement with FT Services, LLC. In the case of the Funds, the Lipper reports in each case showed both their contractual management fee rates as well as actual total expense ratios to be the least expensive within their respective expense groups. The Board was satisfied with the comparative expenses of these Funds as shown in the Lipper reports.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits realized by the Manager and its affiliates in connection with the operation of each Fund. In this respect, the Board reviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’s U.S. fund business, as well as its profits in providing management and other services to each of the individual funds during the 12-month period ended September 30, 2014, being the most recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, the Board recognized that allocation methodologies are inherently subjective and various allocation methodologies may be reasonable while producing different results. In this respect, the Board noted that while management continually makes refinements to its methodologies in response to organizational and product related changes, the overall approach as defined by the primary drivers and activity measurements has remained consistent with that used in the Funds’ profitability report presentations from prior years. Additionally, the Funds’ independent registered public accounting firm had been engaged by the Manager to periodically review the reasonableness of the allocation methodologies to be used solely by the Funds’ Board in reference to the profitability analysis. In reviewing and discussing such analysis, management discussed with the Board its belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to each Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. The Board also took into account management’s expenditures in improving shareholder services provided the Funds, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Board considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services and potential benefits resulting from personnel and systems enhancements necessitated by Fund growth, as well as increased leverage with the service providers and counterparties. Based upon its consideration of all these factors, the Board determined that the level of profits realized by the Manager and its affiliates from providing services to each Fund was not excessive in view of the nature, quality and extent of services provided.
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ECONOMIES OF SCALE. The Board also considered whether economies of scale are realized by the Manager as the Funds grow larger and the extent to which this is reflected in the level of management fees charged. While recognizing that any precise determination is inherently subjective, the Board noted that based upon the Fund profitability analysis, it appears that as some funds get larger, at some point economies of scale do result in the Manager realizing a larger profit margin on management services provided such a fund. The Board also noted that economies of scale are shared with a fund and its shareholders through management fee breakpoints so that as a fund grows in size, its effective management fee rate declines. The management fees charged by all or substantially all the underlying funds in which the Funds invest provide for such management fee breakpoints. Consequently, to the extent economies of scale may be realized by the investment managers of these funds, the benefits are shared with each Fund and its shareholders.
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, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, 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.
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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. N/A
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 changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting 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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, 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 FUND ALLOCATOR SERIES
By /s/Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date August 27, 2015
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/Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date August 27, 2015
By /s/Gaston Gardey
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date August 27, 2015
